Q1 2021 Ball Corp Earnings Call

Greetings and welcome to the Ball Corporation first quarter 2021 earnings conference call. During the presentation, all participants will be in a listen only mode. Afterwards, we will conduct a question and answer session at that time.

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As a reminder, this conference is being recorded today Tuesday may six 2021. It is my pleasure to turn the conference over to John Hayes, Chief Executive Officer. Please go ahead, Mr Hayes great.

Great. Thank you, France, and good morning, everyone.

This is ball Corporation's conference call regarding the company's first quarter 2021 results. The information provided during this call will contain forward looking statements actual results for outcomes may differ materially from those that may be expressed or implied.

Some factors that could cause results or outcomes to differ are and the companys latest 10-K, and and other company SEC filings as well as company news releases. If you don't already have our earnings release, it's available on our website at ball Dot com.

Information regarding the use and non-GAAP financial measures May also be founded and the notes section of today's earnings release the.

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 now joining me on the call. Today are Scott are Dan Fisher, our President and Scott Morrison, Our executive Vice President and Chief Financial Officer.

I'll provide some introductory remarks, Dan will discuss packaging and aerospace performance and trends Scott will discuss key financial metrics and then I'll finish up with comments on our outlook for the company.

First let me begin by thanking our employees together, we are working safely and executing at a high level and preparation for even more growth. Thank you for taking care of one another and moving the ball culture day in and day out I also want to thank our customers suppliers and their employees collectively we are successfully navigating pandemic related restrictions.

<unk> and certain regions post vaccine reopening and other regions supply sort of shortages and disruptions across the entirety of our supply chains and investing in growth brands sustainable aluminum packaging and scientific discovery.

For the past 15 months have further showcase the resiliency of our industries as well as our ability to communicate and manage appropriately.

Serve growing consumer and customer demand.

2021 is off to a strong start with comparable diluted earnings per share up 18% comparable operating earnings up 12% and global beverage volumes up 8% percent. Despite a couple of disruptions in North America, North and Central America beverage and aerospace that were outside of our control momentum continues across.

Our global beverage businesses project execution is high aerospace backlog is solid and hiring continues at a robust pace all of which will fuel long term shareholder value creation, even though we left a little on the table and the first quarter nothing has changed about our prospects in fact, we have.

And even greater conviction and our ability to significantly grow diluted earnings per share EBITDA dollars cash from operations and return of value to shareholders and 2021 and beyond and Scott will discuss this more later on.

First quarter 2021 and highlights include.

Our global beverage business, completing the startup for new lines and the speed up of numerous others around the world our aluminum aerosol business successfully integrating the Brazil.

Aluminum aerosol plant acquisition, our cups team executing national distribution of the ball aluminum Cup at seven out of the 10 largest U S food and beverage retailers late in the quarter.

Our aerospace team continued to successfully test key instruments, and when NASA contracts and study programs.

And our businesses hired nearly 1000 people net in the quarter to support our long term growth.

We continue to put our shoulders into the areas of sustainability and real circularity to ensure that aluminum beverage packaging continues to be the most sustainable package and the world as many know and you will hear us speak endlessly about aluminum beverage cans already contain on average more than 70% recycled content, which is multi.

Paul's above any other beverage package during the quarter, we launched the first ASI certified can and EMEA and Ball Commission you know me to produce the first U S state by state comparable assessment of recycling rates for common containers and packaging materials. Please visit our website at ball dotcom.

Come back Slash real circularity to view, a recently published 50 states and recycling report.

State and federal lawmakers consider recycling legislation and infrastructure investment it's important for everyone to understand what is working and what is not when it comes to recycling and the U S and as an industry leader, we believe with good data smart policies and infrastructure investment the U S can be a leader and the global circular.

Economy aluminum packaging is economically advantaged properly designed and as mentioned offers the highest recycled content beverage solutions available to our.

Customers today, increasing U S and global recycling rates will only accelerate growth for aluminum packaging versus other substrates and promote a truly circular economy.

So in summary ball is operating from a position of strength our future is very bright and our time is now to everyone listening best wishes to you and your family for good health and continued safety and with that I'll turn it over to our new President and Dan Fisher Dan. Thanks.

Thanks, John.

And so youre, thanks to our employees customers and suppliers are global HR, environmental health and safety professionals and our own personal actions continue to keep our teams safe and vigilant.

As John mentioned it was a very rewarding start for the year.

The teams are doing a great job managing accelerated growth.

Large scale capacity additions and a few curve balls along the way.

We're exiting the first quarter with a lot of momentum and will continue to see strong performance throughout 2021.

In addition to global beverage volumes being up 8% spec.

Specialty mix increased above 49% up from 46% at year end 2020, and ongoing strength in EMEA and South America beverage more than offset the winter storm impacted North America beverage accelerated marketing investments for our retail Cup launch and COVID-19 induced subcontractor.

Cost and aerospace.

Demand for aluminum beverage cans continues to outstrip supply around the globe. Despite ball exiting 2020 with 7 billion units of additional installed capacity, we continue to be sold out and look forward to bringing more projects online or.

Our global Engineering and operations teams are executing at a high level and we anticipate exiting 2021 with an additional 12 billion units of new installed capacity.

All of which underscores our Investor day commentary cans are and high demand contracts are in place and ball is well on its way to installing at least 25 billion units of global capacity by year end 2023.

And it's off of a base of 100 billion and 2019.

Our focus on speed the market talent training systems supply chain and operational readiness is paying off as we continue to ramp up new capacity on time and on budget.

To all the teams listening our time is now and you are making this happen and keep up the great work.

We continue to secure new customer and supply chain contracts as well as properly aligning talent resources for the future.

As John mentioned, we have hired and additional 1000 colleagues year to date with the majority of them located in the United States.

Training and development and immersion into the ball culture is a vital part of our day to day work.

Can demand across all beverage categories are strong our focus on improving customer experience is bearing fruit.

Online tools like the source transparent customer communication and even more can availability will continue to aid that trend.

We also continue to make significant process progress and operationalize and sustainability I am proud to say that in addition to our EMEA segment, achieving ASI certification in 2020, our operations and South America and North America are on track to achieve the ASI certification by year end 2020.

And one.

In addition last week, we recognize the 2020 Hoover Sustainability Award global winners.

We commend all of our global colleagues and our global supply chain for their commitment to our sustainability journey.

As we discussed throughout 2020 growth and our global beverage business is accelerating and our product portfolio continues to support our customers new brands as well as broaden the addressable market for aluminum cans and bottles and cups.

Given market characteristics and our project execution I'm very positive about our ability to achieve our goals and deliver low double digit global volume growth and global specialty mix and excess of 50% and 2021.

We continue to see the global industry growing at an annual rate in excess of 6% for the foreseeable future.

As a reminder for those of you newer to the industry that has two ex the historical CAGR and puts the industry on track to grow at least 100 billion units by 2025.

Ball is well positioned to capture at least 45 billion units of that growth given our scale and innovation and the world world's largest can markets.

Looking out contractual terms and conditions are favorable and longstanding pass through mechanisms for aluminum and other items are in place. These.

And these include our list customer terms and conditions that will enable us to ensure a full pass through as inflation begins to ramp up.

And as we said on last quarters earnings.

Now we execute execute execute.

Now a few comments on each region.

And North America beverage first quarter volumes were up 6% and specialty mix improved to 37%.

During the quarter earnings were down slightly due to the combined effect of project startup costs and lost production from winter storms more than offsetting the benefit of improved volume and mix.

We anticipate both our Glendale, and pits and facilities to exit 2021 with for can manufacturing lines installed and our bowling Green and manufacturing plant will pull forward at start up to the fourth quarter of 2021.

Across the customer base beverage can demand is strong across all brand categories.

Alcohol soft drinks energy and water. We expect this favorable trend to continue and we will support additional EBITDA enhancing opportunities to align with long duration contracts.

As we have discussed on prior calls given three plants coming online and North America full year startup costs are expected to be and the range of $50 million.

The impacts of these costs will be weighted more in the first half.

And EMEA segment volume for the first quarter was up 5% and specialty mix.

With 54% across balls EMEA business demand trends and positive momentum continues.

We foresee European beverage can volumes up mid single digits throughout 2021, and beyond future growth will be driven by new and existing categories utilizing cans and additional regional plant opportunities emerging to fulfill market demand and the biggest can markets across EMEA.

And South America first quarter volumes were up 14% and specialty mix increased to nearly 68% despite only 80% to 85% of delivery channels being opened during the recent resurgence of the virus.

We continue to see more upside and South America, and the fruits of Brazil plant as well as other projects are progressing very well.

We are also anticipating further investments both in Brazil and throughout the region.

Similar to our prior commentary, we anticipate can growth and the mid to high teens and can mix on the shelf returning to even higher levels beyond 2020, once we have more capacity on line.

In summary, our global beverage team did an amazing job navigating some uncontrollable during the quarter, while also executing at a high level on the things we can control.

Sticking with aluminum packaging, our aluminum aerosol team did a stellar job managing costs and preparing for reopening is lifting deodorant and personal care demand.

<unk> earnings and volume increased slightly in the quarter and the team continues to amplify the sustainability credentials of our extruded aluminum bottles to deliver innovation across multiple brand categories.

Our cups team continue to execute and prepare for an exciting 2021.

In addition to the retail launch John mentioned the team recently kicked off the party starts here marketing campaign to engage and educate consumers preparing for a summer filled with infinitely recyclable aluminum cups, we will continue to invest marketing dollars behind the cups retail launch in 2021 and expect our <unk> business.

Turn a profit starting in 2022.

Turning to aerospace the team continued to win contracts during the quarter, including building the spacecraft for NASA as Helio Physics, glide mentioned, which will study Earth's XO sphere, which is where Earth's atmosphere touches space the.

And the glide spacecraft and Noah's space, whether follow on spacecraft also being built by ball and we'll study solar winds and forecast solar whether we'll launch together and the future.

The aerospace business also dealt with transitory costs due to our first quarter subcontractor rate adjustment associated with the National defense contract and inefficiencies brought about by the current COVID-19 environment.

And this rate adjustment does not impede the near or long term growth prospects for the business.

I am happy to address any of those questions during Q&A.

Our team also executed a new infrastructure completed critical testing on multiple instruments, one new study programs and backlog remained solid we continue to be very excited about the business and appreciate all of the amazing work being done by the aerospace team.

With that I'll turn it over to Scott.

Thanks, Dan comparable first quarter 2021 diluted earnings per share were <unk> 72 versus <unk>, 61, and 2020 and increase of 18% for.

First quarter comparable diluted earnings per share reflects strong global beverage results favorable FX and lower interest expense and a lower effective tax rate offset by previously discussed higher year over year, corporate labor and startup cost to support business growth and marketing costs to drive the aluminum Cup launch ball's balance sheet is very high.

<unk> with ample liquidity and flexibility.

As we sit here today, some additional key metrics to keep in mind for 2021.

Our full year effective tax rate on comparable earnings will now be and the range of 18% for.

For your interest expense will be and the range of 275 million and full year corporate undistributed costs recorded in other non reportable are now expected to be and the range of $90 million, we continue to see a path to doubling our cash from operations by 2025.

Our 2021 cash from operations will grow in line with the earnings trajectory and.

Aided by our source and working capital, we expect 2021 total capex to exceed $1 5 billion.

And returns on capital beyond our 9% after tax hurdle rate will follow through as new growth capital projects become operational later in the year and and the years to come.

Ball continues to be good stewards of our cash and his fellow owners and and alignment with our EMEA discipline will prudently balance realtime growth opportunities with consistent return of value to our shareholders via dividends and share repurchases.

And given the first quarter's strength and approaching our net leverage target range as we progress through 2021, I see returning that value and a more meaningful way sooner rather than later with that I'll turn it back to you John Great. Thanks, Scott and thanks, Dan and summary, our drive for 10 vision serves us very well whether it be broadening our geographic.

And developing new customers markets and products and doing so with a commitment to being close to our customers and with uncompromising integrity.

Following our strong first quarter results and outlook for the remainder of the year, we're even better positioned to exceed our comparable diluted earnings per share long term goal of 10% to 15% and exceed our Eva dollar growth goals of 4% and 8% per year and 2021 and beyond we will work together to do everything possible to work safely ex.

Acute on capital investments drive the circular economy, and generate significant earnings cash EBITDA and value and value for our shareholders and with that France, we're ready for questions.

Thank you if you would like to register for a question. Please press the one followed by the for on your telephone.

And with retail to acknowledge your request.

And for your question has been answered and you would like to withdraw and you May press. The one and three once again you May press one for to register.

Our first question from the line of Adam Samuelson with Goldman Sachs. Please go ahead.

And thank you good morning, everyone.

Good morning.

Good morning.

I was hoping maybe a little bit more color on some of the capacity additions I believe.

And the prepared remarks, you alluded to 12 billion unit incremental capacity and in 'twenty, one versus <unk> versus 'twenty I'm, just trying to make sure we think and think about the phasing properly of that.

In terms of how much actually benefits 'twenty, one volume growth versus how much is carryover and incremental growth.

And in 'twenty, two and beyond.

And just think help us think about.

Incremental capacity that you are looking at for.

How should we about exiting 'twenty two and to 23, just from the phasing of the incremental projects that youre looking at.

Sure.

Maybe just to restate, where we ended 2020, obviously sold out.

Sold 105 billion cans.

Exited 2020 with and installing an additional $7 billion.

Referenced in the script today that.

We plan on exiting 2021 with an additional 12 on top of that so you're getting too obviously that $19 billion range on top of the 105 and.

And then we clearly are thinking about additional planned projects into 2000 to 2022.

It's a little early for me to.

Speculate on the speed and the rate with which we're adding in 2022 Theres still.

And awful lot of challenges as you can imagine and South America, with COVID-19 and and Central Europe with COVID-19.

We've got line of sight as I've indicated.

To add $25 billion off of the base in 2019 by 2023.

We can still execute against that it's just timing as it relates to what we've already put in place and what we're executing on that.

I will continue to inform you as we get further along and the year and as we are able to get our engineers.

And supported from location to location.

Got it and Thats really helpful and and I can have a quick follow up just on the quarter.

Some of the discrete items in terms of startup costs or winter storm impact or some of the supply chain items and aerospace anyway to specific and quantify those and.

As we think about those not necessarily repeating in 2002.

Yes, and the northeast.

Scott and the north and central market businesses, where we felt most of that.

And I think and storm costs were $10 million, plus and startup cost of about 12 million and in the quarter.

And then we spent an additional incremental probably $4 million over what we were planning to spend and comps as we ramp up that national retail launch and.

And the aerospace <unk>.

<unk> was probably in the range of $7 million.

Perfect and that's really helpful. Thank you I'll pass it on.

Our next question is from Kyle White with Deutsche Bank. Please go ahead with your question.

Hey, good morning, Thanks for the question.

Alright, Thanks for taking my question after the Glendale, and fits and plants are up and running do you envision still needed to kind of import cans into the us and meet this kind of elevated demand that we're seeing.

I do for <unk>.

2022, it looks like.

Latest forecast, what we're seeing and there'll be.

There'll be a modicum of import can still for our customers if they continue to.

If demand profiles continue and in line with our expectations.

Nowhere near the size and the scale that we dealt with here over the last couple of years, but.

And there will still be and oversold element heading into 2022, even with all the capacity day indicated.

Got it and then just going to Brazil, and South America, you touched on a little bit demand seems healthy there despite only 80% to 85% of the retail channel as being open.

Are you seeing any impact at all from the kind of rise and COVID-19 cases down there any impact on operations or volume and then maybe just touch on kind of your capacity situation. There understanding that you have the new plant coming on later this year, but.

Just given the growth profile, there I imagine you'll still be constrained even after that comes up.

Yes, we're running at.

Let me I'll answer the back half those questions first we're running at extraordinarily low inventory levels.

Can penetration and the market for Q1 was was actually lower than on average what it was all of last year and even the year before and Thats, because theres just not enough cans.

And so even with the capacity adds that I'm talking about and South America were going to be incredibly tight and that region for the foreseeable future a lot of it is underpinned by returnable glass shifting and the cans.

So.

If you reference back to my comments and the script, we are definitely looking into a series of further investments across that region.

As long as the demand profiles and the contracts look right.

We have not had a lot of disruption and I give our teams a tremendous amount of credit.

This time, a year ago was challenging and.

Kind of the Amazon region.

But since then we.

Haven't lost much in terms of production and.

We've had some.

Stories are incredible as you can imagine in terms of what's happening with the.

Extended families and loved ones and that has been the.

And the mental aspect of our.

Employee base has been probably more challenging and getting people physically to work and and a healthy environment.

Obviously these things can change.

With new variants showing up but.

It's been a pretty resilient bunch down there and we really haven't seen much of an impact and knock on wood, we'll continue to manage this incredibly effective moving forward.

Got it. Thank you good luck in the quarter. Thank you.

Our next question is from the line of Anthony Pettinari with Citi. Please go ahead.

Good morning.

And in North America understanding that Youre running full and sold out we saw this massive consumer stockpiling and the U S and March April of last year as we went into lockdown.

As you anniversary those comps did you see any impact or any change in terms of customer behavior or mix or offsets from recovery and on premise and I'm just trying to understand how a summer reopening and the U S. This year impacts your North American business.

Yes, there is a lot to unwrap there.

So a lot of a lot of open ended questions too that we're trying to pay attention to if I just take the on premise off premise.

One thing that we've seen over the last 15 months is theres been a number of customers that have really leaned into.

The direct channel the E Commerce channel that certainly benefited us I don't think thats going to suddenly turn off.

And folks are going to continue to everyone's dealing with comprehending flex schedules. So a couple of days more a week at home versus and the office that all benefits.

Hans.

So there is room for optimism.

And with our substrate.

Debt.

There has been a shift and a SEC.

<unk> shift for the long term.

I think I think that's here and I think that is here for the long term.

I do think though.

Month of April.

Kind of interesting because that was the the month of year over year comparable and what we saw was overall liquid volume on the alcohol side was down a little bit.

Cans were actually up a smidge and that.

Meaning with Kansas, we're taking share and on the soft drink side or the non alcoholic side non alcohol liquid volume was up and the cans were up as well so.

Not by huge amounts, but people I think we're expecting a big decline and obviously when you look week to week, there's big swings, but if you look over the past month. So to speak those are the kind of trends we've been seeing.

Okay, that's very helpful color.

And then you talked about COVID-19 protocols, hindering aerospace I think and <unk> as well.

And as aerospace has been impacted more by COVID-19 and COVID-19 protocols more than Bev and aerosol relative to your expectations is that fair to say and then does that sort of temper growth expectations for aerospace over the next couple of quarters or maybe things are easing just any any additional detail you can give their share.

Sure I can give you a little color here I think moving forward I think we're in a far better place and candidly we've experienced the last six to nine months keep in mind that.

Historically and the type of work, we do much of it being classified folks need to be on site.

In order to do the work and so our aerospace business of roughly 5000 employees today, you would see 80% of those folks would be on site and if you go back to the end of the end of Q3, beginning of Q4, it was more and the 35% to 40% range. We've begun the transition now.

And the last couple of weeks, we've seen north of 60% onsite and thats continuing to build as folks get fast vaccinated and CDC guidelines are allowing us to.

Bring more folks.

And how so we should see productivity benefits.

Not just for us, but the entire supply chain, which has been disrupted because of this.

So we're feeling bullish about.

This quarter and the back half of the year and returning to some sense of normalcy for that business and increasing productivity and efficiency. So hopefully that gives you. Some additional color on kind of what we've been up against.

That's very helpful I'll turn it over.

Our next.

Question is from Ghansham Panjabi with Baird. Please go ahead.

Thank you and good morning, everybody.

And maybe Dan just following up on the earlier questions.

Texas weather disruption from.

February and Youre running quite lean and inventories to begin with just given the nature of the growth and the U S over the past few quarters.

And how you've kind of managed to flex your production as you gear up for the summer season from an inventory standpoint, and the U S.

Yes, you are.

You're hitting on a on a great point and something that we're going to candidly.

To figure out and grind through there as well.

And we're in peak season, we've been oversold for two years, we're at historically low inventory levels, we have and incredibly tight supply chain.

Our teams are are doing things and trying things and trying to be as transparent as we possibly can with with customers.

The one thing we can do is try to lock in and candidly our production plan for the balance of the year and try to stick with it as best we can and that gives our plants. The best chance of success any alterations any changes to that are going to.

Put us in very close to a.

Make the order.

Environment, which.

It will be challenging.

I think our teams are up for it we do have capacity coming online, which I commented on those are coming on line right in line with our expectations that will give us some modicum of relief.

But yes, our customers and gearing up for a big peak season.

They are taken every can we can possibly get there is a lot of importation happening right now and it's just going to be tight for the summer. The first quarter did not set us up for.

The most optimal scenario heading into the second quarter and North America.

For sure and then almost every and inflation cycle over the years and.

Beverage can industry has.

And some level of weakness and their contracts with its freight pass through or aluminum premiums and whatever else there was.

Given the nature of this particular inflation cycle, just hope for Osha as things have been in terms of cost increases and maybe even wages at this point.

How are your contracts holding up and is there any risk in terms of incremental margins that we should be thinking about as we progressed and next few quarters and specific to the for us would be the inflation credit right now.

The debt.

And the contracts are.

Look three years ago to today, we've commented on and several times you've been following us for a while but they are much better and.

We're in a much better share space.

The downside is the downside that's always been and our business and it's the self induced inefficiencies and our distribution channel So where we have the more touch points, we have and the supply chain.

And that's not embedded and the cost to serve and the cost to deliver to our customers those are pass through element.

It is.

A minimal amount, but as you said the amount of inflation that we're experiencing especially on freight.

There could be some dollars tied up in there that are that are tied to pass through.

Got it thanks, so much.

Our next question is from the line of Mike Lee Chen with Barclays. Please go ahead.

Great. Thanks, and good morning, guys.

First question and just on the investment I think you move for the expected timing of the and plant in North America. This quarter and it seems like broadly your growth projects are coming at a larger accelerated clip versus maybe what you've laid out for us six months ago at your Investor day. So I'm just curious what you would attribute that to whether it's greener Cup.

Or demand better project win rate better execution, maybe it's all the above and just trying to get a sense of what's driving the real acceleration and growth investments there.

And I think all of the above really.

And the customer demand is not waning and anyway, and fact continues to firm up I think our execution is getting better.

I think if you look at North America. The wrap up of these two new facilities has been better than expected. So I think we're getting better at all of that and.

And the opportunities frankly, if we can pull them forward and get these things running faster.

It's better yes, and just case and point on that is talk about the new hires we've had over the last 18 months or so we probably in the beverage can business I'll put aerospace space Aside we probably hired over 3000 people.

That is unprecedented and our business relative to what we have done and the past we've talked a lot about these quote unquote startup costs, it's really training costs at the end of the day. If you recall three for five years ago the lessons learned.

Some of the some of the footfall, we had in terms of our startups as we didn't bring people on early enough and we didn't give them a chance to succeed from day. One we've been we've been accelerating the hiring and training and development of those people six months prior to what we would've done a couple of years ago, and I think to Scott's point, we've been ex.

Acute and quite well as we as we're starting up these plants and I think we're giving them a better shot at success.

One additional comment I did I did indicate that the.

<unk> and plant and bowling Green.

We were thinking earmarking for Q1 startup where we're talking about is three four weeks earlier that it falls into Q4.

Scott Hasnt come off and we haven't come off our startup costs, there is negligible change or our capital spend for the year. So this is really we've already had those costs and the capital outlays embedded. This is just recognition that the teams are executing theyre executing a little better than we anticipated moves inside the fiscal year and.

Hopefully that means.

And candidly fewer imports on and heading into next year.

Great. That's really helpful color and then your second question when you talk about Glendale, and the fits and facility I think <unk> highlighted that they are both going to have for operational line by the end of this year, which by the end of next year, which is already quite large.

But you also noted that they are able to add incremental capacity and from there. So I guess could you maybe just touch on how much further youre able to scale. These facilities is another one line to line and just given the way you structure. These facilities with the incremental line costs to be relatively similar or better versus.

I don't know say a ball plant five years ago, where you might have added a second or third line.

Yes, I would look at it in terms of.

And.

Incremental output on kind of a mega line concept.

So you would get additional capacity on the existing infrastructure, but we can scale the lines and.

And within the footprint and so we can do it much faster and much cheaper than had we taken.

Our historical approach to it.

Our next question is from please.

This will Nelson from RBC capital markets. Please go ahead.

Great. Thanks for taking my question.

I was hoping we could maybe put a finer point on the EBITDA progression. Our EBIT. However, you want to look at it but a.

A couple of years ago, you had called out.

$2 billion of EBITDA, and an annual basis Youre now at $4 75 and Q1.

And mainly that had some some startup costs and there and some storm impacts.

So as you progress forward could you potentially and lay out some mile markers of.

You have a lot of capacity growth coming so would you be exiting kind of 'twenty, one and a much higher rate and that $4 75.

And if so I guess with most of the growth coming in and North America, and South America, or how should we think about.

And kind of the EBITDA progression from here.

Thanks.

Well the first half of the year, we will have we have more startup cost and what we had last year obviously.

And then we'll start to get the benefit of that and the third quarter will exit and the fourth quarter with much more strength. So I think it's more back end weighted.

I think the performance and South America and Europe in particular continue to be very strong throughout the rest of the year.

Really surprised to the upside and I think North America will be and the first half of the year again more heavily with startup costs, and then start to accelerate and the back half of the year and let's not forget also the first quarters are seasonally slowest quarter too.

And as a follow up and for aerospace and also.

Given.

Some COVID-19 impact.

And that would also be better.

As you move through the learning curve with some of those new employees as well.

And your projects actually start to come on line.

And so are you still thinking about kind of 15% EBIT growth in aerospace and on an annualized basis.

I think what we experienced for the first quarter hopefully doesn't repeat as we go forward for Dan's comment about having more people on site and supply chain getting better COVID-19 issues reducing.

That should accelerate their improvement and as we move through the rest of the year.

And when we initiated the $2 billion EBITDA number we also werent contemplating a cups business, which clearly were forward investing and right now so that should give us a whole another revenue stream moving forward.

Okay. Thanks.

Our next question is from the line of George Staphos with Bank of America. Please go ahead.

Yes.

Hi, everyone. Good morning, hope you're doing well thanks for the detail.

I wanted to dig a little bit into Europe.

The volume growth for the quarter was certainly in line with.

And guided to and the fourth quarter, but it was sequentially.

Down from the fourth quarter, which you had said it was going to be.

A stronger than expected quarter was there anything as you looked under the Hood in terms of the European trends and one in Q.

That we're surprising perhaps a little bit less positive and expect it didn't seem like it given the margin trend, but just wanted more color on Europe, and what we saw and <unk> and what it means for the rest of the year relative to <unk>.

George I don't it was in line with our expectations, maybe a little better.

That is an area, where you know we're adding capacity.

And we were allocating every single customer so I wouldn't read too much and the growth rates right now and the year on year comparable.

We're converting our France steel to aluminum facility, we're continuing to add capacity and multiple locations.

In Europe and.

The demand trends.

If we had cans and good serve them, we would we would have exceeded.

I think fairly significantly these growth rates.

Alright, thanks for that Ken I appreciate that commentary.

The second question I had.

Is around innovation so.

And we've talked a lot about this all of US on these calls going back a number of years and it's been great to see alcohol.

Kahala category pick up with the spiked seltzer is over the last couple of years.

Can you give us an update on kind of the bleeding edge and the next categories again to the extent that you can comment.

And next cocktail and things like that and and.

How sizable how significant they might or might not be.

Relative spiked seltzer, it and some of the other products, we've seen really drive the growth for last couple of years.

That is the million dollar question, that's a great question Jordan.

I can tell you there are more innovations that are being pent up right now.

And that we unfortunately can't help our customers launch.

And.

It would be difficult to prognosticate I think.

Our customers over the last three to four years and North America in particular have really learned.

And to develop products that the and consumer once theyre pricing it they're putting in and cans.

What's going to win and I can tell you, it's probably it's probably got some alcohol and and if it doesn't have alcohol and it's low calorie.

Different stimulates on.

And on waters.

And I still think there is there is still an underpinning for for Stillwater.

And that's just an area where.

And I still and bullish on.

It gives the retailers and opportunity to.

To improve their cotwo footprint within their retail shelves and without having cans are allowing folks to step into those cans.

And that feels like a market debt.

Could be sizable and the future yes. George This is John let me just add two things and amplify what Dan said number one and don't forget over the last 12 months innovation has really been on the sidelines, particularly because the retail side of it. They were just trying to fill up their stores with the basic needs and so there is a lot of innovation, that's pent up right now and we are.

Dan's point, we're seeing it.

The other thing is it gets to this real circularity.

<unk> talked about and in our prepared remarks.

It's real it's here there is a number of various anti plastic.

At the state level.

Laws that are either being enacted or being debated right now at a level that historically, we havent seen and so I think that momentum continues and I think there is increasingly by the consumer and into a degree our customers a recognition that when you have the aluminum beverage can which is the most sustainable packaging.

And the world that there is an alternative to this and as people are trying to reach their 2030.

Cotwo reduction goals and sometimes even 2025, let alone net neutrality by $2004 2050. This is going to play an important role and so this doesn't isn't measured quarter over quarter, but it is a long term secular thing that we continue to see playing out that benefits the aluminum beverage can.

That's a great point, just George on that it's like our biggest growth category as plastic.

That's our biggest category.

Okay.

Appreciating that and I don't want to take up too much time is there a way for us to maybe think about the capacity that youre, adding this year or through 'twenty, three and how much of that you think.

Going to new categories, and then Scott.

Sounds like.

Value return as perhaps more and more likely to happen sooner than later.

Versus your prior expectations, given what I I heard you say on the call can you give us.

And I know youre, not going to time price it a month or whatever but can you tell us what is actually.

Behind those comments and.

And what opportunity and flexibility you have to do more value return is and your progress. Thanks, guys. Good luck in the quarter.

Thanks, I'll answer the.

First question I would say, 80% to 90% of what we're putting in place.

Is simply.

Existing categories.

We're.

We're earmarking some additional capacity so our customers can step into some of these innovations and trial and but the fact of the matter is we're just.

So darn oversold I think it's just stepping into the existing categories and the space and.

The shift to cans.

So unfortunately, not a lot not a lot of room to disrupt ourselves.

That's why we're so bullish on the medium to long term and this from this area.

And on the return of value to shareholders, George we performed better and the first quarter than our expectations and we think that momentum continues and look through the remainder of the year.

So as we sit here today, we think we can.

Accelerated break for the return of value for shareholders, while still investing a 1 billion and $5 of capital. So I would target kind of buybacks and the $5 billion range for the remainder of the year for this year, and then I think and accelerates into next year.

Thank you very much.

Thank you.

Thanks.

Your line of silica Cook with Jpmorgan. Please go ahead.

Hi, good morning, how are you.

Thanks.

Other question about and you have.

North American campus.

Can you set the business in the quarter for about 6% in terms of volume and some of your competitor gross debt.

<unk> North America growth, 12% and another competitor set maybe 8% and so I was wondering whether you had and view.

And the Western American beverage can growth really was for the industry and the first quarter and if you had a view as to how the beer category grew versus soft drinks.

Yes.

I mean, we're 45% of the.

U S market. So you can probably take our growth rate and.

Take the others and.

The buyback to I'd say, it's north of 6%, probably and the 8% to 9% range and keep in mind for us.

It would have been more we had one significant customer who had a.

Disruption and the quarter pretty significant from a volume perspective and.

So beer was approaching 1% growth our beer volume was down.

8%. So we were more in line with flat to slight growth on our major beer customer.

You would've seen double digit growth and the first quarter I think there was an anomaly built in there and I am excluding the winter storm altogether, and even even with that let's not forget.

We were short cans for the market.

And we could be selling more than we have and so right now it's a capacity constraint and and that's why we're so focused on getting this new capacity up and running and I'd be careful of core quarter to quarter volume growth because it depends on who is bringing on capacity at what particular time. So you can kind of get distorted and a quarter.

That's helpful and.

And my follow up.

Yes, again on the North American business, if I looked at.

Capacity, but Europe.

And <unk> billion, Kansas zone, plus or minus.

Like how.

What's that goodwill and the rate of like de bottlenecking efficiency and you can achieve.

2% and can you get like a 1 billion cans out of the existing from production every year.

Yes, it's a good question and combination of how many additional conversions, how many additional label changes et cetera, yes.

And we're trying to earmark, something and that kind of 1% to three productivity improvements but.

When you look at the level of complexity is and in consumer that's showing up the number of new products. The number of new labels and number of new can sizes all of that eats against the productivity. So if you can fundamentally stay flat youre doing pretty darn good.

You just need to be able to make sure you can charge for that.

I see.

Okay. Thanks very much.

Our next question is from Salvator Tiano with Seaport Global Please go ahead.

Yes, hi, thanks for taking my questions.

So firstly and you just mentioned it.

Major customer debt since it was a pretty significantly and perhaps some of your votes and Q1 and I think what they've said these expenses.

Pretty much make up that entire production levels for the in.

And the balance of the year. So how are you thinking about and.

And the tailings from from recovering these loans in Q2 or later.

Yes, I don't know that there are <unk>, because we are oversold and.

Every single can even in the first quarter every single can we can make we can sell.

I was just I was just talking about the categories and the shift relative to that so.

The winter storm had an impact I don't know, how and I don't know how you can recover.

The only way, we could step up volume versus what we've characterized here as have our new facilities and new investments come online faster and more efficient rates than we've seen historically I wouldn't.

We've got a we've got a pretty impressive startup curve, that's built already built and place that's and here, but I wouldn't.

I wouldn't underestimate our people to do better but at this point and the year, it's premature to characterize that there is a lot more on the table that we could see recovery and the back half of the year versus what we gave up and the first.

Okay great.

And hope it.

The operating leverage and.

In the Europe, and South America your earnings growth was pretty good, especially in Europe relative to the volume expansion and you saw 5% so.

Did you see any other specific sales and some help.

Boost your incremental margins and how should we think about.

Your incremental margin ops, and smart close going forward.

Now, we've historically said you know what.

We grow on the top line, we should double that and in terms of a percentage growth on the operating earnings line.

Excludes startup costs and.

Some of the inefficiencies with the storm I think we're more or less the air across the board globally.

The things that can impact and influence it or.

Hopefully what we're continuing to see is strengthening of the contracts supply demand tightness allows you to improve your terms and conditions that gives us a better chance for success and our plants.

And there is just a more predictable nature to that flow through moving forward I believe as we get capacity put on line and also mix plays an important part of that as well.

Okay. So I guess the reason for Kim Thank you for some quarters or even a couple of years can be above that normalized coupons earnings growth all the top line growth.

There is there is an opportunity.

Nothing's linear as you indicated this is a preface there.

Yeah, Okay perfect. Thank you very much.

Yes.

Our next question is from the line of Mark Wilde with Bank of Montreal. Please go ahead.

Good morning, Dan and John Scott.

Alright.

I Wonder Dan can you.

Can you just give us some sense about the impact of these kind of global freight and logistics issues on both the flow of can sheet, but also just how it's affecting your ability to ship cans around market to market. This year.

Yes.

The challenges and we're extraordinarily tight.

<unk>.

So we haven't seen much of what you are describing but there is always the potential.

As we continue to grow as we have tightness and these domestic markets as the supply chain and every.

Industry are getting extended.

The challenge will be if we had to dip into.

Non domestic aluminum.

If we had to dip into China, where the overwhelming majority of excess metal is and the world.

And we know those freight costs are much higher than they were a year ago 18 months ago, two years ago and.

The real risk, though is probably more our ability to potentially pass through that cost, it's just getting it hung up and.

The ports right now so.

I would see the risk being more on being able to fill demand profiles. If we had to go that route and not being able to potentially pass through the inflationary pressures on the delivered.

And that will.

But that got it.

Areas that we're paying attention to.

Okay.

And then just in terms of your own shipping around of cans, this year and bringing them into North America and in particular.

Yes, it's got more to do with the consistency of the delivery and the predictability of when we can get those LPL carriers. Our team has done a really nice job of managing it but.

Anything that we have to do that spot price related.

And that doesn't fall within the bounds of contracts that we previously negotiated.

Those those are accelerated and those at times can be challenged for us to pass those through.

Okay and you.

Dan just for my for my follow and you've mentioned.

Contracts and terms and in your commentary and I wonder, particularly with regard to Europe. If you can just perhaps put a little more color around that.

Yes.

And I think we indicated this briefly and our Q1 comments Europe.

If you look back over the last three years, North America, and South America has felt the.

Supply constraints, and the tightness faster and and.

And with much more conviction, if you will and so that has enabled enabled a very different.

Seat at the table, if you will of negotiations.

The first quarter and the tail end of Q4, and Europe has have shown up and a very similar way and so I would say moving forward.

Europe, if you look at our gross profit and our contribution margin, it's as good as anywhere in the world.

Wouldn't indicate theres a whole lot to be gained there but in terms of terms and conditions.

And maybe longer term contractual opportunities and those things I could see those moving in a different way than what we've experienced historically and.

And stepping into this moving forward if the market continues to be as tight as it is.

Okay. That's helpful I'll turn it over thanks very much.

Our.

Next question is from the line of Gabe <unk> with Wells Fargo. Please go ahead.

Good morning, guys. Thanks for taking my question.

Two maybe quick one Dan you mentioned importing and into the U S until this and modules.

And Kentucky and.

I'm kind of piggybacking off the sales question in terms of contribution down in South America.

By my calculations and the 14% volume growth gets you $12 million to $15 million.

And the incremental contribution from them.

Curious if it was the and that you are producing down there and maybe bringing them into the U S debt to help pay debt.

I guess that's question number one and then when that goes away, perhaps the profitability stays down there as you ramp up this capacity there and can you sell the and locally as opposed to into the U S.

Yes, that's it.

Good question, there's a bit of that happening and we're shipping some and it's not going to be material to those results. It was just that it was just a damn good quarter and South America good mix.

Good volume.

And there wasn't a modicum of shipments up from South America, and in North America, and ends and we're doing a little bit out of Europe.

And to your point as that will require less capital investment and the aggregate package moving forward as we free up that capacity back into those regions.

So it should be it should be as you indicated a win win win for multiple regions as it relates to standing up bowling Green.

Okay, and I think and the press release, you guys mentioned favorable price mix down in South America.

I thought the.

Specialty mix.

Portion of cans was pretty high already.

I'm kind of interpreting that as maybe a little price comment and I expect that would persist through the balance of the year I guess can you confirm that.

And then kind of a secondary question I read and interesting article talking about Canadian craft Brewers importing cans from places like South Korea, and even China.

And it strikes me number one kind of interesting from a logistics standpoint, and number two how do you guys start to balance from a commercial standpoint with.

Not enticing unwanted capacity or investment versus obviously getting paid and for what you guys have talked about in terms of complexity and stuff like that.

Yes, I think.

<unk>.

Part of Europe.

Question I would think about it more in terms of customer mix favorable customer mix as opposed to you draw such a fine line, we talk about price and customer mix almost simultaneously.

We could add a bunch of accountants.

Segment that stuff out, but the reality is you get an average higher price for the same same product family and it can be driven simply by customer mix.

And the second question was about the small Canadian Brewers. This is a very delicate balance because as Dan has said repeatedly we're oversold number one number two we have long term contractual commitments to the larger customers and so some of this innovation that typically comes from these.

Smaller I don't want to call them startups that smaller regional customers typically they are the more of the list price type of customer that Dan was referring to and the prepared remarks, and when you don't have capacity.

Theyre looking somewhere to get them and so you are right that the supply chain complexity of bring cans and from.

Across the world as intense not only from a cost perspective, but just a complexity of the supply chain perspective. This is why again, we're trying to get our.

Capacity ramped up as quickly as we can because I think it's going to open the debt.

Door in terms of incremental innovation by not only the large customers, but the small customers as well and.

And Theres a number of small customers that were in contact with that they've put new can lines and but they didnt really order ahead in terms of cans and and so we're trying to help them out as best we can given the constraints and we have and our system right now.

Thank you guys from detail and good luck.

Sure.

Our next question is from the line of Jason <unk> with Carson Wells. Please go ahead.

Hi, guys. Thanks for taking the time I was wondering on debt.

Previous call you talked about some of the innovation that we've seen over the last couple of years in North America, and starting to spread to Europe.

And I was wondering if you could give us any update on debt.

As far as the innovation and Youre seeing over there and also is any of that spreading to South America or is that still a conversion from glass to aluminum phenomenon.

Yeah. Good question I think we were talking specifically about the Seltzer movement and there are countless questions on that will we see that and other parts of the world.

And by everything we're seeing and hearing it will show up in Europe, and Western Europe first I know capacity is being added.

I'll go back to my comments that everyone's on allocation over there were oversold. So I think innovations are.

We'll be it'll be a longer supply chain and a longer pipeline for for those to show up and a meaningful way, but they are they are out there and the market, specifically and the U K and.

And South America.

We are seeing innovation.

I don't think you can under estimate.

Within beer the beer category Theres been a huge shift into different ingredients craft beer hops from Europe. All of that has been transitory and the last three years to four years and it's now change the landscape altogether.

Those.

Disrupters in the marketplace that started there all came out and cans and that was really the tipping point for the incumbents that have returnable glass.

And kind of wake up to the fact that we probably need to match, what's happening because we're losing share and so your comments right. It is returnable glass, but the returnable glass shipped I could I could probably characterize that it came as a result of innovation and innovation and the cans and.

And we see that there is still plenty of room for that to grow.

I think I indicated in my prepared remarks, only 51% can penetration and the.

And the first quarter and Thats down from North of 60, and the third quarter last year and that's just.

A function of.

Tight supply from cans and the marketplace.

France, where we're past the top of the hour, we'll take one more question. If there is one.

Okay and last question and then will be from the line of Phil Inc. With Jefferies. Please go ahead.

Hey, guys. Thanks for squeezing me in.

The last few quarters, you've seen really strong performance out of Europe, and that's during a period when your seasonally slower so what's driving the strong results and can you build on this in the coming quarters, when you can factor and seasonality.

Yes, it's been overwhelmingly it's been beer.

I think some other customers who have had success.

There is an underpinning and thats a heavy on premise market. There may be some underpinnings that theres been a shift and it and a little further and are moving to cans.

But even as things start to open up over in Europe, We're still seeing that continued strength.

We have got a heavy presence as you know and Russia, Russia continues to.

Bear fruit, we have a heavy presence and.

The energy category.

And thats doing well and and the UK has just been on fire and.

It's a combination of.

And the anti plastic sentiment there and.

Additional fillers coming into the UK.

And so a number of those are factoring in but.

We still believe and Europe, it's got the lowest can penetration of any major region and the world.

It's really underserved I think the folks that have been so heavily weighted to on premise are starting to wake up to the fact that we need to.

Divest our supply chain.

And I think cans are going to do really well there.

For the foreseeable future and.

And I'll just finish up from a longer view.

Since we acquired that business from 2016, our folks have done an amazing job on the cost side of the business and so from a financial results perspective.

I think in addition to all of the mix and other growth opportunities. Dan was just talking about from a cost perspective, I think we're in such a better spot today than we were 345 years ago and that business.

Got it and that's really helpful.

And I guess, a competitor of yours and called out higher inflation that could impact your margin I think particularly in North America and they called out coatings.

Is that something we should be mindful of and having more of an impact on your profitability in the coming quarters.

And inflation is absolutely something that we're keeping our eye on it is happening in every industry.

Specific to that particular area.

We have pass through mechanisms in place we've got longstanding contracts.

Based on what we're seeing and what we're hearing from our supply base right now it is not overly concerning.

I think we can manage that.

Scott.

And once they got and the margins just.

Be careful and margin percentage, because if you look at metal costs year over year, there's going to be huge variations. There was a 24% difference and the first quarter of this year versus last year higher it will be even more dramatic than that and the second quarter. So youre going to see weird things from a margin percentage standpoint, but to Dan's point.

I think we have good pass through mechanism, but it shouldnt impact our earnings.

And these dollars got it so just outside of the day to Illumina and impact sounds like Youre, managing inflation and pretty well that's great. Thanks, a lot guys.

Thank you.

Okay, well. Thank you all France. Thanks for your guidance on the call and I appreciate everyone's input and we will be speaking to you soon.

You're very welcome Sir that does conclude the conference call for today, we thank you all for your participation and kindly ask that you. Please disconnect your lines have a great day.

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