Q2 2022 Crown Holdings Inc Earnings Call
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Speaker 3: Good morning and welcome to Crown Holding Second Quarter 2022 conference call. Your lines have been placed on a listen only mode until the question and answer session. Please be advised that this conference is being recorded. I would now like to turn the call over to Mr. Kevin Clodier, Senior Vice President and Chief Financial Officer, Sir, you may begin.
Speaker 4: Thank you Nicole and good morning. With me on today's call is Tim Donahue, President and Chief Executive Officer.
Speaker 4: If you do not already have the earnings release, it is available on our website at crowncourt.com.
Speaker 4: On this call, as in the earnings release, we will be making a number of forward-looking statements.
Speaker 4: Actual results could vary materially from such statements.
Speaker 4: Additional information concerning factors that could cause actual results to vary are contained in the press release.
Speaker 4: and in SEC in our SEC filings, including our form 10K for 2021 and subsequent filings.aruang pat
Speaker 4: The company recorded diluted earnings per share in the quarter of $2.43 compared to 95 cents in the prior year quarter.
Speaker 4: Adjusted Earnings Per Share in the quarter were $2.10 compared to $2.14 in 2021.
Speaker 4: The second quarter of 2021 included 30 cents per share related to the discontinued European food operations, net of the interest savings, share buybacks, and equity earnings from a remaining 20% stake. And equity earnings from a remaining 20% stake.
Speaker 4: Nets sales in the quarter were up 23% from the prior year, primarily due to the past through of higher role material cost and increased beverage can volumes.
Speaker 4: Segment income was $432 million in the quarter compared to $395 million in the prior year. Primarily due to improved profitability in the North American tin plate and can making equipment businesses.
Speaker 4: and 4%
Speaker 4: Global beverage volume growth.
Speaker 4: As of June 30th, we have repurchased $600 million of Crown Common stock under the current $3 billion board authorization.
Speaker 4: For the balance of the year, we assume that headwinds from a stronger U.S. dollar and higher European energy prices will persist.
Speaker 4: We are forecasting a full-year average Eurodollar rate of 105, which assumes Eurodollar parity for the balance of the year.
Speaker 4: This compares to an average euro rate of 118 in 2021.
Speaker 4: using the euro as a proxy for all currencies where we operate globally.
Speaker 4: Each one cent move in the Euro Dollar rate equates to two cents per due to limited share. The Euro Dollar rate equates to two cents per due to limited share.
Speaker 4: We now estimate energy costs to be up 45 million for the year with the bulk of the increase in the second half.
Speaker 4: Adjusting for the strong dollar in higher energy costs, we currently project EBITDA of $1.9 billion.
Speaker 4: Adjusted earnings in the range of $7.65.
Speaker 4: to $7.85 per share.
Speaker 4: both figures in line with previous guidance excluding the impact of the stronger US dollar and the higher energy costs.
Speaker 4: The company currently expects third quarter adjusted earnings to be in the range of $1.75 to $1.85 per share. The company currently expects third quarter adjusted earnings to be in the range of $1.85 per share.
Speaker 4: Also, it should be noted, the third quarter of 2021 included approximately 12 cents per share related to the discontinued food operations, net of the interest savings, share buybacks, and equity earnings from our remaining 20% ownership statement.
Speaker 4: But recovery of costs.
Speaker 4: Related to the December tornado in Bowling Green is proceeding according to plan.
Speaker 4: And our four-year estimate assumes all losses from bowling green will be recovered by year end.
Speaker 4: Our target leverage remains at three and a quarter times and assumes one billion of capital spending.
Speaker 4: 400 million of free cash flow.
Speaker 4: total share repurchases of 1 billion.
Speaker 4: With that, I'll turn the call over to Tim.
Speaker 5: Thank you, Kevin, and good morning to everyone.
Speaker 5: As reflected in last night's release and as Kevin has just summarized
Speaker 5: Overall, second quarter and first half performance was positive.
Speaker 5: Global beverage can volumes increased 4% despite capacity limitations in the United States.
Speaker 5: and improving but still soft conditions in Brazil.
Speaker 5: Transit performance was in line with the prior year, and our North American tin plate businesses continue to benefit from food can capacity added in 2021.
Speaker 5: Global lead customers continue to add can filling lines leading to higher demand from can suppliers.
Speaker 5: As outlined in the release, we have numerous projects underway or announced to meet this global demand.
Speaker 5: I use the term global more than once to remind ourselves that this is not just a US business.
Speaker 5: but a global business and we have an excellent manufacturing footprint from which to grow in some of the most exciting markets.
Speaker 5: Reported revenue has increased 23% in both the second quarter and first half.
Speaker 5: primarily due to the pass-through of higher raw material costs and increased sales unit volumes offsetting unfavorable currency translation from the stronger US dollar.
Speaker 5: In America's beverage, unit volumes advanced 1% over the prior year with 1% growth in North America coupled with 6% growth in Mexico offsetting a 3% decline in South America.
Speaker 5: Inflation continues to have an impact on consumer behavior and demand for cans is not inelastic. Having said that, supply demand remains tight for Crown and if we had more cans, we could sell more cans.
Speaker 5: The impact of the bowling green tornado on our system capacity has been a greater challenge than we initially estimated, but the plant has restarted, and we are working our way through learning curve.
Speaker 5: Looking ahead with Bowling Green further through learning curve and coupled with commencement of operations late this year in Martinsville and mid next year in Mesquite.
Speaker 5: and also based on contracts in place, we currently project 10% volume growth in North America for 2023 over 2022. In North America for 2023 over 2022.
Speaker 5: Conditions in Brazil improved during the second quarter with industry volumes up 1% over the prior year.
Speaker 5: A strong second half is forecasted mainly in the fourth quarter as the first winter world cup coincides with the summer selling season in Brazil.
Speaker 5: Segment income for the six months reflects approximately $10 million in unrecovered incremental system operating costs related to Bowling Green.
Speaker 5: compared to 20 million unrecovered at the end of the first quarter.
Speaker 5: Unit volumes in European beverage advanced 2% over the prior year with shipment growth noted throughout most operations.
Speaker 5: Supply demand conditions remain very tight and recently announced projects in Italy, Spain and the UK. We'll provide much needed capacity to our system beginning in 2023. us EP
Speaker 5: Volume growth and location mix led to better than forecasted first half segment income. However, we expect the second half comparison to prior year will become even more challenging in view of US dollar euro parity and rising energy costs.
Speaker 5: Beverage can volumes in Asia Pacific advanced 12% in the second quarter on strong shipments across Southeast Asia.
Speaker 5: Adjusting per currency in the sale of the Kiwi plan business, performance and transit was level to the prior year's second quarter. Strong performances across the protective packaging and tools businesses, combined with the initiation of cost recovery price increases, offset steel inventory holding losses in the strap business.
Speaker 5: As disclosed in last night's release, the transit segment has initiated a cost reduction program focused on administrative overheads only.
Speaker 5: The program does not result in any reduction to production footprint or capacity.
Speaker 5: Strong performances continue to cross our North American Tint Lake and can making equipment businesses during the second quarter. And can making equipment businesses during the second quarter.
Speaker 5: Unit volume sales of two piece food cans advanced 13% in the quarter, and as highlighted in the release, we shipped 43% more self-made two piece food cans than in the prior year. Unit volume sales of two pieces food cans advanced 14% in the quarter, and as highlighted in the quarter, and as highlighted in the quarter, and as highlighted in the quarter, and as highlighted in the quarter,
Speaker 5: our equipment businesses both can making and transit.
Speaker 5: Continue to face supply chain delays and disruptions, mostly as relates to display panels, chips, circuit boards, motors, but strong order flow continues with backlogs at record levels.st
Speaker 5: in summary.
Speaker 5: We're pleased with the overall first half performance. An excellent performance by the entire crown team to continue to overcome the numerous challenges faced.
Speaker 5: whether that be supply chain, inflation, energy or currency among others.
Speaker 5: We do expect energy and currency headwinds to be a bit steeper during the second half.
Speaker 5: But we are focused on managing the challenges within our control to help our customers grow their franchises and in turn grow our businesses and grow shareholder value.
Speaker 5: And with that Nicole, we are now ready to take questions.
Speaker 3: Thank you. We will now begin the question and answer session. If you would like to ask a question, please press star in then one. Please unmute your phone and record your name and company name clearly you imprompted. Your name is required to ask a question to cancel your quest press time then two. Our first question is from the line of Chris Parkinson from Mizuhu. Your line is now open.
Speaker 6: Great, thank you very much for taking my question. Q's add a little bit more color on the outlook for Latin America, inclusive of the second half of Brazil disperses your excitations a few months ago. And then also just basically do the same for APAC, just given all the noise during the second half of 2021. Thank you.
Speaker 5: Yeah, I'm not sure I.....................
Speaker 5: have that in front of me, but...
Speaker 5: I think we expect both the second half.
Speaker 5: in Brazil and Asia to certainly be up compared to the prior year. Asia's had a very good start already.
Speaker 5: I would say that
Speaker 5: Second half Asia.
Speaker 5: I'm looking at something here, it looks like it's a...
Speaker 5: We're going to have some significant growth in Q3.
Speaker 5: just due to the lower shipments we had last year in Q3. I think it's probably it.
Speaker 5: a fair statement related to COVID shutdowns and Q4 obviously having grown if I you know.
Speaker 5: if we were up 12%.
Speaker 5: In the second quarter, I would suggest that the combination of the third and fourth quarter will be at least 12% up. The third and fourth quarter will be at least 12% up.
Speaker 5: in Asia.
Speaker 5: in the second half as relates Brazil.
Speaker 7: You know, we expect...
Speaker 5: We're down a few percent here in the second quarter. The market was up 1%. That's just a customer mix issue.
Speaker 5: We haven't lost any share, just that particular customer, perhaps temporarily losing share in the market. They expect to get that back, but we expect significant gains in the second half. We'll see how that...
Speaker 5: manifests itself through the balance of the year. Certainly inflation having a
Speaker 5: a very big impact in a market like Brazil.
Speaker 5: disposable income not as great in a market like Brazil as it is in the United States.
Speaker 5: spending on tan beverage products certainly much more discretionary in a market like that than we're used to. But we are forecasting increases in the market. And for the full year we have a small increase forecasted and that's certainly several percent lower than we would have estimated at the beginning of the year.
Speaker 6: And just as a quick fall, when we're looking at the current status of European energy prices, versus the 20 million that we were all discussing during the first quarter call, how should investors think about that for the second half given the current run rates? And is there any consideration already for the first half of 23 just given your adjustments to contracts? And if we just kind of held that study for the next year or so, is there just anything you can add to help our thought process there be very helpful? Thank you.
Speaker 4: So, hey Chris, for the energy guide for the year, I would say the bulk of the energy increase is going to be in the second half of the year, as I said earlier. Probably about a quarter of it's basically been through the first half. The first half we benefited from hedges that we had in place, but at the current prices,
Speaker 5: We see a strong headwind here in a third and fourth quarter on energy. So I would say 75% of the increases going to be felt in the third and fourth quarter. And as it relates 23, I don't necessarily want to comment on what I think the energy markets in Europe are going to do.
Speaker 5: in the first quarter next year. I think some of that has to do with the
Speaker 5: Ukraine-Russia situation and we'll see where we get to, but as it relates to contracts, as we've said, we're in the process of...
Speaker 5: Amending contracts as they come do going forward to properly recover.
Speaker 5: the costs that are borne upon us to manufacture products.
Speaker 5: I don't want to get into the parsing out right now.
Speaker 5: all the ins and outs.
Speaker 5: of European beverage segment income for 23, we haven't done a budget yet, but certainly...
Speaker 5: We expect segment income to be up significantly in 23 in that segment compared to 22.
Speaker 6: Understood. Thank you so much. You're welcome.
Speaker 3: Thank you. Next question is from the line of George Stathos of Bank of America. Your line is now open.
Speaker 8: Hi everyone, good morning. Thanks for the details and taking my question. I guess to start off, we appreciate the guidance. Is there a way, Kevin or Tim, that you could help us bridge from two cues orings per share to the dollar rate, midpoint and third quarter? Is that largely energy? Any other things that you would have us keep in mind as we again look at that sequential decline, I had a couple of other follow-ons.
Speaker 5: Yeah, sorry, George, I...
Speaker 5: Kevin will give you maybe some more detail on energy.
Speaker 5: If you think about currency, currency is going to have a bigger impact as we get through each quarter.
Speaker 5: I think...
Speaker 5: You know, on average, as we said for last year, we were a dollar 18, but we're, I think, a dollar nine right now. The dollar nine right now.
Speaker 5: Through six months, and if we stay at parity,
Speaker 5: you have a dollar nine through six months which was whatever the number was in q2 but you're at parity already
Speaker 5: So you're looking at a dollar.
Speaker 5: in Q3, that's 9 euro cents or 9 dollar cents against the euro.
Speaker 5: which all comes through Q3, which is one of the bigger quarters. And as we said, we use the euro as a proxy to give you an estimate, because we're not just in euros, right? We're in the number of global currencies. So, Kevin, I don't know if you have anything further on energy than you've already said.
Speaker 4: George, I would just say look, 25% of the cost between energy and FX we felt in the first half.
Speaker 4: related to the guidance and I would say it equally splits the backhand for the year between Q-Shrink II IV, the energy and effects it.
Speaker 8: Okay, and I just factually, Kevin, I just want to make sure I got it. So that 50 cent headwind that you called out, 25% of that you've already felt in the first half, or is that a two true incremental IE, it's all felt in the second half? 25% of that we felt in the first half. Got it, thank you for that. Now, the second question I had, and recognizing you haven't done a budget for next year, but Chris' question is also sort of...
Speaker 8: I figured I'd raise it now. So as we look out, you've got a very tough comparison in 10-plate from the first quarter. We obviously have a, what will be, even if there's no change in FX, probably a pretty negative run rate and therefore an average on FX into next year. Energy obviously, who knows, but let's assume no change. At this juncture...
Speaker 8: What do you think you could see in terms of benefit from price recovery on these resets and how likely is it that you think earnings per share next year actually can grow given those tough comparisons. So given those tough comparisons.
Speaker 8: you know, 23 versus 22. Understand the question George, so just let's.
Speaker 5: I'll try to take them as I remember them and I forget something to remind me. FACNORS. FX will be a...
Speaker 5: Certainly a headwind in Q1, a little bit less in Q2, and then assuming we stay at parity, right? Q3 and Q4, we're gonna be at parity here, and let's just assume we stay at parity next year. So...
Speaker 5: You might see a bit of a headwind there on the energy.
Speaker 5: It is a European issue and it's a beverage can issue only we have.
Speaker 5: We don't have a whole lot of energy headwind.
Speaker 5: In the transit business in Europe we don't use a lot of natural gas in transit. It's mostly electricity so
Speaker 5: But again, too early to call the energy market, but we do have a number of contracts. But we do have a number of contracts.
Speaker 9: That...
Speaker 5: have been or are currently being renegotiated as we start 1-1-23, coupled with higher volume from some of the new projects that are coming on. So we're pretty confident.
Speaker 5: that segment income in the European beverage segments going to be better as relates uh... steel uh... we can break let's break up uh... and you're gonna you're gonna use the assumption that the steel market is is flat the down
Speaker 5: for 10 plate in 23 versus 22. So if we start with that, your premise is that if we had steel-related gains in our food and aerosol can businesses that we won't have those next year. So let's just for purposes of this, discussion agree with you.
Speaker 5: versus 22. So if we start with that, your premise is that if we had steel-related gains in our food and aerosol can businesses that we won't have those next year. So let's just for purposes of this, the discussion agree with you.
Speaker 5: That will be offset by further two piece food can growth as we bring on
Speaker 5: Owatonna and we push Hanover even further through Learning Curve and produce more cans and incur less start-up costs in Hanover. So I think on the food can side we're going to displace most of that.
Speaker 5: steel headwind and and then frankly the balance of the steel headwind
Speaker 5: overall in the company will be displaced by the fact we won't have this
Speaker 5: the steel headwind next year that we have currently this year in transit. So we buy, historically we have bought steel and sold our steel products under a different mechanism than we do in our packaging or template steel products businesses and we're in the process of changing that. But nonetheless we've incurred significant steel headwinds this year. We characterize them as inventory holding losses. We do not expect to have those next year.
Speaker 8: And lastly, I'll turn it over. Do you have a view like you have in North America for growth next year? What your rough cut volume could look like in Europe and in Brazil based on customer commitments and projects coming on? Thank you and good luck in the quarter. Thank you, George. So I said 10%
Speaker 5: in North America and
Speaker 5: You know, whether it's 8 or 15%, I don't know, but tens of, tens of number that, as we sit here today, based on contracts, we can easily, be sure we're getting to their Brazil.
Speaker 5: You know, we're hopeful that the market returns and the consumer returns in a stronger way than they begin their celebrations.
Speaker 5: and especially in the first quarter that the fillers look to replenish
Speaker 5: their inventory supply chain after the severe drawdown that we believe they're going to have here in Q4 with the World Cup. So, you know, on balance as I sit here, if we project that in Brazil this year we might only be up 2%, I would hope we're up a minimum of 5% next year, but we don't have a budget yet for that, so I can't give you that.
Speaker 5: and in Europe .
Speaker 5: And in Europe .
Speaker 5: as you appreciate.
Speaker 5: Any of the canned manufacturers growth from year to year is a bit lumpy depending on when any one of us brings on capacity. And we do have a pretty good amount of capacity coming on later this year and the next year. So we would expect.
Speaker 5: next year, you know, in the six to eight percent volume growth range, whereas this year, being capacity limited, we're, you know, we're much flatter in the two percent range. Thank you very much.
Speaker 5: Thank you, George.
Speaker 3: Thank you. The next question is from the line of my lead head of Barclays. Your line is now open.
Speaker 10: Great, thanks. Good morning, guys. Good morning, my friends.
Speaker 10: First I just wanted to clarify, I think you talked about 1.9 billion of EBITDA, which is about a 70 million revision. Is that all currency in European energy or is there anything else in that?
Speaker 7: No, listen, I think, I think it.
Speaker 5: you were looking at the page I was looking at, you'd see the vast majority of that is currency and energy in the second half.
Speaker 5: and then certainly within the businesses you've got pluses and minuses but more or less the businesses offset each other. and then the businesses offset each other.
Speaker 7: and uh...
Speaker 5: You know, the estimate revision is currency and energy.
Speaker 10: Great, thanks. And then second, Tim, I just want to dig into kind of your commentary around North America. I think you mentioned volume was up only a percent, but if I'm understanding you correctly, the key limiting factor has been your production capacity, not demand, and if you had more plants, you'd be selling more cans. Is that correct? And is Bowling Green the only limiting factor to your existing plants, or is there any can sheet availability issues right now? So we have...
Speaker 5: We have no supply chain, I shouldn't say we have no. There is always supply chain issues, but I will say that.
Speaker 5: as opposed to the supply chain for our equipment businesses where we like many others are having problems with circuit boards, chips and things like that. We do not see any challenges, significant challenges in the canned business. Be it tin plate, steel, aluminum, and even I know we're gonna talk about magnesium, we don't see any impact from magnesium on our supply chain. I will tell you that...
Speaker 5: The suppliers that we have to our beverage can and food can, aerosol can operations globally have done a remarkable job navigating.
Speaker 5: all the challenges they have especially in light of some of the Chinese port situations
Speaker 5: not supply chain related.
Speaker 5: Bowling Green has, as I said, has been a bit more disruptive than we would like. We also added second or third, I shouldn't say second, third production can lines to...
Speaker 5: to several plants in the United States and some have gone better than others. I was to characterize for you.
Speaker 5: When we say we could have sold more cans if we had more cans, maybe instead of being up 1%, we would have been up 3%.
Speaker 11: Great. Thank you.
Speaker 11: You're welcome.
Speaker 3: Thank you. The next question is from the line of fill in of Jeffries. The line is now open.
Speaker 8: HM, how you doing? Thanks for all the great color. I guess there's certainly some concerns that from a macro environment, the consumer's getting a little weaker, and you kind of alluded to elasticity of the can, into the cost of giving your your preferred color,
Speaker 8: consumption. Well, I feel I didn't say I didn't say can demand was elastic. I said it's not any elastic. That's what I meant to say, not any elastic. But you seem pretty confident for growth in North America next year as well as Europe . So just kind of give us some color on, you know, if the macro does soften, you know, how much line of study gets some of the volume guidance you had it provided. I mean, certainly some of that's tied to the contract you have coming up in North America in Europe . So just give us some color on.
Speaker 8: conviction levels and securing that, how you're set up from that standpoint, and just your broader view on how your business would hold up if the macro was a little slower.
Speaker 5: Yeah, I think so, I characterise North America for you as 8-15% and I pay 10.
Speaker 5: So I'm trying to hedge.
Speaker 5: what I think
Speaker 5: what we think versus what might happen in the macro environment. But we, um,
Speaker 5: you know we're in the process of building a camp plant in Nevada we have not been
Speaker 5: in the southwestern part of the United States for almost 30 years now since we closed the Van Nies facility.
Speaker 5: We have in the past...
Speaker 5: shipped a lot of cans in the Southern California market from Texas and or Wyoming.
Speaker 11: There are...
Speaker 5: contracts that we've had in the past with fillers in that region.
Speaker 5: that are tied to national contracts that perhaps...
Speaker 5: We will gain gain in the future and I'll just leave it at that. I don't want to say too much, but we're we're um
Speaker 5: We're more confident on growth in North America, perhaps, than you would believe.
Speaker 5: And I'll leave it at that. I do understand the consumer may be weak and we'll see how long. And we'll see how long.
Speaker 5: this so-called transitory inflation lasts. I think that's a funny comment. I unfortunately repeated that transitory comment, I think 12 months ago, so I'm sorry, I took some of our fine government leaders' term to describe inflation. I don't think it's transitory. I think it's here to stay for a while. So I think ultimately the consumer will adapt.
Speaker 5: The consumers going to want to go back to enjoying the small pleasures in life. So I don't think we're going to see demand suppressed for a very long time. I think we're going to get it back. But nonetheless.
Speaker 5: I have, as I said, I've hedged what I thought our growth would be by giving you the 10% number.
Speaker 8: Okay, that's helpful. On transit, it sounds like, you know, the results have been a little joppered and we expect that it sounds like it's mostly supply chain. But curious to get your thoughts on how you're thinking about that demand profile is we kind of look at the 223. And certainly you're taking actions to take out costs, you know, from the outside looking, you know, we would think that might...
Speaker 8: Lude, maybe your view on the demand profile being a little softer. So kind of help us unpack those things and then help us think about how that 60 million cost-out program ramps up the next few quarters. Thanks. So listen, I think.
Speaker 5: The supply chain challenges that we...
Speaker 5: We face in our transit equipment businesses, very similar to what we face in our can making equipment businesses.
Speaker 5: But those supply chain challenges.
Speaker 5: are not the reason for...
Speaker 5: any underperformance you might see in transit year on year. I mean we are in the second quarter.
Speaker 5: X currency and the divestiture of the business were basically flat. Now for the full year we're probably going to be down.
Speaker 5: compared to our earlier expectations, but that's not supply chain related. That's entirely related to...
Speaker 5: These inventory holding losses that we have in our steel business.
Speaker 5: which we don't anticipate next year. We got ourselves into a situation
Speaker 5: where steel was tight.
Speaker 5: where steel was tight.
Speaker 5: late last year and we went out and
Speaker 5: We procured too much steel and then steel market collapsed and so we're pushing through higher price steel in a lower price steel environment to our customers.
Speaker 12: So uh...
Speaker 5: That won't recur, but for the most part, that's that. I just think about this.
Speaker 5: Demand profiles, demand continues to be strong across almost every one of our businesses in transit.
Speaker 5: The
Speaker 5: Overhead reduction program has nothing to do with anything related to demand. As I said, we're not taking out any production capacity.
Speaker 5: We're not reducing the footprint whatsoever. This is purely administrative overheads. This is getting their S&A more in line with what the S&A should be for a manufacturing company.
Speaker 5: And I understand now that we've owned the business for four years and maybe I'm a little thick. I should have understood this a little earlier. I understand there's a different go-to-market strategy for the transit business than there is for the canned making business. Nonetheless, it's still a manufacturing business and it only requires a certain level of overhead. So you should view this overhead reduction program as pure gravy coming off the top.
Speaker 5: Thinking about the $60 million, let's assume we get about $12 million in the second half of this year and we'll get the balance of that through next year.
Speaker 8: And then Tim, on the inventory holding charge that you talked about this year on steel, any way to quantify it for us this year?
Speaker 5: Yeah, there's a way to quantify it. It's a big number and we're not happy, but I...
Speaker 5: i'd ask you to think about it perhaps we i think we said in the first quarter we might have told you was five million we probably had the wrong number it was probably more like ten or twelve and
Speaker 5: It was probably 10 or 12 million here in the third quarter. So well.
Speaker 5: Absent these steel losses, we would actually have a pretty good performance in the third quarter, which
Speaker 5: really underscores the demand that we've seen in protective packaging in the tools businesses, which has been quite strong.
Speaker 5: and the backlog in equipment also quite strong as we look forward.
Speaker 5: We have less concern, I understand that you may have concern about the macro environment and what it might do to a business like our transit business, but demand has been exceptionally strong and Shute
Speaker 5: the underperformance to use yours and other analyst terms in that business is entirely related to.
Speaker 5: a steel procurement issue that will not recur next year.
Speaker 8: Okay, thanks a lot. Great color, Tim. Thanks. Thank you.
Speaker 3: Thank you. Next question is from the line of Grandchamp and Chabby of Baird. Your line is now open.
Speaker 9: Thank you. Good morning, everybody.
Speaker 2: using the
Speaker 9: Morning. I just want to pick up on Phil's question on elasticity or whatever, however you described it. You know, what about the impact, comparable impact as relates to some of the other emerging markets that you have exposure to, including Asia, and then back to the US, understanding that you're still sold out at this point. Has there been any change whatsoever that's measurable in terms of new business inquiries or new product development, new categories, etc., in context of...
Speaker 9: The consumer and just lack of clarity as to how the consumer evolves in North America as well.
Speaker 5: Yeah, so I, good question, Gang-Cham, I think I was, I understand.
Speaker 5: Let's say to concern within your question about the emerging markets. And it's why I was a little hesitant or I had, you know, my response on the Brazil question earlier. I do think Southeast Asia is gonna continue to perform exceptionally well. The markets do continue to grow.
Speaker 5: they are certainly not immune to inflation they certainly have
Speaker 5: far less disposable income than we have in
Speaker 5: in Western Europe or the United States.
Speaker 5: Having said that, again, the small pleasure is like consumption of beer.
Speaker 5: And the can being not only the preferred package, but in many markets, the only package to deliver growth for the consumer products companies and to deliver product to the ultimate consumer. And to deliver product to the ultimate consumer.
Speaker 5: We're pretty bullish on Southeast Asia. We look ahead. Will there be quarters where we growth is slower than others? Yeah, sure, but but I think
Speaker 5: Looking at blocks of three or five year periods, the one market you see around the world. The one market you see around the world.
Speaker 5: Where you see exceptional growth prospects over the next five or 10 years has to be Southeast Asia.
Speaker 5: I'm getting old so I forgot the other part of your question. I apologize.
Speaker 9: Yeah, sure it was on North America any change in terms of business momentum their backlogs in Korea. Oh, so I get that's also a good question. I think the uh
Speaker 5: You know, one area where I, you know, we're not real big in the craft market, but we do supply craft and
Speaker 5: If I was to look at
Speaker 5: one end market where we have seen a slowdown in demand.
Speaker 5: It would be Kraft beer here in North America.
Speaker 5: other than that.
Speaker 5: I think any of the declining retail data that you've looked at is going to be coming from the larger CSD.
Speaker 5: that you've looked at is going to be coming from the larger CSD.
Speaker 5: companies as they obviously look to manage their own inflationary environment through price and
Speaker 5: that price having an initial shock to the consumer who perhaps
Speaker 5: is adjusting everything they buy.
Speaker 5: But I do think, you know, longer term.
Speaker 5: The consumer gets used to paying more for a lot of things.
Speaker 5: and we'll return to a demand profile that's really quite healthy.
Speaker 5: for beverage cans not only in the United States but globally especially in light of ongoing
Speaker 5: sustainability pushes.
Speaker 9: with FX and gas, et cetera, but you're still down 100 million in a very short period of time versus your original guidance. I'm just curious as to whether that changes how you think about shared buybacks. And then separately, you know, can you just also touch on aluminum access and, you know, there's been some force majeure announcements, specifically magnesium, et cetera. Thanks so much.
Speaker 5: Yeah, no impact on aluminum access, as I said, the Phil's question.
Speaker 5: i got to tell you the uh... the suppliers into the can business the aluminum coatings whatever they've done a tremendous job and
Speaker 5: Yeah, there's a
Speaker 5: One of our suppliers on the aluminum side has a
Speaker 5: small little conflict with a magnesium supplier, but they're not the only supplier globally, and for magnesium, and they're not our only aluminum supplier. So we don't foresee any challenges as relate aluminum supply to us.
Speaker 5: She's trying to figure out the other part of the question.
Speaker 5: The share buybacks. Oh, I'm sorry. The share buybacks, yeah. Yeah, listen, I...
Speaker 5: I think that we targeted 1 billion in share buybacks this year. We're going to achieve 1 billion in share buybacks.
Speaker 5: You know, we're gonna be down 100 million.
Speaker 5: in EBITDA from what we forecast at the beginning of the year, but the debt also comes down as well.
Speaker 5: We do not have currently any plans to add any more capacity in the North American beverage can space currently as we sit here today. That does not mean that there are not several other great global opportunities as the beverage can continues to grow in other markets, be that Europe , Southeast Asia or elsewhere. So I would think that this year we got a billion really too early to say, but next year it could still be the same billion and then we'll see what 24 and 25 look like arguably it could be lower. But on the same hand you're going to get cash flow off of all the new capacity it's going in. So the business is more capable with higher cash flow from previously installed capital to support that higher capital number as we go forward should the global markets require that. Thanks. You're welcome. Thank you. Next questions from the line of Anujasha of BMO capital markets. Your line is now open. Hi. Good morning. I wanted to go back to transit for a little while. I think you had achieved margins of 14% level back in 2018. Just thinking ahead once the inventory issues behind you and you've implemented the cost reduction initiatives, do you think you get back to that 14%? Is that a good long-term level to think about or is there more opportunity? Um.
Speaker 5: I haven't done the math, but putting aside the cost savings from administrative overhead reductions, which are well underway I should add, if you just put back the 20 to 25 million of steel losses that we had this year,
Speaker 5: into our first half performance. I'll bet you you get them.
Speaker 5: I even done the math, it's got to be two or three percent based on what we had already, or maybe it's not that much, but it's not insignificant. And so the answer to question is... And so the answer to question is...
Speaker 5: Certainly margins can improve. I caution you just like in the
Speaker 5: In the beverage can business where we're pushing through higher aluminum and while absolute margins can improve percentage margins go down just because of the denominator we do push through different commodities be it paper, plastic and or steel in that business but no we expect margins to return more towards historical levels in transit. Yes.
Speaker 5: Okay, great, thank you. And then for my other question, can you give us a sense of what industry volumes were in North America in Q2, like what the CMI number would have been? So I saw, you know, that's a great question, I saw CMI released food and aerosol volumes the other day. I have not seen CMI release.
Speaker 5: Feverage can volume so I don't know and uh We all need to take into account. They're going to release a number and then from that number you also need to
Speaker 5: add on the import export numbers I guess, but I don't know.
Speaker 5: I know in food cans.
Speaker 5: It looked like two-piece food can for the market was down about 3%. Now we were up 13%. And that's just customer mix and end-market mix. But I can't, without guessing, I can't give you a CMI beverage number because it's not been released yet. I thought you guys got it internally, but thank you for it.
Speaker 3: Thank you for that. You're welcome. Thank you, the next question. I'm sorry.
Speaker 5: And, OJ, did you have another question? Nope, all of that. Thank you. Thank you.
Speaker 3: Thank you the next question is from the line of Kyle White of Deutsche Bank. Your line is now open.
Speaker 10: Hey, good morning. Thanks for taking the questions. In North America, I appreciate the preliminary look into 2023. But are you providing kind of a full year volume outlook for this year for that region and kind of what you expect in the second half?
Speaker 7: Yeah, so I think
Speaker 7: We're looking at...
Speaker 5: We'd like to say that we think for the full year we'll be up 5 to 6 percent. That's a bit off of.
Speaker 5: I think last time we talked we probably told you 8%, we're saying 5 or 6% now and that's just capacity limitations and other
Speaker 5: Just looking at the market right now where we think will be but
Speaker 5: I do think we're going to continue to perform better.
Speaker 5: and improved performance means more sailable cans off the end of the line. So that's been one of our constraints here.
Speaker 5: Yeah, I got it. And then just to clarify, the 5 to 6%. That's not a sort of adjusted member for bowling or anything that's what you actually think actual volume is. That's an absolute number, yes.
Speaker 10: Okay, and then Kevin, on the insurance proceeds, any kind of update there in terms of what you expect from the insurance proceeds on Bowling Green? And do you have any of those benefits included into the 3Q guidance, or should we all roll it into the 4Q? Okay so this can come through our consumes with you that someone's gonna send an email with the Governor's request for your COVID implementation.
Speaker 4: Yeah, there's no benefit in Q3. It has to come in Q4.
Speaker 4: Are you providing kind of a total benefit with what you expect from that? That's included in the four year ETS guidance. I mean, look, what we're saying is we're going to cover all the cost related to bowling green. I'm going to cover all the cost related to bowling green.
Speaker 5: So Kyle, what I said earlier is that we are, through the end of June , we have 10 million in unrecovered costs.
Speaker 5: so to use kevin's terminology that we're going to recover everything there's ten million that's been incurred not yet recovered so if you're thinking about what we're going to recover over and above incurred costs based on our forecast for the balance of the year ten million and kevin saying that all occur in the fourth quarter not the third quarter
Speaker 5: Yeah, so my thought the 10 million was just 2Q. I thought the number was a little bit higher when Q-byte could have been mistaken. That's right. So what I said was we had 20 million unrecovered at the end of the first quarter. We now only have 10 million unrecovered at the end of the second quarter. So we did recover 10 million incremental on the second quarter.
Speaker 5: The other recovery of 10 to get us back to zero will occur in the second half primarily in the fourth quarter.
Speaker 6: Got it. That makes sense. I'll turn it over. Appreciate it. Thank you.
Speaker 3: Thank you. The next question is from the line of Adam Josephson of KeyBank. Your line is now open.
Speaker 10: Tim, Kevin, good morning. Thanks very much for taking my questions.
Speaker 10: Kevin T2
Speaker 10: Do you have a handy what of the 1.9 billion of EBITDA to which you're guiding how much you estimate the longs here JV Partners?
Speaker 4: I don't have that out.
Speaker 5: I guess it's fair to say it's less this year than last year only because of Brazil being down. But don't have it in front of you.
Speaker 10: Is 150 to 200 ish, Tim, a reasonable range, you think?
Speaker 13: Richard
Speaker 10: Okay, okay. And Kevin, on your guide, and just thank you for laying out the currency sensitivity and your assumption of parity in the second half. On the energy side, can you talk about what?
Speaker 10: Exactly, you're assuming. I think today European natural gas features fall below 150 euros per megawatt hour because Nord Stream 1 is open again. What are exactly your energy assumptions as part of that 45 million drag for the year?
Speaker 4: Yeah, so we need to be a little careful. So in terms of natural gas, natural gas is probably, you know, call it.
Speaker 4: 25% maybe 30% of her overall energy cost.
Speaker 4: So, you know, we like to peg it towards, you know, the TTF, which, you know, as you say, is around 150. I would say we were right in that range of where we were for the, you know, the guidance was right in that 150 range. And it's similar to how we use the Euro as a proxy for all the other currencies. You could use the TTF as a proxy of what we assumed for it.
Speaker 5: the electricity as well. The only thing I caution you there is, you know, there's regulated markets and unregulated markets, so they don't necessarily move the same way all the time. So just be a little careful with that. I appreciate that. And Tim, just one last one on, back to a No-Just question about the North American market. If you had to guess...
Speaker 5: electricity as well. The only thing I'm cautioning you there is you know there's regulated markets and unregulated markets so they don't necessarily move the same way all the time. So just be a little careful with that. I appreciate that and Tim just one last one not on back to a no just question about the North American market. If you had to guess would you think the market was up?
Speaker 10: quite a bit more than what you were up or you think was probably similar range. I think we're all just trying to get some rough sense of the extent to which market growth has slowed either in the second quarter or year to date.
Speaker 5: Any sense you have along those lines?
Speaker 5: Well, I think the market was up in Q1 up.
Speaker 5: I'm pretty sure it was up in April and May and maybe it was a little touch softer in June but I you know Adam I don't know. I'm pretty sure it was a touch softer in June but I you know Adam I don't know.
Speaker 14: And um...
Speaker 5: I don't know the impact of imports here. I mean the impact on imports here on your we know is lower
Speaker 5: how that feeds into what CMI is going to tell us, I don't know, but I bet you for