Q4 2024 Crown Holdings Inc Earnings Call
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Speaker Change: Good morning, and welcome to Crown Holdings fourth quarter 'twenty 'twenty four 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.
Speaker Change: I would like to try to call over to Mr. Kevin with ye Senior Vice President and Chief Financial Officer. Thank you Sir you may begin.
Kevin: Thank you Earl and good morning.
Speaker Change: With me on today's call is Tim Donahue, President and Chief Executive Officer.
Speaker Change: If you do not already have the earnings release is available on our website at Crown Cork Dotcom on this call as in the earnings release, we will be making a number of forward looking statements.
Speaker Change: Actual results could vary materially from such statements additional information.
Speaker Change: Information concerning factors that could cause actual results to vary is contained in the press release and in our SEC filings, including our Form 10-K for 2023 and subsequent filings.
Speaker Change: Earnings for the quarter were $3.02 per share.
Speaker Change: Including a $2.32 per share gain from the sale of videos as compared to a 27 cents per share in the prior prior year quarter.
Speaker Change: Adjusted earnings per share were $1 59, compared to $1 24 in the prior year quarter.
Speaker Change: Net sales for the quarter were up 2% compared to the prior year quarter, reflecting a 4% increase in global beverage can volumes.
Speaker Change: And increased food can volumes offset by lower volumes in transit packaging segment income was $428 million in the quarter compared to $382 million in the prior year, reflecting higher beverage can volumes in Americas and European beverage.
Speaker Change: Increased volumes in North American food.
Speaker Change: Partially offset by macroeconomic headwinds impacting the transit business.
During the fourth quarter, the company received $338 million from the sale of idiosyncrasies and recorded a gain of 275 million.
Speaker Change: For the year the company delivered record adjusted EBITDA of 1.942 billion compared to the record $1.882 billion from 2023 the.
Speaker Change: The improvement was driven by 5% global beverage can growth and strong operational performance performance in all of our beverage businesses.
Speaker Change: The company delivered 814 million of free cash flow.
Speaker Change: After contributing 100 million to annuities, how is the U S and Canadian pension plans and making an estimated tax payment of $50 million related to the <unk> sale.
Speaker Change: The company returned $336 million to shareholders in 2024.
Speaker Change: $119 million in dividends and $217 million and share repurchases.
Speaker Change: With a record EBITDA combined with the net net debt reduction of $878 million, we reduce net leverage to two seven times at year end.
Speaker Change: First quarter 2025 adjusted earnings per diluted shares are projected to be in the range of $1 20 to $1.30 a share with full year range projected to be $6.60 to $7 per share.
Speaker Change: The adjusted earnings guidance for the full year includes.
Speaker Change: Net interest expense of approximately $355 million to $360 million, depending on the timing of share repurchases.
Speaker Change: Exchange rates at current levels with the Euro at 103 to the dollar.
Speaker Change: Full year tax rate of approximately 25%.
Speaker Change: Depreciation of approximately $310 million.
Speaker Change: Noncontrolling interest expense to be approximately $150 million.
Speaker Change: And to Noncontrolling interest.
Speaker Change: July Noncontrolling interests are expected to be approximately 139.
Speaker Change: We currently estimate 2025 full year adjusted free cash flow to be approximately 800 million.
Speaker Change: After $450 million of capital spending.
Speaker Change: At the end of 'twenty five we would expect net leverage to be closer to our targeted leverage ratio at two and a half times.
Tim Donahue: With that I'll turn the call over to Tim.
Yes.
Tim Donahue: Thank you, Kevin and good morning to everyone.
Tim Donahue: As reflected in last nights earnings release, and as Kevin just summarized.
Tim Donahue: Operating performance in the fourth quarter. It was well ahead of last year's fourth quarter.
Tim Donahue: Owing to stronger performances across our global beverage can businesses.
Tim Donahue: Fourth quarter beverage segment income improved 17% compared to last year due to a 4% increase in global shipments high utilization across the network.
Tim Donahue: And continuous improvements in our manufacturing performance.
Tim Donahue: In total adjusted earnings per share were well ahead of last year, even after accounting for the higher tax rate.
Tim Donahue: Americas beverage reported and 8% in income improvement over a very strong prior year fourth quarter on the back of a 5% shipment increase in the segment North American.
Tim Donahue: And volumes advanced 7% in the quarter with Brazil up 4%.
Tim Donahue: For the full year, North American volumes were up 7% and Brazil, 10%.
Tim Donahue: We significantly outperformed the north American market again in 2024, which we believe for the full year was up about 1%.
Tim Donahue: Looking ahead to 2025, we expect our north American volume performance to be largely in line with the market.
Tim Donahue: In Brazil, we expect mid single digit growth in 2025.
Tim Donahue: European beverage volumes increased 8% in the fourth quarter with shipments, notably strong across the Mediterranean and in the U K.
Tim Donahue: This led to significantly higher income in this segment compared to a soft prior year.
Tim Donahue: For the full year volumes improved 7% over 2023, leading to our record income performance for the segment.
Tim Donahue: We continue to see the conversion to the aluminum can as the package of choice for beverages in Europe and.
Tim Donahue: And we expect 2025 to be another record year of earnings on the back of strong demand.
Tim Donahue: Yeah.
Tim Donahue: Income performance in Asia Pacific remained firm in the fourth quarter, leading to a 27% increase for the full year.
Tim Donahue: Volumes in the fourth quarter were down 4%, mainly a result of our prior year actions to improve revenue quality.
Tim Donahue: While consumer purchasing power across the region remains subdued our cost reduction programs that position this segment well for future income improvement.
Tim Donahue: Based on current demand forecasts, we expect this segment will be in line to better in 2025 compared to 2024.
Tim Donahue: In line with our expectations income in transit packaging was down as global industrial activity remained sluggish.
Tim Donahue: We remained focused on tightly managing the business and generating cash on cash returns.
Tim Donahue: Unlevered free cash flow in this business once again exceeded $250 million.
Tim Donahue: The current outlook for 2025 is for flat to marginally up income performance with the first six months, reflecting current conditions.
Tim Donahue: Volume in North American food improved significantly compared to a soft prior year fourth quarter with the demand increase balanced across pet food vegetables and soups.
Tim Donahue: We expect income in the non reportable businesses to be up about 10% in 2025.
Tim Donahue: Operationally 2024 was a strong year so to summarize.
Tim Donahue: Segment income was up almost $100 million and we generated significant free cash flow.
Tim Donahue: Asian production capacity has been right sized.
Tim Donahue: The sale of our remaining 20% interest in <unk> was completed.
Tim Donahue: We reduced future balance sheet risk by <unk>, almost all of the U S and Canadian inactive defined benefit pension obligations.
Tim Donahue: More than $300 million was returned to shareholders.
Tim Donahue: And after all of that net leverage was reduced to two seven times.
Tim Donahue: Looking forward the company has a world class manufacturing team capable to serve the needs of a diverse set of global customers from.
Tim Donahue: From an optimized footprint.
Tim Donahue: We serve a well balanced portfolio of attractive growing categories.
Tim Donahue: On the balance sheet is strong we generate significant cash flow and are well positioned to continue to create and return value to our shareholders.
Tim Donahue: And with that Al we are now ready to take questions.
Speaker Change: Thank you we will now begin the question and answer session. If you'd like to ask a question. Please press star and then the number one please on mute your phone and record your name and company name clearly were pumped out your name and company name are required to administer a question to cancel your request. Please press star and then that number two our first question comes from the line of Phil and of Jefferies.
Tim Donahue: Your line is now open.
Phil: Hey, guys. Congrats on that are very strong quarter.
Speaker Change: First of all.
Speaker Change: Tim America's had been really strong, especially in the back half of 2020 for what's driving some of the outperformance is continuous improvement in manufacturing.
Speaker Change: Element of that and when we look out to 'twenty five what are some of the puts and takes off as a record year you gave us some outlook on demand, but how do you kind of see.
Speaker Change: So your earnings.
Speaker Change: Taking out this year and what are some of your customers are saying at this point.
Speaker Change: Yeah, So I'll deal with the first part of the question first.
Speaker Change: I had a look at this.
Speaker Change: <unk>.
Speaker Change: I know last year, the fourth quarter was the strongest quarter we had.
Speaker Change: The fourth quarter. This year came within $5 million of being the strongest quarter and certainly the back half of both years.
Speaker Change: Much stronger than we've traditionally experienced in the past a lot of that due to.
Speaker Change: Continuing growing business in South America that is Colombia and Brazil.
Speaker Change: Their season, a little different than our season.
Speaker Change: And again exceptionally strong demand.
Speaker Change: Around the holiday season.
Speaker Change: Here in North America.
Speaker Change: I'm always a bit.
Speaker Change: It surprised I was a little surprised.
Speaker Change: The outperformance we had here in Q4 compared to the guidance. We gave you previously it was principally due to our strong North America was here.
Speaker Change: The Americas was here.
Speaker Change: Specifically North America in the fourth quarter, we did not anticipate.
Speaker Change: That we would exceed last year's record fourth quarter, and we did that.
Speaker Change: Looking ahead.
Speaker Change: As we said we think demand for the company.
Speaker Change: Having outperformed the industry over the last several years each of the last several years, we think we're largely in line.
Speaker Change: As we've stated before with market performance so.
Speaker Change: If you will if the markets the market give yourself a range of minus one to plus two depending on how promotions go in and how strong or weak the consumer is or how strong or weak to consumer perceives. He is.
Speaker Change: The market to be anywhere in that range minus one to plus two in our view others may have a different view.
Speaker Change: But that would be our view we have modeled.
Speaker Change: So you know we have modeled north American volume to be flat.
Kevin: And the numbers that Kevin has provided you. So we are not.
Speaker Change: We're not stepping out on the ledge, assuming the consumer is going to be exceptionally strong now we'll talk about tariffs.
Speaker Change: And I'll ask you to allow somebody else to ask that question. Since you asked yours already we will talk about tariffs and the potential impact of tariffs may have on demand.
Speaker Change: The other puts and takes obviously there will be.
Speaker Change: A little PPI give back to the customers when those contract cycle. The majority of those are April some in July a few in January.
Speaker Change: And.
Speaker Change: As you can tell by our margins certainly our margins are very strong in contra.
Speaker Change: Contracts are set very well, but there does come a time when the customers deserve to get some of the money back when when costs come down and while PPI is not a perfect proxy for our cost and we've talked about this before labor never comes down.
Speaker Change: You can reduce labor content, but labor rate never comes down and.
Speaker Change: Certainly the coatings guys of have found our sweet spot and how they can drive value and we've not seen a lot of.
Speaker Change: We've not seen a lot of give back from the coating suppliers to us over the last several years, so while not a perfect proxy. It is the methodology used within the contracts and we adhere to contract so.
Speaker Change: That'll be just a couple of the puts and takes.
Speaker Change: I don't know if I've answered your question I think I did.
Speaker Change: Yeah, that's great and then Jim just from a cash flow standpoint cash flow was strong your balance sheet is pretty close to your leverage target. So my question is what are you going to all of that cash is to buyback do you see any opportunities on bolt ons, just kind of help us think through how you're going to deploy that capital and unlock value for sure well I think Phil let's start with $800 million.
Speaker Change: It is.
Speaker Change: As clear as I can and $800 million.
Speaker Change: Back off a couple of hundred million for dividends to the minority partners in dividends to the public shareholders that leaves you with about $5 $50 million to $600 million.
Speaker Change: And as we sit here today the modeling that Kevin has done we're assuming 50 50 debt reduction and share repurchase and that can change.
Speaker Change: Depending on where the markets take us.
Speaker Change: Here in 2025 and.
Speaker Change: Depending on how you all in the buy side determined you want to value US we continue to believe that we are.
Speaker Change: Significantly undervalued, given a pristine balance sheet.
Speaker Change: And high cash flow generation, and a low share float, but we'll see how we're valued and we will make a decision as to whether we adjust that 50 50.
Speaker Change: Jim will you frontload that buyback or is it going to be pretty spread out through the year.
Speaker Change: Just given where your stock prices yet.
Speaker Change: So look I think the share prices at a good price now Phil I would expect.
Speaker Change: Through the first half of the year for us too.
Speaker Change: To something closer to 50 50 that Tim was talking about.
Speaker Change: Okay I appreciate all the color guys. Thank you.
Speaker Change: Thanks Bill.
Speaker Change: Thank you. Our next question comes from the line of Christopher Parkinson of Wolfe Research. Your line is now open.
Speaker Change: Hi, guys, it's Andrew actually on for Chris.
Speaker Change: Real quick I want to kind of understand sustainability of momentum in Europe.
Speaker Change: Obviously, you've had a couple of really strong quarters.
How are you thinking about that going into 'twenty five in and sort of what are the puts and takes in the region.
Speaker Change: Yeah.
Speaker Change: Well I think it has real traction in Europe.
Speaker Change: There are.
Speaker Change: I'm going to use the term any number which is kind of a meaningless term, but there are any number of.
Speaker Change: Various.
Speaker Change: Packaging directives.
Speaker Change: Being floated about by individual countries by the European Union et cetera.
Speaker Change: Either directly or indirectly.
Speaker Change: Affect the aluminum beverage can we believe the aluminum beverage can continues to be the best positioned drinks package.
Speaker Change: To accomplish everything that the let's just call them the Greens that the Greens wanted to accomplish.
Speaker Change: I think that.
Speaker Change: For the most part.
Speaker Change: We can always do better but recycling rates are are certainly much higher in Europe. So we feel very good about that we need to get recycling rates higher in the United States, but we feel very good about the rates in Europe.
Speaker Change: And we would continue to expect to see.
Speaker Change: Conversion.
Speaker Change: From glass and other substrates to the can but I think if you.
Speaker Change: You look at glass performance in Europe versus can performance in Europe, you can see what's happening and I don't expect that to slow down.
Speaker Change: Got it thanks.
Speaker Change: And.
Speaker Change: Any commentary on Asia on a go forward basis.
Speaker Change: Volumes specially.
Speaker Change: Yes, so I think.
Speaker Change: We were up significantly this year, but that's really just clawing back.
Speaker Change: What we gave away in the last couple of years and that was right sizing the cost base production capacity.
Speaker Change: What we believe is a new volume framework until the consumer.
Speaker Change: Regained some strength so the consumer is still a little weak.
Speaker Change: In Asia, principally all of the Asian countries.
Speaker Change: We continue to do well in Cambodia, Vietnam is a little softer than we would like.
Speaker Change: We've we've modeled.
Speaker Change: The decline in our volumes in China, but an increase in southeast Asia.
Speaker Change: We've got some other contractual things, we're working through but we think the business is.
Speaker Change: Marginally up.
Speaker Change: It's the income wise, it's up two to three 4% next year compared to this year. So we will certainly hold onto the gains we've made in.
Speaker Change: Cost base is really in a good place for when volume returns for it to flow through the bottom line.
Speaker Change: Great. Thank you so much I'll turn it over.
Speaker Change: Thank you.
Speaker Change: Thank you. Our next question comes from the line of Ghansham Panjabi of R. W. Baird. Your line is now open.
Ghansham Panjabi: Thank you good morning, guys.
Ghansham Panjabi: Hey, guys sorry to go back to your comments on North American volumes, you know I think you said the industry estimate at plus 1% last year and then you are assuming flat for this year.
Ghansham Panjabi: So if we kind of go back to the 1998 through 2018 and sort of paradigm where volumes for the industry are flattish for an extended period of time.
Ghansham Panjabi: Flattish as generous Ghansham right I think you could argue they were.
Ghansham Panjabi: They were down over that period, right I rounded up yeah.
Speaker Change: What does that do to your margin profile for that segment in context of.
Ghansham Panjabi: Being at record margins in 2024.
Well it doesn't have to do anything it really depends on the behavior of the participants.
Ghansham Panjabi: No.
Ghansham Panjabi: We talked previously about.
Ghansham Panjabi: The value proposition that we offer to our customers all of us in the aluminum beverage can world offer to our customers.
Ghansham Panjabi: It is a package that cost.
Ghansham Panjabi: A lot of capital to install to run incredible amounts of talent and discipline in the factories.
Ghansham Panjabi: We all possess it we all deliver that quality and service to our customers, we deserve to get paid for it now.
Ghansham Panjabi: Post post the Covid boom, we had a number of independent one liner guys think that they could just step in and make cans in.
Ghansham Panjabi: I don't want to say they failed miserably, but they didn't do too well so three of them are going now.
Ghansham Panjabi: I think the other participants that we still have remaining in the market.
Ghansham Panjabi: Two of them are art can companies in other parts of the world, they're going to succeed so the <unk>.
Ghansham Panjabi: Competitive profile is certainly different in the marketplace than it would've been three or four years ago, and we all have to learn how to compete in that environment, but it's incumbent upon us.
Ghansham Panjabi: To hold price to do better in manufacturing so that we can keep more.
Ghansham Panjabi: The manufacturing improvements that we make for.
Ghansham Panjabi: For our shareholders, we can't just be in business to return all the value from our hard work to somebody else's shareholder group. So.
Ghansham Panjabi: Nothing solves your problems like volume growth right.
Ghansham Panjabi: On the other hand.
Ghansham Panjabi: Most of us did fairly well.
Ghansham Panjabi: For a large period of time. So if you took 1998 to 2018, we all did fairly well in terms of cash generation.
Ghansham Panjabi: Margins did grind down.
Ghansham Panjabi: But we generated cash we didn't spend a lot of capital and we return that value to shareholders, we have to find the sweet spot.
Ghansham Panjabi: And all of that as an industry and no one company can do it themselves ghansham.
Ghansham Panjabi: Got it.
Ghansham Panjabi: And then if you switch to transit you know just given the.
Ghansham Panjabi: A downturn to year manufacturing recession globally et cetera.
Ghansham Panjabi: I know you've taken cost out of the system, but you know what what else do you are you looking at in terms of.
Ghansham Panjabi: So in the past experiences to kind of get you through the spirit before volumes hopefully inflect higher at some point.
Ghansham Panjabi: Yeah. So I mean, there are things we do in that business that you don't see or we don't report we have.
Ghansham Panjabi: Consolidated some facilities, we don't necessarily call them out because the.
Ghansham Panjabi: The cost is relatively inexpensive that is.
Ghansham Panjabi: If it's $5 million is a lot sometimes it's below $5 million. So we are doing that.
Speaker Change: Does it take.
Speaker Change: To do a whole lot more we took a lot of cost out.
Speaker Change: And.
Speaker Change: At some point the industrial you were going to have a bounce back I don't know when that is.
Speaker Change: I've got it wrong in the past so I don't really want to call. It again I do think the first six months or of this year, we're going to be more of the same and we're hopeful that.
Speaker Change: We get some uptick in the back half of the year, we are starting to see.
Speaker Change: Some green shoots in the protective space.
Speaker Change: What we really need to see as a.
Speaker Change: Capital equipment orders tick tick up and we haven't seen that yet, but I think the.
Speaker Change: The cost base is in pretty good shape, the amount of volume, we and others have lost in that space.
Speaker Change: And I guess, if you looked at other industrial companies you cover depending on what industrial applications. They are in.
Speaker Change: They may have similar experience as well.
Speaker Change: Thank you.
Speaker Change: Thank you.
Speaker Change: Thank you. Our next question comes from the line of George Staphos of Bank of America. Sir Your line is now open.
Speaker Change: Thanks, very much higher one good morning, Tim.
George maybe you can take some honey or something a good luck, citing whenever you got there.
Speaker Change: Yeah, I don't I don't.
Speaker Change: No what I did hear George but I haven't been able to get rid of it so youre in Florida for crying out loud, but anyway. Good luck as well this weekend.
Speaker Change: Listen I, if you could talk a little bit more about what youre seeing in Europe in terms of the volume outlook it sounds positive.
Speaker Change: They were not going to hold you to anything specific but do you have the opportunity given your answer I think the gunshot with somebody else's question in terms of.
Speaker Change:
Speaker Change: The green trends, there to see mid single digit or better growth.
Speaker Change: You had teed up the question on tariffs. So I will I will take that one kindly as well in terms of what you see as the puts and takes there.
Speaker Change: And then lastly, I think the answer is no, but I'll ask the question anyway.
Speaker Change: Do you see given the balance sheet positioning given where you're at in the cash flow.
Speaker Change: To do anything beyond what you had been doing in terms of normal cap allocation for productivity for growth do you have another couple of years left to grow into your capacity across your major regions. Thanks, and good luck in the quarter.
Speaker Change: Okay. So.
Speaker Change: Mid single digit growth in Europe, yes.
Speaker Change: Can we grow into the capacity we have installed over the next couple of years without significant capital being spent.
Speaker Change: For the most part yes, we have.
Speaker Change: We've got a line were going to install in Thailand in the near term.
Speaker Change: <unk> venture with <unk>.
Speaker Change: Large global energy company, and they want us to expand the footprint there, but that's within the envelope that Kevin's described I think the envelope, we've described $450 million.
Speaker Change: George if you want to think about 400 to 500 million that envelope.
Speaker Change: Beyond 250 to 300 million of maintenance will cover.
Speaker Change: Any necessary growth, but I don't really see the need.
Speaker Change: Now to spend a lot of money in any of the major beverage region. So I think we're pretty well set.
Speaker Change: And I guess your last question was tariffs is that correct that is correct.
Speaker Change: So I think the biggest impact from tariffs is likely to be the impact the consumer is going to feel.
Speaker Change: If there is an inflationary impact from tariffs so indirect to us.
Speaker Change:
Im going to say almost all of the aluminum I think it is all I think but almost all of the aluminum we buy in the U S is domestically sourced.
Speaker Change:
Speaker Change: Our aluminum that we buy.
Speaker Change: In other regions in North America does not come from the U S.
Speaker Change: So we're not we're not seeing any of that there will be other direct materials that do come from the U S to Canada, and Mexico coatings and alike.
Speaker Change: And we'll have to work through that.
Speaker Change: And on a sales point of view.
Speaker Change: What we make in Mexico stays in Mexico, almost 90, 998%.
Speaker Change: Days in Mexico, So we don't expect our Mexican customers.
Speaker Change: So feel the pinch of having to export their product from Mexico into the U S.
Speaker Change: We make.
Speaker Change: I think everything we make in Canada in beverage stays in Canada.
Speaker Change: Maybe there is some exporting Canadian beer back to the U S. But that's.
Speaker Change: That's always what it's been and they generally sell for premium self of premiums anyway.
Speaker Change: There are food cans in aerosol cans that move across the border from the U S.
Speaker Change: The Canada and to my knowledge.
Speaker Change: There is not a sizeable food can or aerosol can manufacture in Canada.
Speaker Change: So I would expect that.
Speaker Change: And we're going to have to pass those costs on so I think largely George I think it's a.
Speaker Change: From where we sit on tariffs it feels like it's it's an indirect exposure that we have if the consumer feels the pinch from inflation further and dials back their purchasing habits.
Speaker Change: Tim Thanks, so much great rundown I will turn it over thank you very much.
Speaker Change: Thank you. Our next question comes from the line of Stefan <unk> of Morgan Stanley. Your line is now open.
Stefan: Hi, everybody and good morning, Thanks for taking my question.
Speaker Change: Maybe just back on the tariff topic and maybe another way to ask this is we saw significant aluminum and Midwest premium inflation at the beginning of 2022.
Speaker Change: How did your customers react during that time period.
Speaker Change: And let's say that tariffs.
Speaker Change: Tariffs Lee to premium inflation again.
Speaker Change: That would be any reason there react differently. This time.
Speaker Change: Well the customers in 2022 reacted by pushing the price of a 12 pack of soda from.
Speaker Change: $3 to $9 or they got themselves the $9 along the way in <unk>.
Speaker Change: That had some demand implications, but by and large they recovered or over recover their cost. They made a lot of money on their top line.
Speaker Change: And consumers.
Speaker Change: More or less found their way to continue to buy beverage cans.
Speaker Change: How high can you push a 12 pack of soda I don't know.
Speaker Change:
Speaker Change: But the Midwest premium.
Speaker Change: While there are customers, who buy their own metal so for them it's on their account.
Speaker Change: And then for those customers, where we procure the metal it's pass through so but I would expect we're going to see significant Midwest premium increases yes.
Speaker Change: Okay, great Yeah that's.
Speaker Change: That's helpful. And then maybe we could just spend some time and.
Speaker Change: Your other businesses in Americas, Brazil, Mexico, and Colombia.
Speaker Change: What are you seeing as far as the consumer there what's driving the strength in those regions and you know maybe you could expand a little bit on your expectations for 2025.
Speaker Change: Yeah, so listen to them.
Speaker Change: You've always heard us say.
Speaker Change: We feel like I'm repeating myself.
Speaker Change: It's only the can business, we're not making.
Speaker Change: Airplane engines for Jets, so it's not.
Speaker Change: Not as complicated as we want to make it but Brazil.
Speaker Change: Brazil is a market I've said it before if you you can have ups and downs and hiccups, along the way, but if.
Speaker Change: If you look at it over a three to five year period, and you draw a graph. It's always growing the trend line is up and so we had a down year.
Speaker Change: In Brazil.
Speaker Change: Late 'twenty two early 'twenty, three and we bounce back nicely.
Speaker Change: I think they are.
Speaker Change: The Brazilian economy is sorting its way through inflation and unemployment.
Speaker Change: They always have.
Speaker Change: Our statistics are certainly shockingly high compared to ours, but.
Speaker Change: In there in their environment, it's always been high so they're used to that and.
Speaker Change: And again, the fourth quarter first quarter of the big Big seasons for them. So we continue to expect Brazil is going to do well over the medium to long term there could be hiccups, along the way but.
Speaker Change: As we've said we don't get too excited it's an investment we've made and we believe in the market.
Speaker Change: Colombia, we have a very it's a a one line plant, but it's a large line it's a high speed line.
Speaker Change: We do have a partner there who takes significant amount of cans and we have another global cut.
Speaker Change: Customer that also takes a significant amount of cans and.
Speaker Change: We run that plant well from a manufacturing standpoint, the plant was built a 96.
Speaker Change: I've said it before I don't know where the sweet spot is from a manufacturing standpoint for a facility in the workforce, but.
Speaker Change: We are feeling really good sweet spot right now in Colombia, the performance that the team there.
Speaker Change: It has generated has been nothing short of excellent.
Speaker Change: Over the last 12 months so again.
Speaker Change: A one line plant.
Speaker Change: But sold out and doing very well Mexico.
Speaker Change: This is principally the business we acquired.
Speaker Change: 10 years ago.
Speaker Change: We.
Speaker Change: We make all the beverage products, if you will we will.
Speaker Change: We make our beverage cans, we make beverage beverage bottles only know bottles for any other product other than beverages, principally beer and soda.
Speaker Change: We make bottle caps and we make aluminum roll on closures for the aluminum bottle. So.
Speaker Change: Again.
Speaker Change: Largely sold out doing well, we might have a little mismatch this year.
Speaker Change: Whereby we regained a customer last year, we lose a little bit from one customer. This year. So it's a little mismatch, but but by and large again, a really solid business I think as Kevin likes to remind me.
Speaker Change: It's more than $1 billion business in Mexico. So it is a large business. We don't we don't talk about it we jump right from the U S down to Brazil, but in between for Crown theirs.
Speaker Change: Theres a business in excess of $1 billion, and we call that Mexico.
Speaker Change: Great. Thanks for the color, Tim I'll turn it over.
Speaker Change: Youre welcome. Thank you.
Speaker Change: Thank you. Our next question comes from Arun Viswanathan of RBC capital markets. Sir Your line is now open.
Arun Viswanathan: Great. Thanks for taking my question and congrats on the strong results here. So I guess first off just.
Arun Viswanathan: I'm just curious on your take on that pricing and returns we've been hearing that there's a little bit of overcapacity in certain parts of North America, especially maybe the Midwest.
Arun Viswanathan: And theres been some changes in ownership and some some plants. So just wanted to get your take on.
Arun Viswanathan: Now how pricing maybe could.
Arun Viswanathan: Could transpire over the next year or so.
Arun Viswanathan: Yes.
Arun Viswanathan: I don't.
Arun Viswanathan: When you think about.
Arun Viswanathan: Regionally, where the overcapacity might exist in the U S, especially the large suppliers, we all operate from a north American platform and.
Arun Viswanathan: I don't think it listen I don't know, but it should.
Arun Viswanathan: Surprising to me if anybody has a regional pricing in North America. So.
Arun Viswanathan: Now if theres overcapacity and Theres, a new entrant, there, that's causing a problem, okay, theyre, causing a problem.
Arun Viswanathan: When youre talking about a business a market, that's 120 billion cans and if youre going to.
Arun Viswanathan: Get excited about 600 million cans in Indiana.
Arun Viswanathan: Ever in the Midwest, you are talking about and youre going to allow that.
Arun Viswanathan: Dictate your pricing architecture for the rest of the 120 billion cans in your marketplace.
Arun Viswanathan: You need to change a whole bunch of people in the industry before you're going to have a successful industry I think we have a successful industry.
Arun Viswanathan: I think it's very healthy.
Arun Viswanathan: But the one liners of kind of flush themselves out.
Arun Viswanathan: I don't wish ill on anybody, but I hope the lessons there failure lessons.
Arun Viswanathan: People have a long memory before they try to enter a market like Mccann, making market again with a lot of capital.
Arun Viswanathan: I'm not understanding the requirements.
Not only from an engineering standpoint, but from a daily workforce workforce standpoint, what it takes to make cans and.
Arun Viswanathan: The multinationals that are here, we do that really well.
Arun Viswanathan: So youre always.
Arun Viswanathan: Youre always surprised when you hear people thinks that they can you hear people say they can do something as well as somebody else having never done it before so.
Arun Viswanathan: I don't feel good about the fact that some of these guys have gone bankrupt, but I hope that lesson as long for anybody else considering it.
Okay. Appreciate that and then I also just wanted to ask about your thoughts on Asia Pacific.
Arun Viswanathan: We've had some challenges for the consumer there as well but.
Arun Viswanathan: And then changes in.
Arun Viswanathan: Different laws and regulations that affected your business a little while ago. So do you feel like you're kind of stabilized in that region and maybe what's your outlook for <unk>.
Arun Viswanathan: We should grow there thanks.
Arun Viswanathan: Yes, listen I think we're stabilized.
Arun Viswanathan: Youre always back too.
Arun Viswanathan: In a market like Asia Pacific, specifically southeast Asia, it's been a growth market for us for so long, but at some point you transition.
Arun Viswanathan: From your focus being on growth to your focus being on an income growth and I think we've made that transition now we are focused on generating.
Arun Viswanathan: Good returns I think we have high teens returns now in the market a lot of cash flow that is our capital needs in the region are not very high any longer so there's a lot of cash flow.
Arun Viswanathan: And I think that transition is well underway, we are well positioned to.
Arun Viswanathan: To accommodate growth if and when the consumer gets healthy but for the time being we are.
Arun Viswanathan: We're making really good returns and we're generating a lot of cash and I think that.
Arun Viswanathan: I think we're probably still a year away before we see the consumer in Asia.
Arun Viswanathan: Really feel healthy again.
Speaker Change: Alright. Thank you. Our next question comes from the line of Gabe <unk> from Wells Fargo Securities. Your line is now open.
Speaker Change: Tim Kevin Good morning.
Speaker Change: Good morning.
Speaker Change: You mentioned adhering to contracts, which I think is a principal thing to do and so I was curious if there was anything unique about contracts.
Speaker Change: You all entered into I know that you guys were trying to include different escalators for.
Speaker Change: Free.
Speaker Change: The aluminum premium along the way and that's all I can do.
Speaker Change: A decade long process, but where they are shorter term in nature or anything like that meaning contracts that will show up.
Speaker Change: From 2019 to 2023 time frame.
Such that Theres more to come up for renewal I think last time, you said you kind of feel good through 'twenty seven, but just if you're willing to put a number on.
Speaker Change: A portion of your North American business.
Speaker Change: Contracted in 'twenty, five and 26.
Speaker Change: Yes.
Speaker Change: I will confirm what we've said before we don't see any major contract renewals coming due until the end of 2006 going into 2007.
Speaker Change: We believe as I said earlier, we're going to be largely in line with the market in 'twenty five.
Speaker Change: I didn't say it earlier, but I think as we sit here today, we believe we're going to be ahead of the market in 2006, but will we have plenty of time to reconfirm that as we go through the year.
Speaker Change: So that would.
Speaker Change: Suggest to you that we believe we have business in 2006 under contract that begins in 'twenty six but I'll, we'll come back and address that in July and October.
Speaker Change: Understood and.
Speaker Change: You called out North America, Brazil for volumes on the fourth quarter and full year alright.
Speaker Change: Could you tell us what Mexico was it sounds like it was good and you picked up some business and then maybe in 'twenty five and reverse back out.
Speaker Change: So I think that's in Mexico, we were down a couple percent in the fourth quarter.
Speaker Change: Oh, it looks like we're down two 5% in the fourth quarter. It looks like the industry was down three 5%. These are estimates <unk> information, we get from the Cannes Association in Mexico.
Speaker Change: Understood one quick last one hopefully.
Speaker Change: Maybe Kevin it looks like DNA was worth 10 million below the fourth quarter.
Speaker Change: The number you gave US was 310 for depreciation again, <unk> was running a bit light in the fourth quarter.
Speaker Change: By my math, that's about a 15% bump in.
Speaker Change: 25 guide.
And then if I buildup from free cash flow I'm getting to like a 1960 number for EBITDA.
Speaker Change: Any comments there.
Speaker Change: So Dave just in terms of depreciation.
Speaker Change: Amortization.
Speaker Change: We exclude the amortization from our guide so I don't see that as the bump.
Speaker Change: Your EBITDA around 1960.
Speaker Change: Within the range of where we're at.
Speaker Change: So I would confirm that.
Speaker Change: Depreciation around 310, we're still spending more in terms of capital than depreciation. So you would expect depreciation to go up.
Speaker Change: Year on year as a result.
Speaker Change: Okay.
Speaker Change: Great. Thank you good luck.
Speaker Change: Thanks, Nick.
Speaker Change: Yes.
Speaker Change: Thank you. Our next question comes from the line of Joseph sector of UBS. Thank you and your line is now open.
Jay Shah: Hi, Good morning, it's a no Jay Shah sitting in for Josh.
Speaker Change: Good morning.
Speaker Change: Good morning, I wanted to ask a question on transit I know you need to see sustainable improvement in industrial activity.
Speaker Change: Well I'm equipment, there, but in the past you talked about the secular trend of companies wanting to automate the back end of their manufacturing process.
Speaker Change: On the pipe through warehousing and distribution today.
Speaker Change: Have you seen any benefit from that yet that may be obscured right now or is that just not something that that is benefiting us.
Speaker Change: No.
Speaker Change: Would tell you that yes, we've seen benefit.
Speaker Change:
Speaker Change: Not.
Speaker Change: Not only third party customers have utilized the backend automation services of Cigna.
Speaker Change: We had crowded.
Speaker Change: It was an automated warehouse in our new plant in the U K.
Speaker Change: Really quite amazing if you ever get a chance to go over there we'd love to show it to you.
I think in.
Speaker Change: In large part that's being.
Speaker Change: Masks are offset by.
Speaker Change: The I don't want to say dearth of equipment orders, but the very low level of equipment orders for standard <unk>.
Speaker Change: Strapping and wrapping equipment that we traditionally have seen in the past.
Speaker Change: Okay.
Speaker Change: Okay. Thank you for that.
Speaker Change: Then a few quarters now you've been talking about manufacturing improvements and excellent manufacturing performance.
Speaker Change: We are a bit more detail on this are there things that are being done now that weren't being done before or is it more about strong volumes and operating worldwide brands.
Speaker Change: You you hit it with the last thing right volume cures, all your <unk> like probably Ive said that before.
Speaker Change: It happens in two ways a lot more volume you just generate more income naturally more absorption.
Speaker Change: When you're running more volume.
Speaker Change: The workforce is certainly more focused.
Speaker Change: On trying to be as efficient as possible. So they can run more volume.
Speaker Change: But largely.
Speaker Change: We're talking we're talking about efficiency.
Speaker Change: Spoilage asset utilization.
Speaker Change: <unk> out the back end of the line with less labor hours lesser less line hours.
Speaker Change: And.
Speaker Change: I always hate them I'm always hesitant to do this but we did we did change out the vice president of manufacturing in our North American beverage business over the last 18 months.
Speaker Change: And that has had a tremendous impact in performance in North America.
Speaker Change: Okay. Thank you I'll turn it over.
Speaker Change: Thank you.
Operator: Thank you next is Anthony Pettinari Citigroup. Your line is now open.
Anthony Pettinari: Good morning.
Speaker Change: Good morning.
Speaker Change: Tim you talked about substrate substitution, having a really good runway in Europe, which we've definitely seen from your results is.
Speaker Change: Is it fair to say the vast majority of that is glass into cans, rather than plastic and then I'm just curious when you look at.
Speaker Change: U S Mexico, Brazil, how much runway does substrate substitution half, especially on that kind of glass to cans side, where are we in the kind of later innings in the U S or just how we should think about that.
Speaker Change: So I think youre right.
Speaker Change: But the biggest substrate shift in Europe is glass to cans.
Speaker Change: Principally that can be around cost.
Speaker Change: Some environmental as glasses heavier and breaks obviously than cans.
Speaker Change: I do think the.
Speaker Change: Proliferation of plastic has slowed in Europe, I think there's still a long way to go conversion of plastic.
Speaker Change: Can.
Speaker Change: United States Theres almost no glass left in soft drink.
Speaker Change: And cans have a 65% to 70% share in beer already.
Speaker Change: So I think in the U S. The glass to cans.
Transition as I don't want to say, it's complete but it's substantially complete and.
Speaker Change: And if you think about P. T. There is a huge runway for <unk> I've never been a big believer and I know.
Speaker Change: A lot of investors and analysts don't like when I say it I'm not a big believer in flat water converting from P. G to cans, but I do believe theres runway for CSD.
Speaker Change: For Pete from P. G to cans, but that's going to take a.
Speaker Change: Our government and there were some other push.
Speaker Change: For the marketers of those drinks to want to move away from <unk>.
Speaker Change: Tina can.
Speaker Change: Brazil.
Speaker Change: In beer were $65, 70% cans now soft drinks are still 80% P. G in that market.
Speaker Change: And in Mexico.
Speaker Change: Levels are much lower I think the can is.
Speaker Change: Probably Tom what do you think about 25% for beer right now in Mexico. So theres a lot of room in Mexico from glass to can and.
Speaker Change: And on soft drinks.
Speaker Change: There is also room, both from glass and pega to come back to the can but.
Speaker Change: That market, probably takes a little bit longer just because of disposable income.
Speaker Change: Got it got it.
Speaker Change: Extremely helpful.
Speaker Change: And then just switching gears in your discussion on tariffs I don't think you mentioned transit is there a meaningful impact there or any kind of I don't know.
Speaker Change: What percentage of goods that kind of cross borders or.
Speaker Change: Anything we should keep in mind.
Yes, I think the.
Speaker Change: The opportunity.
Speaker Change: Is that.
Speaker Change: With more appropriate tariff levels on China, perhaps even higher than the president really recently announced.
Speaker Change: We protect the.
Speaker Change: The domestic transit business as well as the domestic food can and domestic aerosol can business.
Speaker Change: Theres an opportunity there we will see.
One thing that's not talked about a lot and the can manufacturers Institute just wrote a letter to President Trump.
Speaker Change: We're hopeful he he undertakes it seriously but.
Speaker Change: The $2 32 tariffs.
Speaker Change: Implemented in 2018.
Speaker Change: Had the negative knock on effect of.
Speaker Change: Customers and others.
Speaker Change: Circumventing the $2 32 tariffs on tin plate.
Speaker Change: Just importing filled goods from China. So when you buy your peaches or you buy your vegetables, youre getting Chinese corn, youre, not getting corn grown in the United States by United States Farmer under USDA regulations, you don't know what Youre getting.
Speaker Change: So.
Speaker Change: And a lot of ways that could be helpful. We'll see where it goes.
Speaker Change: Okay. That's helpful I'll turn it over.
Speaker Change: Thank you.
Speaker Change: Thank you. Our next question comes from the line of <unk> <unk> of Mizuho. Your line is now open.
Speaker Change: Thank you. Thank you very much and good morning.
Speaker Change: One Tim in terms of your blog.
Speaker Change: Look for North America.
Speaker Change: You said that you expect to just watch the markets going forward.
Speaker Change: Are there any circumstances, where you might.
Speaker Change: Go to market.
Speaker Change: Anything happening that would allow you to outgrow the market there.
Speaker Change: Well I don't.
Speaker Change: The answer is yes, let's say that.
Speaker Change: The end markets that are within our portfolio that we serve for example, we have a very strong position.
Speaker Change: Carbonated water is that outperforms CST, then, yes, we will do a little better than the market.
Speaker Change: We do have a growing energy presence. So if the labels that we supply and energy <unk> the labels, we supply in the <unk>.
Speaker Change: Other alcoholic other than beer performed better than beer.
Speaker Change: Then we have the opportunity potentially to outperform the market, but as we said.
Speaker Change: The guidance, we're giving you is predicated on us performing in line with the market.
Speaker Change: No.
Speaker Change: Great and in terms of your business in Asia, but when do you expect I mean from everything you're seeing down there when can we when do you expect to see volume returning to your business there.
Speaker Change: Well I think the.
Speaker Change: I think I think we're as.
Speaker Change: As we sit here today, we're thinking.
Speaker Change: But we're going to see.
Speaker Change: Positive volumes in southeast Asia in 2025.
Speaker Change: Offsetting by.
Speaker Change: Some volume downturn in China, as we walk away from unprofitable business.
Speaker Change: I think longer term, though I think I said earlier, we still believe that consumers about 12 months out before they get comfortable.
Speaker Change: To really.
Speaker Change: Return to consumer buying habits that we saw pre pandemic.
Speaker Change: Okay. Thank you very much.
Speaker Change: Youre welcome.
Speaker Change: Thank you. Our next question comes from the line of Mike Rosslyn Alturas Securities. Your line is now open.
Mike Rosslyn: Yes, Thank you, Tim and Kevin tell him for taking my questions and congrats on a strong finish to the year.
Speaker Change: Thank you.
One just one quick question from me you mentioned North American food can doing better.
Speaker Change: What's driving that because it had been a little bit problematic for a few quarters. So what's driving that improvement in performance and should we expect those trends to persist.
Speaker Change: Yes, so just so we're clear within that non reportable we have.
Speaker Change: Food cans aerosol cans and vacuum closures in the United States as well as the beverage can equipment business, which is based out of the U K.
Speaker Change:
Speaker Change: Food cans has been relatively stable to up for the last <unk>.
Speaker Change: Six to eight quarters, even if volume has been a little sideways to the performance in food cans has been good we've seen it.
Speaker Change: Market downturn in beverage can equipment orders as the beverage can growth story has.
Speaker Change: Subsided a bit here globally, and we're shipping less equipment as already as the other equipment supplier and aerosol cans have been a bit subdued although that has bottomed and it looks too.
Speaker Change: It looks to be a it's going to be a better year next year, but.
Speaker Change: Two things I think volume in the fourth quarter last year was.
Speaker Change: Pretty soft and volume return this year.
Speaker Change: We have a very well balanced portfolio we have.
Speaker Change: Significant pet food presence as.
Speaker Change: As well as a leading vegetable presence so.
Speaker Change: Those customers just doing quite well in the fourth quarter.
Speaker Change: Thank you.
Speaker Change: Youre welcome.
Speaker Change: Al if there is one more question, we'll take one more question.
Speaker Change: Yes, Sir we will take the last question from George Staphos with Bank of America. Your line is now open.
George Staphos: Hi, everybody a couple sort of modeling questions quick and a bigger picture question tend to cause you have a view on it so first of all.
Speaker Change: I mean, we can do the calculation on ourselves for ourselves, Kevin, but FX, what do you expect that will be in terms of your.
Speaker Change: Forecast for the year from an earnings per share standpoint, given where we sit right now.
Speaker Change: Is there any benefit from the work that you did last year in terms of the earnings outlook for this year.
Speaker Change: And then Tim the bigger picture question again to the extent that you have a view.
Speaker Change: Where do you see innovation, especially in the the alcohol and your beer side, recognizing you're not necessarily in beer you are trying to grow in other end markets. What you know appetite what momentum do you see out of that customer base and the likelihood that they're going to continue to use cancer.
Speaker Change: Grow their use of cans 'twenty five 'twenty six and thereabouts. Thanks, good luck in the quarter.
George Staphos: Thanks, George So George.
Speaker Change: FX.
Speaker Change: The rates as the dollar strengthened considerably in the fourth quarter. If we look at year on year the impact of translation, it's probably impacting the projection by about 10, 10 cents, which is already baked into our guide.
Speaker Change: From the pension perspective.
Speaker Change: The pension as you know, we <unk> C U S launch in the U S and Canadian pension plan and I would expect.
Speaker Change: Improvement.
Speaker Change: In the neighborhood of.
Speaker Change: Yes.
Speaker Change: Like <unk> I think is the number of the improvement.
George Staphos: And then George just dealing with the other question around innovation.
Speaker Change: Sure.
Speaker Change: We're fortunate that there's no shortage of folks out there looking to.
Speaker Change: Develop and market brands and <unk>.
Speaker Change: You look at price points.
Speaker Change: In the marketplace, what the consumers prepared to pay higher price points for it.
Speaker Change: Lens, you to energy and alcoholic not to CSD and certainly not to a flat water. So I would expect we're going to continue to see.
Speaker Change: Flavored.
Speaker Change: Alrighty of flavored vodka based and other <unk>.
Speaker Change: Alcoholic beer flavors, like tequila et cetera, as opposed to the malls.
Speaker Change: We are the original.
Speaker Change: Alcoholics that came out.
Speaker Change: And I think we're going to continue to see.
Speaker Change: A variety of energy <unk>.
Speaker Change: Other quasi energy nutraceutical infused drinks that.
Speaker Change: Or potentially or viewed as potentially performance enhancing.
Speaker Change: But I think that the.
Speaker Change: The upshot to that is that.
Speaker Change: Traditionally.
Speaker Change: Oh well.
Speaker Change: I'll say it this way I think the upshot to that as those.
Speaker Change: Drinks are largely offered in the can.
Speaker Change: And the products that they so it's either incremental <unk> the products that they are cannibalizing are offered and can or other substrates. So it's a.
Speaker Change: As a certain pickup for us and it doesn't mean, we're cannibalizing mccann it could be that we're picking up.
Speaker Change: Total share of stomach as a substrate within the can.
Speaker Change: Makes sense I'll turn it over to him and thanks again.
George Staphos: Thanks, George Okay. So al.
George Staphos: I think you said that was the last question. So thanks to everybody for joining us.
George Staphos: We will speak to you again in April after the completion of the first quarter Bye now.
George Staphos: That concludes today's conference. Thank you everyone for participating you may now disconnect and have a great day.