Q2 2025 Crown Holdings Inc Earnings Call
Thank you for standing by the conference. Will begin momentarily until such time you will hear me music. Thank you and please continue to stand by
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Speaker Change: Good morning and welcome to Crown Holdings. Second quarter 2025 conference call your lines have been placed on a listen-only mode until the question and answer session. Please be advised that the conference is being recorded. I would now like to turn the call over to Mr. Kevin clier Senior vice president and Chief Financial Officer, sir. You may begin.
penyanyi: Thank you, L. And good morning with me on today's call. Is penyanyi, who president and chief executive officer?
penyanyi: If you don't already have the earnings release it is available on our website at crown court.com.
penyanyi: On this call as in the earnings release, we we will be making a number of forward-looking statements.
penyanyi: Actual results could vary materially from such statements, additional information concerning factors that could cause actual results to vary this contained in the press release and in our SCC filings, including form 10K for 2024 and subsequent violence.
penyanyi: Earnings for the quarter were $1.81 per share compared to $1.45 per share in the prior year quarter adjusted earnings per share were $2.15 compared to $1.81 in the prior year quarter.
Net sales were up 3.6% compared to the prior year quarter primarily reflecting 1% higher shipments in North American Beverage.
A 7% increase across European beverage.
penyanyi: And a 5% increase in North American boot camp volumes.
penyanyi: The pass through of higher raw material costs and the favorable foreign exchange, foreign currency translation.
segment income was
penyanyi: 476 million in the quarter compared to 437 million in the prior year, reflecting increased volumes noted previously.
penyanyi: And improved operations across the global manufacturing footprint.
penyanyi: For the sixth month, that June 30th, free cash flow, improved to 387 million from 178 million in the prior year, reflecting higher income and lower Capital spending.
penyanyi: Motors in the first 6 months.
penyanyi: The company had a very strong quarter and first half.
penyanyi: With record segment income adjusted Evita and free cash flow.
We're mindful of the potential impacts of tariffs that tariffs may have on the consumer and Industrial activity.
penyanyi: Considering the strong first half and the potential impacts from tariffs. We're raising our guidance. For the full year, adjusted EPS to 710 cents, a share to 7.50 cents, a share and project, a third quarter adjusted, Evita to be in the range of $1.95, a share to $25 per share.
penyanyi: Our adjusted earnings guidance for the full year, includes the following assumptions.
We expect net interest, expense of approximately 360 million.
penyanyi: Exchange rates assume the US dollar at an average of $1.10 to the euro.
penyanyi: Full year tax rate of 25% depreciation of approximately 310 million.
penyanyi: Non-controlling interests to be approximately 160 million. Dividends to non-controlling interests, are expected to be approximately 140 million.
penyanyi: our estimate for 2025, full year, adjusted free cash flow is now approximately 900 million after 450 million of capital spending
penyanyi: And at the end of 25, at the end of 2025, we expect net leverage to be approximately 2 and a half times.
Simpson: With that, I'll turn the call over to Simpson.
Simpson: Thank you, Kevin and uh good morning to everyone, some brief comments and then we'll open the call to questions.
Simpson: As Kevin just summarized and as reflected in last night's earnings release. Second quarter performance came in better than anticipated.
Simpson: Global beverage segment income, Advanced 9% in the quarter after a 21% improvement in the prior year. Second quarter.
Simpson: Strong Global beverage and North American food results, combined with lower Capital expenditures resulted in higher second quarter, free cash flow.
Simpson: Driving net. Leverage below the first quarter level.
Simpson: America's beverage reported a 10% increase in segment income, with shipment gains noted in both North America and Brazil.
Simpson: Shipments in North America Advanced 1%. As expected following a 9% gain in the prior year. Second quarter.
Simpson: while in Brazil, demand led to 2% growth after a 12% increase last year,
Volume growth continues to compound leading to high utilization, across a well-performing plant Network.
Simpson: And as stated previously, we expect little direct tariff impact to this business.
Simpson: Across European beverage unit volumes Advanced 6% following 7% growth in the prior year leading to another quarter of record income.
Growth was noted throughout each region of the segment that is northern and southern Europe. And also across the Gulf States
Simpson: as in the Americas, we expect little direct tariff impact to the business.
Simpson: Income in asia-pacific declined, as Southeast Asian market volumes were down high single digits to the prior year.
The impact of tariffs, on various Asian Industries, ultimately, impacting impacting consumer confidence, and buying power.
Simpson: Despite weekend markets, the business continues to operate well with income exceeding, 19% to net sales in the quarter.
Increased shipments of Steel and plastic strap combined with savings. From ongoing cost programs, almost entirely offset, the impact of lower shipments. In the equipment and tools business.
Simpson: Segment income remained relatively flat to the prior year despite continuing soft industrial demand.
Simpson: and within the transit business, we still remain cautious as to the impact that tariffs may have
And update the potential Tariff affect as follows.
Simpson: Potential. Exposure is estimated to be approximately 25 million with direct and indirect exposures of approximately 10 million and 15 million respectively. And these estimates are included in the revised guidance. That Kevin has provided
Simpson: North American food, demand increased, 9% in the second quarter principally. A result of exceptionally, strong vegetables, and when combined with better results and enclosures income. And the other segments improved by 150% in the quarter,
Simpson: in summary, we had a another very strong quarter, segment income, improved, 39 million, or 9%,
Simpson: And for the 6 months is up 129 million.
Simpson: Trailing 12 months, Evita is now approaching 2.1 billion dollars.
Simpson: Beverage segment income was up 8% in the second quarter.
Simpson: North American food volumes first, led by Pet Foods in the first quarter. And now vegetables in the second quarter, reflects the diversity of our food business.
Simpson: As Kevin provided to you, the adjusted earnings per share guidance range. Now, sits 50 cents a share above the initial guidance that we provided and free cash, flow is now estimated at 900 million.
Simpson: The balance sheet is healthy.
Simpson: And it allows for continued return of cash to shareholders.
Speaker Change: Of course, none of this would be possible without the efforts of the entire Crown family and we thank them for their dedication in fulfilling the company's mission of outstanding service to the brands we partner with
Speaker Change: And with that L, uh, we are now ready to take questions.
Speaker Change: We will now begin the question and answer session. If you would like to ask a question, please press star. And then the number 1 please. Unmute your phone and record your name and company name. Clearly when prompted these are required to introduce your question to withdraw your request. Please press star 2. Our first question comes from the line of Antony Veterinary. From City Group, sir, your line is now open.
Antony Veterinary: Uh, good morning.
Morning. Hey, your 3Q guidance implies EPS, I I think kind of flattish your over year. Can you talk about expectations for the segments, for 3Q or trends at a high level? And I guess specifically, you know, America's has driven kind of your growth year to date, but I think you have a pretty challenging comp. Uh, maybe all-time high ebit in 3Q. So just how, how you expect the segments to perform
Antony Veterinary: Yeah, it's a very good question. Um, uh,
Antony Veterinary: The third quarter last year, Anthony and the, and the second half of last year was exceptionally strong. I think on a
Antony Veterinary: Combined basis. I I want to say the IBA was like a billion and 50 million in the second half last year. And as you rightly point out, um, within the America's beverage segment,
Antony Veterinary: um well I see the number here now we had uh,
Antony Veterinary: 280 million in the third and 275 million in the fourth quarter of of segment income.
Antony Veterinary: Uh last year. So as you say the the comp is challenging notwithstanding a challenging comp. We think we can uh,
Hopefully do a little better than that. And um,
Antony Veterinary: But I think, uh, what's likely to happen is that, uh, we'll continue to see Improvement in European beverage.
Antony Veterinary: and in North American food and, uh,
Antony Veterinary: maybe, maybe the America's beverage business will be
Antony Veterinary: at or around or plus or minus 5 million to that number last year we we'll see how it manifests itself but um
Antony Veterinary: You know, look I'm looking at volume performance. Um,
Antony Veterinary: last year, I think in the third quarter, I think North American volumes are up 5% so uh
Antony Veterinary: uh, we did state from the beginning this year, that we thought North American volumes after 2 successive years
Antony Veterinary: Of exceptionally, strong volume performance. Uh, you know if we go back to 2023, third quarter, North American volume was up 12 and a half percent, last year. It was up 5% on top of that. And and what we've said from the beginning of this year, is this year would be 1 of those years where we're in the 0 to 2% range. And I think 1% in the second quarter is where we came out and and we'll see how the SEC third quarter comes out but notwithstanding that um
Antony Veterinary: Certainly, uh, challenging comps but uh, but performance uh the businesses are performing. Well, the plants are performing. Well, uh, the company has made a significant step change in in earnings and IBA over the last couple of years.
Antony Veterinary: Certainly on a uh, year to date basis this year we're up about 130 million and even Don.
Antony Veterinary: Or or 130 million in segment income. And that comes on the heels of probably close to 100 million dollars, the the previous year. So uh, step change that, we're, we're managing to hold on to
Speaker Change: Got it, got it. That that's very helpful. And then, just on on non-reportable. I mean, it's been up pretty significantly year-over-year for the last 3 quarters. You talked about the vegetable strength, can you talk just maybe at a high level about, uh, the strength and non-reportable. Uh, if there's any kind of pull forward around tariffs, um, and just uh, second half, uh, how you think about the comps?
Antony Veterinary: uh, you know, maybe they're maybe there's a little
pull forward. But um, I I think what we're seeing here is the, uh,
Antony Veterinary: The impact of some of the investment we've made in the North American food business.
over the last couple of years combined with
Antony Veterinary: Let's be honest, it's a relatively easy comp against last year, right?
Antony Veterinary: Uh,
Antony Veterinary: Uh, the results of some Capital, we invested the last couple of years. It it, you know.
Antony Veterinary: I don't want to say that perhaps we're seeing the
Antony Veterinary: the initiation or we're inside already, the
The period in which people.
Antony Veterinary: you know, stretch their dollars are stretched and they're becoming a little bit more cautious with their dollars and they're consuming more at home as opposed to going out perhaps some of that's going on
Antony Veterinary: um,
Antony Veterinary: on the other side of it, we, you know, we have another pretty important business in there, and that's the beverage can equipment business. Whereby we make equipment for, uh, beverage, you know, beverage can manufacturing and
Antony Veterinary: we are starting to see some green shoots there as
Antony Veterinary: As people get more comfortable with the ongoing demand globally, for more beverage cans and and the need for more equipment from time to time.
Speaker Change: Okay, that that's very helpful. I'll turn it over.
Antony Veterinary: Thank you.
Speaker Change: Thank you. Our next question will be from Chris Parkinson of Wall Street Church. Sir. Your line is now open.
Speaker Change: Great. Thank you so much. Uh, Tim could you just talk a little bit about your conversations with customers? Just given you know, some perhaps unexpected tightness in the markets but particularly in Europe and you know just how that's ultimately going to flow into your intermediate to long-term uh outlooks uh versus perhaps, what were some prior concerns uh towards the end of 2024 and in early 25 thank you.
Speaker Change: Yeah, I think you know specific to Europe. I think they still they still remain bullish on their need for more cans.
Speaker Change: In our immediate and long term as um as their businesses continue to grow importantly, and number 2, uh the European markets. It's a variety of markets but the European markets
Speaker Change: Uh embracing uh the need for more sustainable Packaging.
Speaker Change: Um shifting their focus more to the aluminum can as opposed to perhaps some other substrate. So I think that that is ongoing there. You know, there's going to be
Speaker Change: Ups and downs. There may be soft spots. There may be periods in which shipments are a little lower than we would. Like there may be periods in which the can industry, does not have enough capacity to supply those customers. And and the demand they have
Speaker Change: But all in all.
Speaker Change: you know, really a
Speaker Change: Really a nice. Uh,
A nice Outlook. I, you know, I'm looking at, I talked about earlier, some of the comparisons to last year, but last year, each quarter was up, 768% full year was 7% and we're and we're getting pretty nice growth this year on top of those numbers. So again, we're compounding the growth.
Speaker Change: Uh, leading the higher utilization. And we do have a couple projects underway in Europe, where we're we're modernizing significantly modernizing upgrading 1 facility in Greece and um,
Speaker Change: And, uh, we're looking at, uh, potentially the addition of a second line somewhere else, um, in in southern Europe. So, um, you know, all all in
Speaker Change: feeling really good about Europe and I know you've talked to Tom Fischer over the years and Tom would tell you on a 15 or 20 year. Cager, you know, Europe is has always exhibited somewhere between 3 and 5% which is
Speaker Change: Quite tremendous growth when you consider a.
you know, an industry is
Speaker Change: going to be careful how we turn. This Kevin will hit me with a pen here but it I don't want to call it mundane but an issue is an industry is
Speaker Change: Simple as the cane industry, if you, if you will. And now everybody else is mad at me. But
Speaker Change: but but 3 to 5% growth every year for 15 years is, you know, it's not that's not too bad, so
Speaker Change: That's helpful. And then just when we take a step back, if you could briefly just hit on, you know how we should be thinking about your different businesses on the, you know, Bev Camp side and the Americas um kind of the puts and takes for TQ and how should we should be thinking about the growth by substrate, you know, into the second half? Um just you know are we still in that the top end of that 1 to 3% range? Or, you know, I know 1 2 Q is in line with your expectations. But just how should we be thinking about that just given the variance of your year and your comps, uh, versus
Speaker Change: Before any guidance? That would be helpful. Thank you. Yeah. I I think what we've, what we've baked in for the back, half of the year is
Speaker Change: You know 0 to 1 in North America and perhaps relatively flattish in Brazil as well and and we've got a decline baked into Mexico. It does appear that the Mexican market is slowing right now and perhaps that has something to do with tariffs or or more specifically
Speaker Change: uh, the economy in Mexico, where consumer confidence around the, the impact of tariffs on various Industries and Mexico but
Speaker Change: Again, it's a it's a very diverse business. We operate in the American be America's beverage segment.
Speaker Change: Feels like segment income is going to be uh, over a billion dollars this year.
Speaker Change: um, after coming close last year and um,
Speaker Change: You know, not everything's going to go up all the time. But uh, we keep performing, well,
Speaker Change: In the plants with with high efficiency lowering spoilage.
Speaker Change: More productive and uh and driving more earnings despite what happens in the markets around us.
Great color. Thank you.
Speaker Change: Thank you.
Speaker Change: Thank you. Our next question comes from the line of George Davis from Bank of America. So, your line is now open.
Hi everyone. Good morning. Hope you're doing well. Um, it. Hey Tim. So 3 questions for you, I'll ask him in sequence just to make it easy for everybody else's time wise. So, number 1, can you give us a bit more color on what was behind the restructuring charge for the quarter? Uh, I think it was around $40 million if you'd called it at and I missed it. I apologize. If not, if you could give us a bit more color there.
Secondly, uh, you did better than we were expecting and sine node uh and you gave us some good colors there. What are the prospects that you can? Now hold that level of ebit into 32 into 42? Um, you know, in some ways you weathered the worst of the challenges, uh, and you're performing a little bit higher level and we would have expected either way, what's the Outlook there? And then kind of the question from last quarter, the volumes and beverage can remain very strong. Uh, certainly until Europe, I know you said, you're not seeing that much of an effect of it, but are you seeing any impact at all in terms of tariffs and then, at some point, what's on the other side of the Hill? Maybe D stocking, you know, after the aluminum risk, you know, maybe go away or the tire risk go.
Speaker Change: Way. So a sine node, um restructuring and uh Bev Kennedy deceleration into 2 2 H, because of the stocking. Thanks and good luck in the quarter.
Speaker Change: So the uh, the charge we took for restructuring 2, principal items. The the biggest being um, we wrote down the value of the carrying value of assets. Uh, in 1 of the Chinese plants uh to what what we're required to do, under accounting principles.
Speaker Change: Uh just giving expected cash flows in the business in the near term. Uh the second biggest piece is um some further Severance in sine node above the factory floor, just to continue to uh, rightsize. What we believe is necessary to support a manufacturing business from the business. We acquired several years ago,
Speaker Change: um,
sine node. Um,
Speaker Change: I'm sorry. George to remind me the specific question on sine node again.
Speaker Change: Well and it ties pretty well to your your your comment just before like, you know, you can better than expected sine node.
Speaker Change: Can you carry that forward? And then within the restructuring, you took how much earnings Improvement? Did you gain from that within 6 nodes?
Speaker Change: Yeah, well, the the restructuring we just announced will get that that benefit, uh, maybe starting the end of this year, in the next year. Um,
Okay. Uh, you know I My Hope Is that we hold that level in the third quarter. The the second quarter is generally the largest quarter for signo then the third quarter, then the fourth and the first. So second quarter uh you know I I'm hopeful we hold it, hold it in the third quarter depending on
Speaker Change: In impact of tariffs, which we've baked in.
Sure.
Speaker Change: and then the fourth quarter again we you know, there's a, as you can tell, by the guidance we gave you the
Speaker Change: Uh, the the widest part of the range.
Given the last 6 months, guidance is Q4, and that's really a lot to do.
Speaker Change: With tariff.
Speaker Change: Uncertainty. I don't want to say exposure but I would say tariff uncertainty across that business specifically in the later, third early fourth quarter. Um, so I, you know, I think, um,
Speaker Change: On a year-over-year basis.
Speaker Change: Uh, are we able to match in the third and fourth quarter or do a little better in the third and fourth quarter in transit compared to what we did last year? Yeah, plus, or minus 1 or 2. I think we're going to be relatively plus, or minus 1 or 2 and maybe we do a little better.
Speaker Change: Um and then George I'm getting old. So like you, you're going to have to remind me of Q. Third question.
Speaker Change: Watch this and watch that. So no. I was just saying look, you know, especially within Europe, your your your volumes are, you know, over mid single digits.
Speaker Change: Is there anything again that you're gleaning from your customers order patterns, that suggest things are starting to decelerate? Now that, you know, we're me through the worst, uh, fingers crossed of the Tariff risks, or, you know, what are your customers saying about their need to keep buying and, and what's the Outlook into next year?
Speaker Change: Any of these stocking that you're seeing right now? Thanks, I'll turn it over.
Speaker Change: So no D stocking. Um, I I don't really see any direct tariff impact in Europe.
Speaker Change: what we what we do continually see in Europe, whether you're talking about Germany, France,
uh, some of the other big economies in Europe is a
Speaker Change: of the
so many of the jobs in Germany are related to industrial production. So there is a concern longer term that if within the European Union,
Speaker Change: Um, they don't begin to address.
Speaker Change: Some fundamental.
Economic realities.
Speaker Change: Um, that they're going to, you know, continue to just hover.
Speaker Change: Slightly below. You know, the contraction expansion line with respect to industrial production. We'd like to see some industrial production returned now.
Speaker Change: the challenge for anybody is when you're selling into,
Speaker Change: A Contracting economies, eventually the consumers become very concerned.
Speaker Change: With their bank account level and and the prospects of having a job next week, versus not having a job. We don't see that yet in the can business.
Speaker Change: Unfortunately, for the canned business, we are well, positioned.
Speaker Change: In terms of substrate, mix for our end markets and and the need for our customers to continue to try to achieve uh the goals they've established.
Speaker Change: Uh, for net carbon, um, Net Zero and and everything else, whether it's 2030 or 2040 and and so we're well positioned for that. And we seem to be the product that helps them get their the fastest
Speaker Change: Um, but but we're always, we're always mindful of that.
Speaker Change: Thank you. Tim. Good luck in the quarter.
Thank you, George.
Speaker Change: Thank you. Our next question comes from the line of billing of Jeffrey's serial line is not open.
Speaker Change: Hey, guys, um, Tim strong quarter, uh, strong first, half for sure. I I guess I'm, I'm curious in terms of what your customers are saying in North America. Tough, tough comps aside, certainly a lot of your beverage cup. Customers are dealing with, you know, terrorists on the aluminum side, um, potentially sugarcane Dynamics versus hfcs. Uh, how are they kind of behaving in this impact? Are they continue to promote? Uh, what did they tell you? In terms of how the order pants are kind of shaping up? I'm most curious about North America and what you're seeing on Brazil, just because there's a lot of noise with tariffs, uh, around that market as well.
Yeah. Listen, I think um,
Speaker Change: If you consider the Midwest premium, the all-in cost of aluminum per ton is probably close to an all-time high.
Um, we certainly as an industry, certainly a crown
We don't believe we can afford to absorb any of that. Fortunately, for us our contracts allow for the pass through
Speaker Change: Uh, I'm sure our customers don't believe, they can afford to absorb it.
Speaker Change: uh, so ultimately decisions made by
Speaker Change: Governments and politicians are ultimately born. The cost of that is borne by the consumer. And um,
Speaker Change: To date, we've not seen the consumer back off.
Speaker Change: The purchase of Beverage cans.
Regardless of what product?
Uh they want to consume and so the beverage can continue to perform better than other substrates in a in an environment that feels like we're going to get a little bit inflation.
Speaker Change: uh, having said that the customers are promoting
Speaker Change: Um, they're promoting into a an increase in cost environment. Uh, I don't specifically know their hedge patterns, uh, as I sit here today and and where their cost where their cost model sits, but eventually, they're going to be hit.
with higher costs unless that Midwest premium comes down but
Speaker Change: I would say Phil that we're not hearing anything dramatically concerning our
Speaker Change: Our guidance to you at the beginning of the year and remains that, we thought we'd be somewhere in the 0 to 2% range. I think the market probably doing better than that. As I sit here today, if you ask me, how I think the market did in North America.
Speaker Change: Maybe it did 3 to 3 and a half percent in the second quarter. I don't know. We don't we don't get those numbers any longer but it does feel like the market
uh,
Speaker Change: With the promotion of cans. And, and some of the other data we're seeing that the market, the market was pretty strong in Q2 now, we'll see how Q3 goes. But, um,
Speaker Change: uh, they're they're in the process of
Speaker Change: They've already done it. They're reevaluating their inventory levels after the July 4th holiday going into labor day and
Speaker Change: it looks like it's going to be a decent summer and uh,
Speaker Change: you know, whether we're
Speaker Change: Minus 1 plus 1, whether the Market's, plus 3, or plus 2? It's
Speaker Change: You know, off these much higher levels that we've had over the last couple of years. This is all pretty strong sign.
Speaker Change: Do you have any color on how you're thinking about, Brazil, just giving all the Tariff noise there.
Speaker Change: Yeah, listen, I think Brazil.
Speaker Change: I think Brazil the, uh, situation.
Is uh never as strong for the consumer as it is in North America. And um,
Speaker Change: we'll see how
Speaker Change: how the consumer does, more importantly, we'll see, how customers move some business around from supplier to supplier some sometimes
Speaker Change: On the supplier can be out of balance.
To their mix.
Speaker Change: Uh with certain customers if if for whatever reason we Supply more or less in the first half of the year, maybe we Supply more or less or more in the second half of the year, just so the customer can balance out and we'll see how that goes. But I would
Speaker Change: I would say that, you know, maybe Q3 a softer quarter in Brazil, maybe that's slightly down. And, and then Q4, which is really important. Uh, we're expecting, uh, Q4 to be a little bit better than Q4 last year.
Okay, and then you're in a great spot. Tim, I mean, balance sheet, Leverage is at the low end of your. I mean closer to a long-term Target, uh, getting a lot of free cash flow. How would you prioritize capital's employment the next few years? Uh, what are some of the best opportunities when you kind of rank them? Uh, BuyBacks capital projects, even perhaps larger m&a, any color will be helpful.
Well, I think the
Speaker Change: You know, the the number 1 goal.
Is is obviously to increase increase the return to shareholders. Uh, but before you get there, you've got to service your customers and you got to service your customer base and you've got to take advantage of opportunities to grow your business. And so we're always going to look at the opportunities to grow our business subject to adequate returns project by project. So that would be number 1 beyond that. As you rightly point out,
uh, whether we, you know,
Speaker Change: We can get below the 2 and a half times. By the end of the year, Kevin gave you. 900 million
Speaker Change: We're at Short of 400. So if you take that 500 and reduce the debt with today's EBA, you get well, below 2 and a half times. We don't, we don't really need to get there this year. So, uh, I do believe that over time. Uh, the long-term Target is met
Speaker Change: Uh, with growth and Evita. And, and it leaves us, uh,
Speaker Change: Uh, you know, a whole lot of money to consider what we're going to do with it. And I think, right now, as we've been telling people for the last 6 months,
Speaker Change: Uh, the number 1 and only priority we see is the return of cash to shareholders.
Okay, excellent. Thank you.
Speaker Change: Thank you.
Eden Rodriguez: Thank you. Our next question will be from Eden Rodriguez. Uh, Mizzou serial line is not open.
Speaker Change: Uh, thank you. Uh, good morning. Everyone have a quick 1 for me. Tim. So they they have been talks of demand softness in many categories here in the US because of the immigration enforcement, uh, that's going on. Like, what are you hearing from your customers in regards to volume being impacted by that? And how concerned are you with that?
Eden Rodriguez: Well.
Eden Rodriguez: You know.
Eden Rodriguez: We you, we can.
We can grind ourselves down to looking at every Last Detail is is the health. The new health secretaries
Eden Rodriguez: desire to limit sugar. And, you know, you can grind yourself down. What seems to be really evident is, despite all the noise.
Eden Rodriguez: In the economy, be it political or economical. That
Eden Rodriguez: The can continue to perform exceptionally. Well on. I, I don't, I don't have quarter data for you, but I do have data looking at
4 weeks, ending July 13th. And Total Beverage units in cans up.
Eden Rodriguez: You know, 4 and a half percent CSD is up 5% beers down energies up. So, depending on the End Market,
Eden Rodriguez: Um you know, cans performing really well across all these markets and um some of these and markets are smaller than others water and teas and coffees but ready to drink up up 1%. So you know I I think we're always mindful of what's going on around us, um but we're always certain to understand that a lot of that, we cannot control.
Eden Rodriguez: So you you work within what you can control and you try to adapt and the first thing you try to do is keep your cost as low as possible.
Eden Rodriguez: and you make sure you're, you have the availability and the, the willingness, and the ability
To serve the customers when they, when they need it and how much they need. And I think we've done a very good job doing that over the last couple of years and
wow, all of these things, you know, if you, if we're going to get
You know, if we're going to get, um, hyper sensitive around quarter to quarter volume, or quarter to quarter volume, okay, we can do this or earnings. We can do that. If we're going to take a, a longer term view as to the health of the can industry and the health of each of the companies in the can industry and the health of our customer base. And most importantly, the health of the can as a product as seen by consumers, then we're going to feel really good about ourselves and and I think that's where we're at right now.
Eden Rodriguez: No, that makes sense and and that's that's all I have. Thank you, thank you very much.
Speaker Change: Capital markets, sir. Your line is now open.
Great. Thanks for taking my, uh, question, congrats on the strong results. So, I guess my questions around, uh, America's beverage, uh, margins. Um, that was really the the biggest source of upside uh, versus our expectations. Um, you you've now eclipsed 19% on a segment ebit margin and I understand that, you know, percent margin is obviously not always the right way to look at things but um, you know, it does appear that your plants are running really well. Uh you know as as your shipment growth moderates, maybe year on year. Do you expect a similar Cadence in segment income growth or, um, have you, uh, you know, what else is there more to do to improve the way the plants run or are we kind of, um, you know, hitting uh, you know, full learning curve there.
Speaker Change: All right, excellent question. You're going to give me a chance to
Speaker Change: Almost sound somewhat intelligent. Um, so I think the first thing
You know, most companies in any industry, we all operate from a manufacturing perspective with the notion of continuous Improvement which means there's always something to improve.
Speaker Change: And uh, you've probably heard us in past years. Describe we, categorize our operations in 3 categories, as and C's, and the goal is to work on the Seas and make them the A's and it's a never-ending process. So there's always something to improve.
Speaker Change: Um, from the context of moderating growth. If, if what you're suggesting is that we had 5% growth last year and only 1% growth this year, should that?
Also reflect a lower uh earnings or lower margin performance. The answer would be no because in the absence of adding more capacity, you're you're utilizing 1% more of the capacity you already have. So, your productivity levels.
Speaker Change: Need to become that much higher to supply that 1% from the same manufacturing base. So in fact, even with 1% growth, you would expect margin growth.
Speaker Change: All else being equal.
Speaker Change: Now the 1 thing that will move margin percentage, margins up and down is the pass through mechanisms. We have in our contracts with raw materials, as aluminum gets higher. And as our customers, uh, hedging contracts result in higher aluminum, we start passing through higher aluminum on a 1 for 1 basis that will naturally Drive margins down, but that's just a function of the denominator becoming larger and again, as the denominator gets smaller than the margin grows, it's why we've
Speaker Change: I I sometimes don't like the focus in the beverage can business too much on percentage margin. I like to look at Absolute margin in the transit business. We're highly focused on material margin.
Speaker Change: And that is the margin. We have after direct materials a different, a different business, and a different way of looking things, but in the beverage business, I I hope I answered your question there.
Speaker Change: Oh yeah, no, that that's helpful. Um, I guess I would have have a similar question for Europe now. Uh, Europe seems to be going, you know, potentially, uh, in the different direction where you still still see, um, you know, quite a bit of, uh, volume growth. But, um, maybe is there, is there more to do there on the operation side and really move up those uh, percent Mark or those even dollar margins over time. And, and similarly, is there more to do on the capacity side instead? Uh, how would you kind of characterize where you are in your trajectory in Europe? Uh, margins as well? Thanks.
well, I I think
Speaker Change: I I, I don't know, you know, I don't we're what a little over 15%.
Speaker Change: last year and this year in the second quarter and um,
Speaker Change: maybe even for the full year with just short of that, but I don't know how that compares historically, but it feels like it's a higher level.
Speaker Change: Uh then we've had in Europe or 1 of the higher levels that we've had in Europe over the last 10 or 12 years so uh performing well.
Speaker Change: Uh, incredible improvements having been made, uh, to the, to the platform or the industrial infrastructure over the last several years, not only, uh, the expansion of the footprint but also within the footprint. And again, as I said earlier, always more to do always looking, uh, to do more. Always looking to see how we can improve each Factory to get more output out of each Factory.
Speaker Change: Okay. Thanks and just 1 more quick 1. If I can just on free cash flow you increase the guide there. So are we right to assume that that would um likely go towards a capital return as the first priority? Thanks.
Speaker Change: Yeah. So hey, rude. It's uh, Kevin look, yeah. We're we're, we're committed to the long-term leverage Target of 2 and a half times. Um, the additional, um, cash flow. Um, you know, we will look at it, um, you know, in context of the long term leverage Target. And, you know, we'll, we'll we'll see where we go here. I do think we'll buy back a lot of stock over the next couple of years, uh, with free cash flow. So, um, you know, at this point, you know, that's where we're at. Yeah, I I, you know, are just, just to make it real clear because I think I answered it with Phil.
Speaker Change: you know, the what we see is,
um, cash flow that we have after supporting the business needs, uh, debt reduction to a certain level and then return to shareholders
We don't see anything else.
Speaker Change: Thanks.
Speaker Change: Thank you. Our next question, will be from gunshot Punjabi of RW beard, sir. Your line is still open.
Speaker Change: Thank you, operator. Good morning everybody. Um, morning, gotcha, so I guess uh, good morning I guess stepping back and, you know, kind of thinking about 2025 as it relates to the beginning of the year. Uh, you know, it seems like volumes in particular, were better than your initial forecasts. Uh, you called out mix and 2q Etc. But how, how would you characterize inventory levels along the supply chain and context of, you know, the industry being pretty lean and then you have a little bit of better demand Dynamics and
Speaker Change: All these other reasons with promos and, you know, hot summer Etc. So just give us a sense of inventory levels.
Speaker Change: uh, so
Speaker Change: I, I can't comment.
Speaker Change: On the other can companies um, mhm.
Speaker Change: Generally our larger customers carry, no inventory, their direct store delivery, right? So, uh the inventory is carried by typically the can companies, um,
I think it's safe to say our inventory level right now is no higher than it was at January 1st.
Speaker Change: uh, which is um,
Speaker Change: Depending on how strong the third quarter is going to be could be somewhat concerning. So we're continuing to run as hard as we can and and we need to plants to be as efficient as they can.
Speaker Change: uh, we will look again to build some more inventory as we get into Q4, because we do see a very strong 2026 as we sit here today
Speaker Change: So, if, if I was to try to answer that a different way gone, I would say that.
Speaker Change: We probably have.
A few hundred million less cans in inventory than we would, like, right now.
Speaker Change: That's why I was asking.
Speaker Change: Thank you.
Speaker Change: And then in terms of, you know, the 2026, you just made a comment on uh, you know, the the strength expected next year. Uh, can you just update us as relates to you know, contracts coming up your share position, your expected, share position in 2026 in North America. And then in terms of just again, high level drivers of earnings growth in 2026. Is it fair to assume that Capital allocation will feature more aggressively in terms of what drives earnings versus obviously? Very, very difficult comparisons? Um, you know, given strong operating results in 2025
Speaker Change: Uh, so I, you know, we have, uh, there there is uh, 1 larger.
Speaker Change: uh, customer that who's
Speaker Change: in the process of uh trying to renew and extend the contract across the entire industry. And but beyond that as we sit here today,
Speaker Change: and I don't want to talk too specifically, but
Speaker Change: we do know what we have under contract.
Speaker Change: leading in the next year, we do know what
Speaker Change: Uh, the customers are telling us about their growth aspirations, and it feels like next year could be a very tight year for us. And, um, it's why I suggested, uh, we would like to build some inventory in Q4 ahead of that, and it's why I suggested, we're probably a little bit low on inventory right now, so, um, we're going to do the best we can to keep running and and building inventory in a responsible manner.
Speaker Change: um,
Speaker Change: as for earnings growth next year, you know, there's puts and takes everywhere, uh, certainly
Speaker Change: Uh, as others.
Um have been rewarded with capital allocation, you know, featured Capital allocation, and their earnings trajectory. We're going to see more and more of that as we go forward. But
But you know, we run a business here. Our hope is that most of our earnings growth comes from the business. So we, you know, we'll see, you know, we got to we've got a couple businesses right now.
Speaker Change: um, the Asia and Transit where volumes have been
Speaker Change: Um, soft over the last 1824.
Speaker Change: 30 36 months, it's been soft for a while and um,
Stripped out so much cost in both of those businesses that we're really excited for when volume does return because it should all flow to the bottom line. So that's number 1. We do see we do see Europe continuing to grow and that's going to provide uh more earnings. I I think Brazil continues to grow Mexico soft this year and uh so the opportunity for Mexico to firm up a little bit
Speaker Change: And then uh, in the Americas. Uh, we know we're going to be full next year and so the, the offsets here will be
Speaker Change: All the other miscellaneous things that happen in a business that that we don't talk about because uh, it just confuses, uh, the strength of the business. So, uh, if if there is any offset, but it feels like feels like next year should be a very good year as well.
Speaker Change: But but we're too early to get their gone. Let's not get, let's not get ahead of ourselves.
Speaker Change: Of course.
Speaker Change: Thank you.
Thank you. Our next question, will be from Joshua Spectre of UBS sir. Your line is now open.
Joshua Spectre: Yeah. Hi, good morning. Um, I just had a follow-up specifically on capex. I guess as I look at the next few years and you know, you're maintain your conviction around kind of 1 to 3%, volume growth.
Joshua Spectre: Where does capex need to go? Um, in order for you to achieve that
Speaker Change: well Josh, we were sitting here with uh an estimate this year 450 and probably, I guess we were similar to that number last year plus or minus but um,
Speaker Change: Within that number, let's say that our maintenance capital is 250 to 300 that still leaves you with.
Speaker Change: You know, a solid 150 or 200 million dollars for growth projects and um, those growth projects would be centered almost entirely in the beverage can business globally.
Speaker Change: and, uh, I don't think we see any
large growth needs in Asia, given the footprint we have in the softness, we've had there. So it's principally centered around the America's and Europe. Um,
Speaker Change: We we did announce a third line in panic, Rosa, in Brazil that we're going to get underway soon and that will account for a lot of the difference between this year's Target of 450.
and where we sit through 6 months, which is a short of 100,
Speaker Change: Uh, we have a project where we're doing a significant modernization and upgrade to a facility in Greece and, and that'll be some of the other spending. But I think we have adequate
Speaker Change: Adequate room in the envelope of 450. Now let's be clear if Kevin's going to sit here and tell us every year, we've got 8 to 900 million of cash flow. If we needed to to support our customers and grow our business, we can certainly afford to spend another 100 million from time to time.
To continue to grow the business. We we'd like nothing more than that opportunity.
Speaker Change: Thanks. No, that's helpful. Just a quick follow-up on. That is that? So if you did have those opportunities and you did decide to invest an extra 100 million, would you be growing above 1 to 3% range? Or would that just be a timing effect?
Speaker Change: Oh, it might, it might in the year you spend it, you may not be growing, but in the following years you would, you would believe that you're growing a little bit more than that. But remember, 1 thing, we
Speaker Change: We we don't sell quite a 100 billion units. We're somewhere between 80 and 100 billion units. So,
Speaker Change: When we add a facility and it it, you know, we add a can line and if it's a you know, a billion to a billion 2 of units on a can line. It's
Speaker Change: You're?
Speaker Change: You know, you're you're a little more than 1% there. So if you get it all in 1 year, it's 1%. So just
Speaker Change: Be a little careful with your excitement level. It's uh you're you're adding into a very big denominator right now.
Speaker Change: Fair enough. Thank you.
Speaker Change: You're welcome.
Speaker Change: All right, our next question will be from Jeff zakowski of JP Morgan. Chase. Your line is now open.
Jeff Zakowski: Uh, thanks very much.
Jeff Zakowski: Um, a lot of the free cash flow in the quarter came from a change in payables in a crude liabilities.
Jeff Zakowski: Um, maybe you increased
Jeff Zakowski: 350 million sequentially. Um, what's behind that?
Jeff Zakowski: And it is that the level that you're going to stay at this 3.5 billion uh for the remainder of the year.
Jeff Zakowski: Well, I
Jeff Zakowski: Jeff, I think if you look at that in combination, with the increase in receivables and inventories,
Jeff Zakowski: Your trade. Let's say trade working. Capital is roughly flat.
Jeff Zakowski: You know, year-on-year it's it's not 300 million. Maybe it's only only a 100 million increase. When you think about trade working capital uh the working capital necessary to run a business and and that residual 100 million largely around the inflation of aluminum uh that we're currently absorbing.
Jeff Zakowski: um, and in terms
Jeff Zakowski: of you, you took 45 million in restructuring charges in the first half or or
Jeff Zakowski: For severance. Um, so the the the write down of the Assets in China is non-cash.
Jeff Zakowski: So, so maybe of the 45 million Maybe?
Speaker Change: Half of it, 10 to 15 million and actually Kevin saying, 10 to 15 million would be cash. I mean,
Speaker Change: Whatever. Yeah, so, uh, the cash would be baked into the projection that we have Jeff.
So, for the year uh, some of the cache may play out.
Speaker Change: You know, over uh, you know, a couple years as we put the actions in place.
okay, um, as we sit here today,
Speaker Change: I, I don't think we have any, we don't have any knowledge because if we did, we would already booked it. So, as we sit here today,
Speaker Change: uh, unless unless something happens or we get an opportunity to
Speaker Change: do something considerable.
I, I can't.
Speaker Change: Can't even begin to estimate. If there's any more to to book at this point.
Speaker Change: Okay, great. Thank you very much.
Speaker Change: Thank you.
Speaker Change: Thank you. Our next question, will be from Stefan Diaz. Um, Morgan Stanley, serial Line is now open.
Speaker Change: Hi Tim. Hi Kevin. How are you guys doing? Um,
Speaker Change: Maybe just in um Asia. Maybe if you could just go into um a little deeper what you're seeing there. I know you mentioned in the prepared remarks that um, you know, you think tariffs are weighing on, um, consumer confidence. Um, but maybe if you could weigh that, uh, versus maybe, um, you know, some competitors that are expanding in the region.
You know, maybe if you have an estimate of uh what you know the the volumes for the region work this quarter, thanks.
Speaker Change: Yeah, so I'm sorry. I what I said in my prepared remarks is the market was down high, single digits. We were probably down in the in the little bit more than that, in the double digits. So the market was down significantly.
Uh in the second quarter. So this would be all
Speaker Change: all can makers the market in total down. So, um,
Speaker Change: uh, real a real slowdown in the region, not just for can makers not just for
you know, beverage
Speaker Change: consumer, beverage companies, but for, for many Industries,
Speaker Change: That's helpful. Uh, thanks and then um, maybe back to America's margins. Um, I know you answered a couple of questions on this already, um, but I think in the release you mentioned. Favorable. Mix is was, was there any like, can ends can body shipment Miss timing that also helped margins into Q or anything specific to call out there that led to the strike? I don't, I don't think there was a mix between ends and cans but I I do think that um,
Speaker Change: You know, our ongoing underwriting to us us domestic beer has been helpful in our mix. We we have a significant position.
Speaker Change: In beer, in Canada, and we have a very significant position in beer in Mexico as we do in Brazil. However, in the United States, we're significantly underweight to the market in beer, so,
Speaker Change: Again we we reference mix because we're we're underweight to beer in North in in the United States.
Speaker Change: That's helpful. And then maybe if I could just slip in 1 1, last 1, um, any update on the 2026, uh, business win that you hinted to a couple of quarters ago. Thank you guys. Uh I prefer not to give you that update, so thank you.
Mike Roxland: All right, our next question will be from Mike roxland of tourist Securities. So, your line is now open.
Mike Roxland: Yes. Uh thank you. Tim Kevin and Tom for taking my questions and congrats on a strong quarter.
Mike Roxland: Um, just just 1 quick question for me. Uh, Tim, you know, you noticed that you mentioned that there's been a step change in earnings and EA, um, and they're both no more questions on sustainability of margins. Um, and so I'm just wondering, you know, can you talk about the sustainability of margins at these levels in in North America? I mean 1 of your peers I think recently noted that margins in North America are at a high water mark. So give them what the cpgs are facing.
Mike Roxland: Given um given the backdrop that they were in uh, could that could there be some potential for some margin degradation? Um, given this, this is the overall climate. Any any any insights you could share in terms of the sustainability of the butt down margins and the and risk that their that margins could decline given the backdrop? Thank you.
Mike Roxland: Okay. Uh, listen a good question. Um,
Mike Roxland: be careful how I answer this, but I
Mike Roxland: um, you know, our for the most part, our customers, especially our large customers across the beverage universe,
Mike Roxland: Make double or more than double the margins. We make
Mike Roxland: Time and expense, we invest in hiring and training employees to run cans at 3,000 or 3,500 cans. A minute at a high efficiency and low spoilage.
Mike Roxland: Is not insignificant. It's incumbent upon us. If we're going to make those Investments, that we get, what we believe is an adequate return. Regardless of where the return sits today in relation to the past, I would argue that in the past, the returns were so bad. They were so low that it's irrelevant where we sit today versus in the past now,
Mike Roxland: Perhaps I have a different view on what my responsibility to my shareholders is than others but uh yeah it may be higher than it was in the past but maybe it's only now beginning to approach what it should be.
Mike Roxland: Thank you.
Mike Roxland: Thank you.
Speaker Change: Thank you. Our last question will be from Gabe Haiti. Uh, Willis Fargo Securities. Serial Line is now open.
Speaker Change: Thank you. Tim Kevin. Good morning morning, Gabe.
Speaker Change: Uh congrats on the Forbes award. I know. Uh, you pride yourself on being a science-based organization as it relates to carbon and that that zero
Speaker Change: um,
yep, I had a question similar to to what Mike was getting at but just um,
Speaker Change: Maybe short-term and I know there's vagaries in terms of customer order patterns and shipments and things like that, but I think you intimated North American growth at 3, you were at 1 inventories running, a a tick below where you'd like them to be. Is this just a simple function of kind of preparedness coming into the summer selling season and it was a little bit stronger than what you expected. Um, undergoing the market a little bit despite sort of categorically where things are shaken out, you guys would be performing better.
Um I don't you know I don't know if we were underprepared coming of the year, we had a view. We had a view what our growth would be this year at the beginning of the year. And and we shared that with you and
Speaker Change: late January, early February, I think largely our growth has been
what we expected it to be. Um,
Speaker Change: I think.
Speaker Change: Um maybe it's a maybe it's a touch higher than what we expected it to be and that and that accounts for the small shortfall inventory that we have right now. But um
you know what? It does feel like the market.
Speaker Change: If if the market and I'm guessing right? As I said Gabe if if the market was up 2 to 3 3 and a half percent, it does feel like that number is a little higher.
Than we expected the market to be at the beginning of the year. And so, to the extent that
Business moves around, from customer to customer, that is on the, on the grocery Shelf.
1 customer does better than the other that in total, the market is better. And
And not not understanding how other companies are performing. Manufacturing wise. Do you have some companies that are you know in a shortfall position and yielding more cans to other companies, I don't know but it
Speaker Change: um boy, we're getting
you know, we're getting pretty fine here in trying to
analyze ourselves to death. I think um,
Largely, we're where we thought we would be. I think the market is a little ahead of where we thought it would be. Maybe we underestimated the market this year.
Speaker Change: Uh, and maybe the Market's, even stronger than others, it estimated, it does feel like promotions were a little stronger around Memorial Day, in July 4th and we had, we certainly had seen last year and perhaps we even thought they would be. So, you know, it probably yields to an answer that the Market's even stronger than anybody thought it would be.
Speaker Change: Yes. Okay, fair enough. Um, if we strip out metal inflation is is there anything abnormal? When you look at the other cost inputs and and ppis
Speaker Change: blowing in the next year that we should be aware of and and I had 1 other 1. Thank you.
We did have a.
Speaker Change: PPI increase this year. Um, I don't know where it sits as right now. I
Uh probably a little little close to flatter right now. Now what's going to happen over the next 6 months? I don't know. It feels like we could see a little inflation but I don't know.
Speaker Change: Um, but but nothing.
Nothing abnormal that I that I want to talk about.
Speaker Change: Okay, and then European business. Um can you talk about how Continental Europe is performing? Maybe versus the Middle East?
Um, volume wise and and maybe profitability just not getting not trying to get too specific. But just, um, if there's anything that stands out to you, uh, on the profitability side,
yeah, I I think that, um, the factories we have
Speaker Change: In the Gulf States, probably have a touch higher.
Speaker Change: either fully depreciated or close to fully depreciated, I would
Say the underlying performance of the plants is is similar. That is they're they they run very well in each region, uh, pricing isn't dissimilar. It just has to do with depreciation levels, with newer plants, and Continental Europe and and more fully depreciated. Plants in the Gulf States having said that, uh, growth at least this quarter growth might have been a touch higher in the Middle East than it was in Continental Europe. But but both very strong and and I think year to date, I don't have it in front of me. I would think that there are more similar than dissimilar
Speaker Change: Thank you. Good luck in the second half.
Speaker Change: Okay, thank you very much.
Speaker Change: Thank you so, well, I think you told us that was the, uh, last question. So, thank you very much. And uh, we thank you all for joining us and we look forward to speaking with you again.
Speaker Change: In October. Bye now.
Speaker Change: Thank you and that concludes today's conference. Thank you everyone for joining and you may now disconnect and have a great day.