Q1 2022 Ball Corp Earnings Call

Okay.

Greetings and welcome to the Ball Corporation first quarter 2022 earnings call. During the presentation, all participants will be in a listen only mode.

First we will conduct a question and answer session at that time. If you have a question. Please press the one followed by the four and your telephone.

If at any time during the conference you need to reach an operator. Please press star Zero as a reminder, this conference is being recorded Thursday may five 2022, and now I'd like to turn the conference over to Dan Fisher CEO . Please go ahead.

Good morning, everyone.

This is ball Corporation's conference call regarding the company's first quarter 2022 results.

The information provided during this call will contain forward looking statements.

Actual results or outcomes may differ materially from those that may be expressed or implied.

Some factors that could cause results or outcomes to differ are in the company's latest 10-K, and another company SEC filings as well as company news releases.

If you do not already have our earnings release. It is available on our website at ball Dot com.

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

The release also includes a table summarizing business consolidation and other activities as well as a reconciliation of comparable operating earnings and diluted earnings per share calculations.

Joining me on the call today is Scott Morrison, our executive Vice President and CFO .

I'll provide some introductory remarks and business performance commentary.

Scott will discuss key financial metrics and then we will finish up with closing comments and Q&A.

Paul delivered strong first quarter results amid significant geopolitical and economic conditions. Our company remains deeply troubled by the war in Ukraine, and our focus is on the safety and wellbeing of our colleagues. In addition, our global employee giving program and the ball Foundation to date have provided an excess of 1 million.

As a financial support for humanitarian aid and our colleagues near the war zone or housing refugees as well as supporting each other and volunteer efforts in their local communities.

We thank our employees and the broader global community for their acts of compassion and giving.

The Russian invasion of Ukraine has had a significant impact upon the global business environment.

Late in the first quarter ball announced that it has suspended future investments in Russia and is pursuing the sale of its aluminum beverage packaging business located in Russia.

As we noted in today's earnings release, our ability to achieve our long term diluted earnings per share growth goal is dependent upon the outcome of our announced intention to sell our Russian business.

No one in today's earnings release contains additional information about the Russia business.

To our team in EMEA, we are proud of your professionalism and your quality work during an unimaginable stressful and constantly evolving situation.

We are thankful for your support of one another.

Looking beyond the challenges that 2022 has presented so far.

And folks focusing on the opportunities before us.

If you remember the basics.

We are the largest producer of sustainable aluminum packaging for beverages and personal care products in the world and we deliver exquisite aerospace technologies that keep us safe informed and inquisitive about what's happening on Earth and in deep space.

Paul has a proven track record of achieving success through leveraging customer focus sustainability, our people and culture operational excellence and innovation to drive profitable growth EBITDA and cash flow.

No matter, the economic climate or the ways of the world. We will adapt remain agile and grow ball has 142 years of experience doing just that.

Paul is a recession resistant company that can effectively manage rising cost over time, and we will deploy capital to garner the highest possible Eva returns and value to shareholders.

With our Eva discipline and drive for 10 vision as our guide we are keeping calm carrying on and enabling a brighter future for our planet and our people.

Turning to first quarter performance global beverage can volumes were up one 4% global aluminum aerosol volumes were up 10% aerospace backlog increased 28% comparable operating earnings increased 6% and comparable diluted earnings per share increased 7%.

And our teams were successful offsetting significant cost inflation through pass throughs cost recovery programs and procurement actions.

Our year to date business highlights include.

Our global beverage business ramping up new lines and breaking ground on two new facilities in North America and EMEA.

Our North America business growing comparable operating earnings 24%.

And growing volume over 3% by successfully ramping up new domestic can making capacity, while weaning ourselves off imports into North America.

And the team effectively built inventory back to reasonable levels ahead of the busy summer selling season.

In addition, the North America team achieved dual ASI certifications during the quarter.

Our EMEA volume growing 10% with operating earnings being flat year over year, Despite seven $5 million of foreign currency translation and late quarter cost inflation not to mention the team navigating a volatile geopolitical environment across its operating footprint.

Our South America business, managing through 'twenty, 1% volume declines due to unfavorable customer mix economic volatility and poor weather in Brazil, diluting the volume strength that remains across other south American countries, where we are deploying capital to enable can growth.

Our global aluminum aerosol team, introducing reclosable aluminum bottles for new categories, and increasing aerosol shipments by 10%.

Our aluminum cups team installing a new line in Rome, Georgia to manufacture new nine and 12 ounce cups with production starting in second quarter.

Our cup, achieving 90% recycled content, winning an Edison award and signing a contract with <unk> to expand our cups presence at stadiums and venues.

Our aerospace team expanding its backlog by 28% completing its critical design review on sphere, <unk> and marveling at the on Orbitz success of the James Webb space telescope with images for public consumption expected in the early summer.

And ball joining the UN global compact to demonstrate our commitment to aligning our business strategies and operations with Universal sustainability principles.

As we indicated on prior calls and looking forward our global businesses are absorbing non aluminum inflationary headwinds and experiencing additional price cost squeeze in advance of contractual cost recovery.

In EMEA inflationary headwinds accelerated late in the quarter and going forward. Our team is working hard to mitigate their impact through ongoing commercial cost recovery hedging in energy efficiency and renewable energy initiatives.

In North America contractual price escalators based on PPI and other indices have been effective and we will continue to phase in throughout the year.

We continue to rely on our supply chain for raw material inputs and look forward to additional alliances in investments being announced in 2022 to support domestic U S production of aluminum can sheet to further enable long term growth and substrate shifts to sustainable aluminum packaging for new and existing categories.

Underlying demand for aluminum beverage cans remained strong.

We exited 2021 with 12 billion units of new installed capacity and we also have plans in place to exit 2022, with a similar level of new installed capacity available to sell through in 2023 and beyond.

In summary, our global beverage team is preparing ourselves and our supply chains for long term durable growth while managing notable volatility.

Our customers are continuing to lean on the can as their package of choice.

Year to date, carbonated soft drinks and energy drinks have accelerated their move into cans and in beer cans have maintained package mix share despite declines in total liquid consumption.

By region trends are in North America, following the broader reopening of on premise cans continue to outperform all other packaging substrates in aggregate.

Strength in energy CSD and import beer has bolster demand for cans.

In South America, Ryzen can demand and liquid consumption growth in countries outside of Brazil were unable to offset a 15% decline in total liquid beer consumption in Brazil.

<unk> maintained their share versus other substrates during the quarter.

In EMEA cans continue to outperform other packaging substrates, particularly in CSD and energy and we continue to see the need for imports from our Saudi and India in beverage can plants for the remainder of the year.

We are operating safely controlling the things we can control focus on executing at a high level and recovering cost delivering high quality games to our customers supported by equitable contracts and closely monitoring and enabling global supply chain through alliances and investments and long term.

<unk>.

We look forward to highlighting our long term growth plans and management bench at our September 2022 Investor day.

We appreciate the amazing work being done across the organization and extend our thanks to all of our employees and external stakeholders.

With that I'll turn it over to Scott.

Thanks, Dan first quarter 2022 comparable diluted earnings per share were <unk> 77 versus <unk> 72 in 2021, an increase of 7%.

First quarter sales were up due to the pass through pass through of higher aluminum prices higher volumes with improved price mix and higher aerospace performance, partially offset by currency translation <unk>.

Comparable first quarter diluted earnings per share reflects strong results in north American metal beverage and aerospace offset by comparable operating earnings declines in South America higher corporate costs and unfavorable earnings translation.

<unk> balance sheet remains very healthy with ample liquidity and flexibility.

As we sit here today, some additional key back <unk> to keep in mind for 2022.

Our full year effective tax rate on comparable earnings is expected to be in the range of 19% full.

Full year interest expense will be in the range of $280 billion.

Net debt to comparable EBITDA is expected to be in the range of three five times and full year corporate undistributed costs recorded in other non reportable is expected to be in the range of $120 million.

At this time I'd, given our earlier public announcement about Russia.

We expect 2022 total capex to be in the range of $1 $8 billion in return and to return in the range of $1 $75 billion to shareholders in the form of share buybacks and dividends in 2022.

We continue to see a path to doubling our cash from operations by 2025 from year end 2020 levels and look forward to more opportunities to invest in our businesses and to accelerate the return of value to shareholders rest assured ball continues to be good stewards of our cash as fellow owners and through the lens of Eva discipline, we will manage.

The business as owners partner with our supply chain and customers effectively to secure the best outcome for our shareholders.

Paul reached a few important milestones this year 2022 marks the 30th anniversary of EMEA that discipline has served us well in the past and it will serve us well in the current economic environment.

22 marks the 15th anniversary of balls initial public offering last week, we announced that effective may 10, our stock ticker will change from <unk> to be a L. L back in the 19 seventies four letter ticker symbols were unavailable.

And to ensure that the B a L. L ticker stays right at home with Ball Corporation, we're making this seamless change with that I'll turn it back to you Dan Thanks Scott.

As I embark on my tenure as ball CEO , our drive for 10 vision, we will continue to serve as our guide.

We know who we are we know where we're going and we know what is important.

Great companies perform and uncertain economic times and ball is a great company.

By providing actionable intelligence through our aerospace business sustainable solutions through our aluminum packaging businesses and honoring our discipline.

Capital allocation approach, our shareholders will be rewarded and we will be doing our part to preserve our planet.

While our ability to achieve our long term diluted earnings per share growth goal of 10% to 15% in 2022 is dependent on the outcome of our announced intention to sell our Russian business.

Our earnings cash flow and EBITDA trajectories are in very good shape now and in 2023 and beyond as we increase returns on newly deployed capital and further enable and serve growth in our aluminum packaging and aerospace and technologies portfolio.

We are a world class manufacturing company with a fabulous team the most capable and agile global footprint.

The confidence in the heart to continue to do well and do good.

We are uniquely positioned to serve that occasional shift that will favor our packages.

We look forward to continuing our journey and returning value to our shareholders.

We extend our well wishes to our employees customers suppliers stakeholders and everyone listening today and with that Scott we are ready for questions.

Thank you if you'd like to register a question. Please press the one followed by the four on your telephone and you will hear a three pronged technology request. If your question has been answered and you would like to withdraw your registration. Please press. The one followed by the three once again Thats one floor to register for a question one brief moment for the first question.

And we do have a question from the line of Anthony Pettinari with Citi. Please go ahead. Your line is open.

Hi, good morning.

Good morning.

Ian can you talk a little bit more about the timeframe for recovering the costs in Europe . It seems like there's been a difference in the pass throughs in North America versus EMEA I don't know if you could talk a little bit more about opportunities to kind of close that gap or were you just more impacted by sort of hardship causes given the sharp rise in energy in Europe .

And any more color you can give there.

Yes.

I'll give you a little high level color and then maybe ask Scott to make some specific comments.

One of the things is we did not experience a lot of inflation in Q1.

It accelerated towards the tail end of the quarter. So it's a little bit more of what's yet to come versus what we've experienced.

Will I will say how that plays into the cost recovery discussions that we initiated kind of November December timeframe with our customers is.

Those conversations have been going well, but we haven't secured 100% short term pricing pass through as you can imagine these conversations are ongoing and we're trying to make those as equitable as we can moving forward in the event that we're moving into a more.

More of a high inflation environment.

So there's more there's more work to do and.

I think it would be safe to say that I don't think we anticipated.

The level of inflation that we're now seeing in Europe .

There's more work to do but our contracts are sound, we will get this back.

Okay.

Europe May look a little bit more like North America did last year, and then transitioning into this year relative to the pass through.

I don't know if theres anything. Additionally, you would add to that yes, Anthony I would just say that.

Going into this year.

90 days ago, we saw opportunity for nice improvement and growth in profitability in Europe in 2022, but with the outbreak of award Crane.

And inflation and euro devaluation, I think it's going to be tough.

To make what we made last year full year in Europe .

Inflation side. This takes into account the inflation is probably running $50 million higher than what we originally anticipated and similar to last year in the U S to dance Cabot will get this back of the following year or so but no doubt its a headwind for this year and youre seeing that we're getting it back in North America like we expected, which is partly why they are the result of the first quarter up.

So much given somewhat some <unk> growth, but a little lower volume growth.

Okay, that's very helpful.

And then just shifting gears to Brazil. When you look at your volumes maybe versus what you were expecting at the beginning of the year. It seems like there's a few things going on with maybe consumer weakness in weather and maybe timing of Carnival. I think you indicated cans are holding share can you just kind of help bridge, what's really driving the volume performance.

In Brazil, and just kind of thoughts as we move into <unk> and back half of the year.

Yes, thanks for that.

One thing that you did indicate just to be clear on this volume liquid volume was down 15% and so.

You know plus or minus that number is kind of where we ended up in terms of volume decline and a lot of that has to do with discretionary spending power in Brazil.

Because all of the other countries surrounding.

South America performed.

Really.

Much better than than Brazil, southeast, Brazil in particular.

I think rough math with our colleagues in South America, Brazil, specifically were telling us is.

Youre spending power was cut by a third basically over the last three to four months.

And on top of that.

Because these products are U S denominated in terms of the aluminum profile of them our customers, we're passing through price on top of that so you could see a 30% to 40% impact on an end consumers buying power relative to a package in Brazil.

The things that are going to be transitory relative to allowing recovery in the second half of the year and why we're a bit bullish on the back half of the year in particular, a couple of things number one it's an election year, it's an election year in Brazil. So what that means is theres a stimulus package coming that will certainly help.

You referenced in your question.

Timing in and around Carnival as we sit here today, we believe that there will be a carnival reflective of what you've seen in years past a street carnival somewhere in July as what's being contemplated.

And the last thing is there's a world Cup and the World Cup sits in a different time slots and typically does so a November World Cup, we should see the benefits of that and that's what our customers are certainly building.

In discussing with us.

So I think youll see a second half performance lift.

Kind of versus where we anticipated I don't know if thats, all going to be able to make up for what we experienced in the first quarter, but.

I think there are plenty of things to point to that we'll see.

Continued strong performance not only in the extending surrounding south American countries, but in Brazil in particular was where the decline was in the quarter.

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

Okay.

Thank you. Our next question is from Ghansham Panjabi with Baird. Please go ahead. Your line is open.

Thank you good morning, everybody. Good morning, just in terms of your comments on consumer mobility, just kind of increasing and of course here in the U S, especially how do you see that impacting demand for packaged beverage more broadly I know you said the can is gaining share but is that a headwind from a just a shift standpoint.

You're just going to have cycled through as an industry in 2022.

Ghansham, you're talking specifically about the on premise versus trade.

<unk>, yes.

So what.

I guess, we really weren't surprised by the returns on premise.

Actually I would look at it slightly different than maybe the termination of your question I looked at it as positive that we were able to continue to grow.

Share in cash.

<unk> across all of the substrate.

And I think the other thing to keep in mind, especially in the northern hemisphere.

As our customers in the first quarter took price <unk>.

<unk> typically fight like heck.

And the peak season for volume and share and so I think we're going to learn a lot about.

That question, specifically entered about our volume trajectories.

Heading into here peak season in the northern hemisphere, but the underlying performance relative to can share penetration.

<unk> optimistic about coming out of Q1 despite.

Some of the lower volume levels unit volume levels.

Understood and then in terms of aluminum I mean, there's plenty of concern about aluminum availability in many.

They need to.

Reported earnings over the last couple of weeks and they have all these nice chart that show inventory levels very low et cetera.

Is that starting to affect your customers in terms of new product development as they sort of look at the supply chain and sort of derisk away from aluminum supply issues, maybe not this year, but certainly over the next couple of years or do you think the suppliers on the can sheet side are able to produce aluminum fast enough just based on their own investments.

You see that unfolding.

I think I think just the opposite I think theres so much pressure.

An anti plastic sentiment.

So innovation conversations right now and Ghansham, they would be what's going to show up on the shelf in 'twenty four 'twenty five in terms of.

Sort of new categories, new channels, new products and those conversations are far more robust than they were a year ago and as you've already indicated aluminum's, a heck of a lot more expensive than it was a year ago. So.

<unk>.

Let's see let's see how we get on but I think the anti plastic pressure and sentiment.

Is is beginning to be palpable for a couple of large CPG customers and they see aluminum as a solution to some of these recycling.

Content percent increases theyre going to have to achieve and we're starting to see addressed but the aluminum supply chain in North America. So I think that's encouraging.

Okay. Thank you.

Our next question is from Chris Parkinson with Mizuho. Please go ahead. Your line is open.

Great. Thank you so much.

When you take a step back and just look at the overall theme is affecting aluminum bev can demand there's been a lot of money being thrown still.

Ready to drink cocktails in the sales and marketing budgets would suggest that those.

Those consumer companies are fully dedicated that there've been a lot of conversions and energy drinks and so on and so forth. When we look at the back half of the year and we look into 2023, what are the two or three things that you're most excited about has that changed given the current macro environment and just how should the street ultimately be thinking about that thank you.

Yes.

I would say your question highlights the areas that we're also bullish on.

And then one is not necessary innovation, it's just.

Existing categories and existing channels that have plastic products plastics, our biggest opportunity hands down.

But I think ready to drink cocktails, I think energy always surprises us to the upside in terms of growth. We've got some really good partners there.

Those those are the couple of areas.

And I think maybe not.

In terms of the back half of this year, but.

Maybe bridging on my commentary from the previous question. There are some pretty significant categories with some pretty significant plastic that cans really don't play in.

That they will start to evolve them over time so.

Just about every kind of nutritional sports drink of some sort is basically in plastic.

That's going to have to change and I think there's opportunities there.

Okay.

As a corollary of that essentially exact question I mean, you have in fact seen efforts, California, Colorado New York.

Amy Beach regarding.

And switching over from plastic to aluminum available.

Availability has actually been an issue for some of those initiatives I mean, a few airlines have discussed it I mean, it doesn't seem like it's been a primary focus of the investment community quite yet, but do you have any updated thought process in terms of kind of the initial like knee jerk reaction in some of those announcements obviously there is small but.

How easily would it be for any one of those to morph into something that could actually be material for your platform. Thank you.

Yes, great question and.

Thank you for drawn that out.

I would say you look at airlines in particular I can speak to that.

They clearly have a sustainability challenge with their with the fuel and so if they're going to get to some of their their goals and objectives for the major airlines are one easy place to start is to get rid of plastic within.

When you're on boarding the plane when you're on the plane and when you're exiting the plan and so we have not only single use <unk>.

Aluminum containers, though we have multi multi use aluminum containers and we got cups, and we're having those conversations with with airlines right now in one eye.

I think as already announced in the northwest that they're going to they're going to transition.

Toward all aluminum.

And so there are there are absolutely green shoots in the first Domino Falls then it's a cascading effect and then it starts to build on itself.

So I think there is there is opportunity.

Certainly a lot of.

A lot of policy a lot of shifts we saw new Jersey trying to move away from styrofoam.

This summer so that'll be an opportunity set for our cups and so these things are starting to build incrementally and I think the entirety of our aluminum packaging portfolio will benefit from them not just.

The beverage side. So thanks for that question.

Of course, thank you so much.

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

Thanks, very much everyone. Good morning, Thanks, good morning.

Alright.

I wanted to come back to the guidance question just to make sure that we all were appropriately level set so.

Your ability to hit the 10% to 15%.

And your ability to execute on your plans in Russia, basically what Youre, saying is you can get into that range. If you generate the capital that you can deploy ultimately exiting Russia is that a fair summary, or is that incorrect and then David.

George you broke up a little bit there, but let me take a shot at our ability to grow in that 10% to 15% range. This year depend.

It depends on how long we could see.

How long we continue to operate right now if we continue to operate the current levels.

We would expect to be in that 10% to 15% range for the remainder of the year, but we are that business makes 11 $10 million to $11 million a month and operating area. So it's somewhat dependent upon that.

And the timing under which a potential sale might happen. We're early in the process.

Things as you know take time to execute.

But its attractive business is a profitable business. We have a number of people that are a number of entities that are interested in it and so it's really based on the timing of when something might happen on that front.

Understood Scot and I apologize for the breaking up on the phone if you can hear me now.

Perhaps it was.

You would hope ultimately close on some sort of move which would give you proceeds that you could redeploy which in turn will enable you to get to the 10 to 15, but its really more about how long you can hold onto it and the core thing that right now it's really both of those things George So you're.

Right.

It's really proceeds and what we do with those proceeds.

And Conversely, how long we operated so right either of those ways would give us a path to that 10% to 15%.

Okay.

Thank you Scott I think youre thinking about it.

And George maybe Scott you just want to comment on that.

The $1 750 returned shareholder and how thats impacted by Russia or whatnot.

Really are.

Our plans are the same.

We tend to not buy that much of the first quarter, we got our working capital build with <unk>.

Tend to front end load our pension funding so most of that happened in the first quarter, but obviously given the given kind of the weakness in the share price, we expect to accelerate the return of value to shareholders here as we are.

Move through the rest of this year out of the first quarter. So that George you've been following US you know we're laser focused on that number the world is a little bit fluid right now, but we're going to we're going to be laser focused on returning value to our shareholders.

Thanks for that Dan and Scott.

Two other questions and I'll turn it over mostly around volume growth.

I think last quarter conference call you were targeting roughly double digit growth.

In North America, and correct me if I'm wrong.

We started at a reasonable rate in excess of 3%.

How does that.

Start for the year affect your overall outlook and why was it somewhat slower perhaps than what you were targeting for the year and then of the initiatives that we've talked a lot about over the last couple of years that haven't yet materialized in size water nutrition and the like have you signed any.

<unk> billion unit plus contracts at this juncture.

Many of these bigger categories and why do you think they will manifest themselves in potentially a weaker macro environment when CPG companies.

We prefer to hold onto some of their marketing dollars. Thanks, and good luck in the quarter.

Great. Thanks George.

Let me maybe let me attack the last part of your question first.

I think your comments relative to water.

No no significant appreciable contracts in and around either one of those categories, we won't go into specifics on customers or that but.

No multibillion unit contracts have been secured on those two categories in particular.

I think there is more opportunity on the category of sports drinks nutrition et cetera, because it's at a higher price point.

And there's a significant amount of plastic involved in those products. So that's it.

That's a win win on a number of levels for.

Some of our customers that candidly just have to get out of plastic and significant plastic weighted.

Products.

I think water is going to take disruption, it's going to take a different package, it's going to take a different look and feel.

But anti plastic sentiment and some of the states, especially on the coast is going to drive different behavioral patterns. It doesn't necessarily have to come out of our beverage business. It can come out of our impact extruded business. It can come out of our Cup business.

So we have avenues to play.

Cross the aggregate of our aluminum packaging space.

That may not show up in the billions of units here in the next 12 months to 18 months, but we can we can do well.

During that time period on a number of fronts because of the aggregate nature of our of our product mix you want to talk about three 4% growth.

In North America.

<unk>.

We still have a path to double digit growth in North America.

The first quarter was a little behind our internal expectations and I can I can point to two things for that which make a lot of sense to me number one.

Our customers took up price or.

A little bit more than we anticipated in the first quarter and I think you've seen their earnings releases, they've a whole ton extraordinarily well here in the first quarter.

And the other thing as we've transitioned in North America into these new.

The new contract or our ability to pass through the inflation in arrears as we as we.

I spoke to in Q4 I do think there was some incremental pull forward of cans into Q4 from some of our customers trying to beat that price increase.

From us so I think those two contributing I don't know what the end result would have been in the quarter, but they would've expected a little bit more than than we actually delivered.

And then we're excited about what we're seeing in terms of potential promotional activity in the.

And the second in the third quarter, that's when folks really start to fight for volume and since our customers have gotten off to a decent start in terms of profit.

They've got coffers fold to do a little bit more aggressive work here in the second and the third quarter.

Thank you very much.

Our next question is from Mike <unk> with Barclays. Please go ahead. Your line is open.

Great. Thanks.

First I wanted to circle back to George's first question and I apologize for pressing here, but it's just an area. We've heard a lot from investors in the past months.

But I think your March press release talks about reducing operations immediately in Russia. So can you kind of square that with continuing to sell cans and obviously ball prides itself on being an ESG leader. So I guess again, how do you square that with continuing to sell and rational.

Well.

Let me start.

We scale, we scaled back, but we're still operating at about 90%, we're dealing with customers that are paying us basically.

Upfront, where the business could sustain itself from a cash standpoint.

From a ESG standpoint, we have 950 employees that worked for us in Russia, and we provide well being for those people and those families.

So finding an orderly transition for that business I think is exactly the right thing to do is in order.

What we're doing.

Great.

It takes time to exit a business.

We're working on the sale of that business, but that's not something that's done.

And a week time or a favor a month's time most of that it takes.

It takes a little bit of time and given the difficulty of operating in that environment, It's probably going to take a little bit of time to execute on that but we think that is the absolute right thing to do.

Fair enough and then maybe just quickly for Scott on the cash flow. Obviously once you the seasonal working capital build but it's a bit steeper. This year. So just where would you expect working capital to shake out for the full year in your guidance, Yes, I think full.

Full year there'll be a bit of a use of working capital probably in the $150 million to $200 million range in total.

First quarter, we intentionally built more inventory we've been talking about the last couple of years kind of running hand to mouth in the summer time, and we wanted to avoid that and so we intentionally built more inventory in the first quarter. So that's the big chunk of it and then we did you know about 80% 90% of our pension funding for the <unk>.

All year in the first quarter, so those would be the big changes or the differences from last year.

Great. Thank you.

Yep.

We have a question from iron Fist.

Now Wilson with RBC capital markets. Please go ahead.

Great. Thanks for taking my question.

I guess first off in Europe could you just describe some of the energy inflation headwinds.

Youre experiencing maybe if there's a dollar impact.

And how the contracts need to be restructured potentially account for some of that headwind if thats part of any initiatives as well.

Sure.

Energy and a number of markets in Europe . They are regulated and so we can hedge about 65% of the markets where we operate.

And so we do that but when you have.

The extra.

Ordinary spikes in certain markets, where things didn't go up three or four 5%. They went up 100 multiples seven to eight times what they were.

It's like you're not hedged. So these spikes are typically short lived but they are impactful in the near term.

So we've seen extreme volatility at various times over the years different commodities, if you get storms or a variety of things happen. It tends to revert back to some kind of mean pretty quickly, but when I mentioned that $50 million of inflation number that's including energy.

And we are working on contracts to better capture those things as we no doubt are entering into a more volatile world as we go forward and so we'll have to contract appropriately to make sure that we have the right kind of pass through mechanisms to.

To recover that quickly.

Yes, that's okay and understanding the market is pretty tight I guess.

And some of your competitors are going through.

Re contracting there.

Do you see kind of an environment, maybe win and maybe into next year, where that business kind of <unk>.

Obviously, you know you may not necessarily experiencing that right now, but that business kind of.

There's a little bit higher returns profile.

Again, just given whats going on in the competitive environment. Thanks.

Yes, im not entirely sure it's higher return profiles that will certainly catch up the inflationary headwinds that we have this year.

Our business over the last four to five years has improved.

Keep in mind that metals pass through so that can dilute if youre looking at this on a return on sales percentage, but when we look at contribution margin and we look at actual dollars being generated it's a very profitable gross profit business.

And you can have a bit of a drag in periods like this where you have a spike in inflation and that's what we're experiencing thats what were communicating to you.

But I think you'll get that back.

Next year, and if you return to some level of normalcy on inflation, you'll continue to see the two in one flow through.

Operating earnings versus UN.

Unit sales growth.

And that business is performing well I'm actually quite pleased with the fact that despite everything thats happening.

Right now our business produced like for like earnings year over year, That's a testament to the quality of that leadership team that management team and how they're able to operate in a pretty challenging environment to Dan's comment on the margin percentage be careful with bell is up 60% year over year. So that's going to really impact your margin percentage of sales.

But we're very happy with the performance in total.

And we have another question from Phil <unk> with Jefferies. Please go ahead. Your line is open.

Hey, guys, sorry, just one more question on Europe .

<unk> your earnings will be down in Europe . This year, just given the lag on inflation.

Do you expect to make progress through the year as you can.

Pursue these commercial efforts and Russia aside when we think about 2023 should we get shouldn't your earnings kind of get back to <unk> levels.

Yes, I think as we move through the year, we're still early in the year. So we got to wait and see how the summer season shows up in Europe , and how volume show up but yes, we would expect.

Nice improvement as we kind of move through the year.

Again, all these comments kind of absent, Russia, because that's a bit over the unbilled.

As we get to FX as again, a bit of a drag that if you look at it on an FX.

Adjusted basis, we were up seven 5% in the first quarter, but.

The dollar basis it was flat.

So FX FX could be a bit of a drag as we look through the year and Phil on the cost recovery. A question, we are having conversations they're ongoing.

Our customers know that this needs to be equitable. These.

These are unique times and circumstances and so yeah, depending on the outcome of those conversations we could do a little better than what's got indicated as we sit here today and what we know what's in front of us in terms of contractual language.

Okay that's super.

And then from a Russia standpoint, they are obviously, a big exporter of raw materials, including aluminum any supply chain risk.

<unk> ability of material that we should be mindful.

Not really I mean, Russia was really for us it's kind of a self contained business and there wasn't a lot of aluminum going into other places, Russia as a global supplier of a little bit off.

But for right now we're not we're not seeing any more.

Fly chain challenges, we've been facing in the last year or so.

Okay. Thank you I appreciate it.

Our next question is from Mike Rosslyn with <unk> Securities. Please go ahead. Your line is open.

Thanks, very much hey, Dan its Scott.

Just a quick question with respect to your Russian Greenfield plant.

You are still liable for so let's assume that you are able to sell the business next week or two nine.

Potential.

Equipment ordered any contracts are entered into it.

We should be mindful of that you still will be liable for if you were able to once you sell that business.

No.

No we stopped we as we mentioned the Russia Greenfield has been stopped.

No equipment had it been put in country, yet anyway. So.

The dial down in Capex is in part due to Russia I would say majority is due to Russia, and then anything else, where we're moving to other places where we still need capacity. So there is no.

Additional drag because of that.

Yes, I think the important comment there I think you heard it but there were growing everywhere.

There are opportunities to redeploy the capital those lines in particular and so we're just evaluating the prioritization list right now.

But kind of excited where we could potentially deploy those assets.

Got it that makes sense and just one quick follow up on <unk>.

My chain from raw materials that you mentioned in your comments about supporting U S production of aluminum can sheet.

The availability of aluminum can sheet for your greenfield plants and given your comment is there any concern that you have those continue to grow.

I now hand, the can sheet you need. So you look include diversifying suppliers and to expand we do operate with we can work with.

So I think we might be having some technical difficulties I heard most of what you said, it's a little choppy on this end, but let me talk about.

Some some additional commentary on my scripted comments as it relates to the U S domestic supply.

We've been really we've been really consistent that the market's tight we're still importing.

From various parts around the world, mostly China, some from the Middle East Thats still coming in to support domestic growth as.

As we sit here today looking out three years to four years.

It becomes increasingly tight but there is a path to get aluminum to support the growth that we've announced.

There are.

Are going to be additional.

Investments some pretty significant that we have.

Believe we're going to start to show up and Youll hear more about those in coming days and weeks.

So we see really good line of sight, and we will talk about it more at our Investor day heading out into 2030.

And thats, probably about as far as we can look right now with any kind of the level of conviction with our customers but.

We're in a much better place in terms of the opportunity set that's in front of us.

The level of commitment from the supply base than we were a couple of years ago. It was it was starting to be a little bit concerning for us and I think it's far less of an issue. When you look at the <unk> of challenges to keep to keep pace with the growth in the supply chain.

We're in a far better position as we sit here today.

Got it thank you.

And we have a question from Angel Castillo with Morgan Stanley . Please go ahead. Your line is open.

Thanks for taking the question Dan.

Dan and Scott just a quick quick one I guess in terms of the North American market, you talked about maybe taking a being a little bit stronger.

But as we think about maybe the pull forward of Syn <unk> some of the trade trends in North America, perhaps coming in a little bit below your expectations.

Are you back in terms of inventories back to where you want to be in terms of a normal environment.

How do you kind of see imports.

North America.

Loan growth for the full year in terms of.

Percentage in that value for airports.

Yes, I can comment probably more on the trends that we're seeing in the quality of the inventory.

As we sit here today, we're in a much better position than we were a year ago.

I will tell you that theres the aggregate inventory position that looks good and then we still we still have can sizes that are incredibly tight and short and we're going to have to manage through some of those aspects, but we're in a far better position as we step into Q2 and Q3 and that's really.

When you reflect back on the challenges that we might have had last year in the northern hemisphere in particular it was.

It was it was a tough go there for about six or eight weeks in Q2 in the first half with Q3.

I think imports in total youre going to see down, but remember those import numbers. They always include Mexico, which will be a consistent flow of Mexican beer into the United States.

One other one other comment it was it was in the script.

As it relates to our some of our other joint ventures, and our assets that we're exporting cans into the U S.

Export gains in other parts of the World Europe in particular, so the exports are still happening.

But they may be showing up in other parts of the world because we've sort of leaned into the north American investments a little bit more than the timeline of investments for Europe and for South America and so as those.

As those foundational assets get put into place into Europe , and South America, you might have to those regions may have to import a bit.

Nothing to the extent of what we experienced in North America, but that's that's sort of.

How we're looking at the import export world right now.

Got it that's very helpful. And then as you think about the capacity additions I think your last Investor Day, you had laid out.

It's kind of a total of those two pieces of potential capacity additions.

A good portion of which had been announced but do you think about perhaps where it hasn't been announced but what hasnt been fully constructed yet outside of the Russia plant that you've already discussed any.

I guess any changes based on what we're seeing in this environment uncertainty.

How quickly you wanted to pull that capital how quickly you want to build.

Or perhaps the mix as well that you can't just you kind of alluded to between.

Between regions, how is that kind of decision and the capital deployment decision evolving.

Yes, we are.

We're always going to follow Eva and so as that picture evolves.

Some of the assets may end up in a different place than we had originally anticipated back at the end of 2020.

The good news is.

All of the growth medium and long term growth.

The projections that we gave.

They are still there for us.

Which is.

For years on from when we are three years on from when we made those comments.

We're a little ahead at this stage in terms of the capital that we deployed in the unit volume that we've installed.

And I think your comment is right I mean, the world is a.

It's a pretty volatile place right now and so there may be opportunities that present themselves that look different than they were a couple of years ago and.

If we get the right terms and conditions with our customers, we get contracted volume and we get a good EBITDA return, we're going to deploy it to those areas.

Okay.

Very helpful. Thank you.

We have a question from Mark Wilde with Bank of Montreal. Please go ahead. Your line is open.

Good morning, Dan morning, Scott Good morning, Scott I wondered if you could just give us any color on.

Getting cash from getting capital out of Russia.

No.

In the middle of it.

Situations to get too granular, but just any color would be helpful.

I mean as our historical profits have already been dividend out of Russia. So we don't really have much sitting in Russia other than our assets that are there.

So there is not like.

There's not like a bunch of trapped cash or anything like that.

So we will have we will have to see as we go through the process and the regulatory approval.

As to what that looks like and that will that will play into our decision as to ultimately what we do.

And then just sale proceeds.

Well, we have got a good point on proceeds.

Yes.

Like I said, we're early in the process.

We will update you as we get more information.

Okay, but do you see any issues.

Prospective sale and getting the capital out of the country.

There are a variety of ways in which you could structure sales. So I'll just leave it at that.

Okay, Alright, that's good.

And then the.

And then just turning to the North American beverage can business.

Can you give us some sense of.

Where you are running from kind of a manufacturing efficiency standpoint.

Gains further gains that we make to you as you move through the year with the ramp up of new capacity and then into 'twenty three.

Yes, you broke up a little bit I think your question was in and around operational performance and the ability to improve.

Yes, I can I can tell you in North America in particular, what I was most excited about the results here in the first quarter was the performance in North America.

Aerospace did wonderfully as well so we're seeing some stability in those two businesses are quite candidly, we haven't seen for the last 12 to 18 months I think those will start to build on themselves.

We will get to a better asset utilization framework, where we're not oversold hopefully.

And with that and so and the management team.

With new contracts, new terms and conditions, a clearer line of sight in terms of supply chain more efficient.

<unk> to run our plants, you should see continued incremental benefits.

And the learning curve the learning curve in areas like spoilage like <unk>. Those things are those things are costly line items, when you're starting up the plant and we're seeing nice progression.

And all of those new assets and so I'm pretty bullish.

Bullish that the earnings profile, regardless of whether we're 10% growth or 8% growth I think youre going to like the results coming out of that business moving forward because we've been brutally.

Brutally honest, we haven't necessarily been what we expected here the last couple of years.

We've got our arms around it a really good team in place there and we're going to we're going to get after it here in the back half of the year.

Okay. Thanks, Dan I'll turn it over.

Our next question is from Curt Woodworth with Credit Suisse. Please go ahead. Your line is open.

Yes. Good morning, Thanks for squeezing me in.

First question just around the tightness in the can sheet substrate market.

Obviously conversion fees for that product are going up so I'm just wondering if you could speak to.

Our alignment with respect to pricing those contracts against your new capacity ramp.

And whether you would have any interest in potentially partnering partnering or funding some of this upstream capacity going forward.

Yes, it's certainly tight it's been tight it will continue to be.

Our supply base is.

Making incremental investments or have the last four or five years and Debottlenecking and I think everyone believes in the growth at this point, maybe not everyone believed to the extent they.

They needed to to cut of $2 billion check, which is sort of ballpark, what's required to build a new rolling mill.

Those are going to start to happen.

And we will participate in those as you can imagine as the industry leader.

And the form of participation will vary.

You'll we'll speak more to that in particulars as those announcements become.

Yeah.

Okay understood and then just with respect to <unk>.

CPG companies are feeling I think more palpable pressure around conversion recyclability and getting getting away from plastic I mean, it seems like the past several years that they've been moving in that direction pretty clearly but are you seeing.

Celebration and the thought process there and then given the fact that you already have substantial capacity backlog crew.

And a 24 at this point or do you feel like there is still.

Decent interest level in bidding activity for new plants beyond that timeframe do you feel like the CPG companies are kind of pausing with respect to the digesting some of the capacity announcements that we've seen thank you.

Yes, I believe it's.

It's more it's more pointed.

What <unk> seen is incremental shifts and I think what were the conversations now are.

Beginning to be.

Category shifts.

Of of where cans aren't participating today.

And so that's those are.

Those are multi year discussions you've got to have the supply chain not just on our side, but on their side right, if they're going to shift out of plastic into cans in a big way theyre going to have to make those investments and so you.

You start having conversations that are in the timeframe that you alluded too much earlier.

And with much more intentionality.

And so that's that's what gives me a great deal of confidence that this is we're early innings here still.

And so stay tuned.

Thanks.

We have a question from Kyle White with Deutsche Bank. Please go ahead your line's open.

Hey, good morning, Thanks for taking the question.

In south.

In Brazil.

Good morning, if Brazil remains weak and doesn't rebound quite like you you may expect that the balance of the year is there an opportunity to export some of your production.

Elsewhere in South America did.

Could you do some of that this quarter or are those regions, such as Argentina, Paraguay, and Chile are they already balance from a supply demand standpoint, just trying to get out and just trying to understand any potential offsets you may have if Brazil remains weak here.

Yeah.

Yes. Thanks for that I think Brazil is is our biggest business by a pretty significant amount and so.

<unk> offsets.

Short term I don't think those are significant.

And having said that we are constantly supporting other areas of growth and so those will begin to accelerate.

I think the tail end of Q3, and Q4 with World Cup et cetera.

So yes, if there is.

If there's an inflection point or you don't see the robust.

Pick up in volume that we're candidly expecting and our customers more importantly are expecting then.

And some of those customers. They all participate in these other countries. So we'll work with them and we can ship product in <unk>.

Take advantage of other areas within the country or adjoining countries for growth. So.

Got it and we're not.

Where we are right now I mean, one maybe where we're feeling a little bit more cockpit than you are because we are already starting to see.

A little bit more growth here in April and the early parts of May even.

With all of the things that I outlined previously so I think youre starting to return to.

A little bit more normal shipment patterns for various reasons and so I don't think we're going to be needing to.

Pull the levers that you indicated but let's see.

It sounds good.

On the aluminum business can you just provide kind of an update here as events are definitely coming back.

Thank you please targeted being profitable by the end of this year for that business, but I'm really just kind of curious based on the customer discussions that you've had in kind of the early runway that you've had how big of a business or earnings contribution do you think aluminum cups could be.

Five years from now.

Oh five years from now my goodness. If you ask me if we were going to be in a land war in Europe 90 days ago, I would've said that's crazy.

No I appreciate I appreciate the ask.

I think this business has a really good opportunity to exit the year.

With a profitable trajectory and lens heading into next year. The venues are open the importance of the second line coming on board is $9. One ounce cups in 12, we need the entire aggregate portfolio to get to the volume levels across all of the products that our customers want itself.

So that's going to tell us a lot we are going to be in.

A number of retailers every single retail outlets that they own we're going to see that this summer that's also going to give us.

More indication to better answer that question that it's the right question. We're asking the same one ourselves where we're still very bullish as we sit here today on the business, we're going to be in a number of test markets and trials.

We're starting to see things like styrofoam cups being regulated.

That wasn't in our thought process, even even this time a year ago. So there's more there's more room.

For opportunity and Green shoots then there was this time a year ago.

But we're going to have to see how we get on here. This summer and how some of these tests go before I can really even indicate with $23, 24% 25 look like.

Got it thank you I'll hand it over.

Scott.

Couple of minutes over maybe we take one more question.

Okay, well I have a question from Adam Samuelson with Goldman Sachs. Please go ahead.

Yes. Thanks I appreciate you squeezing me in maybe.

Just thinking about North America, and coming off of the first quarter, where the volume shipments maybe werent as maybe.

We're a little bit light of where you had previously thought and.

Can you talk about where your product inventories are today, I think life I'm going back to last year and last summer.

That was an area of real real stress in the supply chain because your finished product inventories were very tight.

And is that something that gives you real confidence about the summer and the peak drink season here that you can serve the customers in a way that might've been tougher and operationally more complex a year ago.

Yeah. Thank you we're definitely in a better spot.

And in the North America business, probably more so than any other one depending on what our customers want to do from a mix perspective in a category perspective, and what they want to promote.

We may or may not have the right mix, but it's a heck of a lot more healthy and it's going to give us a lot of ability to manage and execute.

We exited 2021.

And incredibly low levels in Q.

Q1 was tough Q2 tough Q3 was tough as a result, I think our improved performance in Q1 should give you some.

Believe it certainly does for us that we're in a better position to manage our business in a more proactive manner and hopefully that transitions throughout the balance of the year, but there's still an element of mix here.

We have to keep our eye on specifically in North America.

Okay. That's really that's really helpful I'll pass it on thanks.

Well I want to thank everybody for joining us.

We will get on in the second quarter and look forward to talking to you again soon Scott was that everybody left in the queue.

No not just not at this moment.

<unk>.

Thank you that concludes the call for today, we thank you for your participation and ask you. Please disconnect your lines.

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