Q3 2023 Crown Holdings Inc Earnings Call
Speaker 1: Thank you for standing by. The conference will begin momentarily. Until such time, you'll hear music. Thank you and please continue to stand by.
Thank you for standing by the Congress will begin momentarily until such time, you'll hear music.
And please continue to standby.
[music].
Okay.
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Yes.
Speaker 1: Good morning and welcome to Crown Holdings' third quarter of the 2023 conference call. Your lines have been placed on a listening limit until a question and answer session. Please be advised that this conference is being recorded. I would now like to turn the call over to Mr. Cleven Clodier, Senior Vice President and Chief Financial Officer. Sure you may begin.
Good morning, and welcome to Crown Holdings third quarter 2023 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 <unk> Senior Vice President and Chief Financial Officer, Sir you may begin.
Thank you Albert and good morning with me on today's call is Tim Donahue, President and Chief Executive Officer.
Speaker 1: Thank you, Albert. Good morning. With me on today's call is Ken Donnew, President and Chief Executive Officer. If you do not already have the orange release, is available on our website at crowncork.com. On this call, as in the orange release, we will be making a number of forward-looking statements, actual results could vary materially from such statements. Additional information concerns.
If you do not already have the earnings release is available on our website at <unk> Dot com.
On this call as in the earnings release, we will be making a number of forward looking statements actual results could vary materially from such statements.
Additional information concerning factors.
Speaker 1: That could cause actual results to vary or are contained in the press release and in our SEC filings, including our form 10K for 2022 and subsequent filings.
That could cause actual results to vary our contained in the press release and in our SEC filings, including our Form 10-K for 2022 and subsequent filings.
Third quarter earnings were $1 33, a share compared to $1 six in the prior prior third quarter adjusted earnings per share were $1 73 per share in the quarter compared to $1 46 and 2022.
Speaker 1: Third quarter earnings were $1.33 a share compared to $1.6 in the prior prior third quarter. Adjusted earnings for a share were $1.73 for a share in the quarter compared to $1.46 in 2022.
Speaker 1: Net sales in the quarter were down 6% from prior year as higher sales unit volumes in America's beverage.
Net sales in the quarter were down 6% from the prior year as higher sales unit volumes in Americas beverage and 60 million positive impact from foreign currency translation were offset by the pass through of $187 million of lower raw material costs and lower unit volumes in most other businesses.
Speaker 1: and 60 million positive impact for foreign currency translation were offset by the pass through 187 million of lower roll material cost and lower unit volumes in most other businesses. Seventh million come at 430 million in the quarter compared to 336 million in the prior year and reflects the benefit of higher unit volumes in North America.
Segment income at $430 million in the quarter compared to $336 million in the prior year and reflects the benefit of higher unit volumes in North America.
Speaker 2: the contractual recovery of prior year's inflationary cost increases in European beverage, and the cost reduction initiatives in transit packaging.
Our actual recovery of prior year's inflationary cost increases in European beverage and the cost reduction initiatives and transit packaging.
Speaker 2: cash flow of $832 million for the first nine months of 23 compared to $134 million in the prior year. It's the result of better working capital management.
Cash flow of $832 million for the first nine months of <unk> 23, compared to $134 million in the prior year.
As a result of better working capital management.
Speaker 2: Next, leverage and prove to three and a half times. A half turn improvement from the second quarter, driven by higher third quarter operating income, and better operating cash flow.
Net leverage improved to three enhance times, a half turn improvement from the second quarter, driven by higher third quarter operating income and better operating cash flow.
Fourth quarter adjusted EPS is projected to be in the range of $1 40 to $1 50 per share with a full year adjusted EPS of $6 to $6 10 per share. Our guidance includes the following net interest expense of approximately $390 million.
Speaker 2: Fourth quarter, the Judgeds at EPS is projected to be in the range of $1.40 to $1.50 per share with the full year of Judgeds at EPS of $6 to $6.10 per share. Our guidance includes the following. That interest expense of approximately $390 million.
Speaker 2: a 47% incremental non-cash pension and post-retirement cost.
A 40, <unk> incremental noncash pension and postretirement costs.
Average common shares outstanding of approximately $120 million in full year tax rate.
Speaker 2: Average common shares outstanding of approximately $120 million and four-year tax rate of approximately 24%. Depreciation of approximately $340 million compared to $301 million in 2022. Non-controlling interest expense to be approximately $135 million. Dividends to non-controlling interest approximately $120 million.
24% depreciation of approximately $340 million compared to $301 million or 22 nine.
Controlling interest expense to be approximately $135 million.
Dividends to noncontrolling interests approximately $120 million.
Speaker 2: After capital spending of 900 million, free cash flow was projected at 500 million, and we currently expect year-end leverage to be 3 and a quarter times. With that, I'll turn it all over to Tim.
After capital spending of $900 million free cash flow is projected at $500 million and we currently expect year end leverage to be three and a quarter times with that I'll turn the call over to Tim.
Thank you Kevin.
Speaker 3: Thank you, Kevin, and good morning to everyone.
Good morning to everyone.
Speaker 3: Kevin just provided a sea of numbers, so I'll be brief and then we'll open the call to questions.
Kevin just provided a sea of numbers. So I'll be brief and then we will open the call to questions.
As reflected in last night's earnings release, and as Kevin Just summarize third quarter performance was in line with expectations.
Speaker 3: As reflected in last night's earnings release, and as Kevin just summarized, third quarter performance was in line with expectations. As each of our three larger businesses, that is America's beverage, European beverage, and transit packaging all continued to perform well, offsetting softness in North American aerosols in Asia.
As each of our three larger businesses that is Americas beverage European beverage and transit packaging all continued to perform well offsetting softness in North American aerosols in Asia.
Speaker 3: For the quarter, total company segment income improved by 28% from a challenging prior year third quarter, and we expect similar improvement in the fourth quarter.
For the quarter total company segment income improved by 28% from a challenging prior year third quarter, and we expect a similar improvement in the fourth quarter.
Speaker 3: Importantly through nine months, and as Kevin just noted, free cash is $700 million ahead of the prior year nine month period due to an improved working capital position with net leverage being reduced by a full one half turn in the quarter.
Importantly through nine months and as Kevin just noted free cash is $700 million ahead of the prior year nine month period.
Due to an improved working capital position with net leverage being reduced by a full.
One five turn in the quarter.
Speaker 3: As Kevin noted, we estimate year-end net leverage to be around three and a quarter times after giving effect to the Helvisha Packaging Acquisition and completed in early October .
As Kevin noted, we estimate year end net leverage to be around three and a quarter times.
After giving effect to the Helvetia packaging acquisition completed in early October .
North American volumes advanced 12, 6% in the third quarter, helping to advance income in the Americas beverage segment by 25% over the prior year.
Speaker 3: North American volumes advance 12.6% in the third quarter, helping to advance income in the America's beverage segment by 25% over the prior year.
Through nine months unit volumes in North America are up more than 6% over the prior year and while we are still early in the fourth quarter demand remains firm and we maintain our estimate of 7% growth for the full year earlier.
Speaker 3: Through nine months, unit volumes in North America are up more than 6% over the prior year. And while we are still early in the fourth quarter, demand remains firm, and we maintain our estimate of 7% growth for the full year.
Speaker 3: Earlier this month, commercial shipments commenced from line one at the company's new plant in Mesquite Nevada with the start-up of line two scheduled before the end of the year.
Earlier this month commercial shipments commenced from line one at the Companys, new plant and Mesquite, Nevada with the startup of line two scheduled before the end of the year.
Speaker 3: Post-pandemic economic conditions appear to be improving in Brazil, and we remain positive as we enter the busy summer selling season.
Post pandemic economic conditions appear to be improving in Brazil, and we remain positive as we enter the busy summer selling season.
Income performance in European beverage was up significantly over the prior year as inflationary pass throughs helped the business recover margin from the challenging prior year third quarter.
Speaker 3: Income performance in European beverage was up significantly over the prior year, as inflationary pass-throughs helped the business recover margin from the challenging prior year third quarter. Our unit volumes in the quarter were down 5% across the segment, as our regional mix, which has weighted more towards southern Europe , sell our volumes underperform a flatish market. More important than volumes.
Our unit volumes in the quarter were down 5% across the segment.
Our regional mix, which is weighted more towards southern Europe .
Our volumes underperform.
<unk> market.
More important than volumes.
Speaker 3: acceptable operating margins have been restored to the business.
Acceptable operating margins have been restored to the business.
Unit volumes across Asia Pacific were down 9% with continued weakness in Vietnam as fillers across that country look to adjust their filled goods inventory into weakening economic conditions.
Speaker 3: Unit volumes across Asia Pacific were down 9% with continued weakness in Vietnam as fillers across that country looked to adjust their filled goods inventory into weakening economic conditions. Volumes across Cambodia and China remained firm in the quarter.
Volumes across Cambodia in China remained firm in the quarter.
Income and transit packaging was up almost 20% in the quarter as continued positive price cost management combined with reduced overhead costs and higher equipment deliveries more than offset lower consumables volumes.
Speaker 3: Income and transit packaging was up almost 20% in the quarter as continued positive price cost management combined with reduced overhead costs and higher equipment deliveries more than offset lower consumables volumes.
Speaker 3: A solid performance through nine months would income at 15% in that sales and tracking for another very strong, full-year cash flow performance.
Solid performance through nine months with income at 15% of net sales and tracking for another very strong full year cash flow performance.
Speaker 3: With a more streamlined cost structure, the business is well positioned to benefit further as industrial activity improves in the future.
With a more streamlined cost structure of the business is well positioned to benefit further as industrial activity improves in the future.
Performance across North American Tin plate in can making equipment continued to be impacted by very soft aerosol can demand.
Speaker 3: performance across North American template and can making equipment continue to be impacted by very soft aerosol can demand with aerosol volumes in the quarter of fifteen percent to the prior year
Aerosol volumes in the quarter of 15% to the prior year.
Speaker 3: So in summary, and as we said earlier, third quarter performance was on plan, income up, leverage down, and our expectation is that fourth quarter EBITDA should improve by a similar percentage as the third quarter, delivering further debt and leverage reduction.
So in summary, and as we said earlier third third quarter performance was on plan income up leverage down.
Our expectation is that fourth quarter EBITDA should improve by a similar percentage as the third quarter delivering further debt and leverage reduction.
Speaker 3: And before we open the call to questions, we again would ask that you limit yourselves to two questions so that as many of you as possible will have an opportunity.
And before we open the call to questions. We again would ask that you limit yourselves to two questions. So that as many of you as possible we will have an opportunity.
Speaker 3: And with that, Elmer, we are now ready to take questions, please.
And with that Elmer we are now ready to take questions. Please.
Thank you speakers, who are now begin our question and answer session tour participants if you'd like to ask a question. Please press star followed by the number one please mute your phones and accordingly and in turn prompted your names are required to interest your questions and to cancel your request. Please press star followed by the number two once again. Please press star one to ask question. Please record your name and your comp.
Speaker 1: Thank you, speakers. We will now begin our question-and-answer session. To our participants, if you would like to ask a question, please press star followed by the number 1. Please unmute your phones and record your names when prompted. Your names are required to introduce your questions. And to cancel your requests, please press star followed by the number 2. Once again, please press star 1 to ask a question. Please record your names and your company names by the way, when prompted. And to cancel, please press star followed by the number 2.
The name is by the way.
When prompted and to cancel please press star followed by the number two and our first question is from the line of missing likely Kid from Barclays. Your line is open you may begin.
Speaker 4: And our first question from the line of Mr. Mike Gleethead from Barclays. Lands open, you may begin. Good morning, guys.
Great. Thanks, Good morning, guys.
Good morning.
I know the world is a bit uncertain right now, but can you maybe speak to any early thoughts about crowns 2024 earnings potential or company specific drivers.
Well why don't we leave that till February I think we are.
Speaker 5: I wouldn't say we're early in the budget process, but we're not yet complete. Still some things moving around, and I think that will be better served if we wait until we complete the process.
I wouldn't say, we're early in the budget process, but we're not yet complete.
Still some things moving around.
I think that'll be better served if we wait until we're complete the process.
Fair enough and then secondly, just on <unk>.
<unk> America.
You can sort of reaffirmed kind of your outlook for volumes for the full year can you speak to obviously you have your own company specific tailwind, but just what your conversations with your customers are.
Demand et cetera, just in the North American market today.
Speaker 3: Yeah, so our mix perhaps a little different than some of the others, but weighted more towards CSD nutrition.
Yes.
Our mix, perhaps a little different.
Some of the others, but.
Weighted more towards CSC.
Neutral so the goals.
Speaker 3: light energy drinks, carbonated water. Our customers continue to push cans. They see cans as an important element in their sustainability journey, and we're gonna continue to benefit as long as they continue to promote the can. So, as we sit here today, I would say a very positive on the volume outlook for Q4, and
Light energy drinks carbonate carbonated water.
Our customers continue to push cans.
They see <unk> as an important element.
And their sustainability journey, and we're going to continue to benefit as long as they can to continue to promote the game. So as we sit here today I would say.
Very positive on the volume outlook for Q4.
Speaker 3: Obviously, we've got a higher base, but the absolute number of can growth that we see in 2024 is probably similar to the absolute level of can growth we saw in 2023.
Obviously, you've got a higher base.
But.
The absolute number of can growth that we see in 'twenty four probably similar.
So the absolute level of <unk> growth we saw in.
In 2003 so.
Significant gain growth again.
Great. Thank you.
You're welcome.
Speaker 1: Thank you. Next question is from the line of George Stavros from Bank of America. Your line is open, you may begin.
Thank you next question is from the line of George Staphos from Bank of America. Your line is open you may begin.
Yeah, Hi, good morning. This is actually Catherine Keeler on for George We had conflicting calls this morning.
Speaker 1: Hi, good morning. This is actually Cassin Keeler on for George. We had conflicting calls.
So I guess just first on the revised guidance you know I guess what segments saw the biggest change in your forecast relative to prior expectations was that primarily Asia and the aerosol.
Speaker 1: So I guess just first on the revised guidance, you know, I guess what segments saw the biggest change in your forecast relative to prior expectations? Was that primarily Asia and Aerosol? And I guess is it possible to, you know, put any numbers?
Is it possible that you know.
Throughout the year.
Changes in expectations there.
Speaker 3: I think it's, as we said in the release, last night's release, and as both Kevin and I said in the prepared comments, it's the aerosol's business in North America and also Asia, and offset somewhat by better performance in the Americas and in transit.
Yes.
I think it's as we said.
And the in the release last nights release and.
As both Kevin and I stated in the prepared comments, it's Eric.
Aerosols business in North America.
And.
And also Asia.
Offset somewhat by a better performance.
In the Americas and in transit.
But I think the order of magnitude if you can.
Speaker 3: But I think, you know, the order of magnitude, if you took those two businesses, those two businesses in the order of magnitude, perhaps 15 to 20 million dollars down.
Those two businesses those two businesses in the order of magnitude, perhaps $15 million to $20 million down.
Speaker 3: for Qs 3 and 4 than what we would have saw when we talked to you back in July .
For Qs three and four than what we would've saw when we talked to you back in July .
Got it Okay and then just quickly in terms of the <unk> acquisition is there a way to think about the impact from earnings or revenue standpoint from here.
Speaker 1: And then just quickly in terms of the health data acquisition, is there a way to think about the impact from earnings or revenue?
Speaker 3: Yeah, it's a high-speed one-line cam plate plant with an end line.
Yes.
It's a high speed one line can play plant.
With an in line.
Speaker 3: You know what I would tell you is we haven't talked about the value we paid for it. We paid around $125 million and if you've been following what it costs to build a can plant, especially a can plant, a high speed line with an end line, you'll quickly come to the conclusion that's a pretty good deal for the company at that level. Significantly below what we and others are paying to build similar can plants.
What I would tell you is we haven't talked about the value we paid for we paid around $125 million and a few if.
If you've been following what it cost to build a can plant, especially a can plant a high speed line with a with an in line Youll quickly come to conclusion Thats a pretty good deal for the company at that level significantly below what we're what we and others are paying to build similar can plants.
We have the plant down right now only because we're into the fourth quarter and it's a little light slower than what we're doing is.
Speaker 3: We have the plant down right now only because we're into the fourth quarter and it's a little light slower and what we're doing is using this time to...
Using this time to.
Sure.
Speaker 3: do some much needed preventative maintenance work and clean up the plant back to what we would consider crown standards and ensure that
Do some much needed preventative maintenance work and clean up the plants back to what we would consider crown standards.
And ensure that.
All of their kpis, including efficiency and spoilage.
Speaker 3: You know, all of their KPIs, including efficiency and spoilage, will improve next year from where they're at.
Will improve next year.
From where they're at.
Speaker 3: Depreciation, obviously, we've got to take a look and see what they were using for their depreciable lives.
Depreciation obviously, we've got to take a look at see what they were using further depreciable lives.
Speaker 3: But think about it on the order of somewhere between $5 and $10 million segment income.
But think about think about it on the order of.
Somewhere between five and $10 million segment income.
Great. Thanks, I'll turn it over thank.
Thank you.
Speaker 6: Thank you. Our next question is from the line of Arun Viswanathan from RBC Capital Markets. Your line is open. You may begin.
Thank you. Our next question is from the line of Arun Viswanathan from RBC capital markets. Your line is open you may begin.
Great. Thanks for taking my question I guess, yeah. So overall north American volumes have been quite strong.
And with your expectations, obviously promotional activity it does appear to be awesome.
And with your expectations as well maybe you can just comment on that and then as it relates to Europe . It looks like you already had a little bit on your profit recovery there.
So how do you see that trending into next year I guess, specifically do you expect low single digit volume growth for North America, and then expect them.
Maybe Europe to improve on their profitability that you've seen before that 259 million and EBIT. Thanks, Yes.
Speaker 3: Yes, so Arun stay on the call because I'm probably going to forget one of these questions, but the first thing I would say is that
Yeah, So arun stay on the call because you're probably going to forget one of these questions, but the first thing I would say is that.
As we said North American volumes up 12% 12, 6% that's against last year's third quarter, where we were down 6%, maybe the market was down 5% to 6% as well last year in the third quarter.
Speaker 3: as we said, North American volumes up 12.6%. That's against last year's third quarter where we were down 6%. Maybe the market was down 5% or 6% as well last year in the third quarter. And for a market that's as big and stable historically as North America, that's the worst quarter I can remember in my 30 plus years for the North American canned market. Certainly we have other markets.
And for a market, that's as big and stable historically as North America.
And thats the worst quarter I can remember in my 30 plus years.
For the North American can market certainly we have other markets.
Speaker 3: based on their emerging status around the world that could be plus or minus big numbers. But a market as big and stable as North America, we never experienced anything like we did in the third quarter last year. So roughly half of the gain we had this year was a recovery from an extremely weak third quarter last year. And then the balance...
Based on.
They are emerging status around the world that can be plus or minus a bit.
Numbers, but our market is big and stable in North America, we never experienced anything like we did in the third quarter last year. So roughly half of the gain we had this year was a recovery from an extremely weak third quarter last year and in the balance.
<unk>.
Really custer.
Speaker 3: really customers beginning to pick up their promotions perhaps as early as May as we said on the second quarter call and pushing well into the third quarter and as we sit here today in October still promoting at much greater levels than we saw last year. So that's that.
Customers beginning to pick up their promotions, perhaps as early as May as we said on our second quarter call in.
And pushing well into the third quarter and as we sit here today in October we're still still promoting at much greater levels than we saw last year or so.
That's an add on Europe .
Speaker 3: uh... yeah i think we always told you that i think we initially told you that we thought in twenty three we'd be halfway back to
Yes, I think.
We always told you that I think we initially told you that we thought into 'twenty three we'd be halfway back to that.
Speaker 3: Our 21 income levels were probably going to be closer to 75% of the way back.
Our 21 income levels, we're probably going to be closer to 75% of the way back.
Speaker 3: to the 21 income level and the goal is to be fully back to that 21 level through the end of next year, plus or minus a couple bucks for currency. Always hard to estimate what currency is going to do. Did I answer all your questions or not?
So the 21 income level and the goal is to be fully back to that 21 level.
Through the end of next year, plus or minus a couple of bucks for currency always hard hard to estimate what currency is going to do did I answer all your questions or not.
Yeah that was great if I could add one follow up just on capital return you are seeing that inflection point on free cash flow next year with the lower Capex.
How do you expect to kind of use those.
Extra free cash flow dollars would they be allocated more towards share.
Share repurchase potentially.
Speaker 3: Yes, so historically, you know, the packaging in the tree, the can in the tree, we've...
Yes, so historically.
You're going to three the can industry.
Speaker 3: We've used a method of generating a lot of cash flow in lower growth scenarios.
We've used a method of generating a lot of cash flow and lower growth scenarios genera.
Speaker 3: Generating a lot of cash using that to pay down debt and buy back stock and
Generally a lot of cash using that to pay down debt and buy back stock.
Speaker 3: and pushing EPS growth, you know, 5% to 10% and 10% to 12% each year. I think increasingly we're hearing from many shareholders.
And pushing EPS growth five to 10 or 10% to 12% each year I think increasingly we're hearing from many shareholders.
Speaker 3: given where interest rates are and where they're likely to go and where they're likely to stay for a prolonged period of time.
Given where interest rates are and where they're likely to go and where they're likely to stay for a prolonged period of time.
Speaker 3: and they would prefer that leverage might necessarily need to be lower than our three to three and a half times and so we'll continue to look at that in the face of upcoming maturities and it's not just our maturities that we have coming due but the entire high-yield bond landscape has maturities coming due and most of those bonds will be refinanced at higher rates than we currently have on the balance sheet now and uh... i think the
I would prefer that leverage might necessarily need to be lower than our three to three five times and so we will continue to look at that in the face of upcoming maturities and it's not just our maturities that we have coming due but the entire high yield bond landscape has maturities coming due in.
Most of those bonds will be refinanced at higher rates than we currently have on the balance sheet now and.
I think the if.
And if you do the math it's.
Speaker 3: It's not so clear that buying back stock is better than paying down debt at this point, so we are listening closely to many of our shareholders, especially our larger shareholders who are now calling for a little less leverage than we would have been more comfortable with in the past.
It's not so clear that buying back stock is better than paying down debt at this point. So we are listening closely to.
Many of our shareholders, especially our larger shareholders, who are now calling for a little less leverage than we would have been more comfortable with in the past.
Thanks.
Thank you.
Speaker 2: Thank you, our next questions from Anthony Pitonari from City. Your line is open, you may begin.
Thank you. Our next question is from Anthony Pettinari from Citi. Your line is open you may begin.
Hi, good morning.
I'm wondering if you could just talk about kind of operating rates, maybe broadly by region and and you've given preliminary capex guidance for 'twenty four 'twenty five.
Assuming this capex guidance doesn't include you know big Greenfields I'm, just wondering if you could talk about.
Where you think you may be able to grow volumes over the next couple of years, you know without adding kind of big projects.
Yes, listen we can grow.
Speaker 3: Yeah, listen, we can grow in every market without any more capital.
We can grow in every market.
Any more capital.
We brought up two large <unk> plants in the United States. This year, Virginia in Nevada, and clearly as they go through learning curve and and their productivity improves and more good salable cans coming out the back end of the line we grow.
Speaker 3: we brought up two large cantplants in the United States this year, Virginia and Nevada, and clearly as they go through learning curve and their productivity improves and more good-saleable cans come out the back into the line, we grow.
I would say that operating rates in North America are fairly healthy I would say that.
Speaker 3: I would say that operating rates in North America are fairly healthy. I would say that...
The industry currently.
Speaker 3: I'm thinking about the second quarter, but the third quarter was a little stronger.
Im thinking about the second quarter, but the third quarter was a little stronger.
Speaker 3: You know, we've got to be around 90 to 91, 92 percent. I don't think there's a supply-demand imbalance in North America, and I think as customers continue to push cans, we all have a little bit of spare capacity. We can fill that demand, and I don't think we're going to see a supply-demand imbalance in North America. Things are pretty healthy, and they're going to get healthier. I think in most other markets, there probably is a little bit of slack.
We got to be around 90 to 90, 192% I don't think there is a supply demand imbalance in North America.
And I think as customers continue to push cans, we all have a little bit of spare capacity, we can fill that demand in and I don't I don't think we're going to see a supply demand imbalance in North America things are things are pretty healthy and they're going to get healthier I think in.
Most other markets there probably is a little bit of slack.
Speaker 3: That doesn't mean the markets are not healthy. I think, as we said in the prepared remarks, Brazil is starting to improve economically.
It doesn't mean the markets are not healthy I think.
As we said in the prepared remarks, Brazil is starting to improve economically.
<unk>.
Speaker 3: Interest rates coming down a little, unemployment coming down a little, consumer spending starting to rise a little, albeit a little slower than we've seen in the past, but GDP turning positive. So over the next several years, we and others are well positioned to continue to meet the ongoing growth in the Brazilian market as we have for the last two decades.
Unknown Executive: Good morning and welcome to Crown Holdings third quarter, 2023 Congress call. Your lines have been placed on Alyson Lemur until a question and answer session. Please be advised that this conference is being recorded.
Interest rates coming down a little unemployment coming down a little consumer spending starting to rise a little albeit a little slower than we've seen in the past but.
GDP turning positive in <unk>.
Kevin Clothier: I would like to turn the call over to you, Mr. Clothier, Senior Vice President and Chief Financial Officer. Sure you may begin. Thank you, Oliver.
So over the next several years, we and others are well positioned to continue to meet the ongoing growth.
The Brazilian market as we have for the last two decades.
Kevin Clothier: Good morning with me on today's call is Ken Donahue, President and Chief Executive Officer. If you do not already have the orange release is available on our website at crowncork.com. On this call, as in the orange release, we will be making a number of forward-looking statements actual results could vary materially from such statements. The digital information concerning factors that could cause actual results to vary are contained in the press release. And in our SEC filings, including our form 10K for 2022 and subsequent filings.
Obviously.
Speaker 3: The Vietnamese market has been exceptionally soft this year. I think the one number I could give you is that beer fillings...
The Vietnamese market has been exceptionally soft this year.
I think the.
The one number I could give you is that beer fillings.
Speaker 3: in Vietnam for nine months this year compared to last year down about 25%. So as again, as that market recovers, we're a well positioned to grow. And in Europe .
In Vietnam for nine months this year compared to last year down about 25% so.
Again as that market recovers, we are well positioned to grow and in Europe .
Speaker 7: We're bringing on a very large two-line can plant in the UK. Now, not all of that is incremental capacity. Some of it replaces the other plant in the UK that we're moving out of, but certainly there is incremental capacity there, as well as the capacity that we added in Italy and Spain early this year, late last year. So we are well positioned to grow without having to spend any more than this $500 million number that we've talked about for the next couple or three years. OK, that's very helpful.
Bringing on a very large two line can plant in the UK now not all of that is incremental capacity some of it replaces the other plant in the UK that we're moving out but certainly there is incremental capacity there.
Kevin Clothier: Third quarter earnings were $1.33 a share compared to $1.6 in the prior, prior third quarter. Adjusted earnings for a share were $1.73 for a share in the quarter compared to $1.46 in 2022. $1.87 million of lower roll material costs and lower unit volumes in most other businesses. Seventh million income at $430 million in the quarter compared to $336 million in the prior year and reflects the benefit of higher unit volumes in North America.
As well as the capacity that we added in Italy and Spain.
Earlier this year late last year. So we are we are well positioned to grow without having to spend any more than this $500 million number that we've talked about for the next couple or three years.
Okay, that's very helpful.
Then just switching gears can you can you help us understand kind of what's going on with aerosol and maybe your outlook moving forward.
This is destocking, maybe where are we in that in that process and just any additional color you can give it on an aerosol.
Yes, so I mean, as we've said before aerosol.
Speaker 3: Yes, so I mean, as you said before, aerosol is a more of an economically sensitive product. If you think about the aerosol can, it's a really convenient way to dispense product, a very clean and convenient way, albeit a little bit more expensive for the consumer.
More of an economically sensitive products, if you think about the aerosol cans.
It's a really can be convenient way to dispense product, a very clean and convenient way, albeit a little bit more expensive for the consumer so.
Kevin Clothier: The contractual recovery of prior year's inflationary cost increases in European beverage and the cost reduction initiatives in trade to packaging. Cash flow of $832 million for the first nine months of 23 compared to $134 million in the prior year, the result of better working capital management. Next leverage improved to three and a half times, a half turn improvement from the second quarter driven by higher third quarter operating income and better operating cash flow.
Speaker 3: things start to tighten up, the consumer starts to tighten their belt, they don't need to buy air freshener, they don't need to buy bug spray.
Things start to tighten up the consumer starts to tighten their belt, they don't need to buy air freshener, They don't need to buy bug spray.
Speaker 3: uh... less and less manner of shaving than ever shaved before so they're not buying as much shave cream or they shave with a bar of soap.
Less and less manner of shaving than ever shake before so they're not buying as much shape clean or are they shape.
Our of soap.
Speaker 3: a little less comfortable maybe a couple more nicks and cuts but if you don't have to spend the money you don't spend the money you just
A little less comfortable maybe a couple more nicks and cuts, but you don't have to spend the money you don't spend the money you just.
Speaker 3: blot your cut on your face, I guess. So now having said that, that's that's one area. So the economically, the the market is down. I think everybody in the steel aerosol can market is down. And I would expect that the one other company that you'll talk to will probably tell you the same. There's also a
A lot you are cuddling interface I guess so.
Now, having said that that's one area so the economic leader.
Kevin Clothier: Fourth quarter, adjusted EPS is projected to be in the range of $1.40 to $1.50 per share with the full year adjusted EPS of $6 to $6.10 per share. Our guidance includes the following. Then interest expense of approximately $390 million, a 40-cent incremental non-cash pension and post retirement cost, average common shares outstanding of approximately $120 million and four-year tax rate of approximately 24%. Depreciation of approximately $340 million compared to $301 million in 2022, non-controlling interest expense to be approximately $135 million, dividends and non-controlling interest approximately $120 million. After capital spending of $900 million, free cash flow was projected at $500 million and we currently expect year-end leverage to be three and a quarter times.
The market is down I think everybody in the steel.
Aerosol can market is down and I would expect that the one other company that Youll talk to will probably tell you the same.
There's also a.
Speaker 3: a slight move for some products from steel aerosol to aluminum aerosol. Historically that's been more of let's say women's products.
A slight move for some products from steel aerosol to aluminum aerosol historically, that's been more of let's say women's products.
Speaker 3: uh... and and let's say suntan lotions uh... slowly some of the other products are moving from steel to to aluminum uh... but that's a that's a slow move it's more economic related now than anything else
And let's say suntan lotions.
Slowly some of the other products are moving from steel to aluminum.
That's a that's a slow move it's more economic related now than anything else.
Okay. That's very helpful. I'll turn it over thank you.
Speaker 2: Thank you. Our next question is from Gansham Punjabi from Baird. Your line is open. You may begin.
Thank you. Our next question is from Ghansham Panjabi from Baird. Your line is open you may begin.
Okay.
So I guess going back to the North American beverage or <unk> up 12, 6%.
Was that in line with your internal plan or was it better and if so what drove that was that promotional spending you know maybe a very hot summer et cetera, and then what do you estimate the market itself in North America grew.
Timothy Donahue: With that, I'll turn the call over to Tim. Thank you, Kevin and good morning to everyone. Kevin just provided a sea of numbers so I'll be brief and then we'll open the call for questions. As reflected in last night's earnings release and as Kevin just summarized, third quarter performance was in line with expectations. As each of our three larger businesses, that is America's beverage, European beverage and transit packaging all continued to perform well, offsetting softness in North American aerosols in Asia.
Third quarter.
Speaker 3: So, Ghanshyam, I would say it was a touch better than what we anticipated.
So ghansham I would say it was a touch better than what we anticipated.
Yes.
Speaker 3: you know we were as we sat here in July nobody believed this when we told you we're going to be up significantly in q3 we we kind of got a pretty good handle on it we we probably thought eleven to eleven and a half percent so maybe we're a point or a point and a half higher than we thought we'd be and and that's just
As we sat here in July nobody believed us when we told you we're going to be up significantly in Q3, we kind of.
<unk> got a pretty good handle on it we.
We probably saw at 11 to 11, 5%. So maybe we're a point or a point and half higher than we thought we would be in.
And that's just.
Speaker 3: more and increasing promotions by a number of the large carbonated software companies as well as some of the better known national and regional sparkling water brands.
More and increasing promotions.
Timothy Donahue: For the quarter total company segment income improved by 28% from a challenging prior year, third quarter and we expect similar improvement in the fourth quarter. Importantly through nine months and as Kevin just noted, free cash is $700 million ahead of the prior year nine month period due to an improved working capital position with net leverage being reduced by a full one half turn in the quarter. As Kevin noted, we estimate year-end net leverage to be around three and a quarter times after giving effect to the hellbisha-packaging acquisition and completed in early October.
By a number of the soft large carbonated soft drink companies as well as some of the better known national and regional sparkling water brands.
Speaker 3: As for the market, you know, we don't get data anymore from C&I, but...
As for the market, we don't get data anymore.
From CMI, but.
Thought I believe.
Speaker 3: It feels like at least for domestic producers we were up a few percent.
It feels like at least for domestic producers, we were up a few percent.
Speaker 3: And I guess if you think about the total market, if you were to include lower imports, this year compared to last year, imports are almost nil at this point.
And I guess, if you think about the total market. If you were to include lower imports this year compared to last or imports or almost mill at this point.
Timothy Donahue: North American volumes advance 12.6% in the third quarter, helping to advance income in the America's beverage segment by 25% over the prior year. Through nine months, unit volumes in North America are up more than 6% over the prior year, and while we are still early in the fourth quarter, demand remains firm, and we maintain our estimate of 7% growth for the full year. Earlier this month, commercial shipments commenced from line one at the company's new plant in Mesquite Nevada with the start-up of line two scheduled before the end of the year.
Speaker 7: Maybe the market was flatish to up 1% but for domestic producers we have to be up a few percent That'd be my guess. I'm purely guessing
Maybe the market was flattish to up 1%, but for domestic producers we have to be up a few percent.
Yes, that'd be my guess.
Purely guessing.
Okay that makes sense and then you made some constructive comments on supply demand again specific to North America.
There are new players.
Your customers are dealing with persistency of inflation that consumer is resetting purchasing patterns and being much more price conscious etc.
As we kind of think about contract renewals for the industry going forward should we expect a paradigm, where maybe volumes are very lumpy between the different players as contracts come up for renewal I'm just trying to think this out as it relates to the next couple of years, assuming we have the current operating environment. We do over the next few years.
Timothy Donahue: Post-pandemic economic conditions appear to be improving in Brazil, and we remain positive as we enter the busy summer selling season. Income performance in European beverage was up significantly over the prior year, as inflationary pass-throughs helped the business recover margin from the challenging prior year third quarter. Our unit volumes in the quarter were down 5% across the segment, as our regional mix, which has weighted more towards southern Europe, sell our volumes underperform a flatish market.
Well I think we have the current operating environment based on.
Capacity installed today.
Speaker 3: And it doesn't appear that anybody is putting any more capacity in the after the Mesquite Project and perhaps one of the lines still to go into the Midwest by one of the new entrants. It does not, I don't know of any other capacity going near the market. So based on that installed capacity and the lack of imports that we're competing with now, let's just say that we've got a domestic market now served by the entire domestic manufacturing footprint.
And it doesn't appear that anybody is putting any more capacity in the after the mesquite product project and <unk>.
And perhaps one of the lines still to go into the Midwest by one of the new entrants.
It does not I don't know of any other capacity going into the market. So based on that installed capacity.
Timothy Donahue: More important than volumes, acceptable operating margins have been restored to the business. Unit volumes across Asia Pacific were down 9% with continued weakness in Vietnam as fillers across that country looked to adjust their filled goods inventory into weakening economic conditions. Volumes across Cambodia and China remained firm in the quarter. Income and transit packaging was up almost 20% in the quarter, as continued positive price cost management combined with reduced overhead costs and higher equipment deliveries, more than offset lower consumables volumes.
And the lack of imports that we're competing with now let's let's just say that we're we've got a domestic market now served by the entire domestic manufacturing footprint.
In a market in which <unk>.
Speaker 3: In a market in which our customers are promoting cans, they all have sustainability goals and sustainability agendas they promise to meet. They cannot meet their sustainability goals without the can.
Our customers are promoting cans, they all have sustainability goals and sustainability agenda as they promise to me they cannot meet their sustainability goals without the can.
So based on that that's why I feel that supply demand currently in pretty good shape and will only get better now.
Speaker 3: So, based on that, that's why I feel that supply-demand is currently in pretty good shape and will only get better.
Timothy Donahue: A solid performance through nine months would income at 15% in net sales and tracking for another very strong full year cash flow performance. With a more streamlined cost structure, the business is well positioned to benefit further as industrial activity improves in the future. Performance across North American tin plate and can making equipment continue to be impacted by very soft aerosol can demand with aerosol volumes in the quarter off 15% to the prior year.
Well I can't talk for everybody, but.
Speaker 3: I can't talk for everybody, but for the most part, we don't have any contracts coming due until the end of.
For the most part we don't have any contracts coming due until the end of May.
Maybe 26, so we're a couple of years out.
Speaker 3: maybe 26 so we're a couple years out. Now incrementally if there's growth and or volumes outside of existing contracts and
Now incrementally if there is.
Growth <unk>.
Volumes outside of existing contracts.
Speaker 3: Perhaps there's, as you want to say, a scramble for that growth, but I don't think there's any reason...
Perhaps there is as you want to say a scramble for that growth but.
I don't think Theres any reason.
Any reason why as we sit here today looking out to two and a half years, we should be overly concerned, but anything's possible ghansham.
Speaker 3: Any reason why, as we sit here today, looking out to two and a half years, we should be overly concerned, but anything's possible, Gonchum.
Timothy Donahue: So in summary, and as we said earlier, third quarter performance was on plan. Income up, leverage down, and our expectation is that third quarter EBITDA should improve by a similar percentage as the third quarter delivering further debt and leverage reduction.
Thank you.
Thank you.
Speaker 2: Thank you, our next person from the line of the cave, Hodgkin from Volkswagen Line, so thank you.
Thank you. Our next question from the line of Gabe <unk> from Wells Fargo. Your line is open you may begin.
Unknown Executive: And before we open the call to questions, we again would ask that you limit yourselves to two questions so that as many of you as possible will have an opportunity.
Yes.
Yes.
Good morning.
Speaker 8: Yeah You've got a connection problem. Just be careful. That go ahead game Yes Okay, thank you. I
Yes.
Okay.
Unknown Executive: And with that, Elmer, we are now ready to take questions, please. Thank you, speakers. We're going to begin our question and answer session. To our participants, if you'd like to ask a question, please press star followed by the number one. Please meet your phones and accordingly name term prompted. Your names are required to introduce your questions. And to cancel your requests, please press star followed by the number two. Once again, please press star one, task question. Please record your names and your company names by the way. When prompted, and to cancel, please press star followed by the number two.
You've got a connection problem.
Be careful about go ahead Gabe.
Is that any better.
Youre better yes.
Thank you.
I wanted to revisit Europe , a little bit and ask about I think you indicated market flattish.
I appreciate it's a regional market and it can vary by by player.
I think there's there's Chinese competitor, that's adding a second plant there it seems like it's.
Customer specific at this point.
Speaker 6: But maybe that would be the market where we might feel
But maybe that would be the market, where we might see a little bit more competitive activity because I think contracts are a little bit shorter there.
Michael Leithead: And our first question from the line of missing light bleak head from Barclays, again. Great. Thanks.
Speaker 6: contracts are a little bit shorter there. It seems like you guys are pretty well set.
Michael Leithead: Good morning, guys. I know the world is a bit uncertain right now, but can you maybe speak to any early thoughts about Crown's 2024 earnings potential or company specific drivers?
It seems like you guys are pretty well set in the 'twenty four.
Youre speaking highly constantly about next year I'm. Just curious you know kind of revisit the question about utilization.
Speaker 6: making highly confident about next year. I'm just curious to revisit the question about utilization.
Are there specific pockets or regions.
Timothy Donahue: Why don't we leave that to February? I think we're, I wouldn't say we're early in the budget process, but we're not yet complete. Still some things moving around, and I think that would be better served if we wait until we're complete the process.
What are kind of euro and tenant in terms of.
Competitive activity or anything like that.
Speaker 3: The first thing that they have to Chinese competitor, they built the first plant in Belgium, Cosmere specific, they don't listen, they have advantages while they're in China. That is whether
The first thing I'd say about the Chinese competitor they built the first plant.
In Belgium customer specific they don't listen they have advantages while they are in China that is whether theyre getting government sponsored aluminum reductions <unk> very cheap Chinese labor. They don't have that same advantage in Europe , they're in Belgium, theyre paying Belgian labor rates in <unk>.
Timothy Donahue: And then just on North America, you sort of reaffirmed kind of your outlook for volumes for the full year. Can you speak to obviously you have your own company specific tailwinds, but just what your conversations with your customers are, demand, et cetera, just in the North America market today? Yeah, so our mix perhaps a little different than some of the others, but waited more towards CSE, Neutraceuticals, light energy drinks, carbonated water.
Speaker 3: government sponsored aluminum reductions and or very cheap chinese labor they don't have that same advantage in Europe they're in belgium they're paying belgian labor rates and
Speaker 3: and they're either importing cheap chinese metal air they're buying
And they're either importing cheap Chinese metal in or they are buying they are buying.
Speaker 3: they're buying a uh... european metal so you know that the challenges that you might foresee competing against the chinese in china not the same challenge competing against them in Europe or other markets
European metal so.
Yes.
The challenges that you might foresee competing against the Chinese in China, not the same challenge competing against them in Europe or other markets.
We are we at crown are more weighted towards the perimeter.
Speaker 3: we had crown our more weighted towards the perimeter and that is the UK Spain Italy, Greece Turkey and certainly we have the one plant in France and now with the Heldisha acquisition, we now have a presence in Germany and then one in Slovakia. So I think
And that is the UK, Spain, Italy, Greece, Turkey, and certainly we have the one plant in France, and now with the Helvetia acquisition. We now have a presence in Germany, and then one in Slovakia. So.
Timothy Donahue: Our customers continue to push cans. They see cans as an important element in their sustainability journey, and we're going to continue to benefit as long as they can to continue to promote the can. So as we sit here today, I would say a very positive on the volume outlook for Q4, and obviously we've got a higher base, but the absolute number of can growth that we see in 24 are probably similar to the absolute level of can growth. We saw in 23, so significant can growth again. Great, thank you. You're welcome.
Unknown Executive: Thank you.
I think that.
Speaker 3: you know we were down a bit of the market probably flatish maybe plus one minus one and that growth is probably way more towards northern
We were down a bit the market, probably flattish maybe plus one minus one.
That growth is probably weighted more towards northern ore.
Speaker 3: north central Europe where we're not as prevalent and um...
North Central Europe , where we're not as prevalent and.
Speaker 3: But as I said, as we sit here today, there's no reason to believe we won't have another increase next year, certainly not to the level we increase this year, but we get back to where we were in 21.
But as I said we.
As we sit here today there is no reason to believe we won't have.
Another increase next year, certainly not to the level, we increase this year, but we get back to where we were in 'twenty one.
Speaker 3: and we've got a capacity footprint with some new capacity, new high state.
And we've got our capacity footprint with some new capacity.
New high speed.
George Staphos: Next question is from the line of George Stapfus from Bank of America. Your line is open, you may begin. Yeah, good morning.
Speaker 3: very efficient lines to benefit the company well into the future the sustainability story is alive in well in Europe as well so
Very efficient lines to benefit the company well into the future. The sustainability story is alive and well in Europe as well so.
Catherine Kieler: This is actually Catherine Kieler on for George. We had conflicting calls this morning. So I guess just first on the revised guidance, you know, I guess what segments saw the biggest change in your forecast relative to prior expectations? Is that primarily Asia and aerosol? And I guess it's possible to put in numbers around changes in the expectations there. As we said in the release last night's release and as both Kevin and I stayed in the prepared economics, it's the aerosol business in North America and also Asian.
Speaker 3: so it's the same same sustainability story as we have in north america maybe even more so
So it's the same same sustainability story as we have in North America, maybe even more so.
Yes.
Speaker 6: Okay, I should have asked this and I apologize for him. I'm gonna try to squeeze in two more. And I'm definitely opening myself up for it. I'm gonna try to squeeze in two more.
Okay.
And I apologize I'm going to try to squeeze in two more.
And I'm definitely opening myself up for a little bit of criticism here, but.
The first one anything I know you guys have operated there for a long time middle East.
That you can comment on I'm sure of what's going on right now is a little bit disruptive.
But just help us with that maybe a little bit and then secondly.
Speaker 6: help us with that maybe a little bit. And then secondly, it's obviously gotten a lot of attention and headlines and you know.
It's obviously gotten a lot of attention and headlines.
We wrote about it.
Catherine Kieler: Offset somewhat by better performance in the Americas and in transit. But I think the order of magnitude, if you took those two businesses in the order of magnitude, perhaps 15 to 20 million dollars down for Q's, three and four, then what we would have saw when we talked to you back in July.
Anything from your customers or conversations that youre, having in terms of you know.
The obesity drugs and potential impact on.
Sugary drinks.
Speaker 3: and so that's the first one of the middle east we've seen no impact
Yes.
One on the Middle East we've seen no impact.
<unk>.
Speaker 3: we don't have any operations in palestine or israel i'm not aware of us shipping any tans in the palestine i don't even know if there's a filler in palestine to be honest uh... israel there are fillers uh... from time to time we import cans in israel but it's a small amount our footprint in the middle east is salty
We don't have any operations in Palestine or Israel.
Not aware of our shipping any cans in the Palestine I don't even know if theres, a filler in Palestine and to be honest.
Timothy Donahue: Got it. Okay. And then just quickly in terms of the health data acquisition, is there a way to think about the impact from earnings or revenue standpoint from here? Yeah, it's a high speed one line template plan, with an end line. You know what I would tell you is, we haven't talked about the value we paid for, we paid around $125 million and a few, if you've been following what it cost to build a cam plan, especially a cam plan, high speed line with an end line, you'll quickly come to the conclusion, that's a pretty good deal for the company at that level, significantly below what we and others are paying to build similar cam plans.
Israel, there our fillers.
From time to time, we import cans in Israel, but it's a small amount.
Our footprint in the Middle East is Saudi.
Speaker 3: uh... Tunisia north africa salty uh... the emberts in dubae and uh... in jordan so jordan a little closer that region but today jordan's been insulated from the skirmish between israel and palestine so no impact there as relates ozampic and wagga v in these other drugs uh... i you know i i'm aware of the comment that the major large retailer made i i would have liked
Tunisia, North Africa, Saudi.
Emirates in Dubai, and in Jordan, So Jordan, a little closer to that region, but to date Jordan's been insulated from the skirmish between Israel and Palestine, So no impact there.
As it relates to <unk> and <unk> and these other drugs.
Yes.
I'm aware of the comment.
That the major large retailer made.
Of like.
Speaker 3: to have had a little more color on that before every hedge fund decided to jump off the boat at the same time you know when they when they say that clientele they have is who's pulling those drugs at the Walmart pharmacy is buying less food i don't think they're buying less
Just had a little more color on that before ever.
Every hedge fund decided to jump off the boat at the same time.
Timothy Donahue: Right now only because we're into the fourth quarter and it's a little light slower and what we're doing is using this time to do some much needed preventative maintenance work and clean up the plant back to what we would consider crown standards and ensure that all of their KPIs, including efficiency and spoilage, will improve next year for where they're at. So, you know, depreciation, obviously, we got to feel like a look at see what they were using for their depreciable lives and, but, you know, think about, think about on the order of somewhere between $5 and $10 million, segment income.
When they when they say that clientele. They have is who is filling those drugs at the Walmart pharmacy is buying less food.
Don't think they are buying less.
Speaker 3: beer soft drinks they may be buying less macaroni and cheese frozen pizza and other fatty type items that from what i understand the body doesn't want when you take these drugs
Beer and soft drinks, they may be buying less macaroni and cheese frozen pizza and other fatty type items that from what I understand the body doesn't want when you take these drugs.
Still need a.
Some level of a treat and.
Speaker 3: some level of the treat and um... i i've got we've seen no impact and i think if you were to talk to our large
We've seen no impact and I think if you were to talk to our large.
Our large multinational and even regional fillers of beverage products in the United States Theyre going to tell you the same thing no impact whatsoever.
Speaker 3: are large multinational and even regional fillers of beverage products in the united states are going to say the same thing no impact whatsoever uh... remarkable to meet it
Catherine Kieler: Great, thanks, I'll turn it over. Thank you.
Remarkable to me that.
Very low.
Arun Viswanathan: Thank you, our next question from the line of Arun, this one up and from RBC Capital Markets, your line is open, you may begin. Great, thanks for taking my question. I guess, yeah, so overall North American volumes have been quite strong in line with direct citations. Obviously, you know, for emotional activity, it does appear to be keeping your in line with direct citations as well. Maybe you could just come in on that.
Speaker 3: take up rate at this point, projected, even if you want to project out to what some take up rate might be in the future and
Take up rate at this point projected even if you want to project out what some take up rate might be in the future.
And.
Speaker 3: Some miraculous calorie reduction you think Americans are going to experience if they can afford the drug.
Some miraculous calorie reduction you think Americans are going to experience if they can afford the drug.
Speaker 3: that goes out ten or eleven years you want to discount that back and try to describe to packaging in other companies it's just remarkable that uh...
That goes out 10, or 11 years, you want to discount that back and try to ascribe to packaging and other companies that just remarkable that.
If it's had the move that we think it has had its remarkable to me that somebody's thought they can they can measure that I don't I don't see this as being.
Arun Viswanathan: And then as it relates to Europe, looks like you are ahead a little bit on your profit recovery there. So, how do you see that trending in the next year? I guess specifically, do you expect low single digit volume for growth for North America and then expect maybe Europe to improve on their profitability that you've seen before that 259 million in EBIT. Thanks. Yeah, so Arun, stay on the clock because you're probably going to forget one of these questions.
Speaker 3: If it's had the move that we think it's had, it's remarkable to me that somebody's thought they can measure that. I don't see this as being an impact to our business or our customers' businesses for the fifth-seat future. And that doesn't deal with...
And impact to our business or our customers' businesses for the foreseeable future.
And that doesn't deal with the side effects.
Speaker 3: more norably, starting to be reported. So I'll leave it at that.
More and more starting to be reported so I'll leave it at that.
Thank you.
Arun Viswanathan: But the first thing I would say is that, as we said, North American volumes of 12.6%. That's against last year's third quarter where we were down 6%, maybe the market was down 5% or 6% as well last year in the third quarter. And for a market that's as big and stable historically as North America, that's the worst quarter I can remember in my 30 plus years for the North American can market.
Thank you.
Speaker 9: Thank you our next questions from Dr. Caliscus from Deepen Warden. Your line is for thinking.
Thank you. Our next question is from just the Calix, Chris from Jpmorgan. Your line is thinking.
Erica.
Your Capex you think will go down to 500 million next year is that a maintenance level or is there a growth component that is what's the growth component in the 500, if there is one.
Speaker 3: Yes, I would think about 2.50 to 300 as maintenance and the balance is minor growth and D?-C proxy.
So I would think about $2 50 to 300 is maintenance and the balance is.
<unk>.
Minor growth <unk>.
Speaker 3: you know, product replacement. And so that's always product replacement is...
Product replacement and so thats always product replacement.
Arun Viswanathan: Certainly, we have other markets based on their emerging status around the world that could be plus or minus big numbers. But a market as big and stable as North America, we never experienced anything like we did in the third quarter last year. So roughly half of the gain we had this year was a recovery from an extremely weak third quarter last year. And then the balance really customers beginning to pick up their promotions perhaps as early as May as we said on the second quarter call and pushing well into the third quarter. And as we said here today in October, we're still promoting it much greater levels than we saw last year.
Speaker 3: you know is it growth or maintenance if you don't do it you have negative growth so uh... and by product maintenance let's say we go from standard cancels slim cans et cetera things like that think about three hundred two hundred
As a growth or maintenance if you don't do it you have negative growth so.
Product maintenance, let's say, we go from standard cans to slim cans et cetera things like that so think about 300 200.
Okay great.
Hum.
Is it easy to forecast twin Asia Pacific turns around.
Speaker 3: I don't know, Jeff, you work for the biggest bank in the United States or the most well-capitalized bank in the United States. You've got to have people in your bank that are...
I don't know, Jeff you work for the biggest bank in the United States are the most well capitalized bank in United States, you've got to have people in your bank that are.
Timothy Donahue: So that's that on Europe. Yeah, I think we always told you that I think we initially told you that we thought in 23 we'd be halfway back to our 21 income levels. We're probably going to be closer to 75% of the way back to the 21 income level and the goal is to be fully back to that 21 level through the end of next year. And we're plus or minus a couple bucks for currency.
Speaker 3: more attuned to agent economics in any one of those countries than i am it uh... the answer is um... i don't mean to be a smart <expletive> i apologize i
More attuned to Asian economics in any one of those countries and I am the answer is.
I don't mean to be a smartass I apologize.
But.
Speaker 3: But it's a region that's
It's a.
It's a region that's had tremendous growth.
Speaker 3: for a number of industries and specifically the beverage can industry as beer filling set increased in
For a number of industries and specifically the beverage can industry as beer fillings have increased.
Timothy Donahue: We saw hard to estimate what currency is going to do. Did I answer all your questions or not? Yeah, that was great. If I could have one follow-up, just on Capitol Return, you are seeing that inflection point on the free cash flow next year with the lower cap X. So how do you expect to kind of use those extra free cash for dollars, would they be allocated more towards, you know, share your purchase potentially?
Speaker 3: and you know for incremental beer filling is they've jumped past the bottom going right to the can so
For incremental beer feelings, they've jumped pass the bottle and going right to the can so.
Speaker 3: but again if you're if you've been to Asia, do you spend any time there? There's there is a growing Asian middle class, but they're disposable income levels certainly less than hours, but a small treat and they like their beer and they like the gather and I don't know if
But again, if you're if you've been to Asia that you've spent any time. There is there is a growing.
Asian Middle class, but their disposable income level, certainly less than ours, but.
A small treat and.
They like their beer and they like the gathering.
Timothy Donahue: Thanks. Yeah, so historically, you know, the packaging industry, the can industry, we've used a method of generating a lot of cash flow in lower growth scenarios, generating a lot of cash using that to pay down debt and buy back stock and pushing EPS growth, you know, 5 to 10 to 12 percent each year. I think increasingly we're hearing from many shareholders that given where interest rates are and where they're likely to go and where they're likely to stay for a prolonged period of time, they would prefer that leverage might necessarily need to be lower than our three to three and a half times.
I don't know if.
Speaker 3: You know, I don't know if I can project it. The population is extremely young. And so, you know, as you think about the next decade with a young population, the opportunity for growth is for continued growth is there. But I can't sit here today and project for you when that's going to, when we expect Vietnam to recover. I, you know, I wouldn't expect it stays down for all of next year. Will it recover by this time next year?
I don't know if I can projected populations extremely young.
And so as you think about the next decade with a young population the opportunity for growth is for continued growth is there, but I can't sit here today in <unk>.
Timothy Donahue: And so we'll continue to look at that in the face of upcoming maturities. And it's not just our maturities that we have coming do, but the entire high yield bond landscape has maturities coming do. And most of those bonds will be refinanced at higher rates than we currently have on the balance sheet now. And I think the, if you do the math, it's not so clear that buying back stock is better than paying down debt at this point. So we are listening closely to many of our shareholders, especially our larger shareholders who are now calling for a little less leverage than we would have been more comfortable with in the past. Thanks.
Project for you when that's going to win.
When we expect Vietnam to recover I wouldn't expect it stays down for for.
Sure.
All of next year will it recover by this time next year I don't know.
Thank you so much thank you.
Unknown Executive: Thank you.
Speaker 1: Thank you. Once again for those who would like to ask a question on the phone, please press star followed by the number one. Please make your phone and record earnings room prompted. Please record your names and company names and the cancel the request. Please press star followed by the number two. And we have a question on the line from Bill Maugh from Jeffrey. So I'm sorry. Hey Tim. I'm shocked. I'm shocked. It took half an hour to get a jail B1 question so far.
Thank you once again for those who would like to ask a question on the phone. Please press star followed by the number one please mute your phones and recorded any turn prompted please record your name and company name and to cancel your request. Please press star followed by the number too.
Okay.
And we have a question on the line from Phil <unk> from Jefferies. Your line is now from Connecticut.
Yes.
Hey, Tim.
I'm shocked it took half an hour to get a G. L. P. One question so far but.
The insights you offer Tim on the subject matter.
It doesn't go idle.
I just find it hard to believe.
That anybody.
Speaker 10: Who's watching?
Whose watch.
Speaker 3: consumption levels of food products by americans we actually believe that any drug
Consumption levels of food products by Americans, we actually believe that.
Anthony Pettinari: Our next question is from Anthony Pitonari from City. Your line is open. You may begin.
Any drug is going to have.
Timothy Donahue: Good morning. I'm wondering if you can talk about kind of operating rates, maybe broadly by region. And you've given preliminary capex guidance for 2425, assuming this capex guidance doesn't include, you know, big green fields. Just wondering if you could talk about, you know, where you think you may be able to grow volumes over the next couple of years, you know, without adding kind of big projects. Yeah, listen, we can grow, we can grow in every market without adding more capital.
Speaker 7: in impact on americans desires to eat the food they want to eat and drink and and gather and have a good time maybe from time to time somebody wants to trim ten pounds off and and maybe there are some people that really need to lose weight because of diabetes or something else but you listen to this we're talking about a hundred twenty billion can market this is a spec on the market this is remarkable to me that it's gotten this far okay
And impact on Americans' desire to eat the food they want to eat and drink.
And gather and have a good time, maybe from time to time somebody wants to trim 10 pounds often.
And maybe there are some people that really need to lose weight because of diabetes or something else but.
We're talking about 120 billion can market. This is a <unk>.
Spec on the market this is <unk>.
A remarkable to me that it's gotten this far.
Well.
I guess more importantly, if I heard you correctly, Tim Youre expecting North America, your business to be up 7% and you're calling for a similar growth profile in 2024, So help us model.
Timothy Donahue: We, we brought up two large tent plants in the United States this year, Virginia and Nevada. And clearly, as they go through learning curve and their productivity improves and more good saleable cans come out the back into the line, we grow. I would say that operating rates in North America are fairly healthy. I would say that, you know, at the industry currently, I'm thinking about the second quarter, but the third quarter was a little stronger.
Speaker 3: I said boys like the absolute level of cans would be up
Well, what I said was the absolute level of <unk> would be up.
Speaker 3: by the same amount next year, the percent of the amount because the base is higher, right? So, can you help?
By the same amount next year as a percentage of them because the base is higher right.
Timothy Donahue: You know, we got to be around 90 to 91, 92%. I don't think there's a supply demand imbalance in North America. And I think as customers continue to push cans, we all have a little bit of spare capacity. We can fill that demand. And I don't, I don't think we're going to see a supply demand imbalance in North America. Things are things are pretty healthy and they're going to get healthier. I think in most other markets, there probably is a little bit of slack.
So can you help size of what that percent would imply that I guess and what's driving that are you assuming a flattish market or is it are you seeing share gains that you've seen this year as well.
Speaker 3: We'll quantify in February , early February , but I would tell you that there's share gain combined with, we believe the market's going to continue to grow. We believe the customers are going to continue to promote cans in support of their sustainability efforts, as well as the unique features of the can, which, you know, for stackability.
We will quantify for you in February early February , but I would tell you that there is.
Share gain combined with we.
We believe the market is going to continue to grow we believe the customers are going to continue to promote cans.
In support of their sustainability efforts as well as.
The unique features of the can which.
For stack ability.
Speaker 11: filling speeds transport etc. the can is just a it is a it is a remarkable product there's certainly no doubt about that i guess the great thing is it sounds like you've locked
Filling speeds transport et cetera. The can is just.
Timothy Donahue: That doesn't mean the markets are not healthy. I think as we said in the prepared remarks, Brazil is starting to improve economically. Interstrates coming down a little, unemployment coming down a little, consumer spending starting to rise a little, albeit a little slower than we've seen in the past but GDP turning positive and so over the next several years we and others are well positioned to continue to meet the ongoing growth in the Brazilian market as we have for the last two decades.
It is a it is a remarkable product there is certainly no doubt about that.
I mean, I guess the great thing is it sounds like you've locked up pricing. So you got good line of sight, there too as well.
I guess pivoting to your to more economically sensitive businesses and to be clear you've managed transit exceptionally well this year.
From a volume standpoint, and quoting and bidding activity.
How is that progressing for aerosol in transit so far this year.
Well aerosol.
Timothy Donahue: Obviously, the Vietnamese market has been exceptionally soft this year. I think, you know, the one number I could give you is that beer fillings in Vietnam for nine months this year compared to last year down about 25%. So, as again, as that market recovers, we're a well positioned to grow. And in Europe, we're bringing on a very large two-line tam plant in the UK. Now, not all of that is incremental capacity.
Speaker 3: aerosols just get across the board aerosol is down. We've got some segments of our air.
Arizona just across the board aerosol is down.
We've got some segments of our aerosol business.
Speaker 3: It's a small business, right? But you got some segments of the business which are up, maybe automotive and some of the other DOT-sensitive products. But for the most part, air fresheners, bugs, spray, shade creams, down across the board. Transit, listen, it's a...
It's a small business right, but you've got some segments of the business, which are up maybe automotive and.
Some of the other.
Dot sensitive products, but for the most part air Fresheners bug spray shave Greens down across the board.
Timothy Donahue: Some of it replaces the other plant in the UK that we're moving out of but certainly there is incremental capacity there, as well as the capacity that we added in Italy and Spain earlier this year, late last year. So, we are well positioned to grow without having to spend any more than this $500 million number that we've talked about for the next couple or three years.
Transit listener.
Unknown Executive: Okay, that's very helpful.
No.
We've had a hard time.
Getting the Investor community and we've had a hard time getting the analyst community to appreciate the benefit of a business.
Speaker 3: getting the investor community and we've had a hard time getting the analyst community to appreciate the benefit of a business
That generates.
Anywhere between 13% to 15%, 16% here in the third quarter requires almost no capital has a cash conversion rate of 85% plus.
Speaker 3: you know anywhere between thirteen to fifteen percent sixteen percent here in the third quarter requires almost no capital has a cash conversion rate of eighty five percent plus
Ghansham Panjabi: And then just switching gears, can you help us understand what's going on with aerosol and maybe out with moving forward? You know, if this is destocking, maybe where are we in that process and just any additional color you can give on. So, I mean, if you said before, aerosol is more of an economically sensitive product. If you think about the aerosol, can it say it's a really convenient way to dispense product, a very clean and convenient way, albeit a little bit more expensive for the consumer.
And year end and year out delivers unlevered cash flow in excess of $300 million site.
Speaker 3: and you're in and you're out, the lever is unlearned cashflow and access a 300 million dollar site.
Speaker 3: Yeah, we've done a good job managing the business this year. The team is, it's an exceptional team, it's an exceptional business. It's a very broad-based business, supplying a variety of industries. I've said this before, to anybody.
Yes, we've done a good job managing the business. This year. The team is it's an exceptional team. It's an exceptional business, it's a very broad based business.
Applying a variety of industries.
I've said this before to anybody who wants to listen but.
Speaker 3: When you're on the highway, every time you see a truck go by, there's a 60% chance that there's a signal product in the truck. Not a signal-like product, an actual signal product in that truck.
When you are on the highway every time you see a truck go by there was a 60% chance if there's a signal product in the truck not a signal like product and actual signal product in that truck.
Speaker 3: So the transportation industry does not perform without signal. And so it is a much more stable business. Yes, it's economically sensitive. We don't spend a lot of capital. So our growth is somewhat limited to GDP.
So the transportation industry does not perform without signaled.
Ghansham Panjabi: So, things start to tighten up, the consumer starts to tighten their belt, they don't need to buy air freshener, they don't need to buy bug spray, less and less manner shaving than ever shaved before. So, they're not buying as much shave cream, or they shave with a bar of soap, a little less comfortable, maybe a couple more nicks and cuts, but if you don't have to spend the money, you don't spend the money, you just blot your cut on your face, I guess.
So it is a it's a much more stable business.
Yes, it's economically sensitive we don't spend a lot of capital. So are our growth is somewhat limited to GDP.
Speaker 3: But even in even in a down market we've got some products the equipment and automation business of very high-margin business And in a down consumable market we're still delivering equipment and automation for those customers who wish to take cost out of their process so I'll leave it that I don't want to
But even in even in a down market, we've got some products the equipment and automation business, a very high margin business and in a down consumable market, we're still delivering equipment and automation for those customers, who wish to take cost out of their process. So.
Ghansham Panjabi: So, now having said that, that's one area. So, the economically the market is down, I think everybody in the steel aerosol can market is down, and I would expect that the one other company that you'll talk to will probably tell you the same. There's also a slight move for some products from steel aerosol to aluminum aerosol. Historically that's been more of let's say women's products and let's say suntan lotions, slowly some of the other products are moving from steel to aluminum. But that's a slow move, it's more economic related now than anything else. Okay, that's very helpful, I'll turn it over.
Unknown Executive: Thank you.
I'll leave it at that I don't want to.
Speaker 11: I don't want to sound too defensive, but it's a very good business. I asked the question incorrectly.
I don't want to sound too defensive but.
And so very good business.
I ask the question.
I'm just trying to gauge are you getting to the point where demand.
And you're quoting activity is getting less bad and stabilizing for either aerosol.
Transit or.
Speaker 3: You probably didn't ask the question poorly. I probably got a little overly defensive, but I would say that an aerosol no, we've not seen coding activity improve in transit.
I'm sorry.
You probably didn't ask the question poorly I, probably got a little overly defensive but I would say that in aerosol no. We.
We've not seen quoting activity improve.
In transit.
Speaker 3: Um, had you asked me this question at the beginning of September , I would have said no, it felt like the month of September was better in a few markets, especially in the equipment market.
Had you asked me this question.
At the beginning of September I would have said no. It felt like the month of September was better in a few markets, especially in the equipment market.
Gound Shump: Thank you, our next question is from Gound Shump, Punjabi from there, your line is open, maybe again. So, I guess going back to the North American beverage for 3Q, 12.6%. Was that in line with your internal plan, or is it better, and if so, what drove that, was it promotional spending, maybe a very hot summer, et cetera. And then what do you estimate the market itself in North America grew in the third quarter?
But I think that.
Speaker 3: You know, I have a budget, preliminary budget for transit actually feel better about the budget now.
I have a budget preliminary budget for transit I actually feel better about the budget now.
Speaker 3: uh... then i get a couple of weeks ago uh... you know the market can't stay down for too long and as i said the transportation entry can operate without signaled so we are going to see consumables come back and but in the near term we are starting to see a little better traction uh... for equipment and automation
And then I did a couple of weeks ago.
The market can't stay down for too long and as I said.
Transportation and Sri can operate without signal.
So.
We are going to see consumables come back in.
Gound Shump: So, Gound Shump, I would say it was a touch better than what we anticipated. As we sat here in July, nobody believed this when we told you we were going to be up significantly in Q3. We kind of got a pretty good handle on it. We probably thought 11 to 11.5%. So maybe we're a point or a point to have higher than we thought we would be. And that's just more and increasing promotions by a number of the large carbonated software companies as well as some of the better known national and regional sparkling water brands.
But in the near term, we are starting to see a little better traction.
For equipment and automation.
Okay I.
Appreciate the color.
Yes.
Speaker 2: Thank you. Next one is from Michael Roxeland, and I'm sure security is the line of show. Thank you, mate, again.
Thank you. Your next one is from Michael <unk> from <unk> Securities. Your line is open you may begin.
Yeah, Hi, guys. This is actually Nick <unk> on for micro excellent today.
I was hoping you could just talk about the cadence of shipments in North America during the quarter.
The month to month.
Speaker 3: uh... i don't have it in front of me but but i can just all the time i think i think i think if you go back to our July transcript you'll see that we told you that April was exceptionally weak
I don't have it in front of me, but I can just off the top of my head, but I could.
Gound Shump: As for the market, we don't get data anymore from C and I, but I got to believe it feels like at least for domestic producers, we were up a few percent. And I guess if you think about the total market, if you were to include lower imports this year compared to last year, imports are almost nil at this point. Maybe the market was flatish to up 1%, but for domestic producers, we have to be up a few percent. That would be my guess. I'm purely guessing.
I think if you go back to our July transcript Youll see that we told you that April was exceptionally weak.
Speaker 3: uh... we saw mid single digit maybe six seven percent growth in may and June and then i i would tell you that each month in the third quarter got progressively better we probably solve eight to nine percent joy August and we had a really strong September leading to twelve and a half twelve point six percent
We saw mid single digit maybe 6% to 7% growth in May and June .
And then.
I would tell you that each month in the third quarter got progressively better we probably saw 8%, 9% July August and we had a really strong September leading to 12, 5% 12, 6%.
Yes.
Perfect. Thank you and then a follow up just you spoke on it briefly earlier about your year.
Startup in the U K.
Timothy Donahue: Okay, that makes sense. And then you made some constructive comments on supply demand again specific to North America. But there are new players. Your customers are dealing with persistency of inflation. The consumer is resetting purchasing patterns and being much more price conscious, etc.
Peter Barry.
When it's in line one in August and it was like two starting in October .
Yes, that's great.
Speaker 3: Yeah, that's been the way we're probably starting line one now and line two will start in a month or two. We've had some
Been delayed we're probably starting line one now in line two will start in a month or two we've had some.
Speaker 3: We've had some electrical and other delays, components and contractor issues, so we're getting there.
We've had some electrical and other delays components and contractor issues. So we're getting there.
Timothy Donahue: You know, as we kind of think about contract renewals for the industry going forward, should we expect a paradigm where maybe volumes are very lumpy between the different players as contracts come up for renewal and just trying to think this out as related to the next couple of years, assuming we have the current operating environment we do over the next few years. I think we have the current operating environment, you know, based on capacity installed today, and it doesn't appear that anybody is putting any more capacity in the after the Mesquite Project and perhaps one of the lines still to go into the Midwest by one of the new entrants.
Sure.
Got it perfect.
Thank you that's that's it for me.
Thank you very much.
Speaker 12: Thank you. Our next one is from Adam Tamelson from Goldman Sachs, the line is opening. You may begin.
Thank you. Our next one is from Adam Samuelson from Goldman Sachs. Your line is open you may begin.
Yes, Thank you and good morning, everyone.
Timothy Donahue: It does not, I don't know of any other capacity going into the market. So based on that installed capacity and the lack of imports that we're competing with now, let's just say that we're, we've got a domestic market now served by the entire domestic manufacturing footprint in a market in which our customers are promoting cans. They all have sustainability goals and sustainability agenda as they promise to meet. They cannot meet their sustainability goals without the can.
But a lot of.
Speaker 13: It's been a lot of ground covered, but maybe coming back to Brazil and the demand environment there, obviously you're getting into their peak season, does seem like a more favorable consumer back.
Ground covered but maybe.
Coming back to Brazil, and the demand environment there.
Obviously, you are getting into their peak season.
It does seem like a more favorable consumer backdrop than there than than in the last couple of years going into their summer.
Any kind of additional kind of color on what youre seeing from your from your customer base and order patterns.
There would be helpful.
Yes so.
What I would say.
Speaker 3: What I would say, you know, it's interesting last...
It's interesting lash.
Speaker 3: Last year, third and fourth quarter, the market was actually fairly strong. I looked at...
Last year third and fourth quarter, the market was actually fairly strong.
I looked at <unk>.
Volumes.
Speaker 3: uh... last year in the third quarter i think we're up six or seven percent i think the fourth quarter maybe we're up eight or nine or more uh... so we are as opposed to uh... an easy comp to we had a north america we we have
Last year in the third quarter I think we were up six or 7% I think the fourth quarter, maybe we were up eight or nine or more.
So we are.
Timothy Donahue: So based on that, that's why I feel that supply demand currently in pretty good shape will only get better. Now, I can't talk for everybody but for the most part, we don't have any contracts coming due until the end of maybe 26. So we're a couple years out. Now, incrementally, if there's growth and or volumes outside of existing contracts, then perhaps there's, as you want to say, a scramble for that growth, but I don't think there's any reason any reason why as we sit here today looking out to two and a half years, we should be overly concerned, but anything's possible.
As opposed to.
An easy comp that we had in North America, we have.
Speaker 3: you know a firmer comp in Brazil but the market seems to be settling the
Unknown Executive: Thank you.
A firmer comp in Brazil, but the market seems to be settling the.
Speaker 3: The one major customer is I don't know it.
The one major customer.
As.
I don't know.
All the Tees in the eyes of <unk> in their reorganization process, but they are pretty close to completing their reorganization.
Speaker 3: all the teas in the eyes have been dotted in their reorganization process but they're pretty close to completing their reorganization and they're going to operate as a going concern and we're well positioned with them not only in can supply but in terms of
They're going to operate as a going concern and we are well positioned with them not only in can supply but in terms of.
Speaker 3: coverage on our receivable balance and the assets they have in place, so we feel pretty good about that. So I think the market should be firm. And as I said earlier...
Sure.
Coverage.
On our receivable balance and the assets they have in place. So we feel pretty good about that so.
I think the market the market should be firm in.
<unk>.
As I said earlier.
Speaker 3: And as you just said, the market's slowly recovering economically from the pandemic and
Market and as you just said the market is slowly recovering economically from the pandemic.
Page Haji Kee: Our next person from the line of the page, Haji Kee, from Wells Fargoor line, so thank you. I wanted to revisit Europe a little bit and ask about, I think you indicated market flatish. I appreciate the regional market and it can vary by player. I think there's there's Chinese competitor that's adding a second plant there. It seems like it's customer-specific at this point, but maybe that would be the market where we might feel a little bit more competitive activity because I think contracts are a little bit shorter there.
Probably takes a couple of years two three years for the market.
Speaker 3: probably takes a couple of years, two, three years for the market to eat up the excess capacity that's in the market, but I think it's going to get continually healthier for the beverage can companies as we look forward.
Eat up the excess capacity that's in the market, but I think it's going to get continually healthier for the beverage can companies as we look forward.
Okay. That's helpful. And then just quickly for the for the fourth quarter are there there was an allusion to some kind of production downtime in aerosol can in Asia and in transit any way to just quantify kind of the volume impact.
Speaker 13: And then just quickly for the fourth quarter, there's illusion to some kind of production downtime and
Any specific kind of unallocated overhead.
Flow through the P&L as result of that.
Speaker 3: So you've heard us talk briefly about our desire.
So.
You've heard us talk briefly about our desire.
Speaker 3: or a loot to our desire to reduce working capital, generate more free cash flow.
Or alluded to our desire to reduce working capital generate more free cash flow.
Speaker 3: reduce leverage, reduce out absolute levels of debt. Interest is, you know, it's not 2% anymore, right? It's 7% or whatever we're paying. So, really critical that we get that levels as low as possible. And that's why we make such an effort in Q3 and we're going to continue to do as much as we can in Q4, so we start the new year with a...
Reduce leverage reduce our absolute levels of debt interest is.
Page Haji Kee: It seems like you guys are pretty well set into 24. You're speaking highly confidently about next year. I'm just curious, you know, kind of to revisit the question about utilization. Are there specific pockets or regions where, you know, kind of your antenna is in terms of competitive activity or anything like that? The first thing about the Chinese competitor, they built the first plant in Belgium customer-specific. They don't listen. They have advantages while they're in China.
It's not 2% anymore, right at 7% or whatever we're paying so.
Really critical that we get debt levels as low as possible and that's why we made such an effort in Q3, and we're going to continue to do as much as we can in Q4, so we start the new year with.
A much better position balance sheet.
Speaker 3: a much better position balance sheet. But you know, Eric.
But.
Aerosol cans shipments were down 15% in Q3, and that's after a pretty crappy Q3 last year and has been.
Page Haji Kee: That is whether they're getting government-sponsored aluminum reductions and or very cheap Chinese labor. They don't have that same advantage in Europe. They're in Belgium. They're paying Belgian labor rates and they're either importing cheap Chinese metal in or they're buying European metals. So, you know, the challenges that you might foresee competing against the Chinese in China, not the same challenge competing against them in Europe or other markets. We are, we had crown our more weighted towards the perimeter.
Speaker 3: shipments were down 15% in Q3 and that's after a pretty crappy Q3 last year and it's been a
Speaker 3: you know it's been a fairly soft performance all year for the market, aerosol market. Transit, I would say volumes...
It's been a fairly soft performance all year for the market aerosol market.
Transit I would say volumes.
Speaker 3: equipment and oil up but consumables down in the order of mid to high single digits.
Equipment, and all up but.
Consumables down on the order of mid to high single digits.
Speaker 3: we can adjust that without as much margin impact as you might otherwise think but uh... but again we don't need to carry more inventory than we need to carry and then and then ages i said uh... uh...
We can adjust that without as much margin impact as you might otherwise think but.
But again, we don't need to carry more inventory than we need to carry and then and then Asia as I said.
<unk>.
Vietnam.
Speaker 3: Very weak. I don't know if I gave a number, but I bet you Vietnam was down on the order of 15 or 17 percent in volume in the quarter and
Very weak I don't know if I gave up I don't know if it.
I gave a number but I'll bet you Vietnam was down on the order of 15 or 17% and volume in the quarter.
Page Haji Kee: And that is the UK Spain, Italy, Greece, Turkey. And certainly we have the one plant in France and now with the Heldish acquisition, we now have a presence in Germany and then one in Slovakia. So, I think that, you know, we were down a bit. The market probably flatish maybe plus one minus one and that growth is probably more towards northern or north central Europe where we're not as prevalent. But as I said, we, as we said here today, there's no reason to believe we won't have another increase next year.
Speaker 3: It is our largest market in Southeast Asia.
It is our largest market in southeast Asia.
So.
Speaker 3: So, you know, Cambodia, China, a little firmer, but just trying to get the inventory work along. And there will be, be a little careful how I talk about absorption. There may have been some absorption in the third quarter from this. And I think we're prepared to absorb or withstand any further absorption loss in Q4 to get the death down as low as possible as we go forward. So I don't know.
Cambodia, China, a little firmer, but.
Just trying to get the inventory, where it belongs and there will be.
It would be a little careful how I talk about absorption there may have been some absorption in the third quarter from this and I think we're we're prepared to absorb or withstand any further absorption loss in Q4 to get the debt down as low as possible as we go forward. So I don't know.
Uh huh.
Speaker 3: You know, you want to throw a number out there. It's just a number, right? You know.
You want to you want to throw a number out there it's just a number.
Page Haji Kee: Certainly not to the level we increased this year but we get back to where we were in 2021. And we've got a capacity footprint with some new capacity, new high-speed, very efficient lines to benefit the company well into the future. The sustainability story is alive and well in Europe as well. So, it's the same sustainability story as we have in North America, maybe even more so. Okay.
$10 million $12 million, but.
Speaker 3: $10 million, $12 million, but similar to the $15 million I threw out there earlier for the Asia and Air Saul.
Similar to the $15 million I threw out there earlier for the Asia in aerosol.
Speaker 7: call down from perhaps where we were in July when we last talked to you. That's all very helpful.
Call down from perhaps where we were in July when we last talked to you.
Alright, that's all that's all very helpful. I appreciate I'll pass it on.
Thank you.
Thank you you don't have any further questions I'd like to turn floor back to our speakers.
Timothy Donahue: I should have asked this and I apologize for them. I'm going to try to squeeze in two more. And I'm definitely opening myself up for a little bit of criticism here. But the first one, anything I know you guys have operated there for a long time in Italy that they can comment on. I'm sure what's going on right now is a little bit disruptive. But just help us with that maybe a little bit.
Okay. All right. Thank you very much that will conclude today's call we will.
Speaker 3: Okay, Homer, thank you very much. That'll conclude today's call. We'll look forward to speaking with you again in the new year. I think early February , fine out. Thank you, Speaker.
Look forward to speaking with you again in the new year I think early February bye now.
Thank you speakers and that concludes today's conference and thank you all for joining you may now disconnect. Thank you very much.
Timothy Donahue: And then secondly, it's obviously gotten a lot of attention and headlines and you know, we wrote about it. Anything from your customers or conversations that you're having in terms of, you know, obesity drugs and potential impact on sugary drinks. And so the first one on the Middle East, we've seen no impact. We don't have any operations in Palestine or Israel. I'm not aware of us shipping any cans in the Palestine. I don't even know if there's a filler in Palestine to be honest.
Timothy Donahue: Israel, there are fillers from time to time. We import cans in Israel, but it's a small amount. Our footprint in the Middle East is Saudi, Tunisia, North Africa, Saudi. The Emirates in Dubai and in Jordan. So Jordan, a little closer to that region, but to date, Jordan's been insulated from the skirmish between Israel and Palestine. So no, in fact, there has relates. The Emirates, Mozambique and Wegavy and these other drugs. I'm aware of the comment that the major large retailer made.
Timothy Donahue: I would have liked to have had a little more color on that before every hedge fund decided to jump off the boat at the same time. When they say the client tell they have is who's pulling those drugs at the Walmart pharmacy is buying less food. I don't think they're buying less beer or soft drinks. They may be buying less macaroni and cheese, frozen pizza and other fatty type items that from what I understand the body doesn't want when you take these drugs.
Timothy Donahue: You still need some level of a treat and we've seen no impact and I think if you were to talk to our large multinational and even regional fillers of beverage products in the United States, they're going to tell you the same thing. No impact whatsoever. Remarkable to me that very low take-up rate at this point projected even if you want to project out to what some take-up rate might be in the future and some miraculous calorie reduction, you think Americans are going to experience if they can afford the drug that goes out 10 or 11 years.
Timothy Donahue: You want to discount that back and try to describe to packaging and other companies. It's just remarkable that if it's had the move that we think it's had, it's remarkable to me that somebody thought they can measure that. I don't see this as being an impact to our business or our customers' businesses for the future. And that doesn't deal with the side effects that more nor are starting to be recorded, so I'll leave it at that.
Unknown Executive: Thank you.
Jeffrey Zekauskas: Our next question from Dr. Caliscus from Deepen Morgan. Your line is just thinking. There we go. Your CapEx you think will go down to 500 million next year. Is that a maintenance level or is there a growth component? What's the growth component and the 500 if there is one? Yes, I would think about 250 to 300 as maintenance and the balance is minor growth and more. You know, product replacement, and so that's always product replacement is, you know, is it growth or maintenance?
Jeffrey Zekauskas: If you don't do it, you have negative growth. So, and like product maintenance, let's say we go from standard cans to slim cans, et cetera, things like that. So, think about 300 and 200. Is it easy to forecast when Asia Pacific turns around? I don't know, Jeff, you work for the biggest bank in the United States or the most well capitalized bank in the United States. You've got to have people in your bank that are more attuned to Asian economics in any one of those countries than I am.
Jeffrey Zekauskas: The answer is, I don't mean to be a smart ASI, I apologize. But, you know, it's a region that's had tremendous growth for a number of industries and specifically the beverage can industry as beer fillings have increased. And, you know, for incremental beer fillings, they've jumped past the bottle and gone right to the cans. And so, but again, if you're, if you've been to Asia, and you've spent any time there, there's, there is a growing Asian middle class, but they're disposable income levels certainly less than hours, but a small treat and they, they like their beer and they like to gather.
Jeffrey Zekauskas: And, but I don't know if, you know, I don't know if I can project it. The population is extremely young. And so, you know, as you think about the next decade with a young population, the opportunity for growth is for continued growth is there, but I can't sit here today and project for you when that's going to, when, when we expect Vietnam to recover. I, you know, I wouldn't expect it stays down for for all of next year. Will it recover by this time next year? I don't know.
Unknown Executive: Thank you so much. Thank you.
Unknown Executive: Once again, for those who would like to ask a question on the phone, please press star followed by the number one. Please make your phones and record meetings room prompted. Please record your names and confidential requests. Please press star followed by the number two.
Phil Ma: And we have a question on the line from Phil Ma from Jeffrey.
Phil Ma: I'm shocked. It took half an hour to get a GLP one question so far, but I appreciate the insights you offered him on the subject matter. I just find it hard to believe that anybody who's watched consumption levels of food products by Americans, we actually believe that any drug is going to have an impact on Americans desires to eat the food they want to eat and drink and gather and have a good time.
Phil Ma: And maybe from time to time somebody wants to trim 10 pounds off and maybe there are some people that really need to lose weight because of diabetes or something else, but this and this. We're talking about 120 billion can market. This is a speck on the market.
Timothy Donahue: This is remarkable to me that it's gotten this far. Well, I guess more importantly, if I heard you correctly, Tim, you're expecting North America, you're business to be up 7% and you're calling for a similar growth profile in 2024, so help us a lot. So what I said was the absolute level of cans would be up by the same amount next year, the percent of them, because the base is higher, right?
Timothy Donahue: Okay. So can you help decide what that percent would imply then, I guess, and what's driving that? Are you assuming a flatish market, or are you seeing share gains like you've seen this year as well? We'll quantify in February, early February, but I would tell you that there's share gain combined with, we believe the market's going to continue to grow, we believe the customers are going to continue to promote cans in support of their sustainability efforts, as well as the unique features of the can, which, you know, for stackability, filling speeds, transport, et cetera, the can is just a, it is a remarkable product. There's certainly no doubt about that. I mean, I guess the great thing is it sounds like you've locked up pricing, so you got good line to set there too, as well.
Timothy Donahue: I guess pivoting to your two more economically sensitive businesses and to be clear, you've managed transit exceptionally well this year, but from a volume standpoint and quoting and bidding activity, how has that progressed for aerosol and transit so far this year? Well, aerosol, aerosol is just across the board, aerosol is down. We've got some segments of our aerosol business, it's a small business, right? But you've got some segments of the business which are up, maybe automotive and some of the other DOT-sensitive products, but for the most part, air fresheners, bugs spray, shade creams down across the board.
Timothy Donahue: Transit, listen, it's a, you know, we've had a hard time getting the investor community, and we've had a hard time getting the analyst community to appreciate the benefit of a business that generates, you know, anywhere between 13 to 15%, 16% here in the third quarter requires almost no capital, has a cash conversion rate of 85% plus, and year in and year out delivers unlevered cash flow and access to $300 million. Yeah, we've done a good job managing the business this year.
Timothy Donahue: The team is, it's an exceptional team, it's an exceptional business, it's a very broad based business, supplying a variety of industries. I've said this before, to anybody who wants to listen, but when you're on the highway, every time you see a truck go by, there's a 60% chance that there's a signal product in the truck, not a signal-like product, an actual signal product in that truck. So the transportation industry does not perform without signal, and so it's a much more stable business.
Timothy Donahue: Yes, it's economically sensitive. We don't spend a lot of capital, so our growth is somewhat limited to GDP, but even in a down market, we've got some products, the equipment and automation business, a very high margin business, and in a down-consumable market, we're still delivering equipment and automation for those customers who wish to take cost out of their process.
Timothy Donahue: So I'll leave it there, I don't want to... I don't want to sound too defensive, but it's a very good business.
Phil Ma: Tim, I asked the question incorrectly. I'm just trying to gauge, are you getting to the point where demand and your quoting activity is getting less bad and stabilizing for either aerosol or transit? You probably didn't ask the question poorly. I probably got a little overly defensive, but I would say that an aerosol no. We've not seen quoting activity improved. In transit, had you asked me this question? At the beginning of September, I would have said no.
Phil Ma: It felt like the month of September was better in a few markets, especially in the equipment market, but I think that I have a budget, preliminary budget for transit actually feel better about the budget now than I get a couple of weeks ago. The market can't stay down for too long, and as I said, the transportation industry can't operate without signal. We are going to see consumables come back, but in the near term, we are starting to see a little better traction for equipment and automation.
Timothy Donahue: I appreciate your call. Yes.
Nico Patrino: Thank you. Next one is from Michael Roxland from Cruel Security. So I think it may begin. Yeah, hi guys. This is actually Nico Patrino from my Roxland today. I was hoping you could just talk about the cadence of shipments in North America during the quarter from month to month. I don't have it in front of me, but I can just off the top of my head when I could I think if you go back to our July transcript, you'll see that we told you that April was exceptionally weak.
Nico Patrino: We saw mid single digit, maybe six, seven percent growth in May and June, and then I would tell you that each month in the third quarter got progressively better. We probably saw eight to nine percent July August, and we had a really strong September leading to 12.5, 12.6 percent.
Timothy Donahue: Perfect. Thank you. And then follow up just you spoke on it briefly earlier about your start up in the UK. Peter Burry, when I said line one in August, and was line two starting October. Yeah, that's been delayed. We're probably starting line one now and line two will start in a month or two. We've had some. We've had some electrical and other delays components and contractor issues, so we're getting there. Got a perfect thank you.
Nico Patrino: That's it for me. Thank you very much. Thank you.
Adam Tamelson: Our next one is from Adam Tamelson from Goldman Sachs. The line is hoping you may begin. Yes, thank you.
Timothy Donahue: Good morning, everyone. It's been a lot of ground covered, but maybe coming back to Brazil and the demand environment there, obviously you're getting into their peak season. Does seem like a more favorable consumer backdrop than there than than the last couple of years going into their summer. Any kind of additional kind of color on what you're seeing from your customer base and order patterns. There would be helpful. Yes, so. What I would say, you know, it's interesting last year, third and fourth quarter, the market was actually fairly strong.
Timothy Donahue: I looked at volumes last year and third quarter, I think we were up six or seven percent. I think the fourth quarter, maybe we were up eight or nine or more. So we are, as opposed to an easy comp that we had in North America, we have, you know, a firmer comp in Brazil, but the market seems to be settling. The one major customer is, I don't know it. But all the teas in the eyes have been dotted in their reorganization process, but they're pretty close to completing their reorganization and they're going to operate as a going concern and we're well positioned with them, not only in canned supply, but in terms of coverage on our receivable balance and the assets they have in place.
Timothy Donahue: So we feel pretty good about that. So I think the market, the market should be firm and, and you know, as I said earlier, market, and as you just said, the market's slowly recovering economically from the pandemic and probably takes a couple of years, two, three years for the market to eat up the excess capacity that's in the market. But I think it's going to get continually healthier for the beverage can companies as we look forward.
Timothy Donahue: Okay, that's helpful. And then just quickly for the, for the fourth quarter, there's the illusion to some kind of production downtime in aerosol can in Asia and in transit. Anyway, to just quantify kind of the volume impact and or any specific kind of unallocated overhead that will flow through the PNL as well as that. Yeah, so, you know, we, you've heard us talk frequently about our desire or or allude to our desire to reduce working capital, generate more free cash flow, reduce leverage, reduce out absolute levels of debt.
Timothy Donahue: Interest is, you know, it's not 2% anymore, right? It's 7% or whatever we're paying. So really critical that we get that levels as low as possible. And that's why we make such an effort in Q3 and we're going to continue to do as much as we can in Q4 so we start the new year with a much better position balance sheet. But, you know, aerosol cans, shipments were down 15% in Q3 and that's after a pretty crappy Q3 last year.
Timothy Donahue: And it's been, you know, it's been a fairly soft performance all year for the market, aerosol market. Transit, I would say volumes equipment and all up, but consumables down in the order of mid to high single digits. They don't, we can adjust that without as much margin impact as you might otherwise think. But, but again, we don't need to carry more inventory than we need to carry. And then, and then ages, I said Vietnam very weak.
Timothy Donahue: I don't know if I gave a number, but I bet you Vietnam was down on the order of 15 or 17% in volume in the quarter. And it is our largest market in Southeast Asia. So, you know, Cambodia, China, a little farmer, but just trying to get the inventory where it belongs. And there will be, be a little careful how I talk about absorption. There may have been some absorption in the third quarter from this.
Timothy Donahue: And I think we're prepared to absorb or withstand any further absorption loss in Q4 to get the debt down as low as possible as we go forward. So I don't know, you know, you want to throw a number out there. It's just a number right, you know, $10 million, $12 million, but similar to the $15 million I threw out there earlier for the Asia and Arizona call down from perhaps where we were in July when we last talked to you.
Unknown Executive: Right now that's all, that's all very helpful. I appreciate it. I'll pass it on. Thank you. Thank you, you don't have any further questions. I'd like to end floor back to our speakers.
Unknown Executive: Okay, Homer, thank you very much. That'll conclude today's call. We'll look forward to speaking with you again in the new year. I think early February. Final.
Unknown Executive: Thank you, speakers, and that concludes today's conference.
Unknown Executive: And thank you all.