Q4 2020 Crown Holdings Inc Earnings Call
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John.
Paul.
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Thank you for standing by the conference will begin momentarily until such time, you will hear music. Thank you and please continue to hold.
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Good morning, and welcome to the Crown Holdings fourth quarter 2020 conference call.
<unk> have been placed on a listen only mode until the question and answer session. Please be advised the 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, Sir you may begin.
Thank you Darby and good morning with me on today's call is Tim Donahue, President and Chief Executive Officer.
If you don't already have the earnings release it is available on our website at Crown Cork Dot com.
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 vary is contained in the press release and in our SEC filings, including in our form 10-K for 2019 and subsequent filings.
Earnings for the quarter of $1 12 per share compared to 64 cents in the prior year quarter.
Adjusted earnings per share increased to $1.50 in the quarter compared to $1 four in 2019.
Net sales in the quarter were up 6% from the prior year, primarily due to increased beverage and food can volumes.
Segment income improved to $397 million in the quarter compared to $285 million in the prior year due to higher sales unit volumes.
As outlined in the release, we currently estimate first quarter of 2021 adjusted earnings of between $1 35, and $1 40 per share.
And full year adjusted earnings of between $6 60.
$6 87 per share.
These estimates assume exchange rates remain at their current levels and a full year tax rate of between 24% and 25%.
Yes.
We currently estimate 2021 full year adjusted free cash flow of approximately $500 million with approximately $850 million from capital spending.
Dividends to Noncontrolling interests are expected to be approximately $100 million.
We expect full year 2021, adjusted EBITDA as defined in the release of approximately $2 billion at year end 2021, net leverage of approximately three five times.
With that I'll turn the call over to Tim.
Thanks, John and good morning to everyone.
Our continued best wishes for the health and safety to all of you and your families.
Before the reviewing the operating performance for the fourth quarter and the full year 2020.
We want to again express our appreciation to our global associates for their continued efforts during the pandemic.
Your efforts to meet the unprecedented demand from our customers in a safe and timely manner.
It's been exceptional and we thank each of you.
And we ask you to please remain vigilant and your adherence to recommend the behaviors to ensure your safety and the safety of those around you.
As.
Bribed and last Night's earnings release, 2020 was an outstanding year for the company.
Record performances in segment income EBITDA cash from operations and earnings per share were achieved in 2020.
In 2021 will be even better.
At the same time the company continues to invest for future growth with more than 15 billion units of annualized beverage can capacity.
Having been commercialized or announced for commercial startup from 2020 through the end of 2022.
The major projects are detailed in last night's earnings release, So we won't repeat them here.
In Americas beverage demand continues to outweigh supply and we have eight production lines, including three new plants currently in various stages of construction to bring more supply to these markets.
In North America unit volumes advanced 11% in the fourth quarter and 15% for the year.
With our only limitation on further growth being available capacity.
In Brazil units were up 8% for the year with our fourth quarter sales output being limited by capacity.
For 2021, we expect the segment to post significant income gains against 2020.
Unit volumes in European beverage the advanced 10% in the fourth quarter with strong volume as noted in Saudi Arabia, Spain, Turkey and the UK.
Income was notably improved over the prior year fourth quarter on the back of the improved volumes.
As well as continuing contributions from new facilities in Italy, and Spain.
As well as full production on the now converted of aluminum lines in Seville, Spain.
For 2021, we expect further growth in the segments income.
Yes.
Sales unit volumes in European food increased 4% in the fourth quarter and 7% for the full year.
As the business as the business benefited from more normal harvest conditions in 2020 compared to weather related weak harvest in 2019 and 2018.
Additionally, production levels in the 2024th quarter were more normal than in the prior year as the natural pull from the 2020 harvest reduced inventories of accordingly.
For the year income in the segment advanced $23 million over 2019, despite the negative impact of the 2019 tin-plate carryover into the first quarter.
For 2021, we expect our European food business to improve segment income by $50 million over 2020 with roughly half of that improvement being realized in the first quarter.
Sales unit volumes in Asia Pacific declined by 1% in the fourth quarter and 4% for the year.
While demand trajectory is improving the region is still feeling the impact of the virus related shutdowns and movement control orders across most countries.
We expect our Asia Pacific segment to achieve modest income improvement in 2021.
And we like many of you are monitoring the situation in Myanmar.
Which appears to have worsened over the last several days the company has a 70% ownership and of joint venture, which operates a one line beverage can plant in Myanmar with annual revenues approximating $35 million.
Results in transit packaging improved is better mix and continued continuing cost efforts offset weaker industrial demand in the fourth quarter.
Despite the impact of the pandemic the business again generated an outsized portion to the company's overall free cash flow.
With general industrial conditions, improving demand for transit products and services is currently strong.
First quarter income performance in the segments may lag the prior year, but for the full year, we expect the income to improve by approximately $50 million over 2020, with a big chunk of that improvement being realized against an easy comp in the second quarter.
With further further gains in the back half of the year.
Fourth quarter income in the non reportable business has benefited from strong North American food volumes and a strong performance in our beverage can equipment banking business.
The board led portfolio review is ongoing.
With regard to the portfolio review, we are currently marketing our European Tin plate business that is food cans food closures aerosol cans and promotional containers for sale.
We are in the second phase if you will we're buyers of already received detailed management presentations and our performed performing their due diligence on the businesses.
Unfortunately, theres been much misinformation in the market concerning the business, including an article in the Spanish press, so replete with an accuracy as it does not warrant comment.
To clarify any miss and the understanding of the business that you may have we disclosed the following.
The business for sale had Standalone 2020, EBITDA of $250 million with 2021 projected stand alone EBITDA of approximately $300 million.
As noted earlier roughly half of that $50 million of income growth will be realized by the end of the first quarter.
The business performed well in 2020 and.
And the acceleration of performance will continue into 2021.
While food cans comprise 85 plus percent of the business for sale its shares of common coil cutting coding and printing activities with the other products.
The food harvest in 2018 in 2019 were lower than prior years, owing to very hot and dry weather across the European continent.
2020, not only saw a return to more normal harvest conditions, but also of clear consumer shift towards original Richard metal packaging for food products.
Some of this was due to the various lockdowns across Europe related to the pandemic.
We and our customers share of common optimism in maintaining this consumer level in the future.
Consumers of discovered once again, the economic of nutritional benefits of canned food as well as now having a greater appreciation for the food cans to unmatched sustainability and Recyclability features.
Our food Division is the clear leader in the market and sets the standard for excellence in quality service and innovation and I believe our food management team is the best in their industry.
In recent years, we have invested for capacity expansion innovation cost reduction and upgrades to property plant and equipment, including but not limited to new production lines additional can and print capacity auto packaging and light weighting just to name a few cost reductions of focused on projects designed to take out overhead and fixed costs.
Our European food business enjoys the diverse business mix service servicing various food and geographic markets.
And we possess an unrivaled customer portfolio with both both large international companies and very strong regional leaders, having a good mix of long term and short term agreements. These partnerships.
Now us to develop strategic growth initiatives and achieve common objectives with our customers.
As previously discussed the business is currently being marketed for sale, although we caution there can be no assurance as to the timing price realized where certainty of such a sale.
So in summary of a very busy and productive 2020, numerous numerous projects were completed.
And several other started to expand global beverage can capacity.
Importantly, we continue to convert our growth into expanded earnings and cash flow.
The company had its best year ever in 2020, and we expect 2021 will be significantly better than that.
With leverage expected to be at or below three five times by the end of 2021, we expect to begin returning significant cash to shareholders. This year.
The company has never been stronger and our outlook never more positive truly of very exciting time to be of crown.
And just before we open the call to questions. We ask that you limit yourselves to two questions. Initially.
So that everyone will have a chance to ask their question.
Always free to jump back into the queue.
And with that Kirby, we are now ready to take questions. Thank you.
Thank you Sir we will begin the question and answer session. If you would like to ask the question you May press. The star followed by number one reason mute your phone and record your name when prompted and to cancel the request you May press star followed by number two.
Our first question would come from the line of Mike <unk> of Barclays. Your line is open you may begin.
Thanks, guys in the morning.
Thanks, Mike.
I wanted to start with the portfolio review your team and the board has obviously been working on this for a little over a year can you maybe just flesh out what your team has learned going through this process kind of how you came to the decision of the market the EU.
In blade business versus some of the other non beverage can businesses just any color on the process would be helpful.
Well.
In the prepared remarks.
Tried to clarify any misunderstanding of the a variety of people have or have published with regards to the business.
The business is a franchise business for us.
If somebody does indeed by the business it will be of franchise business for them.
And I think it's pretty obvious the performance of the business is improving.
It's always easier to sell and improving business Thats one the one that's going sideways or.
Sure.
Dealing with other market conditions.
And this business has an exceptional management team such that the.
If you wanted to own the franchise business you can you can own this business plug it right in and have a management team that understands how to run it while the new owner learns more about European food cans.
Got it and then maybe just the follow up question on capital deployment can you just help us with how you're thinking about the priorities of excess cash flow over the next couple of years should we expect elevated levels of growth spending beyond 'twenty, one and after the $100 million or so for the dividend should we.
Think of buybacks sort of of the flywheel for excess cash is the leverage is pretty normalized at this point. Thanks.
Yes, so I think if you take.
Take the leverage number the Tom provided earlier of three five times against.
$2 billion of expected EBITDA that gives you $7 billion of net debt, which is right around where we ended.
2020.
So that would imply that.
After dividends are paid all cash flow that we generate will be utilized at some point during 2021 to repurchase shares.
And I think as our.
As EBITDA improves in the future.
And we continue to generate cash flow that leverage will naturally decline, but we can use all of the cash flow for dividends <unk> share buybacks.
As it relates to capital.
A 50 is a big number.
But it's the number that we feel comfortable spending we think we can deploy that in a responsible way.
Not only responsible into the market, but responsible in terms of our ability to convert that growth in the.
In the earnings and cash.
Little early to say, what we expect for the number to be in 2020.
Yes.
Great. Thank you.
Youre welcome. Thank you.
Thank you. Our next question will come from the line of Kyle White of Deutsche Bank. Your line is open you may begin.
Hey, good morning, hope everyone's doing well one of the focus on North America or United.
The U S industry shipments were up 6% in 2020, and you mentioned the actual growth growth was higher due to imported cans do.
Do you have a sense as to what the true underlying demand for beverage cans in the U S was in 2020 and how many cans the industry with short and then also when do you expect the industry to get to a situation where the domestic supply is adequate to meet the under the underlying demand.
Well, that's a mouthful, but is the great question.
I think our best estimate and we saw some numbers the other day.
It appears as if about 8 billion cans were imported into the U S. In.
In 2020.
So if you took I think the industry came in at 103 104 domestically produced plus 8 billion. That's 111 112.
And if you compare that against the 97 billion cans in 2019, that's that's pretty significant growth.
Do we think we're going to grow at that clip every year well, we'll see.
But the first thing the industry needs to do domestically as install enough capacity to cover.
The 8 billion cans that were imported because those markets from which cans were reported.
Will will rebound in 2021 from their own local domestic.
Demand and need to be supplied locally so there'll be less cans available to come into the U S.
John.
<unk>.
We brought on two lines.
In 2020 of the third line of Nichols, the third line in Toronto.
We have.
Five other lines currently being in various stages of construction already in the United States.
And the other fillers in the in the industry are doing the same thing so.
I think we're going to continue to see very strong demand.
In north.
Erica.
One of my next question, obviously, a lot of Brewers had to move draft production into a package format. This year.
We've also seen the rise of kind of E commerce with Drizzly. So just curious what you're hearing from customers in terms of keeping their production and can even as the on premise channel is opening back up how do you think that's the kind of the fundamental uptick in demand here from these customers or do you expect them all to go back into the draft production once on premise channels are open.
I think.
<unk> got a couple of things as it relates to beer for.
For those people, who still want to drink beer, if bars and restaurants opened back up youre going to have people drinking drafts of beer.
I do think theres been a shift though.
For some prior of beer drinkers into the spike shelters.
And it's not just beer moving to Spike Seltzer as if you were drinking of mixed drink agenda, Jonathan gin, and tonic or of vodka and soda, maybe you've gone to a spike seltzer in the spiked seltzer as are all in cash so I think.
Yes.
The ultimate question is how much of the growth do you think we've had is related to the pandemic.
And I think if.
If we were up 12 or 14% as an industry counting.
Counting imports, maybe two or 3% of that was related to the pandemic I think the rest of it as.
As a real growth is.
Is not only of the marketers of these products, but also consumers recognize the sustainability benefits of the can the <unk>.
Marketing features the Billboard print feature of the can versus other packages and and the shifting.
The taste of consumers away from perhaps some some people away from draft beer and mixed drinks.
Towards spike shelters.
Got it. Thank you I'll turn it over good luck in the year. Thank you.
Thank you. Our next question would come from the line of Arun Viswanathan of RBC capital markets. Your line is open you may begin.
Alright, Thanks for taking my question Congrats on a great 2020.
The positive outlook for 'twenty, one here so I.
I guess you know.
I guess first question is just on the.
Free cash flow of deleveraging.
Do you feel that you accelerated that this year in 2020 was there some working capital gains that you thought were better than expected or was it production.
And is that possible also in 'twenty one.
Understanding the puts and takes on the 500 million of of free cash flow guidance for the year.
I think the rone every year, we start out the businesses are somewhat conservative I think when we start out the especially around working capital needs in the business.
And we always start the year and run through the quarters with.
Higher projected working capital usage.
Then we ended the year I don't think we did anything special or exceptional at the end of the year I think most of the.
Excess free cash flow, we had at the end of the year was due to.
It was due to the earnings being just much greater than we had forecasted although I will tell you at this point, we are forecasting of significant.
Use of cash from building working capital for all of the new <unk>.
Beverage lines that we are putting in so we'll see how that.
How that goes for the year, but.
Youre always free to.
To look at things the way you want to look at things and do your own projections, but I would caution you against.
Getting too far ahead of the numbers, we provided you already of only because it's early in the year.
And we like others are going to be bringing on substantial capacity and there is a.
There is a natural onetime working capital need to open up each plant and we've got a number of lines coming up globally in 2021.
Sure.
Thanks for that and then.
I guess, that's still a little bit of a follow up I guess an extension is.
The European food can you you provided some nice color there so thanks for that.
The performance has improved you're calling for 50 million of growth in 'twenty, one and.
And I know that potential.
Potentially it has been a beneficiary from COVID-19 as well and maybe there's some structural benefits that are lasting.
I guess I'm, just curious as to what the benefits are of of divestment at this point again, the leverages is already relatively low for the company.
You know I think of it.
It is a relatively strong business that provides good free cash flow.
So.
And along with that I'm. Just curious there are there particular other arrangements you'd consider like jv's or retaining an equity interest.
Maybe you can just elaborate on some of those thoughts.
Well, it's a great question.
<unk>.
So youre right.
For the last couple of years, everybody was concerned about our leverage everybody, but me I know that we have.
When your packaging business like ours, you know youre going to generate significant cash flow of every year. You don't you don't get overly concerned about leverage.
Especially when it's as cheap as it is today.
And so we don't have the leverage problem I don't think we ever did and we certainly don't have one now and.
Moving towards three five by the end of 2000 2021 demonstrates we don't have of leverage problems.
I think.
The thesis behind the portfolio review of the thesis is if we become a.
A single line company with the one product line, which one competitor seems to have a very high multiple.
The alloy, resulting multiple would trade up towards that and at the offsets any dilution.
From selling any or all non beverage can businesses.
So I won't say a whole lot more other than that we are we are deeply into a process right now and we'll see.
We'll see where the process takes us I think.
We like food cans, we like the performance of food cans, we like our management team a whole lot.
The European food business is entirely different from the North American food business, it's a much broader geographic and product business.
Then you see in the United States, They pack higher quality foods and cans in Europe than they do in the U S.
It generates a substantial amount of cash flow and it's a very stable business notwithstanding some some poor harvests.
We didn't have an exceptionally great harvest in 2020, but we had a more normal harvest and.
When we look at the $50 million of improvement we're forecasting for 2021.
Roughly $20 million of that is the tin plate carryover and $15 million as currency. So we're not asking you to believe.
A whole lot more than $15 million.
Of organic growth in the business year on year, and that's going to come from 2% to 3% volume growth. So I think.
All of those things.
Kind of support what you said of room in terms of why would you want to sell of the business now having said that we're in the processing.
And our our view of the Board's view is depending on the.
Of the offer we get we'd be prepared the trade the business for an appropriate offer.
If we don't get an appropriate offer we're not going to trade the business, we'd be more than happy to to run the business and half of business that generates this kind of cash support the growth objectives, we have in the other business.
Okay I'll turn it over thank you.
Thank you our.
Our next question would come from the line of George Staphos of Bank of America. Your line is open you may begin.
Hi, Thank you hi, guys. Good morning, Thanks for all of the detail congratulations on the progress.
I want to.
Go into Tim your comment on <unk>.
Alan saying the.
Has the expansion responsibly with market trends.
I pretty much know what you mean, there, but if you could maybe give a bit more detail in terms of what that means for crown over the next couple of years.
And relate that to whether we are in a a heavier.
Heavier than normal or normal.
Contract renewal period, as we get into 'twenty, two and 'twenty three Relatedly did you give a global beverage can volume outlook or number for the for the fourth quarter I don't know that you provided that and then out of what I.
I Didnt, George because Asia was down and it kind of it will skew your.
The comparison to others because of the others don't operate in Asia.
I think what I gave you was Europe at 10, North American of 11 in Asia down of one, but I think if you take that globally.
I think our fourth quarter was.
Probably on the order of 3% to 4% because Asia dragged it down.
Yes.
I don't think we gave I think I think our estimate for.
2021 is probably 10 or 11% growth just because of all of the capacity coming on.
When I talk about responsibly, Georgia.
The first level of responsibility is to our own company.
And it's one thing to throw a lot of capital.
Out of business and asking people to do it it's another thing to to.
To make sure you're asking your people.
From the top of the organization you need to be responsible with what youre asking our people to do it.
We've had a lot of experience building plants over the last 25 years I think probably nobody has built anywhere near the number of plants, we've built globally.
Our expansion has largely been from.
From the construction of new plants as opposed to the acquisition of others businesses. So we have a.
Our skill set.
Our core competence within the company to the.
Design engineer and build our own buildings design engineer and build our own production lines.
Start them up with our own people.
And in an efficient manner.
In a relatively short period of time in.
And try to convert through the learning curve and get cash flow and earnings.
The converted as quickly as possible. So we are.
We are focused on generating earnings and cash flow.
Yes, we want to grow the business and we want to have our our fair share of the growth. That's available I think we can do that I think.
We look at ourselves in the North American marketplace, where probably about 24% of the market I think we can.
We can modestly growth at 24%, but that doesn't mean, we need to be 25% or 28. It means 24 of $24 five.
We're trying to be responsible in the market and we're trying to be responsible to ourselves.
Okay.
I guess just.
If you can comment is 'twenty, two 'twenty, three a more normal or heavier than normal renewal.
Season, and then.
My second question is just as we think about the strategic review can you comment to the extent possible.
How your views of both transit.
And European food.
Have evolved over time my sense is the the businesses have probably improved in terms of your own outlook maybe not.
But I throw that out there.
And what does that mean in terms of your expectations in terms of how this will ultimately.
Conclude or things that you are looking for and should we expect that whatever you do receive from the from the strategic review of assuming you do.
The transaction would that be largely applied to the.
The buyback. Thank you guys and good luck in the quarter.
Thanks, George So I think your question with respect of 'twenty 'twenty two in 2023 contract renewals and if we just deal with the North American marketplace I would say that.
Theres nothing sizable that I'm aware of the comes due during 2022, there are a couple of very large contracts, which come due at the end of 'twenty three for the entire industry.
And I would expect that.
The customers and the and the suppliers will all.
Determined how much they want to accelerate.
The renewal or delay that renewable depending on where.
Where the suppliers of where the customers see the supply demand balance.
Yeah.
As it relates to the.
Our view of the business I think we're going to be up.
As I said on the European food business, the business is going to be up roughly $50 million.
The on year on a few you add debt to the 2020 number of George Youre going to get to a number thats probably the highest number we've ever had in our European food business.
Despite the euro being at about 120 versus.
Think of it was about a $1 35, when we bought in the visa six years ago. So despite.
The 12% currency headwind the business is still going to be greater than it was six years ago and that's a testament to the amount of cost we've taken out of the business the efficiency of the operation.
And the excellent management team.
On the transit side.
We've had.
Fairly anemic industrial conditions over the last 18 months, coupled with the pandemic.
And I think if you look at what we expect our performance to be in 2021 of the EBITDA is going to be somewhat close to the EBITDA, we paid for the business.
Notwithstanding the incredible amount of cash we've generated and taken out of the business over the last couple of years, So I would say that.
On balance.
Very very pleased with food can performance.
And if.
If you take a balanced view of transit, yes, it might be down.
10 of $20 million EBITDA versus what we when we bought the business, but given what's happened in the marketplace with industrial demand of the pandemic.
Really pleased with how the team has taken cost out to react to that and keep the business.
A much more stable.
Then perhaps many of you thought it would be based on.
The performance in the OE <unk> <unk> financial crisis.
Thank you very much. Thank you. Thank you George.
Our next question would come from Salvator Tiano of Seaport Global Your line is open you may begin.
Yes, hi, guys.
So.
Congratulations on another strong quarter, Firstly I wanted to talk a little bit about the.
European beverage the had a very nice.
Quarter end I guess.
If things are improving in the south.
Firstly, if you can talk a little bit about what what are you seeing of Lockdowns were implemented beginning of the December because I think of that was the nishu during the summer and also.
You had a pretty nice operating income growth here.
I know last quarter, you seemed less excited about it but is your view starting to change about the potential to grow volumes, there more and adding more capacity in Spain, and Italy et cetera.
Yes, so I think the <unk>.
So I got the decided how much I really want to answer of that but.
As I said in the prepared comments there are reasons why.
European income performance was so much greater than.
The fourth quarter of last year, it really has to do with the depressed level in the fourth quarter of last year.
Owing mainly due to startups in Italy, and Spain and also the fact that.
The Big two line can plant in Seville was down for conversion from steel to aluminum so that's behind us.
I think as we look forward obviously demand.
<unk> is intensifying across Europe.
We believe we're going to see some of the same trends in Europe over time.
With respect the Spike Seltzer is.
We have seen in the north American marketplace, and that will put greater demand on cans.
We still have the issue of.
Tourism, which is still negatively impacted by the pandemic.
And while they're the lockdowns of the shutdowns are not as great as they were over the summer months. There still is the lack of tourism the <unk>.
Especially across the southern countries, Spain, Italy, Greece.
Hopefully.
Depending on the vaccine Rollouts will see some.
Some greater movement in tourism as we get into the tourism season next summer, but I think.
As we look forward to clearly.
We're adding a lot of capacity in North America of lot of capacity in Brazil, where we're adding capacity in southeast Asia. There will come a time when we're prepared to add capacity in Europe, yes.
Okay. It makes sense then.
By the way I think at least in Greece explanation.
Going better than most people would expect.
So at least that's the good thing.
Now again.
Again on the Europe.
I think in other markets western northern countries. The UK, Germany demand is growing very solidly I wonder if this affects demand for your kind of the countries in which you operate could you export in those regions is there a potential to essentially.
As you have of spillover of about the tightness into other countries.
We operate two large beverage can plants in the U K. So we're there already.
We are of large modern two line can plant in eastern France. So we can get the Germany pretty easily from there. We can we can also get the Germany from of two line can plant in Slovakia.
So.
While we're not in the German market, we have the ability to get there. So yes, we're going to participate in that growth I would tell you that.
Currently our growth is limited by our capacity so to your earlier question we.
We will continue to evaluate when it's appropriate for us to add more capacity in the European business.
Thank you very much thank you.
Thank you. The next question would come from the lineup of Neel Kumar of Morgan Stanley. Your line is open you may begin.
Great. Thank you.
In terms of your 'twenty 'twenty one guidance can you just given the strength and what kind of volume growth you are assuming by region.
And then in terms of startup costs do you expect that to be a significant headwind year over year. I mean is there any particular quarter, where startup costs will be heavier I seem to be generally consistent throughout the year.
Yes, somewhere I have growth for 'twenty, one by region, let's see if I got it here.
So I think I said it will be up 10 or 11 overall, it's probably about.
10% in the Americas, probably 7% Europe, maybe about.
12, or 13% in Asia.
I would describe the European numbers in the Americas numbers is capacity constrained there could be greater if we add more capacity, but we are.
We're bringing on what were bringing on.
In Asia will be largely a recovery of.
Of a down year.
2020 and of resumption of.
Of the growth profile, we've seen for the last decade of at least.
So.
Pretty.
The 10%.
From a boring can industry, 10% is pretty good.
Neal what was the second question.
It was around startup costs.
Yes.
We have startup costs every year.
I think the.
We bring on plants every year, we've been building plans for 20 plus years, we've sometimes we bring on one or two plants a year, sometimes we'll bring on four of five.
So there are startup costs every year. The differential is obviously the rollover impact how much more do you have this year or less than you had last year I think we will have more.
In 2021 of.
Although the.
It really comes down to how do you measure startup cost.
You can get real creative and assigning a.
Number.
To that.
We will have startup costs in 2021, but it's embedded in the number we've given you.
Great. That's very helpful. And then do you anticipate any meaningful headwinds from non metal costs like freight labor and utilities in 2021.
With freight in particular I think in the past you mentioned youre changing contracts at prices well represented in the actual freight cost rather than the basket might the producer price index can you just give me the sense of what percentage of your contracts how does the updated structure.
I would say most.
I think the headwinds that everybody is going to feel.
In 2021, not just the can industry here, but it's just a general tightening of commodities and upward price pressure on commodities.
Specific to freight.
There is of container shortage across Asia right now so.
Getting containers timely.
Is difficult and.
And the price, obviously is reflecting that and so you attempt to pass through those those exceptional costs, if and when you incur them on steel.
We're going to see of general tightness in steel globally. This year I think the Chinese are using more steel.
The container shortage I mentioned earlier to get steel out of Asia.
And then during the pandemic there were a number of mills that were idled. So the time it takes for those mills to.
To come back on stream, if they actually do but until then steel will remain tight.
Alright, thank you.
Thank you.
Thank you. Our next question would come from the line of Ghansham Panjabi of Baird. Your line is open you may begin.
Hey, guys. Good morning, good morning, Ghansham, Tim So pre pandemic standard cans were sort of flat to down in North America and any growth. The industry generated was really in specialty cans do you have a sense on how much of the 15 billion cans in terms of incremental growth for 2020 sort of year over year, including the imports came.
Came from specialty versus standard and with the standard can be the category that seems the reversal of post pandemic.
Maybe you could just more broadly to some of the commercialization initiatives you see in the categories in North America hard selzer's and whatever else.
Hello question.
<unk>.
So I think all sizes Ghansham, we're up.
Tremendously.
In 2020 of the customers.
We are.
We're all trying to get the customers as many Kansas we can.
Regardless of where do we get them from so they're taking.
As many Kansas they can they can take regardless of the size.
There are some customers who only market.
The sleek or slim cans, but.
The big customers, obviously market in all sizes and they still market primarily in 12 ounce standard cans.
And what they did to try to get more product on the shelf not only for us to make cans quicker, but also for them to fill cans quicker was limit.
The number of Skus.
They were requiring from us and that they were putting into the into the marketplace. So.
Take beverage company they might.
They might have 200 skus over the summer they probably cut it back the $4 five to be to be quite honest with you. So I think that.
All sizes were up but your your comment the prior to the pandemic.
Just be a little careful because prior to the pandemic was also prior to the.
To this greater realization of sustainability.
And responsibility towards the environment.
And Recyclability of superior Recyclability of the can versus other products. So there's a kind of a.
Of pandemic and sustainability related factors here that are driving can use of Jeff I think the post the pandemic.
We're going to continue to see.
Outsized growth in beverage cans.
Off of smaller base of the specialty cans will have a bigger growth number, but I think standard cans will continue to grow as well.
Got it and then in terms of just a competitor of yours as you know obviously massively step function of Capex for 2021 to ramp up capacity off of already pretty high.
The numbers you have an 850 million number of baked in for 2021, that's well above your historical levels and you've already guided towards that previously, but curious as to what is sort of the internal limitation in terms of do you see opportunities being able to wrap up that number of more significantly I guess. The question is is there a wide range of around that number or is that.
Just based on what you see in terms of constraints.
<unk> is a pretty pretty tight number at this point.
For this year.
It's an $850 million is $850 million.
I know the number of you're referring to I guess, the number of you're referring to is the.
It's probably about 170% of our number.
But the other fellows talked about.
If you just deal with the North American or Brazilian business.
The businesses significantly larger than ours, so I guess, if you want to.
Maintain your market share and you're looking to.
Satisfy the growth of customers in the marketplace.
45% to 50% of the market.
You need to spend a lot more than somebody who is the only 24% of the market and that's the way we.
The answer that.
Got it thank you.
Thank you.
Thank you. Our next question will come from the line of Phil Inc of Jefferies. Your line is open you may begin.
Good morning, Tim Good morning, Tom This is actually John Donahue on for Phil How are you doing good morning, John Hi, John.
Congrats on the on the good print.
I first wanted to touch on transit transit in <unk> was the first quarter in 2020 that was up year over year. It looks like a lot of that was based on some of the cost reductions you call.
All of it out with margins improving.
How much of that is.
It's sticky going into next year and as you are you are.
The forecast calls for significant upside for the business. In 2021 is that is that based more on an of reopening or are those cost initiatives kind of continuing through next year.
Well I think it's both although youre right.
As we.
As we recover most notably the recovery Youll see in Q2, because Q2 was the first if you want to call it the COVID-19 quarter.
Was the first Covid quarter, we had and it was of the one that was impacted the most.
Yeah.
But there'll be there'll still be further cost savings the structurally we've taken a lot of cost out of the business.
As it relates to administrative overheads, so I think that was a.
When we bought the business we understood. It was a pretty fat business of top and it didn't need to be that fed up top to service its customer base.
Okay.
And just in regards with the capacity expansion.
With maybe the exception of the Greenfield in Vietnam, We had most of those capacity.
<unk>.
Already known but we were a little light maybe in our estimates on the $15 billion sort of kind of coming in a bit short of that would you be able to walk us through maybe the line capacity of that each of those facilities to kind of get to that $15 billion and then just thinking about.
2022, you have net.
Henry County, Virginia, Greenfields coming up it seems like your capex might still be pretty elevated net 850 range going into 2022 with that is that accurate or how should we may be thinking about that working capital and kind of the out years.
So I think.
Since the beginning of 2020, we're bringing on four lines in Brazil, that's probably about 5 billion cans.
You've got the four lines in the two new plants in the United States Bowling Green in.
And the Martinsville Thats.
Probably another 5 billion cans.
Between the third lines in Olympia Nichols.
And.
And Toronto, that's that's the.
Three lines there that's another.
Two 5% of 3 billion cans, you've got Vietnam, you've got Thailand. So you add it up you get the 15 pretty quickly so.
Your second part of your question.
Was just the capex going into 2022, given the additional North America, Greenfields that youre, starting up in that year.
John I think it's a little early to talk about Capex for.
For 2022, but.
It's just too early.
Okay. Thanks for the color. Thank you.
Thank you. Our next question comes from the line of Gabe Haiti of Wells Fargo Securities. Your line is open you may begin.
And Tom Congratulations on year, and hoping the game of well.
Can you were the first of kind of be a little bit.
Say cautiously optimistic about if this was a new trend and I think we're taking that as well.
Taking a little different angle, what's driving growth.
Including individualized packaging and consumers' affinity for convenience.
So I'm, specifically thinking about premix cocktails, which enables these brand owners to sell of $25 bottle of backup for 50 Bucks.
'twenty premix.
The next chance.
So I would think that this is in very early stages and even into 2020.
A lot of these product launches were in fact delayed so any kind of color you can provide there in terms of just directional discussions or where youre seeing growth and then separately on the carbonated soft drink side. There was one brand owner of the I would say, it's pretty far down the path in terms of customer segmentation with specialty cans do you envision this as an opportunity for <unk>.
Crown going forward.
Well I think all of us.
The second question the answer is obviously, yes.
On your first question you're right.
Of the extent that marketers of.
Of premixed alcoholic or cocktails.
It would of had.
Desires to get to the market would've been very difficult in 2020, just given the tightness and can supply.
Of that will open up.
As we go forward.
So I think theres an opportunity of there, yes, so I won't say anything beyond the.
Alright, and I'm detecting a little bit more of a constructive tone in your voice, maybe it's the misconstrued for Europe.
Has something changed and perhaps of the past six months on the demand side that.
Gives you a little bit better outlook there.
Or is the beverage.
Yes on the beverage side sorry.
One of the commercially.
Well, if I wasn't constructed before I apologize.
I would say that.
Yes, I think there's a general tightening.
That we're seeing.
And even with a.
The year in which the pandemic had a much greater had an impact in Europe. It had no impact in North America, unless it was positive but.
But it did have a negative impact, especially in the second quarter across Europe, we still have a very tight year. So.
I think we're starting to see.
Greater greater movement on the sustainability front in Europe towards cans.
If north America was lagging.
On sustainability as it related to cans versus other packaging fronts.
Lagging Europe before they're way ahead of Europe now so I think we're starting to see the European market.
More fully embrace.
Embraced the can and we're seeing tightness more tightness than we would have seen a year ago.
Yeah.
Alright, thank you.
Thank you.
Thank you. Our next question would come from the line of Mark will be of bank of Montreal. Your line is open you may begin.
Thanks.
Good morning, Tom Good morning, Tim Good morning, Mark.
I wanted to just talk about.
The beverage can market, if we were to see the market start to flow down.
How quickly would you could you respond the kind of a shift in market growth and what would be kind of the indicators you were looking at because it seemed like everybody got caught.
The swing to the upside here I think the tone kind of across the sector right now is quite bullish.
But.
If we were to see the deceleration.
What would you be looking for and then how quickly might you be able to react.
Well I think it is.
Good question. We've we've tried to talk about this in the past nobody wanted to listen to US. So now you want to ask the question of thank you.
I think that.
We had.
Including imports were up 12% to 14% growth in.
15% growth in North America in 2020, we're not going to see that every year.
So what is the deceleration mean does it mean, we only grow 5% to 6% well that's still six or 7 billion units that still requires seven can lines or by deceleration do you mean, we start going backwards I don't think we're going to go backwards.
For the next several years I think we're still going to see growth. The only question is how much growth is it going to be 4% 8% of 10%.
And can the industry meet that demand growth.
So I think for the next two to three.
At least for the next three years, we're not going to be dealing with that could we.
React to that sure I think we've we've described to you we've got.
A number of projects currently under construction, we would finish those projects, but we would certainly.
Reevaluate the other projects, where we havent started or announced yet yes.
Okay, and then just back on north.
North American market, just great lakes.
Do you have any sense of sort of how much incremental volume the industry might have been able to.
The cell has the capacity of the imports been there because you see these articles about beverage companies complaining that they can't get cans.
You just mentioned the kind of the.
<unk> cocktail guys being constrained in what they could do in 'twenty 'twenty by lack of supply just any general sense of that.
I don't.
<unk>.
The.
Part of the problem is I think sometimes we're all counting the same cans right. So.
If we were up including imports.
I don't know what we of 14 billion cans could we have been up another two or 3 billion cans, yes sure.
John that I don't know its just purely a guess.
Okay. Thanks, Tim Good luck in the quarter end.
I appreciate that the commentary about the the review I don't think anybody on the call here today wants to see you do a bad deal just for the sake of doing the deal.
Well youre named today is Joe Strummer. So thank you.
[laughter].
Hopefully you understand the reference.
Yes.
Yeah.
Thank you Mark.
Thank you. Our next question would come from the lineup of Anthony Pettinari of Citi. Your line is open you may begin.
Good morning.
Tim.
Is it possible to give the kind of a broad overview of the regions that you're importing cans from and to and to the extent that that trails off either in 'twenty, one or 'twenty. Two if you have of sort of a sense of when that sort of normalizes should we think about that as moving the needle on margins with domestically sourced cans presumably.
Generally the higher margins.
So we in.
In 2020, we imported a significant number of cans from Mexico, and Brazil as those countries were initially shut down with the pandemic.
Those cans will be.
The availability of cash to come in from those markets in 2021 will be.
I don't want to say zero, but significantly less than it was last year.
We are importing cans from.
From one of the middle Eastern countries.
But the imports this year will be.
Far less than the Crown system.
They were in 2020 and we have.
The Nichols and the end of Toronto aligned the third lines of both of those plants are.
Our operating really well efficiencies are really high I think are.
Our cost per thousand in both of those plants is now lower than it was before we put the third plant third lines in each of those plants. So that will replace much of that demand and we expect to get the Olympia lineup.
Sometime here in the first half of the year as well so.
We will get bowling green going in the back half of the year. So.
The imports are going to be a lot less in 'twenty one than they were in <unk> 'twenty.
But we have capacity coming on to replace that and then.
Yes, youre going to Youre going to see some improvement I think thats baked into the estimates we've given you for 2021 already.
Okay. That's very helpful. And then just switching the transit.
Is there any is that business seems to be recovering are you seeing any notable trends in terms of mix.
Specifically thinking about.
The customers may be picking up investments that they delayed during COVID-19.
Thing that Youre seeing in January and February in terms of consumables versus equipment and tools versus the protective solutions.
I would say that on the consumable side.
The strap and protective we saw an acceleration.
Of demand.
In the late fourth quarter early part of this year equipment is now the orders for equipment and tools are picking up now.
Take us a little while to obviously build that Thats why you didnt see that come through in the fourth quarter, but I think we will.
We will start building that and we'll get those we'll get some of that equipment out in Q2 Q3. So yes. The answer is yes, we're seeing an acceleration in demand.
Okay. That's helpful I'll turn it over thank you.
Thank you. Our next question would come from the line of Adam Josephson of Keybanc. Your line is hoping you may begin.
Tim and Tom Good morning Congrats.
Congrats on a really good second half of the year.
Tim just on the portfolio review of two part question I understand the objective of it became a pure play of beverage can company obviously, the pure play producer is trading at the.
The high multiple.
Why.
First part of the question is why European template rather than transit packaging in that regard and the second part of the question as you look at the pure play food can't producer out there theyre relative multiples of the lowest it's been in a decade, you look at that pure play beverage can producer of their relative multiples of the highest.
And of decades. So are you at all concerned that you would be in effect.
Selling low and buying high in that regard.
You want us to sell beverage instead of Adam.
You tell me [laughter].
I listen I think we described our food can business for you earlier.
It is a business that recovered nicely.
In 2020.
It's a business that's going to perform exceptionally well.
In 2021.
It is a franchise business it is a business.
The others should want to own the business. They can plug in and it's a business you don't have to have any experience in food cans. The one youre going to get a management team that's second to none.
So for that reason, we believed it was.
More readily marketable and more readily marketable at a fair price to trade.
Then the other business, which is coming out of a.
A weaker industrial backdrop of pandemic more impact from the pandemic.
Any follow up questions Sir.
I'm sorry.
Yes.
Oh.
Oh, Yeah, Tim Yes.
Sorry, but just on the second part of the goods so.
Again the.
Given the cash flow characteristics of that you've always talked about with respect of the food can businesses given the list.
They've gotten from the pandemic whatever that may be in.
Perhaps some of it sustainable rather than temporary.
How much reservations do you have about parting with such a business.
Well yeah.
You are.
The beverage the beverage business is going to be really strong for the next at least for the next three years to four years, we know that we can see that.
Beyond that you don't know.
But investors have a much shorter time horizon in three years or four years, So we'll see where.
We are the world takes of site.
From the standpoint of putting together a portfolio of businesses.
And having within that portfolio stable businesses, which generate a lot of cash flow and don't require a lot of capital to support.
The other businesses, which do require capital from time to time in generating cash to to do other shareholder friendly things like buy back stock <unk>.
And to pay dividends.
You always have reservations, but.
The board the board's undertaking this process and so our job as a management team is too.
Is to see that through one way or the other we'll determine whether or not we sell the business. So we don't sell of the business depending on.
On the offer to trade.
You always have reservations you've got.
You've got the cross Street in the morning, Adam you have of reservation, but you're still across the street.
Got it thanks, a lot of time thank you.
Thank you we do have another question from the sounds like towards the end of Seaport Global Your line is open you may begin.
Yes, a couple of quick follow ups.
One of these.
In Europe food you talked about the number of differences will be yes, I don't know I don't think hard about the pass through mechanisms John.
In Europe. It seems things are all the way have always of longer lag. So kind of your comment on fasteners for European food cans versus U S food cans.
And the second one of which ultimately type of albeit the tenants.
You'll need the conversion of the food kind of lagging Toronto.
Earlier, this well I guess last year do you see any of other opportunities, perhaps as the food can.
Pike subsides in the next few years to convert more of lifestyle beverage cans.
So one of the things the.
The Toronto line. It really was not the food line converted into a beverage line. It was a brand new beverage line.
What we converted was the space in the plant that was allocated towards food towards beverage, but it was a brand new beverage line it wasn't out of conversion.
And I do not see any.
Do not see any further opportunity across the portfolio of convert food.
Food lines of beverage.
So.
And your first question, yes, we have pass through mechanisms across many of the contracts in Europe the <unk>.
One big difference in the European business.
As opposed to the North American business in the North American businesses business <unk>.
90, plus percent of the contracts are multiyear in Europe, I would say that $50 to 60% of multi year in the 40% to 50% of our annual so you're naturally.
We're renegotiating all of those terms on an annual basis.
Okay. Thank you very much youre welcome. So <unk> I think that was the last question. So I want to thank everybody for joining us today that concludes the call and we'll speak together with you in April to review the first quarter results by now.
Thank you and that concludes today's conference call. Thank you all for joining you may now disconnect.
Yeah.