Q1 2022 Crown Holdings Inc Earnings Call
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Good morning, and welcome to Crown Holdings first quarter 2022 conference call. Your lines have been placed in a listen only mode until the question and answer session. Please be advised that this conference is being recorded.
I'd now like to turn the call over to Mr. Kevin.
Senior Vice President and Chief Financial Officer, Sir you may begin.
Thank you Carrie 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 Dotcom.
On this call as in the earnings release, we will be making a number of forward looking statements.
Actual results could vary materially from such statements additional information concerning factors that could cause actual results to vary is contained in the press release and in our SEC filings, including our Form 10-K for 2021 and subsequent filings.
The company's reported earnings.
Quarter of $1.74 per share compared to earnings of $1 57 says.
Share in the prior year quarter adjusted earnings per share increased to $2.01 in the quarter compared to $1.83 in 2021.
Net sales in the quarter were up 23% from the prior year, primarily due to the pass through of higher raw material costs and increased beverage can volumes.
Segment income was.
$383 million.
In the quarter compared to 369 million in the prior year, primarily due to improved profitability in North American pinpoint businesses in can making equipment, including a net benefit of $30 million from lower cost inventory.
Offset by the timing of insurance recovery for the incremental costs related to the bowling Green tornado and 8 million of unfavorable foreign exchange.
We have repurchased 400 million of crown.
Crown common stocks of data from the 3 billion dollar program that was that the board authorized in December .
While Brazil remains soft we do expect volumes to begin to recover in Q2 and throughout the year.
When combined with the stronger U S dollar and higher energy costs in Europe , We now project EBITDA to be $1 billion $970 million for the year for the full year.
Our estimates.
For adjusted earnings for the second quarter is in the range of $2 to $2 10 per share and for the full year. We remain in the guided range of $8 to $8 20 per share.
Our full year estimate.
Continuous excuse me the full year estimate continues to assume all of the losses from bowling Green will be recovered from the timely collection of insurance proceeds.
By year end it assumes we repurchased an additional 600 million per ounce common stock in 2022 and.
And if you want to have 1 billion for the year.
We continue to expect free cash flow to be 400 million with capital spending of $1 billion and we maintain.
Our target leverage ratio in the range of three to five times for 2022.
With that I will turn the call over to Tim.
Okay.
Thank you, Kevin and good morning to everyone I'll be brief and then we'll open the call for questions.
As reflected in last night's release, and as Kevin just summarized overall first quarter performance was better than expected.
Although compared to the prior year results were mixed across the operating segments.
Global beverage can volumes up 1% in the quarter.
<unk> sold out conditions in most markets and demand for beverage cans remaining in excess of our ability to supply the exception being Brazil, where our unit sales declined by 20% in line with the market decline of 26%.
Overall global volumes advanced by six 5% in the quarter when excluding the Brazil market.
Okay.
We have summarized our major capacity expansion projects and the release with second quarter startups as follows the second line in Monterrey, Mexico began commercial shipments earlier this month.
And the first line of the new Greenfield plant Uber Rabat, Brazil will begin shipping to customers next month.
Reported revenues increased 23% in the first quarter, primarily due to the pass through of inflated raw material costs.
Comparatively the cost of Tin plate steel is almost double the prior year, while delivered aluminum is up approximately 75% on average in the first quarter of 2022.
Recent strength in the U S. Dollar impacted segment income in the first quarter by $8 million and by operating segment was as follows both European beverage and transit $3 million, each while Asia was $2 million.
In Americas beverage like for like North American unit volume growth was 6%, excluding the temporary loss of bowling green production capacity.
Due to the temporary loss of bowling Green, we carefully managed our capacity and inventory levels ahead of the busy summer selling season, reducing opportunities for further volume growth in the quarter.
Demand remains strong in Mexico, and Colombia with unit volume growth of 4% limited by capacity.
Low consumer confidence driven by high inflation and unemployment and the delay of carnival.
Led to significant first quarter softness in the Brazilian market.
We do see volumes beginning to return early in the second quarter and as Kevin noted, we expect further recovery as the year progresses.
Segment income in the quarter reflects approximately $20 million in incremental system operating cost due to the bowling Green tornado.
We do expect to begin receiving insurance recoveries during the second quarter.
With both lines at bowling Green now back in operation and continued learning curve improvements on our recently installed capacity, we expect second quarter income will exceed the prior year offsetting.
Bowling Green insurance timing.
Unit volumes in European beverage advanced 6% over the prior year with notable growth across Mediterranean operations in Saudi Arabia.
Moving into the second quarter, we remained sold out and look forward to incremental 2023 capacity from recently announced projects in Spain, and the U K.
Income in the segment was better than forecast due to volume growth and mix.
But as previously discussed we do expect significant earnings headwinds in this segment during the second quarter and for the balance of the year.
Beverage can volumes in Asia Pacific advanced 8% in the first quarter as strong shipments across southeast Asia, offset the impact of Covid restrictions in China.
Adjusting for currency segment income in transit packaging declined $6 million in the quarter, primarily due to higher costs, including the impact of inflation and the carryover of higher priced year end steel balances brought into 2022.
Appropriate pricing actions have been taken and we expect second quarter income in this segment will reflect that.
Yes.
As noted in our release, our North American Tin plate and beverage can making equipment businesses had strong results in the first quarter.
In North American food, we benefited from additional two piece food can capacity installed in 2021.
Leading to 16% Europe unit volume sales growth and self made two piece food cans in the first quarter of 2022.
Additionally, pricing actions were taken to recover 2020 inflationary cost items, including the benefit of prior year end inventory.
So in summary, a solid start to the year with results mixed but overall ahead of plan.
Looking ahead to the second quarter bowling Green is now back up and running.
Contractual recovery of inflation commenced on April 1st in North America pricing.
Pricing actions have been taken in transit to recover inflation and we continue to expect global beverage can demand to remain strong.
So with that Kerry I think we are now ready to take questions.
Thank you we will.
I'll now begin our question and answer session. If you would like to ask a question. Please press star and then the number one.
Please on mute your phone and record your name clearly been prompted your name is required to introduce your question along with your company name to withdraw your request. Please press Star then two.
Our first question is coming from the line of Ghansham Panjabi of Baird. Your line is now open.
Thank you good morning, everybody.
I guess, you know, Tim maybe focusing on the U S. I mean, clearly mobility starting to increase.
People move around flying et cetera on promise on premise sales dollars seem to be improving as well commensurate with that and restaurants et cetera can.
Can you just characterize for us if that's having any impact on packaged beverage volumes or maybe even food as it relates to how you see the rest of the year unfolding.
Yeah Ghansham, it's a good question and you would expect what you just said.
To be true.
Yes.
I haven't we haven't seen it yet as I said on the call.
We were on the prepared notes, we work very aggressive trying to sell cans in Q1.
We're a little concerned with our summer inventory levels given that we lost capacity early in the year and we obviously wont have full capacity until we get the plant.
Back through initial learning curve stages at bowling Green, but.
It does not appear.
That demand for beverage cans that the momentum is.
Slowing that much.
Sounds good and then in terms of the modest reduction in EBITDA for this year, maybe you could just break out the various drivers and then just given the timing of Carnival last year versus this year.
Do you have a sense as to what the impact might have been in theory at least for the first quarter and maybe just quantify for us what you're seeing so far in Brazil.
So far into Q.
Yeah, so right off the bat Ghansham I think headwinds.
On the reduction of EBITDA.
Currency.
We were already forecasting.
Currency to be a headwind this year, but it's probably an incremental.
Where we sit today, it's probably an incremental $10 million.
From where we were at a couple of months ago I think the just using the euro as a proxy not all not all currencies move similar to the euro but using the euro as a proxy were 171 O eight right now and I'll bet you two months ago, when we talked to you or two and a half months ago. When we talked to you. It was 111 or $1 12.
Energy in Europe .
Think about incremental $20 million.
Of headwinds in Europe from where we were at.
A couple of months ago, when we talked to you.
And Brazil.
While it is offset by minority interest at the EBITDA line, Brazil, maybe.
$10 million to $15 million.
Set by games.
We didn't anticipate.
At the time, we talked to you in <unk>.
In Asia Asia beverage.
And food and obviously some outperformance in European beverage in the first quarter that kind of gets you to a $30 million net.
EBITDA reduction.
Brazil.
It's hard to hard to quantify the delay of carnival.
The market was down I think the market was down 26% we were down 20.
That doesn't make me feel good that were better than the market, we're still down 20. However.
I got to tell you more.
Maybe carnival is.
At best 10 of the 26% the balance is going to be.
Shaky consumer confidence in the face of high inflation and high unemployment and.
So as we've said to you before we've seen these conditions before in Brazil from time to time.
It does not.
Dampen our outlook for the growth in the Brazilian market long term.
We have occasionally we have Gibson, Brazil, and as we've said before we always seem to recover to higher levels.
And that's what we fully expect.
Okay. Thanks, so much. Thank you got you.
Thank you. Our next question is coming from the line of Kyle White of Deutsche Bank. Your line is now open.
Hey, good morning, Thanks for taking the question I just wanted to follow up there and got some questions on Brazil, I guess, given where the consumers that in kind of the deceleration that we saw this quarter.
What's giving you the confidence that youre going to see demand recover through the balance of the year.
Well I think we've already started to see.
Comparative comparatively year on year.
Early here in April we're three months three weeks three to five weeks into April .
We're starting to see.
Not only comparative to last year.
But in absolute terms.
Some positive momentum.
Some pull from the customers positive momentum for so.
And I think obviously, we'll get carnival here.
Shortly and.
And we have the World Cup later in the year.
And we will have the summer selling season, as we get to the fourth quarter for Brazil as well so.
As I said that Ghansham.
And I'll say it again we.
We've seen this before it's a.
It's an economy that that can be volatile from time to time in the consumer can that.
We'll react to the volatility in the economy as their confidence.
Wayne's or ebbs and.
Yeah.
We're pretty confident that's going to come back.
Got it and then just transitioning to a non or portables are you able to parse out the drivers of earnings improvement. This quarter, you know how much was driven.
By the sell through of inventory from last year, how much was underlying improvement in food cans as well as the equipment business that you are.
So what I would tell you is overall food can volumes.
For Crown.
We're flat in the quarter. However, we sold 16% more cans that we made which means while we were flat that means we bought a whole bunch of cans from third parties last year that we're not buying this year that we're able to sell that as a significant piece of profit for us we're not paying.
Profit to somebody else and we're not paying the freight to come in from Europe .
As Kevin noted, we had about a net net $30 million.
Inventory gain.
So that's a significant that's about half of the growth I think in the quarter and the other half.
Think about the other half being two thirds.
Food cans and a third equipment.
Okay. That's very helpful I'll turn it over thank.
Thank you.
Thank you next in queue is George Staphos from Bank of America. Your line is now open.
Very much hi, guys. Good morning, thanks for the detail.
Just point of clarification there Tim on Kyle's question. So you said you sold six import 60% more food cans and you made that was only two piece right and can you give us kind of a rough breakdown of three piece versus two piece for the Crown network as it stands currently and then my first question.
Second question I guess is in terms of transit I think you said something in your release about there was inflation as you had expected, but I remember from fourth quarter, you were expecting signal youre expecting trends to be a contributor to profit growth this year.
Can you give us a bit more guidance in terms of what youre expecting this year and whether you are.
Outlook for the segment has changed at all versus where you were in February .
Yes, I think.
China I was going to give you a number I hate to give you a number as well.
We will take numbers Tim I.
I know you will it's just like I'll take half of your salary to George come on now.
Half of nothing is nothing Tennessee.
<unk>.
So I think if we think about transit for the full year I think we're probably considering currency is a headwind and we sold.
A fairly profitable business.
Then after those two items were probably still going to be up on the order of $15 million for the full year.
Okay.
Which would tell you that in the.
Next three quarters, we're going to be up about $20 to $25 million.
Net of the loss of the Kiwi business and a little bit of currency headwind.
Understood.
And on question on three piece cans three piece versus two piece in terms of where you sit and you you said.
Yes.
We don't buy any <unk> everybody in the market as you know, Georgia is excess three piece can capacity.
We are we are.
Principally a two piece can.
Baker.
We're probably at Crown, 60% to two thirds two piece with about a third of our business being in three piece.
And just looking at the first quarter three piece cans were up.
A few percent 3%.
In the quarter.
But the big growth that we had was in.
Two piece cans, which were.
Largely flat, but self made cans were up tremendously.
That's great. That's very helpful. Tim My last one just broadly on Americas beverage can volume is there anything that youre seeing in the market related to North America.
That is dampening your growth outlook or if you could talk as to why you might feel comfortable or reaffirmed and your growth outlook relative to new products and within Brazil.
There's been a lot of questions already from Ghansham on Kyle on Brazil, which obviously.
Concern right now from you know one of your peer rigid packaging companies today with <unk>.
Talking about the fact that they are sold out in a different substrate do you worry at all about cans, losing share to glass because of macro conditions because of what you typically see from one way to returnable packaging. When you have macro downturns, thanks, and good luck in the quarter.
Thank you George So I think in the short term.
You will see.
Potentially a shift in the large 600 ml glass bottle.
600 ml glass bottle as consumers have less buying power and they look to share.
Sure a bureau, among two or three people as opposed to having their own single serve can now having said that.
You know these are short term data points. This is this is a three to six months.
Headwinds in the economy I think the.
The outlook for the overall Brazilian economy.
And the outlook for Brazil is.
As the global economy is quite bright over the next 10 to 15 years.
So we remained weak.
We continue to remain very bullish on Brazil, I think if you look at anything in the short term you can become concerned we're not exceptionally concerned in the short term because we've seen it before and we're very confident that it's going to turn and the can continues to be the increasingly preferred package in Brazil.
And in North America.
North America.
Sure.
As I said, the Ghansham I haven't.
I got to say, we work very aggressive.
And selling in the first quarter as I said.
And having said that we've got our own customers.
And our other customers or smaller.
Smaller potential customers continue to ask for cans.
At rates that are much higher than we've ever seen so.
You would expect perhaps.
With everything Thats reopening as Ghansham noted that that perhaps we would see a little.
A little dampening of demand, but it hasnt happened I think that.
I said it last time on the earnings call I think the prospect of eating out.
At restaurants.
Yeah.
It is not a very compelling prospect right now and I don't mean to take a shot at.
Some of those restaurants, but.
But it's really expensive to services lousy.
Food isn't that good.
And so if you decide you want to prepare a meal at home and I think the kitchen is being used a lot more nowadays.
We've used pre pandemic and it will continue to be used pre pandemic.
The can for purposes of food <unk> beverages is going to continue to be strong and I think we are.
We're in a period where.
We felt really good from a sustainability standpoint as it relates to can a couple of years ago, and I think post pandemic.
We're seeing we can with it.
Can usage being re energized by.
By consumers in their own kitchen.
Okay. Thank you Tim.
Thanks George.
Thank you. Our next question is coming from the line of Phil <unk> of Jefferies. Your line is now open.
Hey, guys good morning.
Tim I guess, Russia, clearly large export of commodities, including aluminum and energy any supply issues that we should be mindful of and then certainly you've called out energy that's going to have a bigger impact on your margins in Europe , but it sounds like the CS your peers are trying to push.
Pat energy and freight costs, a little more on a real time basis, how your conversation going and you kind of renegotiated contracts in Europe as we speak.
Well I think as we renegotiate contracts we are.
Steadfast.
And our determination to be fairly compensated for the goods and services that we provide.
And that includes energy freight.
Raw materials.
And the conversion of those raw materials in the country as.
As well as any other costs.
Regulated unregulated.
Labor et cetera, So I think in the interim.
However, we do have contracts.
And.
We expect our suppliers and customers for the year to their contracts and likewise.
I expect us to adhere to ours.
Having said that we have not seen.
Any disruption in the supply of raw materials <unk> energy to our.
Global sites, including sites in Europe .
Got it that's helpful.
And then my question on <unk>.
Helpful to get a good color that the contracts reset from an inflation standpoint, <unk> can you remind us how those contracts work or is it largely the bulk of your business have contractual pass throughs or the lag is more of a one quarter pick up there and then when you think about this business in the medium longer term certainly.
It tends to be a little more cyclical how's your outlook in that business. It seems like youre still expecting pretty strong results curious anything you've done since owning it to kind of moderate that cyclicality going forward. Thanks, a lot. Thank you.
Sure.
Okay.
Yes.
First one of course.
Oh, those contracts I'm, sorry on Cigna so.
So for the most part.
The larger customers have contracts and they will have escalator clauses.
But that probably makes up a small proportion, let's say 20% of the overall signal business. The rest of the business is priced.
Monthly or by order.
Based on where.
Commodities will be whether it's.
Hot rolled coil index.
Where paper or where resin is from time to time. So we do have the ability to price.
More rapidly in that business than we do in the can business.
Since owning the business even before we owned it the prior owner.
We both have taken significant steps to.
<unk> moved the business away from being principally a supplier to the metals industry.
With much greater supply to food and beverage and other consumer products and.
Having so having said that.
10% to 15 years ago, there were selling 30% to 35% into the metals industry, maybe they are only selling 20% in the metals industry and food and beverage. If it was 8% back then it might be 20% now.
I think.
Nobody wants to talk about the R word.
I do think the backlogs.
Not only for equipment.
And tools and services and signal, but also in our can making businesses I think the backlog is so large that even if things do slow a little bit it will take a little while for the backlog to clear.
Such that we don't see.
Any disruption to the forecast I provided to George earlier for this year.
Okay. Thanks, a lot.
Thank you.
Okay.
Next one in queue.
Mr. Mike <unk> of Barclays. Your line is now open.
Great. Thanks, Good morning, guys.
Good morning, Congrats on on the transit packaging divestment are really nice transaction multiple there are there other call them singles or doubles like that within the portfolio or I guess, how do you think about your overall portfolio as it stands today.
Yes, so I think.
That one was an easy one.
It's.
It's software and we're not we're not in the software business.
Looking at the multiple I wish I was in the softball software business.
It's a small business itself contained it was it was fairly easy to do.
The reason it took a couple of years to get it done as we're trying to find the right partner.
For that business, who is going to continue to grow the business and service the customers in the corrugated industry because many of those customers are the customers or signal for equipment and also the commodities.
There are.
Numerous businesses under the transit umbrella.
And I would say to you that.
The focus is on improving.
The portfolio of businesses that crown operates whether that be in transit or in metal.
And I think it would be probably inappropriate for me to say anything other than that but we are always in the.
We're always trying to improve the portfolio of businesses we operate.
Yes.
Great I appreciate it and then second if we could just go back to European beverage. It sounds like the market is quite strong you called out I appreciate energy's gone almost hyperbolic there but.
The market demand give you any sort of leverage for faster price recovery or contract structuring I guess.
Can we expect the cadence of recovery there yes.
So I think we will.
I think what we said.
Whether we set it in October or February is that the.
But it will take US a couple of years to get it back and we get about a third of it next year and we get the balance of it in 'twenty four.
Hi.
We had excess capacity you.
You could price those cans at spot or let's call. It in today's market. We don't have any excess capacity. So we are selling within.
The constraints of our contracts that exist right now.
Thank you.
Thank you.
Our next question is coming from the line of Gabe <unk> of Wells Fargo Securities. Your line is now open.
Good morning, Tim Kevin.
Good morning Gabe.
I had a question not to focus too much on the near term, but I think there was some commentary about normalization.
Bev can volumes in the U K and I'm sort of trying to marry that up I mean, I know, it's common practice for you to have a large portion of the business on the contract before committing capital.
So just curious kind of what youre seeing in underlying demand in that country, and then sort of confidence interval in future.
Demand trajectory, there and I guess relatedly, if I missed it I apologize, but you said profitability in Europe was a little bit better.
What was driving that was that better volume or production levels or is there something else that happened.
So Q1 better volumes than we had forecast principally.
In Saudi Arabia and Jordan.
The UK is the largest can market in Europe .
Continues to migrate.
Away from other substrates to the can.
A lot of capacity that's gone into the U K.
In the market.
<unk> remains sold out and demand for cans exceeds.
Not only the existing capacity, but the announced capacity. So I think we are.
We remain.
Bullish on the U K K market is all I really want to say at this point.
Okay. Thank you and then.
Again, I apologize if I Miss it did you quantify sort of the earnings impact from the.
With steel volatility that we saw in Q4, and then into Q1 for the transit packaging.
Business, and then I guess conceptually the way I think about it is.
To the extent those products are protecting high value.
Items on the road or in transit.
Suspect that that Youre able to get price efficiently I mean, I know you've said that but.
Is there opportunity for margin expansion or are you just.
Ensuring that you're getting back inflation.
So I think.
Kevin described net $30 million.
Inventory and think about inside of transit, we've probably had a headwind of.
Three or 445 million so that.
Add that to the 30 and that gives you what we add on that.
On the on the Tin plate side, so about a four $5 million headwind in transit.
Yeah.
So you got two things you've got.
Obviously, we're trying to make sure we recover inflation.
We're also trying to obviously grow the business and grow earnings so you're always trying to do a little better.
So to answer your question, Yes, we are trying to expand margins now that's absolute margins I think in a in an environment, where the raw material cost.
E. The pass through is significantly higher year on year due do appreciate that because of the denominator effect of doubling tin plate and 75% higher aluminum percentage margins are likely to be lower.
And that environment, and then vice versa.
When the commodities come down percentage margins go up.
Thank you good luck. Thank you.
Thank you.
The next one is coming from the line of Anthony Pettinari of Citi. Your line is now open.
Hi, This is actually Brian bird <unk> sitting in for Anthony.
You've announced two new capacity adds in Europe in the last month or so is that an indication that your contract renewal talks in Europe are going well and you expect to see more raw material pass throughs moving forward or are those kind of unrelated to one another.
Well.
I think there are always related I think it's a reflection of the demand that we see in the market.
From existing customers.
Who are willing.
To enter into.
Volume commitments and also.
New customers.
It's underpinned.
By the.
Notion that were not going to add capacity unless were fairly compensated for products. So the answer is it is connected.
But you wouldn't build it if you didn't have more volume.
Got it yeah it makes sense.
Last question for me.
In the U S and in Europe are you seeing any signs of consumers trading down to lower priced beverage products and if you are not seeing that already is it possible to say how it a trade down dynamic towards lower priced beer lower priced soft drinks would impact.
Crowd, given your beverage portfolio.
So we are seeing.
Store brands.
The demand for cans from those who fill store brands.
And other labels that are not national labels.
Expand exponentially right now.
Obviously limited by our capacity in bowling Green temporary shutdown, but.
What you describe is happening.
I'm certain it's also happening in food, but I cant off the top my head.
I can't point to a deal I can absolutely point to it in beverage cans.
We do have a very strong private label beverage can business.
And we're very strong with some of the regional.
Marketers of beverage product products, so I think that we do well in that environment, yes.
Got it thanks, a lot and good luck in the quarter. Thank you.
Yes.
Next one is U S.
Darren Viswanathan RBC capital markets. Your line is now open.
Okay.
Thanks for taking my question, sorry about that I just have a question about the ready to drink market. So that's one of the few markets, we're actually seeing growth.
Do you expect the negative comps in the scanner data to continue for non ready to drink cocktails markets and I guess ready to drink continue to show kind of mid single to high single digits, and how does that square with.
What you guys are seeing within your own system is it just that youre seeing the growth because of the capacity that you have in place.
So I think.
We've talked about ready to drink.
For.
A little over a year, maybe a couple of years.
It is picking up.
Some momentum.
Some of the momentum offsetting.
The slowdown in growth of spiked Seltzer is all those spikes shelters.
While the growth has slowed or silly, an incredibly important part of the beverage can market, it's 10% to 12% or maybe even a little bit more.
Of the beverage can market and.
So many of these.
Drinks are in sleek cans and.
Obviously all of the capacity, we've announced as sleep capabilities. So.
One of the reasons for.
Expanding the industrial footprint excuse to grow the business.
In line with volume demand, but also grow the business.
For the types of products and the size or shape of the can.
That the marketers and the consumers prefer so yes.
Okay.
Okay. Thanks, and then as a follow up.
About the CSD market in a similar way.
That was a relatively weak for many years showing kind of minus one minus two and so.
<unk> turned around do you expect.
That positive growth in CFC to continue and what should we expect as far as growth rates.
And maybe is it okay.
Across North America versus Europe .
Europe .
Thanks.
So you want to you want growth rates for CSD.
Yes, I'm just curious if you expect positive growth rates the NTSB to continue and if it's kind of across regions. What are you expecting.
Yes, I mean.
I think in North America as you pointed out it did decline for a while it seems it seems like we're back on the uptick on <unk>. So I think we do expect some growth.
I would.
I would tell you if you want exact numbers you probably should be talking to your beverage analysts.
But certainly.
The two large marketers of CSD products.
They have been showing fairly good growth.
And.
Yes.
And I think they are fairly bullish certainly in North America and.
With respect to the one who is a bit more global and the other they've been showing tremendous growth on a global basis, but I think.
I think in Europe .
The big growth that we're going to see in CSD.
As more from conversion.
From glass into the can.
And I think the hope is that.
Globally.
I'll get a bit more responsible.
With respect to the environment and we start to see some some phe come back to cans.
In several markets.
The only thing I would tell you is it pretty hard for US right now in most markets.
To entertain that growth just given the sold out conditions. So it's going to take us a while as an industry.
To get capacity to the levels.
Where we can we can absorb the growth.
That we think will come to the can over time.
Thanks, I'll turn it over.
Thank you.
Yes.
Next question is coming from the line of Chris Parkinson of Mizuho. Your line is now open.
Great. Thank you just very quickly on your comment on the environment and the P T.
Given what's happening in the few states, most notably, California, and a couple of airlines and even Miami Beach have an agreement with Pepsi kind of shifting over to aluminum versus plastic.
Have there been any other incremental signs that there could be actually somewhat of a material shift even off of an incredibly low base.
Is that just something that continues to linger off in the distance.
No I think.
I don't want to say, it's lingering in the ultimate distance as you as you say.
I think what you point out in a.
A couple of jurisdictions.
The momentum is there.
There are some jurisdictions there are some states.
At least in the United States, where it will take a little longer but I think.
I think it was just saying the Blue States. If you will we're going to see a lot more momentum.
In that regard I think all throughout Europe .
We're going to see momentum in that regard.
But as I said earlier.
Two of runes question I think I think the limiting thing for us is our ability as an industry to get capacity.
To accept.
More rapid fashion that conversion.
That we think.
From an environment metal standpoint that wants to be treated.
From those who have greater environmental concerns. So we are as an industry.
You've seen over the last couple of years, a significant number of announcements that we're all making I think.
It's pretty clear that new product introductions by existing marketers or new marketers or beverage products.
Our significantly weighted more towards the aluminum can in other substrates.
So as an industry, we're trying to get there.
It takes time to to build equipment. It takes time to procure equipment and.
And it takes time to build build a factory and train a workforce. So we're doing the best we can as an industry.
Yes.
We're here to help clean up the planet.
Got it and just a real quick question you hit on the RTD already just very quickly could use it on just what youre seeing in both North American and European energy drinks.
Just what you've seen over the last four months as well as your outlook for the remainder of 2002 and perhaps longer. Thank you.
Thank you so we are.
We do have energy drink customers, we have we.
We don't have a huge energy drink business, we're looking to expand on that but the energy drink market in both on both continents that you've just mentioned exploding right now so the outlook for energy is quite high.
Thank you very much.
Thank you.
Yes.
Our next question is coming from the line of Mike Rosslyn of tourists Securities. Your line is now open.
Thanks, Congrats Tim Kevin Tom.
On a good quarter, despite all the puts and takes.
Just a lot of my questions have already been asked just two quick ones here.
There's been some talk about improving supply chains.
Obviously that was prior to some of the recent Chinese Covid Lockdowns.
What are you seeing just from a supply chain.
<unk> transportation, Hey, those constraints that were really bottlenecks have you seen any improvement in there.
Recently.
So let's put.
Puts Shanghai Port aside for a second.
Shanghai is the one.
It's happened over the last.
Several weeks months.
Its been something Thats call it.
Many industries off guard we are.
We are managing our businesses effectively so far.
The hope is that.
Some of that tension will ease.
It might be open, but they can't get workers to the ports. So.
And then trucks from province store channel the channel in China also difficult, but I think we're working through that I think the big headwind that we've seen.
From a supply chain standpoint, as you know our equipment businesses for beverage can making equipment and some of the cig.
Signaled equipment transit equipment.
Motors and circuit boards display screens and things like that still in short supply globally and we like.
Like many other industries are doing.
During the best we can to try to procure is as much of the components.
Components that we need.
From a select few suppliers, let's be honest as a select few suppliers that meet the standards.
That we require and that our customers require so we're all doing the best we can to try to do that.
But that still remains tight.
Got you and then just one quick follow up on that last point Tim on the.
Hey.
The constraints.
Respected batkin, making any impact or read through to your own expansions. So if there is if there are delays in terms of procuring or getting the metals and other things you need to make.
Before that business does that put at risk any of the expansions that you have planned given the longer lead times to get to procure that so the only the only thing we've had is the.
The second line in Martinsville, Virginia has slipped into.
Early.
23 from we thought we'd have both lines up and running and Martinsville This year.
And the second line will slip into I think February of 'twenty, three and that's that really had to do with the supply of construction steel.
But from.
From time to time, we might have.
Some bad can't equipment, where some transit equipment that slips.
30, or 60 days from what we thought original deliveries would be but as I said were.
We and others are doing the best we can do.
To try to service our customers procure goods to service our customers, it's been tight but we're managing.
Got you good luck in the balance of the year. Thank you.
We have three more questions in queue. Our next one is coming from the line of annuities Shah of BMO capital markets. Your line is now open.
Good morning, everyone. Good morning.
Morning.
Morning, just wanted to we're hearing a lot about elevated glass demand weaker and this morning from a major gas producer.
Given that can we get an update on your on your Mexican glass business are you seeing a pick up in an interest or a business around that.
So we are.
Yes.
The answer is yes, and again we are.
Capacity constrained.
We operate four furnaces in.
In two factories.
A significant proportion.
All of our volume is tied under a long term agreement with one customer.
And.
We do our best to.
Try to push more tonnage.
Through the furnaces, depending on the type of bottles, we're making obviously you make more or less depending on this.
On the on the bottle, but you can only push so much tonnes.
So we're doing our best to.
To service.
Other customers, we have a few other customers under contract as well and then there's non contract spot customers, obviously that we'd love to be able to service.
But as you say demand is quite high.
For glass.
At least as we see it in Latin America, we don't follow the other glass markets.
We do follow the Latin American markets because of our exposure in Mexico, but it is quite strong.
Great. Thank you for that and then that new line that you just announced an icon Chino in Spain.
If I'm correct I think you have steel lines there right now to steal lines is the idea eventually to retire those two lines or is there enough demand for all of those lines.
So we.
Correct.
As a steel beverage can.
Facility, it's in it's in the north of.
Spain towards the Buildout region, where the steel mills are and for that reason it was set up as a steel plant many.
Decades ago.
We have.
Beverage can and making.
In the plant now we have one steel line and were putting in the aluminum line.
Depending on the price of steel versus aluminum.
We will depend on.
If and when we retire to steel line, but we would expect to add a second aluminum line in time.
Regardless of whether we keep the steel line or not but it will depend on the arbitrage between steel and aluminum.
For those customers in Spain that may still be willing to take the steel can.
Okay makes sense. Thank you very much thank you.
Our next question is coming from the line of Angel Castillo from Morgan Stanley . Your line is now open.
Hi, Thanks, Thanks for taking my question just a quick one I guess could you update us on the global beverage shipments number I think you had given a kind of greater than 99% last year for the full year or last quarter excuse me.
So just where do you see that coming in and kind of how do we think about <unk>, whether you know you have some seasonality, but you also have.
Some of these plants coming online.
Bowling Green is coming back on said, how should we think about those shipment numbers and the cadence to that full year again.
So.
We're looking at something here so so.
So we were initially told you, let's say 9%.
But we thought we grew 9% last year, we thought we'd grow another 9% this year.
I think if we were looking at it today given the softness we saw in Brazil in Q1, and I think Brazil.
Does recover as the year goes on but.
But if we're being.
Honest with ourselves and with you maybe the 9% is now 8%.
Just given the.
Q1 softness in Brazil.
Understood.
And then just wanted to switch to cash flow.
Given all this softness it's impressive you were still able to kind of maintain that $400 million. So curious what are some of the puts and takes there.
Within that any benefit or impact from pension as we see interest rates rising.
Yes, so in terms of the cash flow guidance.
Clearly, we reduces the EBITDA guidance.
<unk> 1970 from $2 billion. So you have a $30 million headwind there, but we.
We are looking all over the place for.
Ways to make that up in the easiest ways to reduce our inventory.
We had a very high inventory level coming into <unk>.
'twenty two.
Due to all this.
Supply chain issues, we've carried more inventory than we typically have had.
So that is really the main driver.
The main item that will offset the EBITDA.
Okay.
Understood.
Yes comments on pension.
On the pension contributions are as high as we expected.
The one thing on the pension.
We are expecting to get in.
As part of the UK settlement in.
In the neighborhood of $100 million of.
Proceeds this year.
Or is that through this year and through the.
First part of 'twenty three.
Is on plan and our 400 million free cash flow guidance that would be added if you look at the press release, we've actually added back the proceeds that we've gotten so far this year. So just.
Haynesville just to make sure we're clear on that the $400 million free cash flow does not include.
The recovery of the.
Illiquid pension assets from the settlement last year's settlement of the U K pension plan. So when we talk about pension plans on a global basis.
We really have.
The plant in the United States, and Canada and other than that.
Very.
Very material around the world for pensions.
Very helpful. Thank you. Thank.
Thank you.
Our last question in queue is coming from the line of Adam Samuelson from Goldman Sachs. Your line is now open.
Yes. Thank you good morning, and thanks for squeezing me in.
I was wondering if I just on the equipment businesses in both transit and and beverage can equipment, you talked about having a lot of visibility with the backlog, especially on transit through the year.
Where's the book to Bill in that business sitting today, I'm, just trying to get a sense of.
Kind of where we're still growing we're still growing backlog.
So we are I think.
Zinc.
We're at $220 million backlog.
Okay.
I always remain concerned that if the backlog stage to beg for too long.
Does it stay there or does it.
Do.
Buyers lose interest will go somewhere else. So we're as I said, we're trying to do the best we can to procure.
Those components, we need to complete.
The orders in and ship out the backlog, it's a business that when we acquired the business. The transit business I think the backlog was $80 million and now it's $220 million some of that is.
New product introductions.
Enhanced product introductions the retirement.
Of equipment.
Many users and customers have had for several years, we're looking to upgrade.
All of the above but the backlog is quite high.
And I guess, specifically our hours still exceeding shipments at this point, especially for the longer lead bigger equipment, yes.
Okay, Alright, and then is that also true on the equipment on the beverage can equipment side.
Yes.
Leave it or not.
We have more.
Orders on hand.
And new orders coming in and then we will push out for specific pieces of the beverage can line this year, yes.
Okay. All right that color is really helpful. I appreciate it. Thank you. Thank you.
Okay.
Thank you very much I think that concludes the call today.
We thank all of you for joining us and we'll speak with you again in July by now.
Thank you speakers and that concludes today's call. Thank you all for participating you may now disconnect.