Q3 2021 Crown Holdings Inc Earnings Call
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Thank you for standby the conference will begin momentarily until such time, you will hear music. Thank you. Please continue to hold.
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Good morning, and welcome to Crown Holdings third quarter 2021 conference call. Your lines have been placed on listen only mode until the question and answer session. Please be advised that 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 Andy 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.
Clothing, and our Form 10-K for 2020 and subsequent filings.
Earnings for the quarter was <unk> 79 per share compared to $1.59 in the prior year quarter adjusted earnings per share increased to $2 <unk> in the quarter compared to $1.96 in 2020.
Net sales in the quarter were up 17% from the prior year, primarily due to the pass through of higher material costs and increased beverage can in transit packaging volumes.
Segment income improved to $379 million in the quarter compared to $367 million in the prior year, primarily due to higher sales unit volumes.
As outlined in our release, we currently estimate fourth quarter 2021, adjusted earnings of between $1 50, and $1 55 per share.
Full year adjusted earnings of $7 50 to $7 55 per share.
Our expected adjusted tax rate for the year is between 23 and 24% consistent with our nine month rate.
I'll now turn the call over to Tim.
Thanks, Tom.
Good morning, everyone and thank you for joining US today, our continued best wishes for the continued health and safety.
You and your families.
Before reviewing the third quarter results, we want to again express our sincere appreciation to our global associates.
For their continued efforts during the ongoing pandemic with many of us know vaccinated.
We're moving in the right direction, but we should expect the next several months to remain challenging as COVID-19 variance make their way through various populations again, we ask all of you to remain vigilant.
And protecting yourselves your family members your associates and your communities.
Demand remained strong across all product lines and geographies with the exception of Vietnam.
We're hard lockdown measures by the government essentially curtailed all business in consumer activity for much of the third quarter.
We expect Vietnam will slowly reopen during the fourth quarter.
Reported revenue was increased 17% during the quarter as higher beverage in transit volumes, coupled with the pass through of raw material cost increases offset supply chain challenges.
In the face of these challenges we continue to grow earnings.
And in July we discussed with you the step change in earnings that we have experienced beginning with last year's third quarter in which EBITDA over the last five quarters average is approximately $100 million more than the previous six quarters. Our teams continued to do a great job commercializing new capacity.
Converting that capacity into income growth.
And we look forward to more capacity coming online over the next several quarter quarters.
We're also pleased to report that our efforts related to the environment and sustainability have not gone unnoticed in September ESG ratings provider sustain Olympics again ranked crown in the top position for mitigating ESG risk within the metal and glass packaging sector.
Also during the quarter the company joined the climate pledge.
Where we have committed to be net zero carbon by the year 2040.
The sale of the European Tin plate businesses was completed on August 31.
Going forward our share of net profits will be reflected in equity earnings.
As discussed previously we continue to experience inflationary pressure across all businesses.
Many of our businesses contractually pass through higher costs, including steel and aluminum.
But some businesses will have a timing lag to recovery.
As costs are pass through revenues will increase.
However percentage margins will decline due to the denominator effect of one to one pass throughs.
Before reviewing the operating segments, we remind you that delivered aluminum here in North America is.
It was approximately 75% to 80% higher today than at this time last year.
Lemme and delivery premiums are contractual pass throughs, so reported beverage revenues reflect both the volume increase and the higher aluminum costs.
After reading the various analyst reports on magnesium and related aluminum supply I would say that many of you had a very good understanding of the situation.
The concerns related to magnesium as many of you have noted relate to energy curtailments in China.
China has restarted some production recently, so hopefully that eases some of the concerns recently voiced in Europe.
There is magnesium production here in the United States. So we have less concern on domestic supply.
And in the near term, we do not believe we have any supply concerns over the next six months.
Although we continue to monitor our suppliers supply.
In Americas beverage overall unit volumes advanced 4% in the quarter as continued strong demand in North America, and Mexico, offset a difficult third quarter comparison in Brazil.
Our third quarter 2021 volumes in Brazil were more than 10% higher.
Then the third quarter of 2019 however.
However, third quarter 2020 volumes were up 30% over the third quarter of 19 as that country rebounded sharply from the second quarter 2020 pandemic Lockdowns.
A combination of we were never going to have enough cans in our inventories compared to the prior year and a pullback in consumer spending related to inflation concerns led to the lower sales this year.
We have seen consumer slowdowns in the past in Brazil. However, the market has always recovered to even higher levels.
Late in the third quarter, we began commercial shipments from the second line in the bowling Green, Kentucky plant with a third line and Olympia, Washington, now operational here in early fourth quarter.
Next month, we will begin operations on the second line in Rio Verde, Brazil.
Followed by a late first quarter 2022 startup on a second line in Monterrey, Mexico.
New two line plants and Uberaba, Brazil in Martinsville, Virginia will come online late in 2022.
Followed by the new two line plant and Mosquito, Nevada scheduled for a mid 2023 startup.
Yes.
A lot of activity, but the team is fully committed to continue our growth with a well balanced customer portfolio.
Unit volumes in European beverage advanced 5% over the prior year with strong volumes across most operations in this segment.
Inflation offset unit volume growth with freight utilities and labor being most notable.
And with inflation expected to remain elevated across Europe, we projected income will decline in the European segment in the fourth quarter and during 2022.
In Asia Pacific unit volumes declined 8% in the quarter, owing entirely to a 55% contraction in Vietnam.
Excluding Vietnam unit volumes grew 20% in the quarter.
The Vietnamese government instituted hard lockdown measures to curb the spread of Covid and its variance.
And for example, a hard lockdown means that youre not allowed to leave your house in the Army will deliver to you all food and essentials.
And while we expect Vietnam will slowly reopened during the fourth quarter. We do expect that from time to time, we will be subject to various lockdowns or movement control orders as the various countries look to prevent the spread of Covid.
Our new plant in <unk>, Vietnam is now qualified to begin commercial shipments to customers.
As expected transit packaging had another strong quarter recording double digit gains in our revenues and segment income.
Growth in steel strap tooling and across protective packaging offset inflationary headwinds, notably free.
The business continues to navigate supply shortages transportation delays in inflation.
And remains well positioned to continue to grow earnings in the fourth quarter and through next year as these conditions ease over time.
Performance in our North American food and beverage can making equipment businesses remained firm throughout the third quarter and earlier in the year. We commenced operations at our new food can plant in Dubuque, Iowa and during the third quarter, we began commercial shipments from our new two piece food can line in our Hanover, Pennsylvania plant.
These line additions provide much needed capacity to our domestic supply footprint.
Allowing us to eliminate imports and we expect significant improvement earnings from food in 2022 as these new lines come through their learning curves.
So in summary, a very.
Strong first nine months of 2021 with EBITDA up 26%.
As described earlier, we have several capacity projects recently completed and are underway and are pleased to reconfirm. The 2025, EBITDA estimate of $2 5 billion.
<unk> provided during the May virtual Investor day and.
The near term, while we may have experienced inflation.
And supply chain related headwinds over the next few quarters. We currently expect 2022 will be another strong year of earnings growth with EBITDA estimated to be approximately $2 billion.
In addition to North American food, our beverage can businesses in North America, and Brazil, and our transit packaging business are all expected to have strong years in 2022, allowing us to earn through the dilution related to the European asset sale and headwinds from a persistent inflationary environment.
Before opening the call to questions. There are a number of you in the queue. So we ask that you. Please limit yourselves to no more than two questions. So that others will have a chance to ask their question.
And without any I think we're now ready to take questions.
Thank you we will now begin the question and answer session participants to ask a question you May press star followed by the number one please.
Your phone and <unk>.
Please record your name and your company for both will be client retention you. Miss Your question again, I'm sorry, once you're asking questions. Your counsel you May press star two.
Our first question will be from the line of Ghansham Panjabi of R. W. Baird. Your line is now open. Please go ahead.
Thank you good morning.
He is doing well.
Okay got you.
Good morning, Tim first off in North American beverage. If you said this I missed it, but what where industry volumes for the quarter or do you think for <unk> and then how did you track relative to that I know, you're adding some capacity.
In terms of commercialization et cetera, and then second in terms of the supply chain constraints that you.
Discuss can you just give us a little bit more detail into what exactly you're constrained with at this point.
Sure.
We do not have industry volumes anymore of the CMI does not collect.
Nor publish.
Industry volumes I can tell you in North America, we were up 7% in the third quarter compared to the third quarter of last year.
And I want to say a year to date, we're probably up on the order of 9%, let's say, 9% over the prior year in North America.
We also had gains in Mexico.
Let's say, Mexico, might've been up 10%, 11% in the quarter and the Brazil declined.
It was 15% compared to last year's third quarter and as I mentioned.
The third quarter of.
2020 versus 19 was up 30%, but if you if.
If you try to normalize the activity we had.
Given the pandemic lockdown in quarter.
Third quarter this year compared to third COVID-19 was up 10%, so roughly 5% each year. So.
We still are in the can business. So I would tell you that.
We're pretty pleased with if we had 5% growth every year in a market we'd be pretty excited <unk>.
Supply chain challenges specifically.
Specifically in our European beverage business.
The availability of freight and drivers.
We're seeing that as well in the United States and we're seeing that in transit here in the United States.
And then the while transit had a very good quarter, we could have even had a much better quarter.
Part shortages, so we like many other companies.
Struggling to get enough parts.
And other required materials.
To really to really take advantage of a very strong environment.
Business environment, having said that we are doing pretty well in transit we could have just done better it's just a little disappointing.
Okay, and then on the magnesium shortage just to just to clarify so on.
Have your suppliers.
Third force majeure in any way.
The region that you have exposure to and.
You know I guess.
A lot of capacity here in North America, or others and that has been stressed in the supply chain. Even further in terms of access. So just your thoughts in terms of risk management, how are you sort of ensuring that.
Youre managing procurement.
So we have not had any suppliers declared force majeure.
Related to magnesium supply and door.
There can sheet rolling capacity.
You're right, we like others have announced significant capacity expansion in North America to meet the needs of our customers growing portfolios.
We typically.
Contract with our suppliers.
Such that we do not believe we have any supply concerns in the north American market for all of the projects that we've announced.
Yeah.
Got it thank you.
Youre welcome.
Thank you. Our next question will be from the line of Anthony Pettinari of Citigroup. Your line is now open.
Good morning, this is actually Brian birchmeier sitting in for Anthony.
Last call you mentioned, a $5 million impact from supply chain disruptions in transit.
It sounds like that got a little bit worse in <unk> is it possible to quantify what the headwind was and what is the timeline for recovering those costs.
Yes, that's a great question.
Yeah.
Hum.
You can put whatever number you want in there, perhaps perhaps our segment income could have been three to $5 million to $7 million better in the third quarter I don't know if I would tell you that you can add that to the second quarter shortfall, perhaps some of it.
The timeline to recovery, it's kind of interesting Brian if you went to the supermarket.
When you were looking for your favorite snack food and let's say you get to the supermarket and the shelves are empty.
The question is do you run around to another supermarket and try to buy that snack food or do you just go home and say you know what I can do without it so.
So I don't know.
The customers, especially as you get towards the end of the year.
And they look towards.
Trimming what they spend through the end of the year.
They pushed out their spending or the following year when they get a new budget I don't know how much of that is.
We will make up the purchase.
From our supplier versus will just learn to do without for a few more months.
I don't know if I've answered your question, but in all honesty.
I think supply shortages curtail.
Curtail GDP there is no there is no promise that youre going to get the sale in the future just like just like you go into the supermarket you may just learn to do without.
Got it. Thank you that's very helpful and for my second question, how would you characterize raw material availability amongst your suppliers for things such as inks in coatings I know there's been some strain in the pet Chem markets.
And how would you characterize crowds of labor availability and staffing relative to your expectations.
Yes, I don't I don't think we have.
We have I am not aware of any coatings.
Coding challenges, we have with procuring supply.
Obviously the market the energy markets the oil markets are.
Quite strong in.
So the coding guys.
Input cost and they're looking to pass that onto us.
Labor, we like everybody we have.
Depending on the region we're in.
Particularly United States being a little bit more challenging procuring all the labor that we need we are able to.
Staff and run the factories and not miss shifts but.
It's not ideal I think.
We all know what's happened in the United States, where.
We've turned our economy into.
When economy, where anybody had the opportunity to succeed if you work hard to an economy, where people and I'll say I don't need to work I'll just get a free hand out from the government. So we all know we all see what's happening.
We'll see how long this persists I think.
A shock.
Not a shock right.
We kind of know what we voted for last November so.
We will see if it gets any better but we like others. We're we're.
We're having to find creative ways to run our factories.
Got it thank you I'll turn it over.
Thank you.
Thank you. Our next question will be from the line of George Staphos of Bank of America Merrill Lynch. Your line is now open.
Very much hey, Tim how are you hi, everybody. Thanks for the details.
I want to come back to the question on aluminum supply and magnesium and I recognize this is kind of difficult to talk about live mic.
Said in North America, you expect you should be able to have.
No issues with supply for the projects that you have.
Correct me, if I Miss phrase anything that you've intended the way you wanted to communicate that but in the areas, where you might have supply constraints, where you won't have enough aluminum for your capacity.
What are you doing at this stage of the game given what you see as a potential shortfall I think you said six months from now to try to avoid that being an issue whatever.
Whatever you can share would be great and then I had a quick follow on on Europe, and the guidance there.
George Carlin, if the Chinese decide they're going to curtail energy production.
Or whatever.
Scam theyre trying to pull on the global community related to their climate pledge and if you really believe that we're in.
I just don't think they are trying to which stores the rest of the world.
And extortion is a word that one of the analysts used in describing magnesium prices.
Listen I think if there is no magnesium.
And we like others are going to have an issue not just in the can business in aerospace and every other business across Europe.
We don't we don't see a problem in the United States there is domestic supply.
Bad debt that domestic supplier.
I think as taking advantage of the situation from a price perspective, but I think they.
They have adequate means and availability to continue to produce magnesium.
But there is no magnesium.
Then.
Road and stock is going to become very difficult can stock is is less problematic given that we can make can't they can make can stock.
From higher percentages are 100% recycled material and there's enough magnesium and other alloys and the recycled material to do that on the <unk> stock theres less recycled material used.
The alloy content, a little higher just to make it make sure it's hard enough. So.
I'm not going to.
Given that on the first guy talking here I'm not going to be the one to take it on the chin.
Listen.
The can industry is not going to be the only industry with a problem if theres not enough magnesium into Chinese decided to shut it all down.
But I think for the next six months, we don't see an issue.
Is there an opportunity.
I think there would be given what you've said in the past that capacity constraints, but is there an opportunity perhaps to frontload. Some of your production for your customers to get ahead of what would be the supply chain shortage six months from now or is it zero sum game and Thats unrealistic in the first place.
I don't think youre going to get any more aluminum from the aluminum suppliers when their contract with the cellular at this point yes.
So trying to.
Manage their inventories so they need supply contracts right.
Fair enough and if you could comment a bit more on your guidance for 2022, and Europe, you mentioned in the fourth quarter to be down that's not a surprise given the comparison and other factors, but what should we what should be the key moving parts in terms of Europe, recognizing supply is going to go on with supply is going to be a big factor in.
To extent that you can even forecast. This at this juncture what should we be thinking about in terms of guardrails for EBIT growth or declines in Europe and 22. Thank you.
Yes, I think I was pretty clear, we're going to have an EBIT EBIT decline in 2022, and our European business, there will be cost headwinds and.
And we do not have any capacity of a significant nature coming online in 2022.
In the European sector to offset those cost headwinds.
We will wait.
We'll wait until February to give you a more accurate number.
We're in the budgeting process now we can pretty much see where we're going to be globally directionally have a pretty good handle but we will we will refine the European number for you.
After the year end call, but it will be down in 2022 versus 21.
Alright, Thank you very much and good luck in the quarter.
Thank you.
Thank you. Our next question will be from the line of Chris Parkinson.
Your line is now open. Please go ahead.
Great. Thank you very much.
It's a little in your prepared remarks, but can you just quickly walk us through.
The situation in Vietnam. It appears as though things were easing as of mid September ever. So slightly so just any comments on that as well as any other markets that are entering what you would perceive at the normalization process.
We approach 2022 that would be greatly appreciated. Thank you.
So I think the yeah.
Only other market, where we see.
Significant production curtailments related to Covid <unk> other outside factors.
Would be me and Mara we have a small operation there. So I wouldn't spend a lot of time worrying about it it's minimal in terms of contribution.
Vietnam is slowly coming out of the hard lockdown measures.
It will take time to refill the supply chains, it will take time to.
Get workers.
Back to the various factories in the various provinces, but province by Province.
Have different measures.
And they're coming back at different rates.
Understood and just as a follow up there has been a substantial degree of.
I guess call it market noise on hard seltzer growth as it relates to the overall Bev can outlook.
Can you just comment on other markets customers and verticals product launches et cetera, which further underscores our confidence in growth and perhaps mention what you believe investors may be missing.
So I think you know you've focused on.
One or two of the large hard seltzer.
Providers.
If the two large guys that you are all well aware of let's say that.
Two years ago, they had 80% of the market and they continue to project that they were going to have growth.
They experienced over the last couple of years.
And keep their market share then.
They were probably foolish for assuming that others wouldn't come into the market specifically others.
But our large beer marketers, who have huge marketing budgets and control a lot of shelf space.
So I think they've lost market share and by losing market share they've lost their growth trajectory having.
Having said that the hard Seltzer category now makes up 10% of the alcohol category from almost zero a few years ago. It is a.
It is a very large category now we don't expect hard seltzer to go away like other alpha.
Alcohol products have gone away in the past. We think this is a product thats going to stay there. It may not grow as rapidly as it has grown over the last couple of years now having said that we're not a very large supplier.
Two the hard seltzer marketers.
We supply one of the guys in a small way we don't supply the other one.
But the other the other products, where we continue to see growth are functional beverages cheese energy drinks juices.
We see that continuing to expand.
Thank you.
Thank you.
Thank you. Our next question will be from the line of Phil <unk> of Jefferies. Your line is now open. Please go ahead.
Hey, Tim.
Pretty encouraging results given the challenging backdrop, I know harmful to kind of give us that $2 billion EBITDA guide for 2022.
Given that Youre expecting Europe to be down what are some of the other areas, where you're going to make things up assuming energy might be slower to come back as well.
Yes, it's a good question right so.
Europe will be down.
Asia will be flattish.
At this time, you put a budget together, Phil we're trying to be.
Trying to be reasonable I'm, not here, giving you $2 billion, because I want to come back next year.
And tell you, it's not going to be Cuba, and I'm, giving you $2 billion, because I had a a level of confidence in that number.
Kind of earlier that we're giving it to you now.
Then we have in the past, but we wanted to put some context.
Around some of these temporary situations be it Vietnam and Brazil.
The other three main areas will be better as I said in the prepared prepared remarks, North American Brazil beverage.
We will be up.
Again significantly over this year new capacity fully online.
And bowling Green on the Olympia through next year, a new second line in Rio Verde in Brazil next year.
And transit packaging.
We'll again advanced next year off of this year's numbers.
And then as I said, we've got.
Two new can lines in the food business and we will replace.
Imported cans that were coming in from Europe.
With local domestic production that we are making here as opposed to buying in from the business. We just sold.
So not only do we save on that we save on freight, but we have more production available for what we see as a very steady to.
Growing food can backdrop going forward.
Super that's really helpful. And then given the amount of inflation Youre seeing and Tim Correct Me. If Ron you had these contractual pass throughs theres a lag for certain components. It sounds like the pass through mechanisms working pretty nicely in Americas for next year. So we should see.
EBIT margins on an apples to apples basis inflect, because it's kind of flattish in <unk> and then what's the issue of Europe. I mean, you are calling for.
Some compression is that just mostly timing related or is it more on the.
A potential shortage on magnesium.
No.
We discussed regarding flattish in Q3, we discussed the pass through of higher aluminum.
If we sell $10 worth of materials, and we make too that's 20% if we sell $20 that we make to that 10% so of aluminum.
Doubles, which it almost has over the last year Youre, just going to get the denominator effect.
It's a lower percentage margins as I said, it doesn't mean absolute margins go down interest.
It's the pass through impact of the denominator.
I'd be careful.
Oh.
Trying to assume.
That's the denominator effect is going to reverse going into next year aluminum appears to want to stay at these elevated levels.
Both the <unk>.
And the delivery premium.
As well as the conversion prices charged.
From from the mills to get from ingot to can sheet.
And I think we will see that.
In every market.
Pass throughs conventionally pass throughs are.
Historically well placed throughout our.
U S businesses and to a lesser extent some of the international businesses, where we have some time to recover.
To recover those cost increases or.
Repair those contracts over time as contracts come due with customers.
Okay potentially.
Potentially more of a opportunity to repair some of that in 2023 on the European side in terms of better flow through.
Yes, okay.
Okay. Thanks, a lot Tim I appreciate it thank.
Thank you.
Thank you our next question will be from Glenn.
Sean of BMO capital markets. Your line is now open.
Hi, good morning.
Good morning, Jason.
Good morning, you've been very aggressive on share repurchases year to date and I know some of that is due to the proceeds from the sale of European Tin plate, but can you give us some sense on how youre thinking about share repurchases for the rest of this year and maybe into next year.
Yes, so what I would say is that.
Prior to receiving the proceeds so if you go back to the June 30 balance sheet, you'd see that our leverage.
Prior to the completion.
Of the Tin plate sale was three six times and Thats down from a little over five times.
After the transit acquisition so.
On our own with income growth and debt Paydown and cash generation, we were down to three six times.
We closed the tin plate sale.
I would describe to you we never had a debt problem.
We knew we were going to generate cash and pay the debt down a lot of people like to get worried in the near term but.
The one thing you know from following packaging as we all generate pretty consistent.
Cash flows from the operations and depending on what we do with capital allocation Capex dividend share buybacks.
Depends how much debt, we can pay down and.
So we did aggressively pay the debt down and we got our leverage down to a mid three range, which is.
Pretty reasonable range, given the amount of cash flow youre going to generate so fast forward to the end of August.
We know that we know the deal's going to close.
We know we're going to have all this cash pile and we know that that is going to go down even more.
We know we're going to pay off some debt that comes due in 2022 and 23 as we know.
Noted for you on the footnote to the balance sheet.
But yes, what else what else do you want us to do with the cash so we.
We aggressively went out and bought back the shares.
I would tell you that.
While we bought roughly $750 million.
We have an outstanding authorization from the board of $1 5 billion.
Before we get into next year and I guess, we will do it at the December Board meeting, we will have to ask the board for a new or higher authorization to buyback shares.
Because we won't have enough authorization, but only 1 billion of half between what we're going to buy this year and next year. So.
The answer is you should expect more of the same the exact numbers I won't tell you but.
It could be over the two years combined we buy somewhere between $1 billion happened 2 billion stock between 'twenty one 'twenty two.
Pretty pretty significant level.
When you look at.
The market cap of the company as we sit here today.
Yes.
Very helpful. Thank you.
Hmm.
My second question can you talk a bit more about that in UK pension moves that you announced recently, especially the financial implications because I think you talked about a $1 3 billion noncash charge and the cash contribution maybe if you can just run through what we should expect for that.
So I'll start and I'll, let Tom do all the details.
We.
We sold a very large business in Europe.
Business had.
Over 300 million of EBITDA on a standalone basis.
It had a number of employees throughout Europe.
Ed.
Legacy pension liabilities, specifically in the United Kingdom, very large plan in excess of $2 $5 billion with assets to support it.
And our view was that as we became smaller in Europe after the asset sale the.
The most prudent thing to do was to relieve the balance sheet of any future exposure.
Income and our cash flow wise from a liability that was no longer supported by assets or operations.
As we sold the business.
I'll, let Tom described for you the cash needed to affect that.
Specifically why the write off was noncash.
Yes, I know John on ongoing basis.
It really won't have much of any impact on the income statement we were.
Close to zero when you consider the return on the assets and then the expense side of the equation. So really nothing going forward. The one 3 billion is.
Essentially a release of.
So what you would call deferred losses that are sitting in equity that were recognized in equity some time ago. So that's that's an accounting entry and is not doesn't involve any cash.
The cash as we disclosed in the release was a let's say a permanent contribution of about $96 million.
And then there is a what I'll call an advance or alone of another 170.
That will be repaid as the remaining a residual illiquid assets in the plan are sold and the money comes back to us So thats.
Of that $1 70, or so I would expect that number to be down to about 100. So we would have gotten 70 back.
By the end of this year and most of the rest of it to flow through next year.
And when Tom says illiquid.
You'll appreciate that.
Private equity infrastructure real estate assets like that that are not as liquid oval liquid as marketable securities. So instead of doing a fire sale, we're going to take our time seldom get full value and.
Way to do that was through the loan to the pension plan.
Okay. Thank you that was very helpful. That's it for me.
Thank you.
Thank you. Our next question will be from the line of Paul.
Your line is now open. Please go ahead.
Yes, hi, thanks for taking my questions. So my first question is a little bit on Brazil.
Sure.
And you mentioned Albert over 2019, but.
I love the market players have been betting on very significant demand growth there and there's a lot of it would be some of our competitors. So how do you see demand going forward. Despite the tough comps, we're ready because we do need.
Solid growth to absorb all this new capacity.
And we remain long term bullish on the Brazilian market.
I've said in the past.
If we look at the Brazilian our Brazilian experience.
Since 1996, when we entered the market in beverage cans, and if you want to cut that into five year increments or three year increments sure in any three or six months period, you may see a decline relative to the prior three or six month period, but.
Do you want to start cutting this up in two or three or five year increments.
We've experienced nothing other than tremendous growth over any increments like that.
As I said in the prepared remarks, while we have experienced.
Slowdowns.
For a variety of reasons in the past, whether it's the marketing efforts.
All of our customers vis vis the can versus other packaging substrates.
<unk>, a consumer pullback, which there's a mild consumer pullback right now.
We've always recover to even higher levels and we would expect.
That the market will continue to recover to higher levels as we look forward. We're obviously entering.
Their strongest period right now late fourth quarter first quarter end.
And we are bullish on the prospects for high sales.
Through the high season here.
Okay perfect.
Europe regarding basins you are facing.
I'm wondering.
In the U K, where we start seeing our yard cracking shortages are you seeing more severe.
Pressure on volumes and costs that in mainland Europe, how do these two regions compare.
I would say that freight is a bigger bigger issue in the UK and mainland Europe at this point yes.
And with regards to any other costs in the process.
Well I think I think we're going to see utilities not only in the U K, but in some of the northwest Europe also be.
A headwind and obviously labor is a headwind every year.
In the European on the European continent, and on the island.
Okay. Thank you very much thank.
Thank you.
Thank you. Our next question will be from the line of Kyle White.
Your line is now open. Please go ahead.
Hey, good morning, Thanks for taking the question.
Do you have a sense if customers are looking to warehouse more beverage cans than normal given some of the supply chain issues that we're seeing which could potentially negatively impact the Nielsen scanner data relative to your reported volumes.
And any concerns that this could potentially lead to sudden destocking later on.
Well the first thing I would say is there are no cans available for them to warehouse the market remains.
Even in a low quarter like the fourth quarter.
The market remains sold out we're relatively sold out across the board from all suppliers.
There is.
Not any excess aluminum where not only aluminum that the aluminum suppliers are willing to give you an advanced understanding of that theyre trying to make sure. They meet the needs of their future supply contracts and we're doing the same.
Typically our customers do not warehoused cans.
And they don't like to fill in warehouse filled goods for any period of time.
As they all look to market.
On sell by dates so the answer is.
We're not concerned about a destocking in the future because there will be no.
Advanced stocking right now.
Okay. That's helpful. And then on did you guys give a headwind from startup costs related to the second line in bowling Green as well as the additional line of Olympia and how are those startups relative to your expectations.
We did not give a number.
<unk>.
Again, we have startups.
Almost every year and every quarter so.
The impact on startups is.
It is really the carryover effect is it more or less than it was in the prior year quarter. So we've tended to.
To not use that as an excuse if you may if you will.
I would characterize for you that the first line in bowling Green came up.
Well as any line we've ever had.
And that includes our Brazilian experience, which has always been very strong.
The second line coming up well not as good as the first line obviously, we're spreading labor now over two lines in training more more workers, but coming up quite well in Olympia.
Olympias, starting up well also.
Got it thank you I'll turn it over.
Thank you.
Thank you. Our next question will be from the line.
Wilson.
RBC capital markets. Your line is now open.
Great. Thanks for taking my question. Thanks for all the details. So just I guess I just wanted to get back to the magnesium issues I'm sorry to belabor This point, but my understanding is.
There's more and more of it used in ends maybe three or four times as much and.
Could you just comment on I know that you feel secure for the next six months, but beyond that timeframe.
Are there any measures you guys could take two.
Potentially switch around the sourcing or maybe substitute different products.
Is this is this at all causing you guys any kind of concern.
And then just again, if you could comment on the end part and clarify that for us as well.
Alright, listen I think the major concern we have.
Is that suppliers of magnesium, whether it's the U S supplier and the Chinese.
Our taking advantage of a situation to extort higher prices for our suppliers, who pass it onto US and then from a suite and pass it onto our customers and then our customers then have to pass it on to the consumer.
That's our major concern.
It just makes the package more expensive.
How long.
That extortionate.
Activity last we'll see.
I do think.
There is enough magnesium in the United States, we're just talking about price.
I think the Chinese situation depending on.
How much influence China wants to have in the global markets with respect to.
The variety of raw materials that they have in their country boundaries and how they export raw materials.
And how they try to control global economic growth.
Will dictate how much magnesium is available for other markets.
I would be very interested for you to ask these questions to the other beverage can suppliers, so that perhaps I learned a little bit more as well but.
I said it earlier aruna.
If the Chinese don't release any magnesium.
And our suppliers of aluminum in some markets don't have any aluminum then yes, there is not going to be aluminum for cans for all the companies not just for crown theres not going to be aluminum for aerospace theres not going to be aluminum for cars.
And.
You guys need to take a step back.
Okay. Thanks for that and then I just wanted to also ask about go back to the growth of the market. The next couple of years or so so yes.
You outlined the scenario in Brazil, where it looks like there is still about a 5% CAGR over the last three years.
When you think about North America, just given the products that.
Slated to come out some of the gyrations from Covid.
The perception that there was a pull forward.
Are you still kind of thinking that the CAGR.
Between 2018, and 2025 that period that you were talking about.
Kind of mid single digits or.
How should we think about kind of the longer term growth in the market.
I think thats about right I don't think we've seen any any pullback post COVID-19. If we really are post COVID-19, but let's assume.
Where post Covid I don't think we've seen any.
Noticeable pullback.
At this point tell us we need to revisit.
Our expected growth in the market over the next several years.
Okay. Thanks.
Thank you.
Thank you. Our next question will be from Adam Samuelson of Goldman Sachs. Your line is now open. Please go ahead.
Hi, Thank you good morning.
A lot of Ground's been covered this morning I was wondering.
Against that $2 billion EBITDA forecast according to.
Where do you think capex is going to shake out.
On the Capex outlook broadly.
Are you seeing any supply chain and cost inflation impacts some of the costs for some of your new projects and how is that influencing future returns and in your mind.
Yes, so we touched on this a little bit.
Last quarter.
I would say we're going to spend.
We've outlined a number of projects for you already so the spending for next year could well be $1 billion.
As we look to put more capital in the ground globally and continue to grow the business.
<unk>.
We're thinking we're spending roughly $900 million this year.
We'll see if we get it all in your the second part of your question.
Supply chain challenges I think built.
Building materials building packages construction steel.
Obviously in high demand and from time to time there are delays. So we'll see if we get it all in in time or where were delayed three or six months.
As it relates to returns.
Yeah. So.
If construction costs are higher.
It will have an impact on on future returns, but I think what I said and not to be dismissive of returns.
But I think what we said last time.
When we build a factory we expect to be in that location for 40 to 50 years.
You're spreading out that additional cost over a longer period of time and I appreciate that returns.
Returns in IRR earned in the early years and the higher initial outlay returns reduces returns, but we are in business.
To grow our business.
To deliver products to our customers grow with our customers and find other ways to offset that.
Those costs so.
Incremental construction costs upfront are probably not going to change our mind.
Given the demand from the customers and their willingness to engage in long term contracts to meet their demand.
Okay. That's helpful and then just quickly.
As we get closer to the end of the year, what what's your latest view in terms of total imports.
Imports into North America for 2021.
I'm looking at Tom to see if he's got a better number.
Good morning.
Yes.
Yes. So Tom is telling me were through the first half of the year. We were over 9 billion. So I think we're we're.
We're probably looking at a number like 13% to $14 billion as an industry. This year.
And our number will be.
A couple of billion dollars somewhere between picking.
Pick a number somewhere between one eight and $2 5 billion of that.
Hopefully.
As more capacity comes online.
These numbers come down in the future and those cans are available for their local markets in the future.
Alright, great I appreciate the color I'll pass it on thanks. Thank.
Thank you.
Thank you. Our next question will become the line of Mike Brosnan of Julien. Your line is now open. Please go ahead.
Hi, Good morning, Tim and Tom Congrats on a good quarter.
Thanks, Mike.
Most of my questions have been asked just two quick questions.
Following up on the comments earlier.
That's a small component of your business can you can you just help us think about how the new plants, you're building and that are starting production relate to hard seltzer.
In terms of those like how much of our business lines are related to horizontal or are they focused elsewhere do you really need to adjust your current production plan given the fact that hard Seltzer is two point Tim.
Dramatically from a couple of years ago.
So we've what we've commercialized two lines already in bowling Green, we've announced Martinsville.
And we've announced mosquitoes, Nevada.
I don't think.
I don't want to give too much too much away here theres other people listening, but there is a <unk>.
Very small amount.
Of those six can lines.
That were ever anticipated for the hard Seltzer category I'll, just say that.
Okay.
I appreciate it.
Okay.
Okay.
Yes.
Okay.
Okay.
Okay.
Sure.
Okay.
Got it.
Right.
Okay.
Maybe.
Okay.
Okay.
Okay.
Okay.
Customer contracts.
Hey, good customer.
Yeah.
Marine facilities.
So the specification.
And what the.
The customer wanted.
Yeah.
We believe.
Slowly reopening.
Yes.
Okay.
In these markets.
Delayed production.
Start up for the Spanish.
Okay.
Okay.
Sorry.
Thank you.
Thank you.
Okay.
Okay.
Thank you ladies and gentlemen.
Okay.
Thank you.
Sure.
Okay.
Sure.
Okay.
Should we think about that.
Thank you Earl.
Yeah.
Yeah.
Okay great.
Okay.
Great.
Okay.
Okay.
Okay.
Okay.
Okay.
No.
Categories.
Okay.
Okay.
Point down the road.
Consumer.
Sell throughs.
That's probably going to Kansas.
Sure.
Yes.
Good question I think you can look at it.
You can see.
One is the economy.
Bars restaurants open back up there's going to be more consumption.
Okay.
Yeah.
Okay.
Okay.
Okay.
Yeah.
Okay.
Drop the order.
The seller as well so.
Sure.
Got it.
Our itself, which only comes in you can shrink.
Frank.
Okay.
Right.
Sure.
Mark.
Okay.
Yeah.
Yes.
Great.
Okay.
No.
Yeah.
Measuring a proper.
Controlling.
We're getting given away so we would see that.
The real future.
Future benefit to the can market, we'll see how it plays out.
Number of different ways to look at it.
As I said I think.
Okay.
Hard Seltzer category.
As a significant category, 10% of the alcohol mix I don't see it.
I don't see it declining to seven or 8% I see it staying at 10% or perhaps creeping up a touch over time.
And we will see what the marketers of alcoholic beverages, and perhaps people that are not in alcohol, yet decided to get into alcohol.
What products they will choose the market in the future and we're very confident that they're going to use the can to market those products.
Okay makes sense, thanks, and then.
And then.
One quick follow up.
As mentioned of the 8 billion cans are imported into North America last year any ballpark estimate as to how much of that mark to wide imports will be available to ship.
Sure.
In 2021.
So.
Yes.
13 billion cans is is a lot of cans that are we estimate coming into the market in 'twenty one.
We're still going to need cans to come into the U S market.
From certain overseas markets as an industry next year to meet all of the customers needs.
Assuming all the capacity comes online.
Can we cut that number in half I don't know, but there will be significant imports next year.
Just as there were this year I don't expect it to be at the same level, although we'd be thrilled if the demand required.
The new capacity coming online.
Not only that but also a significant similar level, we'll see how it plays out.
Okay, great. Thanks, I'll hop back into queue.
Thank you.
Thank you. Our next question will be from Gabe <unk> of Wells Fargo. Your line is now open. Please go ahead.
Gentlemen, good morning, Thanks for taking my question good morning.
Tim I had a question for you on contract renewals here in North America. If memory serves this year was a little bit of a lower renewal period.
And I also appreciate that some customers have kind of accelerated some things given obviously the tight market conditions. So can you remind us.
For 2022 is there any sizable contracts that are coming up for renewal.
And then kind of focus on U S.
Any market, if you'd like to call it.
There are contracts that come due.
Every year I would.
No I don't want to off too much about it because.
We and our competitors, but we deal with a limited set of.
Of large customers, we all know who they are.
Kind of have an idea where they all sit.
Who supplies them and what the.
The contract terms the contract length as we don't the terms, we don't know, but we kind of know.
Those states I don't want to talk about too much but I would tell you that.
We don't have anything.
Of significance coming due at the end of <unk>.
'twenty, one 'twenty, two or even 'twenty three that we're currently concerned about.
Okay. That's helpful and again I appreciate the candor.
On the China policies, especially given the lack of adherence to even the phase one trade deals with the United States. So.
But I think to the extent that they are doing.
Kind of control policies are real.
That could imply kind of structurally higher aluminum costs for everybody.
Over the next two to three years and so I'm curious from your perspective is that impacts kind of total cost of ownership.
Although package.
Do we see risk that.
It makes I don't know dare, I say PDT or other alternative substrates.
More competitive.
So I think.
<unk>.
It doesn't solve the sustainability issue with PT it doesn't solve the fact that that.
But the oceans are cluttered and streams are cluttered, and Fisher choking and Theres trash everywhere from PDT. It doesn't solve that problem for P. J.
I think what it does do.
Is it.
It reinforces the need given the potentially higher cost of aluminum it reinforces the need to.
To increase recycling efforts in the United States and today.
We estimate that only about 40% of all households in the United States have access or 40% of households in the United States do not have access to curbside recycling.
And if.
If the United States.
Local jurisdictions are serious about sustainability and recycling that we need to get as many people.
Or as many people have to have access to curbside recycling as possible. So we like others, we're working with the CMI and recycling partnership to try to improve these numbers.
Potentially.
That comes about through smart deposit schemes.
Whether it's at the state or federal level, where each material pays its own way, but it does not.
Diminish the importance.
Although aluminum.
As it relates true closed loop recycling it doesn't diminish aluminum.
In terms of its importance in the recycling scheme, where it essentially pays for all materials to be recycled.
And it more than ever makes the recycling of aluminum more important as the cost of the aluminum going in is higher to start with.
So, we'll see where we will see where it takes us.
We like others are working collectively to try to improve those numbers.
It just becomes more important than ever.
Understood. Thank you.
Thank you.
Thank you our next question will be from Adam.
Of Morgan Stanley. Your line is now open.
Alright, Thank you for taking my question.
On the Asia comments around income being flattish next year I was wondering if you could give us some creative.
Puts and takes around that in terms of volume I guess as.
Think about Vietnam, moving hand in fourth quarter and as we think about next year. Obviously the rest of it is continuing to do much better than what we saw with Vietnam, but curious just kind of a broader bridge and how much conservatism might be embedded in that 2022 comments.
Corey fully understanding that it's there.
No.
Yes, so it is early.
For that.
We gave you a $2 billion estimate which.
And we told you to assume Asia, roughly flat year on year, we will have volume growth.
Confident that.
The Asian countries.
Are moving towards.
Treating COVID-19 is endemic as opposed to pandemic.
How long that takes I don't know, but we do think that.
Volumes improved next year I will tell you that the Asian market for.
For a variety of reasons.
Is much more competitive.
In.
Ms of price in the pass through of raw materials than other markets.
So there will be a lag effect.
In terms of passing through increased aluminum cost onto the customer set.
More so in Asia then.
Essentially youll see in the United States and Brazil.
Yes.
Understood. That's very helpful. And then just kind of globally as you.
In terms of the beverage can trends is it possible to break out how much how specialty cans.
In terms of across the different regions within and compared to kind of your broader beverage can volumes.
Yes.
Tom will correct me, if I'm wrong, but I think here in North America specialty cans, probably make up about a third of the.
<unk> touch more of all of the canceled and when we say specialty women everything other than the <unk>.
Standard 12 ounce cans, so whether thats slim cans, and our 16 ounce.
Probably 50% at least of the Brazilian market.
A much smaller number and in the Mexican market, perhaps in the 20% range, 30% range.
You get to the middle East and southeast Asia, depending on country, it could be anywhere from $50 to 85% or 90% depending on country.
And in Europe.
Roughly.
50, 50 ish percent, especially considering that so much of the beer is in.
50 liter <unk> 44 liter cans.
Understood. Thank you.
Thank you.
Thank you. Our next question will be from the line of Jeff Zekauskas of Jpmorgan. Your line is now open. Please go ahead.
Thanks, very much in North America, you said your volumes grew about 7% in the quarter and 9% year to date.
Can you break that up into alcoholic and non alcoholic volume growth.
I do not have that in front of me.
I'm going to.
Youre going to have to talk to Tom, but after the call I would.
I'm going to guess and I could be wrong I'm going to tell you that more of that will be non alcoholic non alcoholic.
And it could be as much as two thirds to three quarters of the growth is nonalcoholic versus alcoholic.
And in Europe, you said youre, not really going to expand capacity next year.
What kind of volume growth through you expecting and why is it that you can offset your inflationary costs more rapidly.
So we don't have any we do have incremental growth coming from recent plant startups in Italy, and Spain that will incrementally add some volume we don't have any.
New projects that come online.
In 2022.
The convention in Europe has been different than the convention in the Americas in terms of what the can makers recover.
From its customer set historically and we are working to improve those contracts over time.
Okay. Thanks, very much that's clear thank you.
Thank you Amit.
Okay.
Is that the last question Andy Yes.
Yes, Sir thank you sorry about that as well. Thank you very much Andy and thank you all for joining us that concludes the call today.
We will speak with you again in early February Bye now.
Thank you and that concludes today's conference call. Thank you everyone.
Sure.
Yeah.
[music].