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spk37: Please continue to stand by. The call will begin momentarily. We thank you for your patience. Greetings, and welcome to the Bull Corporation fourth quarter 2022 earnings call. At the start of the presentation, all lines will be in a listen-only mode. Afterwards, we will conduct a question-and-answer session. At that time, if you have a question, please press the 1 followed by the 4 on your telephone. If at any time during the conference you need to reach an operator, please press star 0. As a reminder, today's call is being recorded Thursday, February 2, 2023. I would now like to turn the conference over to Dan Fischer, Chief Executive Officer. Please go ahead, sir.
spk17: Thank you, Carlos, and good morning, everyone. This is Ball Corporation's conference call regarding the company's fourth quarter and full year 2022 results. The information provided during this call will contain forward-looking statements. Actual results or outcomes may differ materially from those that may be expressed or implied. Some factors that could cause results or outcomes to differ are in the company's latest 10-K and in other company SEC filings, as well as company news releases. If you do not already have our earnings release, it is available on our website at ball.com. Information regarding the use of non-GAAP financial measures may also be found in the notes section of today's earnings release. Historical financial results for the divested Russian operations will continue to be reflected and the beverage packaging EMEA segment. See note one, business segment information for additional information about the sale agreement and a quarterly breakout of Russia's historical sales and comparable operating earnings. The release also includes a table summarizing business consolidation and other activities, as well as a reconciliation of comparable operating earnings and diluted earnings per share calculations. Joining me on the call today is Scott Morrison, our Executive Vice President and CFO. I'll reflect on 2022 briefly, and Scott and I will discuss key drivers and financial metrics for 2023. And then we'll finish up with closing comments, the outlook, and Q&A. Let me begin by thanking our employees and stakeholders for their hard work and support. As I reflect on 2022, I'm struck by the magnitude and pace of change we have navigated. the commitments we are prepared to achieve, and the prompt and decisive actions that were made by our team in a fluid and ever-changing macroeconomic and geopolitical backdrop. Our full year and fourth quarter comparable net earnings reflect our EMEA, aerospace, and aerosol operations coming in as expected. Offset by the impact of our Russian business sale, softer volume in North and South America, planned inventory management impacting fixed cost absorption, and the effect of high-cost inventory and the timing effect of customer sell-through. Global beverage can shipments, including Russia, increased 0.8% in 2022 and decreased 6.1% in the fourth quarter. Excluding Russia, global beverage shipments increased 2.1% in 2022 and decreased 0.9% in the fourth quarter. North America beverage can segment shipments decreased 0.3% in 2022 and decreased 7.1% in the fourth quarter. EMEA beverage can segment shipments, excluding Russia, increased 8.6% in 2022 and increased 11% in the fourth quarter. South America beverage can segment shipments decreased 6.3% in 2022 and decreased 4.2% in the fourth quarter. Other non-reportable beverage can shipments increased 48.2% year to date and 48.5% in the fourth quarter as a result of continuing to provide support to domestic European customers. Our global extruded aluminum bottle and aerosol business continues to benefit from new refillable, reusable bottle offerings and higher recycled content aluminum bottles for personal care products. Shipments in this segment increased 12% year to date and 14.5% in the fourth quarter. And our aerospace team increased their backlog 20% year over year. In response to the previously discussed unfavorable swing in beverage can volumes relative to our early 2022 expectations and as a result of our sale of our Russian businesses, we optimized our global cost structure. deferred certain projects and took actions to right-size our North and South American manufacturing plant systems by consolidating high-cost, less-fit facilities into scalable facilities capable of delivering our customers a portfolio of can sizes, enabling category and pack size innovation to our customers in a more agile way moving forward. In EMEA, newly constructed facilities will ramp up during the first half of 2023 and provide much-needed cans to our customers across the region. It is also important to celebrate the accomplishments achieved by our team during 2022, including shipping nearly 115 billion innovative aluminum cans, bottles, and cups to our customers, delivering numerous environmental space science and defense technologies to study the impact of humans and the environment on our Earth, weather satellites that protect life and property from extreme weather events, on-orbit defense technologies to ensure the safety of our homeland, the warfighter, and our allies, and deep space marvels, like the James Webb Space Telescope, to view previously invisible images via the ball-built mirror assembly and optics. Joining the World Economic Forum's First Movers Coalition to lead collaboration across the aluminum industry to prioritize circularity and decarbonize the industry, Achieving aluminum stewardship initiative ASI certification across our global footprint. Remaining on the 2022 Dow Jones Sustainability Index North America for the ninth year. Receiving an A-minus in the CDP's climate change questionnaire in 2022, which recognizes the company's commitment to maintaining best practices in corporate climate citizenship through its net zero carbon emissions commitment. renewable electricity coverage, and ongoing assessment of climate-related risks and opportunities. Receiving a perfect rating on the Human Rights Campaign's Annual Corporate Equality Index, CEI. Receiving a 2022 ranking of 90 on a 100-point scale on the 2022 Disability Equality Index, DEI. reflecting the meaningful progress the company has made in creating a workplace that enables employees with differing abilities to support its global mission. And being recognized as the 2023 industry leader for the industrial goods sector for the Just Capital and CNBC's Just 100 top performing companies on ESG factors, including ethical leadership, cultivating an inclusive workplace, use of sustainable materials, and carbon reduction. And our global team supported 2,800 nonprofit organizations across 30 countries and contributed 30,000 volunteer hours across our communities. Drive for 10 continues to be our vision. We know who we are, we know what is important, and we know where we're going. Together, Ball will, one, execute our strategy of preserving our planet and delivering value by creating circular aluminum packaging solutions for single use, limited use and refill, and providing exquisite environmental space science and defense technologies. Second, we will provide our employees and communities the resources and opportunities to succeed. Third, we will be our customers' and suppliers' partner of choice to enable organic growth, achieve sustainability goals, drive innovation and technology development. And four, we will be a disciplined capital allocator by unlocking value and efficiencies from existing operations with limited future capital investment, and in doing so, generate free cash flow, grow earnings and EVA dollars, and be good stewards of our cash flow to do leverage and return value to our fellow shareholders. Consistent with our commitment at our investor day and on our third quarter earnings call commentary, in 2023, we can deliver our goal of 10% to 15% diluted earnings per share growth including the Russian business sale headwind. The next quarter will remain choppy as we work through higher cost inventory, complete the optimization of our North and South American manufacturing footprint, ramp up our new Kettering UK and Pilsen Czech Republic plants in EMEA, and lap the previously disclosed 2022 customer contract breach in South America. We will benefit from the previously identified and executed SG&A actions while continuing to receive the PPI cost recovery throughout 2023, which overall will lead to a back half-weighted year. During the Q&A, Scott and I will strive to provide additional clarity on the external environment and cadence for 2023 based on what we know today. We also continue to reiterate our investor field trip long-term goals for global volume growth fueled by sustainability-driven substrate mix shift, product category, and pack size innovation. Our global beverage teams have positioned our businesses to deliver the year and with an eye on the future. In 2023, and excluding Russia, we estimate in the range of 4% global volume growth for Ball with North America flat to slightly down, South America volume up mid to high single digits, EMEA volume up high single digits, and our other non-reportable business volumes up mid to high single digits. As new EMEA capacity ramps up and exiting 2023, exports from Saudi Arabia into EMEA wind down. Our global beverage businesses work will be complemented by our aerospace and aerosol businesses' continued success. We appreciate the work being done across the organization and extend our well wishes to our employees, customers, suppliers, stakeholders, and everyone listening today. And with that, I'll turn it over to Scott.
spk21: Thanks, Dan. Full year 2022 comparable diluted earnings per share were $2.78 versus $3.49 in 2021. And fourth quarter comparable diluted earnings per share were $0.44 versus $0.97 in 2021. Full year sales were up due to the pass-through of higher aluminum prices and aerospace performance, offset by currency translation and inflation in Europe. And fourth quarter sales were lower largely due to the sale of our Russian businesses. As Dan mentioned, fourth quarter and to a large extent full year diluted earnings per share reflect higher aluminum aerosol results, lower corporate expense, and a lower share count, more than offset by higher interest expense, higher comparable effective tax rate, comparable operating earnings declines in North and South America, and EMEA attributable to the sale of our Russian business, cost inflation, and unfavorable earnings translations. I would like to take the opportunity to proactively address the year over year results in our North and Central America segment. 50% of the North and Central America operating earnings decline in the fourth quarter was driven by unfavorable swing in fourth quarter volumes versus 2021. We were up 5% in fourth quarter of 2021 and down 7% in the fourth quarter of 22. And the other 50% reflects the confluence of unfavorable fixed cost absorption that was planned entering the fourth quarter customer mix, and the timing effect of high-cost inventory out of customer sell-through. This larger-than-expected headwind is the byproduct of volume declines, aluminum price volatility, and our proactive decision to greatly reduce production to meet current market conditions during the quarter. The segment's earnings are anticipated to rebound late in the first half of 2023 as high-cost inventory sells through and volume production stabilizes across the consolidated plant system And after July, segment earnings will accelerate further as we enter the busy summer selling season, and all of the contractual inflation recovery will be effective. As we explained on our third quarter earnings call, during 2021, we ramped up our metal purchases to meet what we expected would be strong 2022 growth in North America. We did this at a time of rising metal prices, and while we are largely protected from metal price changes in our P&L, it does impact the cash flow and the amount of metal payables. Earlier this year, or earlier last year, when we saw that volumes would not materialize as expected in 2022, we began to reduce metal purchases. This also coincided with declining metal prices, which reduced the metal payables even further. And again, typically not a material P&L impact due to our inventory hedging. The net result is less billed in the accounts payable than originally planned. The result was a use of over $900 million in working capital for full year 2022. This will normalize in 2023 as both metal prices and our metal takes should stabilize. As we sit here today, some key metrics to keep in mind. We ended 2022 in a solid liquidity position with over $500 million in cash and $1.5 billion in committed credit availability. 2023 CapEx will be in the range of $1.2 billion driven by cash outflows related to prior year's projects. We will generate free cash flow in the range of $750 million in 2023 and initially focus on deleveraging. Our 2023 full-year effective tax rate on comparable earnings will be in the range of 20%, and full-year 2023 interest expense will be in the range of $415 million. Full-year 2023 corporate undistributed costs recorded in other non-reportable are expected to be around $90 million. Including the $86 million Russian operating earnings headwind, Comparable operating earnings should increase over $200 million in full year 2023. Comparable DNA will likely be in the range of $560 million. Recall that in 2022, we returned over $830 million to shareholders, and as we look forward, year-end 2023 net debt to comparable EBITDA is expected to trend towards 3.5 times, and we may want to drive it lower. Last week, Ball declared his quarterly cash dividend. and in alignment with our investor day commentary, after we navigate the first half of 2023, we'll address the path of resuming share repurchases. Rest assured, as fellow owners, we will manage the business through the lens of EVA and cash stewardship, and we will effectively manage our supply chain and customers in this current economic climate to secure the best cash, earnings, and EVA outcome for our shareholders. We are happy to have 2022 behind us, and I'm excited and optimistic for 2023. And with that, I'll turn it back to you, Dan.
spk17: Thanks, Scott. We will continue to be agile and decisive in the current environment. We must do what is right to ensure supply demand balance, foster innovation, and stimulate equitable sustainability policy, which will further broaden the use of circular aluminum packaging solutions and provide continued fuel for our organic growth. In addition, our aerospace team will continue to partner with their customers to deliver world-class solutions for some of the world's greatest challenges and opportunities. Yes, 2022 was an unprecedented year in Ball's history, and I am encouraged about our ability to deliver the year with an eye on our future. Last week, Scott and I reviewed our 2023 operating plan with the board, and our business's ability to deliver on that plan is on track. We look forward to generating free cash flow, achieving our long-term diluted EPS growth goal of 10% to 15%, deleveraging and returning value to shareholders. Thank you to everyone listening today. And with that, Carlos, we're ready for questions.
spk37: Thank you, sir. If you would like to register your question, please press the 1 followed by the 4 on your telephone. You will hear a 3-tone prompt to acknowledge your request. If your question has been answered and you would like to withdraw your registration, please press 1-3. Our first question comes from the line of George Staffos with Bank of America. Please go ahead.
spk36: Thank you. Hi, everyone. Good morning. Thanks for the details. How's it going? So I want to thank you, first of all, for all the details in terms of what you're expecting in terms of performance cadence, particularly within North and Central America. Can you give us a bit more view in terms of what your underlying assumptions are in terms of your volumes as they'll progress through the first half, the promotional activity and programs from your customers, what you're seeing in terms of innovation from customers right now. And if you were in our seats as analysts and investors in your stock and we saw something not materializing or something developed that would undermine your expectations, what would it be? Yeah, thanks, George.
spk17: So as we sit here today, the volumes in EMEA are – in line heading right out of the gate in North and Central America. They're in line. I think we're a little soft right now in South America versus my commentary on where we think the year is going to end up. The biggest element that I think misunderstood George relative to our expectations on volume and why we're a little bit more bullish is aluminum prices have come off. But that doesn't mean that's necessarily the cost position for our customers. So as they lap their head positions heading into the second quarter and the second half of the year, with the price increases that have gone into aluminum beverage packaging plus the actual costs coming off, there are significant profit pools that our customers are going to be able to step into. As I said right out of the gate, we're a heck of a lot closer to what we anticipated in terms of volume. In North America in particular, given the December fall off on all in-consumer products, that has changed the behavior patterns initially this year with a lot more price promotion and end cap. Will that continue for the balance of the year? I would suggest it will given the other backdrop that I gave you relative to costs, but the Europe continues to be incredibly strong. North America is off to a good start. I think there's a little bit of a wait and see in terms of the volatility in South America that having said that, the real cost positions that some of our major customers down there will laugh in terms of hedge positions will stimulate optimism in the second half of the year. The PPI pass-through, we're in good shape. All of the cost actions and the footprint reductions that we've talked about are in good shape. Maybe I'll turn it over to Scott just for some of the positive signs relative to inflation and currency and some of the other things that are starting to move in our direction from a more stable environment. But 2023, as we sit here today, I'm feeling really confident about.
spk21: I'll touch that, and then why don't you touch innovation, which was part of his question. Yeah, George, I think why we feel optimistic is we are definitely seeing input costs moderate. And whether it's European energy is not going to be as bad as what people predicted. We're largely hedged in Europe, lower than where the spot price is today. That really squeezed us last year. We're getting all the PPI passed through. We're starting to see freight rates, warehousing, lots of input costs moderating. And so as we sit here today, we feel pretty good about kind of the cost input side being in a much more stable place. You kind of had long-term rates kind of peak. Short-term rates are still ticking up a little bit, and so we'll feel that in our interest expense for 23. But we feel much better. Dan, why don't you talk about the innovation?
spk17: Yeah, reflecting on your comment and questioning around innovation, Certainly in the alcohol space, we continue to see a lot of innovation, which is a good thing because the combination of the innovation, something's going to win. As we always say, George, we don't know what's going to win. Something's going to win. But it also increases the pressure on the beer category to compete. Those two things will equate to improved volume outlook. So we're helping to fuel the innovation, number one, but we also have a heck of a lot of customers that we sell beer cans to. will benefit one way or another depending on who wins.
spk36: Yeah, we'll be hoping for more consumption during the Super Bowl and other things. My other question, I'll turn it over, thanks for all that color, is so, you know, you talked about reduced capex. That's certainly not a surprise, but that also includes your tail on spending for existing, you know, plants as they're coming up. I know it's not 24, but is there a view you can give us on what capex might look like or what the delta might look like? you know, as we look out to 24 and 25. Thank you very much, guys. Sure.
spk21: Most of the spend this year, George, in that 1.2 are things that are already in flight. And as we've talked about, we've got, we'll have enough capital on the ground after completing these couple things in Europe. We'll be in a pretty good spot. So I would expect, although it's, you know, February 2nd of 23, I would expect in 24, we'll see that drop further.
spk17: Yeah, the internal conversation, George, quite candidly, is we've spent the capital we need to grow into over the next two to three years. We could most likely spend at DNA levels in 24 and 25. If we have a reason to invest, it will be with a strategic customer, one or two. So I think you'll start to see a much more disciplined, level-loaded capital approach relative to DNA spend moving forward. Thank you very much.
spk37: Our next question comes from the line of Christopher Parkinson with MSUHO. Please go ahead.
spk30: Great. Thank you so much. Can you talk a little bit more about North American volumes, specifically how much you believe was more just industry sell-through, specific customer stocking, and anything idiosyncratic to ball given the shutdown in Phoenix? Just anything to break down those three variables would be very helpful. Thank you.
spk17: Yeah, I think it was – It was the back half of the quarter, and it's no different than probably every other in-consumer product in the retail shelves. Customers pushing price pushed it too far, and there was price elasticity that kicked in. Beer was down the most, and I think what we're seeing is a return to more promotional activity here right out of the gate in Q1. So I think there's recognition of what happened there in the last four to six weeks of the year, which is well publicized. Since we sell to everyone in every category and every channel, we were impacted by all of that. But I can tell you there's a different behavioral pattern setting in relative to our customers and their promotional activity. So I think this will normalize and you'll start to move into a more sustainable underpinning for growth moving forward.
spk30: Got it. And just as a very quick follow-up on some of your Latin American commentary, could you just very quickly just discuss the market dynamics? Obviously, it was pretty difficult during the first half with Carnival and everything else, and then kind of easing to the hopeful World Cup rebound, which didn't necessarily materialize. But just given the easy comps on 2022 and your comments on a preliminary basis for the beginning of January, how do you believe the market will ultimately materialize throughout the balance of the year, given the low comps? just given the industry, and then also any perhaps just very quick comments on market share trends. Thank you so much.
spk17: Yeah, I will point you to the fact that the real cost that our customers have relative to aluminum cans has as much to do with their hedge positions. And in the second half of the year, cans will be the lowest cost substrates, with the greatest profit pool, and that will give ample reason for our customers to push aluminum packaging at that point. You're right, the World Cup relative to the fourth quarter, we did see an uptick, but we didn't see the uptick that we anticipated. We knew that early in the quarter, and we were reacting to that throughout the quarter. And we've got, to your point, you've got Carnival, You've got a couple of things. You don't have a COVID environment like you did last year, so there's optimism. It started off less favorable than we anticipated in South America, but it's only one month in, and we're still bullish on things getting better. better in the back half of the year.
spk21: I would just add on South America, in the first quarter last year, we will lap the customer breach that we had. So that will, you know, we won't have that volume as we look forward.
spk13: Thank you so much. Thank you. Thank you.
spk37: Next question from the line of Harun Viswanathan with RBC Capital Markets. Please go ahead.
spk39: Great, thanks for taking my question. Good morning. Good morning. Yeah, you know, obviously we've seen the destocking and, you know, some of the impact on the consumer from the inflation, and you mentioned that maybe that's turning a little bit now with the deflation in RAS and, you know, customers of yours potentially in a position to promote the product. So could you describe a little bit more what you're seeing on that front? And if you are seeing that, Do you expect – what's kind of your growth and volume outlook for NA, North America this year, taking into account some of the closures you had last year as well? Thanks.
spk17: Yeah, as we sit here today, I'm encouraged by what we're seeing, and I'm not willing to come off of this early in the year, that we're planning for flat. We're planning our earnings lift and our 10% to 15% EPS growth off of flat in North America until – We're more convinced that the behaviors of the customers will continue to lean into promotion throughout the year. That's where we're landing right now.
spk39: Well, maybe I can ask the question a little differently. If you think about the $400 million or so that you delivered in Q4 EBITDA, maybe there's a little bit of seasonality improvement in Q1 EBITDA. Q4-23, I imagine, could look like Q1, and then Q2 and Q3 would be up seasonally better, but still that would fall short of $2 billion of EBITDA. Is that right? I mean, what are some of the levers you guys can pull to maybe get back to that level, or is that maybe more like a 24 and 25 kind of range that we should be thinking about?
spk21: I think, you know, in the first quarter, remember, a year ago in the first quarter, things were pretty good. Our volumes were up. It looked strong. We're not going to have that kind of.
spk10: And we had Russia.
spk21: And we had Russia. I mean, but in North America, the volumes were good. So we won't have, we're going to have pretty tough cops in the first quarter. I think as we look forward then in the remaining quarters, we should see nice improvement year over year in each of the quarters in North America as we look forward.
spk39: Okay, great. And then just lastly, just on Europe, you know, it sounded like, you know, Europe you're somewhat a little bit more constructive on. Could you just describe that and just kind of square that away with some of the inflation that they saw? You know, last year you had some energy price inflation that was pretty stiff. So is that what's also giving you some relief and potentially pushing some volume upside in Europe?
spk17: Well, we had a really strong volume year in Europe. And it wasn't impacted, despite the end consumer being impacted with less discretionary spend, the aluminum package did really well. And I think it's more the aluminum package story and the resiliency of the can in Europe than it is discretionary spending levels that helped us. Your point is valid. So the way our contracts will work, we'll be able to pass through a lot of the inflationary headwinds that we experienced in 22. We'll pass that back. So if inflation moderates, which it has, even if it dissipates a bit, then you've got the underpinnings of volume that continues to grow at the high single-digit rate. We've got capacity coming online into major facilities that will take advantage of that growth. And we should be able to make more money given the stability of the inflation and the fact that we're catching up in arrears on a lot of the inflationary pass-throughs. So we're really excited about Europe for 2023.
spk21: And just to your comment on EBITDA, I would expect – I'd be disappointed if we didn't exceed $2 billion of EBITDA in 2023. Okay.
spk38: Thanks.
spk37: Next question from the line of Gamsham Punjabi with Beard. Please go ahead.
spk24: Yes. Good morning, everybody. Morning. Morning. So, Dan, just kind of building off your recent comments, you know, you've been quite vocal about how higher beverage prices have pressured volumes along the supply chain, including at your end. How much do you think volumes were impacted in 2022 just based on the dynamic in beverage North America? And as it relates to your comment on Europe resilience, was that also boosted in 2022 by just the comparison from, you know, the reopening across Europe relative to the prior year? And do you still see sort of that momentum continuing into 23?
spk17: Yeah, I'm not entirely sure your first question I could parse out that Delta. I will tell you where it had an impact and where we'll be able to point to it is in the fact that it's really the promotional activity during the peak season that we didn't see any of last year. We still grew a little bit, I would probably go back to sort of that 18, 19 range of growth that we saw. And I would put that up against what we actually saw in 22. And I would say that delta, just speaking out loud, is probably what we lost out on because of a lack of promotional activity in the peak season. So maybe 1% to 2% during that period. which, as you know, that last billion cans is kind of where you make your money at the end of the year in a fixed-cost business. So, yeah, let's see. Right now we're off to a good start relative to how the beer companies are promoting and how our customers are looking at what they need to do from their elasticity curves have changed here in the last four to six weeks.
spk21: But I would say in Europe, gosh, the sustainability push in Europe is not slowing down. And I think that will help. And we know how many can-filling lines are going in Europe in the next couple of years. And so that's why I think we're bullish on the outlook for Europe.
spk17: I think the reopening, if anything, would have slowed our growth because the on-premise is overwhelmingly kegs. And so... Despite that return to on-prem, we're still growing at the high single-digit rate, so I continue to be bullish about what's happening in Europe. I've said this a number of times, and I think I've said this to you. I'm most bullish on Europe in the medium and the long term. The short term, obviously, they have to figure out energy. That'll impact every industry, every business, but for us, the sustainability underpinnings are tremendous, and We're excited about these new assets that we're ramping up here in the first half of the year.
spk24: Okay, that's clear. And then for the second question, you know, on the 200-plus million net price cost recovery guidance for 23, how do you anticipate that will flow through the various beverage can segments? And then separately, did you give a working capital number for 23 in terms of year-over-year movement?
spk21: Yeah. For 2023 working capital, we expect to get to that $750 million of free cash flow. We expect working capital to be a source around a little over $300 million. Okay.
spk17: And on the net cost pass-through and net recovery, it's overwhelmingly Europe and North America, and it's 60% North America, Scott, as he's nodding. and you'll see in Europe it comes in in a more linear fashion over the quarters, and in North America you'll see probably 60% of that coming in in the second half of the year. July 1 is a big date for lapping one particular customer contract.
spk22: Fantastic. Thanks so much.
spk37: Next question from the line of Anthony. Pettinari with Citi. Please go ahead.
spk45: Good morning.
spk33: Just following up on Gancham's last question, you reaffirmed the 200 million inflation recovery target. Scott, you mentioned inflation and energy coming in lower than expected, maybe in some cases materially. I'm just wondering if that's something that would cause you to raise that 200 million target or maybe it's too early in the year. Or do you think about sort of the benefits of those lower costs in a different way, or is there a lag? Just wondering how we should think about that.
spk17: I'll answer it, and then I'll let Scott give you a more detailed answer. We'd prefer to be heroes in December than all-stars here on February 2nd. But, Scott, go ahead.
spk21: No, that's what I was going to say. It's only February 2nd. I mean, I think the optimism we're feeling – is that it appears a lot of the trends are more helpful to us. And so all those things will be beneficial. But we've got to see how volumes show up. That's the big wild card. We're getting out of the gate in a more positive and constructive way, and we're building our plan on a more conservative basis. But we'll see. But definitely things seem to be turning into a little more tailwinds than headwinds that we had last year.
spk33: Okay, that's helpful. And then just a few quick followups on, on Latin America, you know, with the footprint actions in Brazil, I don't know if there's a kind of a finer point you can put on the cost savings there. And then maybe just, you know, where your operating rates will be in Brazil. Um, you know, once that's completed and I guess just one last one, if, if how you'd characterize the South American businesses X Brazil, um, how they're doing.
spk17: Yeah, they're, uh, ex-Brazil, they're quite resilient. Even with the inflation levels that you're seeing in Argentina, our volume was up double digits in that country year over year. So it's incredibly resilient. Chile's performing well. Paraguay very well. Some of the other areas that we export into continue to perform well, despite all of the geopolitical turbulence and the inflationary pressures you see in there, that's holding in, and that team's doing a wonderful job managing all of those challenges. In Brazil, it's less about the cost savings relative to the expenditures. Obviously, labor is incredibly cheap there. So, yeah, you shutter a facility, you're not going to see near the savings that you would in a Europe or a North America. But operating... And a tighter supply-demand environment gives you the ability in your other facilities to keep them full and to run them full out. And that generally benefits efficiency levels, reduces spoilage, all of the things that we're asking our plants to do and manage on a day-to-day basis. It gives them a greater ability to do that, manage their quality aspects, stay in touch with customers, manage their supply chain more effectively. So that's where you see the savings and the benefits and the earnings profiles. being impacted in South America.
spk32: Okay, that's helpful. I'll turn it over.
spk17: Thank you.
spk37: Next question from the line of Adam Samuelson with Goldman Sachs. Please go ahead.
spk31: Yes, thank you. Good morning, everyone. Good morning. Good morning. So I guess the first question is thinking about the demand side, maybe coming back into North America and Daniel's got your comments on, hey, January's had a better start, maybe seeing some pickup in promotional activity. Your comments seem to be a bit more focused on beer as a category versus CSD or elsewhere, and I'd love to just get your perspective on are you seeing that change in customer behavior and promotional intensity across all categories, or is it right now exclusive to beer? And corollary to that is, in discussions with customers across different beverage categories? Is there anywhere you're seeing kind of a step up in innovation and new product introduction that is giving you more optimism?
spk17: Yeah, I think it's a really good question. Beer is being more aggressive on the promotional activities because beer had the most precipitive drop-off in volume. So it correlates. you know, and the magnitude of the volume declines in terms of the promotional activity. So, yes, you're seeing it across every single category because every single category was down in the last six weeks of the year. But it's certainly more pronounced, and that's probably a recency bias in my comments or relative to really a really nice uplift in beer right out of the gate. Some of it is attributed clearly to the Super Bowl. As we're two weeks out now, you always see some promotion and some lift there. But it's more pronounced than that. from a historical standpoint because of the volume fall off. And on innovation, I made this comment earlier on a question, but maybe I can dive into it a little bit more. There's innovation in every category, but the most innovation, and this has been a consistent thematic here, with the exception of that accordion effect relative to COVID where there were less SKUs just trying to get cans out the door. As the large CPGs become beverage companies, they're leaning heavily into alcohol and mixers and those types of cocktails. And that's where innovation is really stemming. And you'll continue to see that for the foreseeable future. Those are most of what we expect to see here in 2023. There are other things obviously being worked all the time that are – What I know is planned for retail shelves is going to largely fall into cocktails and innovation and around that for the can.
spk31: Got it. And then I appreciate you gave different segment level detail for the different can businesses. I'm not sure if I missed a view on the aerospace performance for the year and where you think that's tracking.
spk17: Yeah, so for 2023, we will exceed 15% earnings growth. Actually, right now as it's shaking out, we're north of 20. So we will see. We're beginning to step into the backlog that we've won through the years and starting to see repeat builds. Our defense platform is executing really, really well. And I think we navigated some choppiness in terms of supply chain in 22 that has stabilized. So as we sit here today, we should see a much improved operating earnings performance from our aerospace business.
spk31: All right, great. That's a helpful call. I'll pass it on. Thank you.
spk37: Next question from the line of Phil Ng with Jefferies. Please go ahead.
spk28: Hey, guys. How are you doing? Good morning. Good morning. Appreciating earnings will be a little tougher in the first quarter and likely down. Do you have enough levers where earnings will be up year-over-year in 2Q? I think you're targeting 10% to 15% earnings growth for 2023. Is that predicated on the 4% volume growth you were mentioning, or is that more of a flattish backdrop like you previously guided to?
spk21: I think we'll start to see momentum in the second quarter, definitely. It depends on vibes, but As things kind of roll in, we get some PPI pickup here in the first quarter, but as Dan mentioned, the bigger chunk of it comes in the second half of the year. First quarter will definitely be softer year over year, given some of the challenges. We're still working through some of this inventory, both in North America and in South America, so that's where you'll see most of that impact. But that I would expect in North America we'll see nice earnings improvement as we get into the second quarter and year over year as we look through the rest of the year.
spk17: You should see sequential improvement, right, 2Q, Q3, Q4 throughout the year, both with the PPI, the fixed cost savings. And keep in mind, 2Q from a volume standpoint was quite challenged in North America, and so – we get a little modicum of promotional activity there in the peak season, then I think our plans, as Scott indicated, they're more on the conservative side. Where we would need volume in order to achieve our plans is Europe, because we are opening up two facilities there. But Europe has been the most resilient, and the anchor customers are the most resilient that are going to be the tenants of those facilities.
spk28: But just to be clear, guys, to hit your 10% to 15% earnings growth, do you need 4% volume growth, or is it more flat? Because I thought at the analyst day the messaging was more flat, and we still can get to, like, 10% to 15%.
spk21: In North America, it's flat.
spk28: Okay.
spk17: Global, it's 4%. North America, it's flat. Mid to high single digits in Europe, mid single digits in South America. That's how we get to the 4%.
spk28: Yep. Okay. And then on – Latin America in general, certainly Brazil has been really choppy, and there's certainly some social unrest. What gives you confidence to kind of deliver the mid-to-high single-digit growth in 2023, which has been a pretty tough environment for some time, especially Brazil? Any contractor perennial in 2023, 2024 in that Brazilian market?
spk17: No. We have no open contracts heading into 2023 and 2024. The resiliency relative to South America is going to be the stabilization. First of all, lapping the contract for each in Q1. And then the actual cost position of our customers down there will have the aluminum package being the most cost-advantaged product in Brazil in particular with that customer base.
spk29: Okay. Appreciate the color, guys.
spk17: Yep.
spk37: Next question from the line of Angelica's CEO, Morgan Stanley. Please go ahead.
spk40: Hi, thanks for taking my question. And just a quick little near-term one, assuming that you talked about kind of full-year volume growth across the different regions, could you give us a similar walk for what that 1Q number is and how you're kind of thinking about it across the region?
spk21: I think 1Q in total will be down. Again, we had pretty good growth in Q1 last of 22, and so I think we'll be slightly down in Q1 in total.
spk17: Yeah, I'd say in North America you'll be flat. In South America you'll be flat because of the customer breach, so we'll be lapping that. Flat would actually be growth on an apples-to-apples basis. So we could be a little plus, a little minus there, and we'd expect to be You know, that high single digits growth, mid to high single digits for Europe, that will be a linear number throughout the year. You'll have more opportunity to grow in the back half because of the two facilities that are coming online. But you should see growth right out of the gate in Europe. And then flattish in the other two regions for the aforementioned customer breach and the market dynamics that exist right now in North America.
spk40: Got it. That's very helpful. And then just curious, as you think about the ranges that you gave for the full year, I guess maybe I'm reading too much into this, but South America, Europe, and others seem to be a little bit of a wider range, whereas North America, flat, I think, if I've kind of heard it correctly, flat to slightly down, seems to be a little bit narrower, but this also seems to be an area where, or the region where we've seen maybe some of the more or bigger deterioration throughout the last few quarters. So you kind of mentioned liquor and cocktails as one area of potential growth in promotional activity. But how much of this, I guess, what gives you comfort to have a narrow range there as you think about the year progressing? Is some of that fossil liquor-related volume, the degree of visibility, is it there? Is things contracted? I guess, yeah, just what gives you comfort in that kind of narrow range? Sure.
spk17: Yeah, well, I mean, flattish, that's not the narrowest range we've ever given, but I appreciate the question. I would say optimism to tighten the range in North America is that we plan on a much more conservative environment. And one thing that I think is important to underpin this business and this industry in particular, we're generally the first to go into the recession, and we're generally the first to come out. And what we need is to see what happened over the last four to six weeks was the elasticity curve on volume and price for our customers has been broken. And now you're seeing volume come off. That means you have to return to some level of promotional activity. That's good for the can. So for North America in particular, we've got a big business. We're with all the customers. It gives us some foothold in understanding the market dynamics of The contracts are secured. We know what we have heading into the year. Could it be up a little, down a little? Yes. That's not going to have an impact on whether or not we can deliver our 10% to 15% EPS target.
spk21: I would also say, I mean, it's been more volatile in the last few years, no doubt. Historically, North America has been more predictable. South America has always had a wider range just because volumes can move around a lot. Those economies are more volatile. And so you could see much, you could see outpaced growth at times and you could see bigger declines at times. So South America has just always been a more volatile region. And despite the dance comments, I mean, you would think with a hundred percent inflation in Argentina, that would be a big negative for cans, but cans grew double digits last year. So It's a little tougher to predict in a place like that.
spk40: That's very helpful. And if I may just kind of quick little follow up on that. I think one of the areas that historically in recessions has helped is, you know, the customer, you know, pairs back maybe how much they're spending on-prem. Some of that off-prem starts to be biased toward cans and health. Have we seen some of that already or is that still potential upside as we think about the near term and the customer?
spk17: Yeah, we haven't seen that particularly, but you're exactly right. Those are the early signs and signals that's when you know you're on the uplift coming out. And we've seen the first stages of promotional activity starting. We haven't seen them steering on-prem versus off-prem, but that usually is the next lever to pull. You're exactly right.
spk40: Thank you so much.
spk37: Next question from the line of Mike Roxland with Truist. Please go ahead.
spk27: Thanks, Dan, Scott, and for taking my questions.
spk43: Sure, Mike.
spk27: Just one quick follow-up. Dan mentioned the weakness in beer, and obviously you experienced it firsthand. We all saw that in the Nielsen data with beer volumes being very challenged late last year. How are you thinking about your exposure to beer at this juncture? Is it still a core end market? And given what's occurring in beer, are there any opportunities for you to diversify your mix?
spk17: Yes, there's always an opportunity. We're constantly looking at our portfolio and our customers. And how we look at it, Michael, it's a great question. So I look at brand owners and brand builders. And the other thing is we may be talking to Or we may have a portfolio of historical beer customers, but those historical beer customers are moving aggressively into other things from an innovation standpoint. So within the portfolio of some of our customers, we like the fact that they're acquiring products, that they're innovating products, and that they're pushing new innovations. You're right. I mean, there is volume ascribed to beer, and there's big volume ascribed to beer, and that's always going to be an underpinning of us within a volume business. But as that beer skews to other drinks and other alcohol profiles, it'll be a tradeoff within their portfolio. We're selling them the cans. The label they want to put on it doesn't matter to us. We just want to be with the winners on the brand side.
spk27: Got it. That makes sense. And then just quickly, can you comment on any additional portfolio rationalizations or temporary closures you may be contemplating? I think last quarter you indicated that you had taken all the actions you needed to with respect to plan closures, but then there was an interesting publication came out with some details, I guess in December, about some temporary closures in Brazil, and I think you highlighted it broadly in your press release as well. So, first question, are those closures in Brazil temporary or permanent? And then second, quickly, just Given the volatility in Brazil over time, and certainly worse in the last few years, can you walk us through the investment case as to why investing in Brazil makes sense, or really doesn't at this point?
spk17: Yeah, so I would look at the regions. Depending on what's permanent and what's temporary, a lot of times labor laws dictate that. And I would tell you in North America and South America, we've always – managed our supply chain. So we will curtail lines. We'll have temporary shutdowns. That's more reflective of the conditions with which we are managing our South America plant. I think it was mischaracterized as to what we were doing with that. It's a temporary closure for now. given the existing conditions and um economic conditions in brazil uh it's it's no different in the analysis right it's eva we do have a larger risk profile um and hurdle rate in places that are more volatile like a brazil so that's already embedded um so it's it's going to be the length of the contract the substantive nature and and the um the economic underpinnings of that contract and whether or not we believe we can generate EVA. I don't know, Scott, if there's anything there relative to Brazil.
spk21: Yeah, I mean, Brazil, over a long period of time, has been a really good place to invest. The can, as a share, has grown in all of the markets that we've operated. It does tend to be a more volatile region, and so you have to live with that volatility. But over the long run, it's been a great place to invest, and we expect it to be a really good place going forward. It is not without its challenges, but that's part of why you can make some pretty good money there too.
spk27: Got it. Thanks for all the color and good luck in 2023.
spk37: Thanks. Thank you, Michael. Next question from the line of Adam Josephson with KeyBank. Please go ahead.
spk26: Thanks, Dan. It's Scott. Good morning. Hope you're well. Hey, good morning. Good morning, Dan. Dan, one on back to North America. So your long-term target is two to four. Last year you were down a touch. You're seeing the beer companies promote more. So it sounds like you're encouraged about what you're seeing in January, yet you're expecting flattest shipments. So that would be two years in a row of flattest shipments compared to that long-term target of two to four. I guess just given the low base, and the promotional activity you're seeing, why are you not expecting more growth in North America, particularly given your long-term target? I'm just trying to understand if there's something I'm missing.
spk17: No, I just think it's earlier in the year, Adam, and we've seen a couple weeks' worth of promotion. That's not enough for us to get overly excited that we'll return to some modicum of growth. You know, candidly, the inflationary, all of the things relative to a soft economy are still present. I think the can will do well. I think you'll see trajectory in the second half of the year that will be helpful if these promotions continue. I'd love to come back to you in six months and say, hey, we're right back on track with the two to four. But as we said here today, I don't have enough data points to say that that's going to happen in 2023.
spk21: But over time, you know, we're still kind of in the post-COVID adjustment period, I think. And 23 will kind of – I think 23 will kind of be the end of that. And I would expect those historical rates that we saw before COVID with sustainability tailwinds and all those things, those aren't going away. Those are going to continue. And so that's why we think longer term those growth rates make sense. But we're still kind of in a – in a period where we're getting through COVID and now through rapid inflation, and we're starting to see things settle down. And that gives us more optimism, I think.
spk26: No, I hear that. Just one follow-up to that, which is I know you shut two plants. I think that was about 8% of your North American capacity middle of last year. So you were down 0.3%. You're expecting to be flat this year. Do you think the market grew dramatically? by more than what you were... Did you underperform the market last year, and do you expect to underperform the market this year? Can you just give me any sense of how you think you're performing in terms of North American volumes versus the broader market?
spk17: Yeah, I think we have... It's a great question. Probably a tick underperformance relative to the market because of the size of our beer portfolio, and that was the most distressed category last year, so... That certainly had a knock-on effect. The good news is if that area reverts back to more positive promotional activity, then we should be the beneficiaries of that shift moving forward.
spk21: And remember, the impact in a market is going to be dependent on who's bringing up capacity, who's turned on new capacity. In Europe this year, we'll probably outperform the market because we have facilities coming online. So those kind of things you know, can happen quarter to quarter, year to year. We don't focus on market share. We focus really at the dance point on being with the right customers, the customers that are innovative, the customers that are growing, that are using the can. We focus more on that versus market share. Right.
spk26: No, I get that. So if you end up flat, would it be unreasonable to think that the market would be one-ish just using that logic? Yeah.
spk17: Yeah. I think that's right. I think that's right, Adam. I think you're thinking about it the right way. Yep.
spk26: Okay. And thanks. And Scott, just on the working capital, I think Asim asked about it, that you're expecting a $300 million source. Can you just help me with where that's coming from just compared to what you dealt with last year? Is it coming from any particular place in particular or across the board improvements that you're expecting?
spk21: Mostly inventory, Adam. We still have too much inventory, and that's what we need to work off. So we've got a lot of cash, if you will, sitting in our inventory. And so as we roll that off, we'll be able to generate a lot of cash from it. That's the biggest chunk.
spk26: Got it. Thanks. And just beyond that, so if that working capital normalizes and the capex ends up equivalent to DNA, are there any other swing factors that you would point out as we think about free cash flow beyond 23, lower capex.
spk18: And earnings expansion. Right. Yep. And earnings expansion. Yep. You got it. You got it. Okay.
spk17: Yeah. And we've got really good line of sight, Adam, into it's both raw material and finished goods. We've got really good line of sight. We're working that every single day right now. So we're confident about that source of cash this year.
spk01: Thanks, Ben.
spk17: Carlos, we'll take one more.
spk37: All right, sir. Last question from the line of Kyle White with Deutsche Bank. Please go ahead.
spk25: Hey, good morning. Thanks for squeezing me in here. I just wanted to better understand kind of the bridge to 2023 earnings, and I believe the $200 million improvement in comparable operating earnings that you called out. You have the $200 million in net inflation recovery. You have the $150 million in cost savings, partially offset by, call it, $85 million from the Russia business. But that's still about $250 to $265 million of improvement before we have any volume growth. I guess what are some of the major headwinds here that I might be missing in the bridge?
spk17: And the rise in interest rates, interest expense.
spk25: All right, got it.
spk21: And then on the 200 million inflation recovery that you guys talked about, it seems like it's mostly... Going back to your past comment, though, while inflation is moderating, the base cost of energy costs in 23 are going to be higher than they were in 22. We're just passing them along. But there are things that are built into our plans that are negatives from a cost perspective and so that's why you gotta you can't just talk about all the positives there's always something to go the other way and so the balance of those is how i get to my number right i guess i was assuming that the the net inflation was trying to net for maybe the incremental inflation that you're seeing but um maybe that's not uh the right way to look at it it's really the net of what we expect
spk25: Okay.
spk21: Um, but that's, again, that's just inflation, right?
spk25: Yep. Makes sense. Um, sticking, sticking on that point. So it seems like a large portion of that recovery, the 200 million inflation recovery is in North America, but it doesn't happen just given the contractual time until July. Um, correct. I know it's a days, but you have.
spk17: Yeah. 60% of it's in North America, the other forties in Europe.
spk25: Yep. Okay. I appreciate that. That's very helpful. I know it's only days, but do you have a sense of how much of that benefit could actually continue to flow into 2024 in North America?
spk20: Oh, it stays. It doesn't go back the other way. It stays.
spk25: Right. I'm just asking.
spk21: The perfect scenario for us is you get a pretty sizable PPI increase and your costs actually go down.
spk17: Effectively, what would happen, your questions, you're thinking about it the right way, so You pass through inflation a year in arrears. If inflation moderates or dissipates, you hold on to that margin expansion for the following year. It was just the opposite of that the past two years for us. But if things come off and energy prices, et cetera, et cetera, come off after we put through the existing cost, then that would be carried into parts of 24. You're right.
spk25: Got it. Sounds good. Well, everything looks much better from a price-cost standpoint going into this year versus the challenging last year. So good luck with the balance of the year.
spk21: Right. Thanks very much. We're glad to be done with 22 and excited about 23.
spk17: Well said. Carlos, and with that, we'll close the call and look forward to talking to you at the end of the first quarter. We are excited for 2023, and we've got the teams and the plans in place to execute. So we'll be following up and iterating on those plans as as we move forward look forward to the next time we get together thanks that concludes today's call we thank you for your participation and ask you to please disconnect your lines Music. Thank you. Thank you.
spk42: Bye.
spk37: Greetings and welcome to the Bull Corporation fourth quarter 2022 earnings call. At the start of the presentation, all lines will be in a listen-only mode. Afterwards, we will conduct a question-and-answer session. At that time, if you have a question, please press the 1 followed by the 4 on your telephone. If at any time during the conference you need to reach an operator, please press star 0. As a reminder, today's call is being recorded Thursday, February 2, 2023. I would now like to turn the conference over to Dan Fischer, Chief Executive Officer. Please go ahead, sir.
spk17: Thank you, Carlos, and good morning, everyone. This is Ball Corporation's conference call regarding the company's fourth quarter and full year 2022 results. The information provided during this call will contain forward-looking statements. Actual results or outcomes may differ materially from those that may be expressed or implied. Some factors that could cause results or outcomes to differ are in the company's latest 10-K and in other company SEC filings, as well as company news releases. If you do not already have our earnings release, it is available on our website at ball.com. Information regarding the use of non-GAAP financial measures may also be found in the notes section of today's earnings release. Historical financial results for the divested Russian operations will continue to be reflected and the beverage packaging EMEA segment. See note one, business segment information for additional information about the sale agreement and a quarterly breakout of Russia's historical sales and comparable operating earnings. The release also includes a table summarizing business consolidation and other activities, as well as a reconciliation of comparable operating earnings and diluted earnings per share calculations. Joining me on the call today is Scott Morrison, our Executive Vice President and CFO. I'll reflect on 2022 briefly, and Scott and I will discuss key drivers and financial metrics for 2023. And then we'll finish up with closing comments, the outlook, and Q&A. Let me begin by thanking our employees and stakeholders for their hard work and support. As I reflect on 2022, I'm struck by the magnitude and pace of change we have navigated. the commitments we are prepared to achieve, and the prompt and decisive actions that were made by our team in a fluid and ever-changing macroeconomic and geopolitical backdrop. Our full year and fourth quarter comparable net earnings reflect our EMEA, aerospace, and aerosol operations coming in as expected. Offset by the impact of our Russian business sale, softer volume in North and South America, planned inventory management impacting fixed cost absorption, and the effect of high-cost inventory and the timing effect of customer sell-through. Global beverage can shipments, including Russia, increased 0.8% in 2022 and decreased 6.1% in the fourth quarter. Excluding Russia, global beverage shipments increased 2.1% in 2022 and decreased 0.9% in the fourth quarter. North America beverage can segment shipments decreased 0.3% in 2022 and decreased 7.1% in the fourth quarter. EMEA beverage can segment shipments, excluding Russia, increased 8.6% in 2022 and increased 11% in the fourth quarter. South America beverage can segment shipments decreased 6.3% in 2022 and decreased 4.2% in the fourth quarter. Other non-reportable beverage can shipments increased 48.2% year to date and 48.5% in the fourth quarter as a result of continuing to provide support to domestic European customers. Our global extruded aluminum bottle and aerosol business continues to benefit from new refillable, reusable bottle offerings and higher recycled content aluminum bottles for personal care products. Shipments in this segment increased 12% year-to-date and 14.5% in the fourth quarter. And our aerospace team increased their backlog 20% year-over-year. In response to the previously discussed unfavorable swing in beverage can volumes relative to our early 2022 expectations and as a result of our sale of our Russian businesses, we optimized our global cost structure. deferred certain projects and took actions to right-size our North and South American manufacturing plant systems by consolidating high-cost, less-fit facilities into scalable facilities capable of delivering our customers a portfolio of can sizes, enabling category and pack size innovation to our customers in a more agile way moving forward. In EMEA, newly constructed facilities will ramp up during the first half of 2023 and provide much-needed cans to our customers across the region. It is also important to celebrate the accomplishments achieved by our team during 2022, including shipping nearly 115 billion innovative aluminum cans, bottles, and cups to our customers, delivering numerous environmental space science and defense technologies to study the impact of humans and the environment on our Earth, weather satellites that protect life and property from extreme weather events, on-orbit defense technologies to ensure the safety of our homeland, the warfighter, and our allies, and deep space marvels, like the James Webb Space Telescope, to view previously invisible images via the ball-built mirror assembly and optics. Joining the World Economic Forum's First Movers Coalition to lead collaboration across the aluminum industry to prioritize circularity and decarbonize the industry, Achieving aluminum stewardship initiative ASI certification across our global footprint. Remaining on the 2022 Dow Jones Sustainability Index North America for the ninth year. Receiving an A- in the CDP's climate change questionnaire in 2022, which recognizes the company's commitment to maintaining best practices in corporate climate citizenship through its net zero carbon emissions commitment. renewable electricity coverage, and ongoing assessment of climate-related risks and opportunities. Receiving a perfect rating on the Human Rights Campaign's Annual Corporate Equity Equality Index, CEI. Receiving a 2022 ranking of 90 on a 100-point scale on the 2022 Disability Equality Index, DEI. reflecting the meaningful progress the company has made in creating a workplace that enables employees with differing abilities to support its global mission. And being recognized as the 2023 industry leader for the industrial goods sector for the Just Capital and CNBC's Just 100 top performing companies on ESG factors, including ethical leadership, cultivating an inclusive workplace, use of sustainable materials, and carbon reduction. And our global team supported 2,800 nonprofit organizations across 30 countries and contributed 30,000 volunteer hours across our communities. Drive for 10 continues to be our vision. We know who we are, we know what is important, and we know where we're going. Together, Ball will, one, execute our strategy of preserving our planet and delivering value by creating circular aluminum packaging solutions for single use, limited use and refill, and providing exquisite environmental space science and defense technologies. Second, we will provide our employees and communities the resources and opportunities to succeed. Third, we will be our customers' and suppliers' partner of choice to enable organic growth, achieve sustainability goals, drive innovation and technology development. And four, we will be a disciplined capital allocator by unlocking value and efficiencies from existing operations with limited future capital investment, and in doing so, generate free cash flow, grow earnings and EVA dollars, and be good stewards of our cash flow to deleverage and return value to our fellow shareholders. Consistent with our commitment at our investor day and on our third quarter earnings call commentary, in 2023, we can deliver our goal of 10% to 15% diluted earnings per share growth including the Russian business sale headwind. The next quarter will remain choppy as we work through higher cost inventory, complete the optimization of our North and South American manufacturing footprint, ramp up our new Kettering UK and Pilsen Czech Republic plants in EMEA, and lap the previously disclosed 2022 customer contract breach in South America. We will benefit from the previously identified and executed SG&A actions while continuing to receive the PPI cost recovery throughout 2023, which overall will lead to a back half-weighted year. During the Q&A, Scott and I will strive to provide additional clarity on the external environment and cadence for 2023 based on what we know today. We also continue to reiterate our investor field trip long-term goals for global volume growth fueled by sustainability-driven substrate mix shift, product category, and pack size innovation. Our global beverage teams have positioned our businesses to deliver the year and with an eye on the future. In 2023, and excluding Russia, we estimate in the range of 4% global volume growth for Ball, with North America flat to slightly down, South America volume up mid to high single digits, EMEA volume up high single digits, and our other non-reportable business volumes up mid to high single digits. As new EMEA capacity ramps up and exiting 2023, exports from Saudi Arabia into EMEA wind down. Our global beverage businesses work will be complemented by our aerospace and aerosol businesses' continued success. We appreciate the work being done across the organization and extend our well wishes to our employees, customers, suppliers, stakeholders, and everyone listening today. And with that, I'll turn it over to Scott.
spk21: Thanks, Dan. Full year 2022 comparable diluted earnings per share were $2.78 versus $3.49 in 2021. And fourth quarter comparable diluted earnings per share were $0.44 versus $0.97 in 2021. Full year sales were up due to the pass-through of higher aluminum prices and aerospace performance, offset by currency translation and inflation in Europe. And fourth quarter sales were lower largely due to the sale of our Russian businesses. As Dan mentioned, fourth quarter and to a large extent full year diluted earnings per share reflect higher aluminum aerosol results, lower corporate expense, and a lower share count, more than offset by higher interest expense, higher comparable effective tax rate, comparable operating earnings declines in North and South America, and EMEA attributable to the sale of our Russian business, cost inflation, and unfavorable earnings translations. I would like to take the opportunity to proactively address the year-over-year results in our North and Central America segment. 50% of the North and Central America operating earnings decline in the fourth quarter was driven by unfavorable swing in fourth quarter volumes versus 2021. We were up 5% in the fourth quarter of 2021 and down 7% in the fourth quarter of 22. And the other 50% reflects the confluence of unfavorable fixed cost absorption that was planned entering the fourth quarter customer mix, and the timing effect of high-cost inventory ahead of customer sell-through. This larger-than-expected headwind is the byproduct of volume declines, aluminum price volatility, and our proactive decision to greatly reduce production to meet current market conditions during the quarter. The segment's earnings are anticipated to rebound late in the first half of 2023 as high-cost inventory sells through and volume production stabilizes across the consolidated plant system And after July, segment earnings will accelerate further as we enter the busy summer selling season, and all of the contractual inflation recovery will be effective. As we explained on our third quarter earnings call, during 2021, we ramped up our metal purchases to meet what we expected would be strong 2022 growth in North America. We did this at a time of rising metal prices, and while we are largely protected from metal price changes in our P&L, it does impact the cash flow and the amount of metal payables. Earlier this year, or earlier last year, when we saw that volumes would not materialize as expected in 2022, we began to reduce metal purchases. This also coincided with declining metal prices, which reduced the metal payables even further, and again, typically not a material P&L impact due to our inventory hedging. The net result is less billed in the accounts payable than originally planned. The result was a use of over $900 million in working capital for full year 2022. This will normalize in 2023 as both metal prices and our metal takes should stabilize. As we sit here today, some key metrics to keep in mind. We ended 2022 in a solid liquidity position with over $500 million in cash and $1.5 billion in committed credit availability. 2023 CapEx will be in the range of $1.2 billion driven by cash outflows related to prior year's projects. We will generate free cash flow in the range of $750 million in 2023 and initially focus on deleveraging. Our 2023 full-year effective tax rate on comparable earnings will be in the range of 20%, and full-year 2023 interest expense will be in the range of $415 million. Full-year 2023 corporate undistributed costs recorded in other non-reportable are expected to be around $90 million, including the $86 million Russian operating earnings headwind Comparable operating earnings should increase over $200 million in full year 2023. Comparable DNA will likely be in the range of $560 million. Recall that in 2022, we returned over $830 million to shareholders, and as we look forward, year-end 2023 net debt to comparable EBITDA is expected to trend towards 3.5 times, and we may want to drive it lower. Last week, Ball declared his quarterly cash dividend and in alignment with our investor day commentary, after we navigate the first half of 2023, we'll address the path of resuming share repurchases. Rest assured, as fellow owners, we will manage the business through the lens of EVA and cash stewardship, and we will effectively manage our supply chain and customers in this current economic climate to secure the best cash, earnings, and EVA outcome for our shareholders. We are happy to have 2022 behind us, and I'm excited and optimistic for 2023. And with that, I'll turn it back to you, Dan.
spk17: Thanks, Scott. We will continue to be agile and decisive in the current environment. We must do what is right to ensure supply demand balance, foster innovation, and stimulate equitable sustainability policy, which will further broaden the use of circular aluminum packaging solutions and provide continued fuel for our organic growth. In addition, Our aerospace team will continue to partner with their customers to deliver world-class solutions for some of the world's greatest challenges and opportunities. Yes, 2022 was an unprecedented year in Ball's history, and I am encouraged about our ability to deliver the year with an eye on our future. Last week, Scott and I reviewed our 2023 operating plan with the board, and our business's ability to deliver on that plan is on track. We look forward to generating free cash flow. achieving our long-term diluted EPS growth goal of 10% to 15%, deleveraging and returning value to shareholders. Thank you to everyone listening today. And with that, Carlos, we're ready for questions.
spk37: Thank you, sir. If you would like to register your question, please press the 1 followed by the 4 on your telephone. You will hear a 3-tone prompt to acknowledge your request. If your question has been answered and you would like to withdraw your registration, please press 1-3. Our first question comes from the line of George Staffos with Bank of America. Please go ahead.
spk36: Thank you. Hi, everyone. Good morning. Thanks for the details. How's it going? So I want to thank you, first of all, for all the details in terms of what you're expecting in terms of performance cadence, particularly within North and Central America. Can you give us a bit more view in terms of what your underlying assumptions are in terms of your volumes as they'll progress through the first half, the promotional activity and programs from your customers, what you're seeing in terms of innovation from customers right now. And if you were in our seats as analysts and investors in your stock and we saw something not materializing or something developed that would undermine your expectations, what would it be? Yeah, thanks, George.
spk17: So as we sit here today, the volumes in EMEA are – in line heading right out of the gate in North and Central America. They're in line. I think we're a little soft right now in South America versus my commentary on where we think the year is going to end up. The biggest element that I think misunderstood George relative to our expectations on volume and why we're a little bit more bullish is aluminum prices have come off. But that doesn't mean that's necessarily the cost position for our customers. So as they lap their head positions heading into the second quarter and the second half of the year, with the price increases that have gone into aluminum beverage packaging plus the actual costs coming off, there are significant profit pools that our customers are going to be able to step into. As I said right out of the gate, we're a heck of a lot closer to what we anticipated in terms of volume. In North America in particular, given the December fall-off on all in-consumer products, that has changed the behavior patterns initially this year with a lot more price promotion and end cap. Will that continue for the balance of the year? I would suggest it will, given the other backdrop that I gave you relative to costs. But the Europe continues to be incredibly strong. North America is off to a good start. I think there's a little bit of a wait and see in terms of the volatility in South America. But having said that, the real cost positions that some of our major customers down there will laugh in terms of hedge positions will stimulate optimism in the second half of the year. The PPI pass-through, we're in good shape. All of the cost actions and the footprint reductions that we've talked about are in good shape. Maybe I'll turn it over to Scott just for some of the positive signs relative to inflation and currency and some of the other things that are starting to move in our direction from a more stable environment. But 2023, as we sit here today, I'm feeling really confident about.
spk21: I'll touch that and then why don't you touch innovation, which was part of his question. Yeah, George, I think why we feel optimistic is we are definitely seeing input costs moderate. And whether it's European energy is not going to be as bad as what people predicted. We're largely hedged in Europe, lower than where the spot price is today. That really squeezed us last year. We're getting all the PPI passed through. We're starting to see freight rates, warehousing, lots of input costs moderating. And so as we sit here today, we feel pretty good about kind of the cost input side being in a much more stable place. You kind of had long-term rates kind of peak. Short-term rates are still ticking up a little bit, and so we'll feel that in our interest expense for 23. But we feel much better. Dan, why don't you talk about the innovation?
spk17: Yeah, reflecting on your comment and questioning around innovation, Certainly in the alcohol space, we continue to see a lot of innovation, which is a good thing because the combination of the innovation, something's going to win. As we always say, George, we don't know what's going to win. Something's going to win. But it also increases the pressure on the beer category to compete. Those two things will equate to improved volume outlook. So we're helping to fuel the innovation, number one, but we also have a heck of a lot of customers that we sell beer cans to. will benefit one way or another depending on who wins.
spk36: Yeah, we'll be hoping for more consumption during the Super Bowl and other things. My other question, I'll turn it over, thanks for all that color, is so, you know, you talked about reduced capex. That's certainly not a surprise, but that also includes your tail on spending for existing, you know, plants as they're coming up. I know it's not 24, but is there a view you can give us on what capex might look like or what the delta might look like? as we look out to 24 and 25. Thank you very much, guys. Sure.
spk21: Most of the spend this year, George, in that 1.2 are things that are already in flight. And as we've talked about, we'll have enough capital on the ground after completing these couple things in Europe. We'll be in a pretty good spot. So I would expect, although it's February 2nd of 23, I would expect in 24 we'll see that drop further.
spk17: Yeah, the internal conversation, George, quite candidly, is we've spent the capital we need to grow into over the next two to three years. We could most likely spend at DNA levels in 24 and 25. If we have a reason to invest, it will be with a strategic customer, one or two. So I think you'll start to see a much more disciplined, level-loaded capital approach relative to DNA spend moving forward. Thank you very much.
spk37: Our next question comes from the line of Christopher Parkinson with MSUHO. Please go ahead.
spk30: Great. Thank you so much. Can you talk a little bit more about North American volumes, specifically how much you believe was more just industry sell-through, specific customer stocking, and anything idiosyncratic to ball given the shutdown in Phoenix? Just anything to break down those three variables would be very helpful. Thank you.
spk17: Yeah, I think it was – It was the back half of the quarter, and it's no different than probably every other in-consumer product in the retail shelves. Customers pushing price pushed it too far, and there was price elasticity that kicked in. Beer was down the most, and I think what we're seeing is a return to more promotional activity here right out of the gate in Q1. So I think there's recognition of what happened there in the last four to six weeks of the year, which is well publicized. Since we sell to everyone in every category and every channel, we were impacted by all of that. But I can tell you there's a different behavioral pattern setting in relative to our customers and their promotional activity. So I think this will normalize and you'll start to move into a more sustainable underpinning for growth moving forward.
spk30: Got it. And just as a very quick follow-up on some of your Latin American commentary, could you just very quickly just discuss the market dynamics? Obviously, it was pretty difficult during the first half with Carnival and everything else, and then kind of easing to the hopeful World Cup rebound, which didn't necessarily materialize. But just given the easy comps on 2022 and your comments on a preliminary basis for the beginning of January, how do you believe the market will ultimately materialize throughout the balance of the year, given the low comps? just given the industry, and then also any perhaps just very quick comments on market share trends. Thank you so much.
spk17: Yeah, I will point you to the fact that the real cost that our customers have relative to aluminum cans has as much to do with their hedge positions. And in the second half of the year, cans will be the lowest cost substrates, with the greatest profit pool, and that will give ample reason for our customers to push aluminum packaging at that point. You're right, the World Cup relative to the fourth quarter, we did see an uptick, but we didn't see the uptick that we anticipated. We knew that early in the quarter, and we were reacting to that throughout the quarter. And we've got, to your point, you've got Carnival, You've got a couple of things. You don't have a COVID environment like you did last year, so there's optimism. It started off less favorable than we anticipated in South America, but it's only one month in, and we're still bullish on things getting better. better in the back half of the year.
spk21: I would just add on South America, in the first quarter last year, we will lap the customer breach that we had. So that will, you know, we won't have that volume as we look forward.
spk13: Thank you so much. Thank you. Thank you.
spk37: Next question from the line of Arun Viswanathan with RBC Capital Markets. Please go ahead.
spk39: Great, thanks for taking my question. Good morning. Good morning. Yeah, you know, obviously we've seen the destocking and, you know, some of the impact on the consumer from the inflation, and you mentioned that maybe that's turning a little bit now with the deflation in RAS and, you know, customers of yours potentially in a position to promote the product. So could you describe a little bit more what you're seeing on that front? And if you are seeing that, Do you expect – what's kind of your growth and volume outlook for NA North America this year, taking into account some of the closures you had last year as well? Thanks.
spk17: Yeah, as we sit here today, I'm encouraged by what we're seeing, and I'm not willing to come off of this early in the year, that we're planning for flat. We're planning our earnings lift and our 10% to 15% EPS growth off of flat North America until – We're more convinced that the behaviors of the customers will continue to lean into promotion throughout the year. That's where we're landing right now.
spk39: Well, maybe I can ask the question a little differently. If you think about the $400 million or so that you delivered in Q4 EBITDA, maybe there's a little bit of seasonality improvement in Q1 EBITDA. Q4-23, I imagine, could look like Q1, and then Q2 and Q3 would be up seasonally better, but still that would fall short of $2 billion of EBITDA. Is that right? I mean, what are some of the levers you guys can pull to maybe get back to that level, or is that maybe more like a 24 and 25 kind of range that we should be thinking about?
spk21: I think in the first quarter, remember, a year ago in the first quarter, things were pretty good. Our volumes were up. It looked strong. We're not going to have that kind of – And we had Russia. And we had Russia. But in North America, the volumes were good. So we won't have – we're going to have pretty tough cops in the first quarter. I think as we look forward then in the remaining quarters, we should see nice improvement year over year in each of the quarters in North America as we look forward.
spk39: Okay, great. And then just lastly, just on Europe, you know, it sounded like, you know, Europe you're somewhat a little bit more constructive on. Could you just describe that and just kind of square that away with some of the inflation that they saw? You know, last year you had some energy price inflation that was pretty stiff. So is that what's also giving you some relief and potentially pushing some volume upside in Europe?
spk17: Well, we had a really strong volume year in Europe. And it wasn't impacted, despite the end consumer being impacted with less discretionary spend, the aluminum package did really well. And I think it's more the aluminum package story and the resiliency of the can in Europe than it is discretionary spending levels that helped us. Your point is valid. So the way our contracts will work, we'll be able to pass through a lot of the inflationary headwinds that we experienced in 22. We'll pass that back. and 23. So if inflation moderates, which it has, even if it dissipates a bit, then you've got the underpinnings of volume that continues to grow at the high single-digit rate. We've got capacity coming online into major facilities that'll take advantage of that growth. And we should be able to make more money given the stability of the inflation and the fact that we're catching up in arrears on a lot of the inflationary pass-through. So we're really excited about Europe for 2023.
spk21: And just to your comment on EBITDA, I would expect, I'd be disappointed if we didn't exceed $2 billion of EBITDA in 2023.
spk38: Okay, thanks.
spk37: Next question from the line of Gamsham Benjabi with Beard. Please go ahead.
spk24: Yes, good morning, everybody. Morning. Morning. So, Dan, just kind of building off your recent comments, you know, you've been quite vocal about how higher beverage prices have pressured volumes along the supply chain, including at your end. How much do you think volumes were impacted in 2022 just based on the dynamic in beverage North America? And as it relates to your comment on Europe resilience, was that also boosted in 2022 by just the comparison from, you know, the reopening across Europe relative to the prior year? And do you still see sort of that momentum continuing into 23?
spk17: Yeah, I'm not entirely sure your first question I could parse out that Delta. I will tell you where it had an impact and where we'll be able to point to it is in the fact that it's really the promotional activity during the peak season that we didn't see any of last year. We still grew a little bit, I would probably go back to sort of that 18, 19 range of growth that we saw. And I would put that up against what we actually saw in 22. And I would say that delta, just speaking out loud, is probably what we lost out on because of a lack of promotional activity in the peak season. So maybe 1% to 2% during that period. which, as you know, that last billion cans is kind of where you make your money at the end of the year in a fixed-cost business. So, yeah, let's see. Right now we're off to a good start relative to how the beer companies are promoting and how our customers are looking at what they need to do from their elasticity curves have changed here in the last four to six weeks.
spk21: But I would say in Europe, gosh, the sustainability push in Europe is not slowing down. And I think that will help. We know how many can-filling lines are going in Europe in the next couple of years. And so that's why I think we're bullish on the outlook for Europe.
spk17: I think the reopening, if anything, would have slowed our growth because the on-premise is overwhelmingly kegs. And so... despite that return to on-prem, we're still growing at the high single-digit rate. So I continue to be bullish about what's happening in Europe. I've said this a number of times, and I think I've said this to you. I'm most bullish on Europe in the medium and the long term. The short term, obviously, they have to figure out energy. That'll impact every industry, every business. But for us, the sustainability underpinnings are tremendous. And We're excited about these new assets that we're ramping up here in the first half of the year.
spk24: Okay, that's clear. And then for the second question, you know, on the 200-plus million net price cost recovery guidance for 23, how do you anticipate that will flow through the various beverage can segments? And then separately, did you give a working capital number for 23 in terms of year-over-year movement?
spk21: Great. For 2023 working capital, we expect to get to that $750 million of free cash flow. We expect working capital to be a source around a little over $300 million. Okay.
spk17: And on the net cost pass through net recovery, it's overwhelmingly Europe and North America, and it's 60% North America, Scott, and as he's nodding. and you'll see in Europe it comes in in a more linear fashion over the quarters, and in North America you'll see probably 60% of that coming in in the second half of the year. July 1 is a big date for lapping one particular customer contract.
spk22: Fantastic. Thanks so much.
spk37: Next question from the line of Anthony. Pettinari with Citi. Please go ahead.
spk45: Good morning.
spk33: Just following up on Gancham's last question, you reaffirmed the 200 million inflation recovery target. Scott, you mentioned inflation and energy coming in lower than expected, maybe in some cases materially. I'm just wondering if that's something that would cause you to raise that 200 million target or maybe it's too early in the year. Or do you think about sort of the benefits of those lower costs in a different way, or is there a lag? Just wondering how we should think about that.
spk17: I'll answer it, and then I'll let Scott give you a more detailed answer. We'd prefer to be heroes in December than all-stars here on February 2nd. But, Scott, go ahead.
spk21: No, that's what I was going to say. It's only February 2nd. I mean, I think the optimism we're feeling – is that it appears a lot of the trends are more helpful to us. And so all those things will be beneficial, but we've got to see how volumes show up. That's the big wild card. We're getting out of the gate in a more positive and constructive way, and we're building our plan on a more conservative basis. But we'll see. But definitely things seem to be turning into a little more tailwinds than headwinds that we had last year.
spk33: Okay, that's helpful. And then just a few quick followups on, on Latin America, you know, with the footprint actions in Brazil, I don't know if there's a kind of a finer point you can put on the cost savings there. And then maybe just, you know, where your operating rates will be in Brazil. Um, you know, once that's completed and I guess just one last one, if, if how you'd characterize the South American businesses, ex Brazil, um, how they're doing.
spk17: Yeah, there are, uh, ex-Brazil, they're quite resilient. Even with the inflation levels that you're seeing in Argentina, our volume was up double digits in that country year over year. So it's incredibly resilient. Chile's performing well. Paraguay very well. Some of the other areas that we export into continue to perform well, despite all of the geopolitical turbulence and the inflationary pressures you see in there, that's holding in. And that team's doing a wonderful job managing all of those challenges. In Brazil, it's less about the cost savings relative to the expenditures. Obviously, labor is incredibly cheap there. So, yeah, you shutter a facility, you're not going to see near the savings that you would in a Europe or a North America. But operating – And a tighter supply-demand environment gives you the ability in your other facilities to keep them full and to run them full out. And that generally benefits efficiency levels, reduces spoilage, all of the things that we're asking our plants to do and manage on a day-to-day basis. It gives them a greater ability to do that, manage their quality aspects, stay in touch with customers, manage their supply chain more effectively. So that's where you see the savings and the benefits and the earnings profiles. being impacted in South America.
spk32: Okay, that's helpful. I'll turn it over.
spk17: Thank you.
spk37: Next question from the line of Adam Samuelson with Goldman Sachs. Please go ahead.
spk31: Yes, thank you. Good morning, everyone. Good morning. Good morning. So I guess the first question is thinking about the demand side, maybe coming back into North America and Danny's got your comments on, hey, January's had a better start, maybe seeing some pickup in promotional activity. Your comments seem to be a bit more focused on beer as a category versus CSD or elsewhere, and I'd love to just get your perspective on are you seeing that change in customer behavior and promotional intensity across all categories, or is it right now exclusive to beer? And corollary to that is, in discussions with customers across different beverage categories? Is there anywhere you're seeing kind of a step up in innovation and new product introduction that is giving you more optimism?
spk17: Yeah, I think it's a really good question. Beer is being more aggressive on the promotional activities because beer had the most precipitive drop-off in volume. So it correlates. you know, in the magnitude of the volume declines in terms of the promotional activity. So, yes, you're seeing it across every single category because every single category was down in the last six weeks of the year. But it's certainly more pronounced, and that's probably a recency bias in my comments or relative to really a really nice uplift in beer right out of the gate. Some of it is attributed clearly to the Super Bowl. As we're two weeks out now, you always see some promotion and some lift there. But it's more pronounced than that. from a historical standpoint because of the volume fall off. And on innovation, I made this comment earlier on a question, but maybe I can dive into it a little bit more. There's innovation in every category, but the most innovation, and this has been a consistent thematic here, with the exception of that accordion effect relative to COVID where there were less skews, just trying to get cans out the door. But As the large CPGs become beverage companies, they're leaning heavily into alcohol and mixers and those types of cocktails. And that's where innovation is really stemming. And you'll continue to see that for the foreseeable future. And those are most of what we expect to see here in 2023. There are other things obviously being worked all the time that are, but What I know is planned for retail shelves is going to largely fall into cocktails and innovation and around that for the can.
spk31: Got it. And then I appreciate you gave different segment level detail for the different can businesses. I'm not sure if I missed a view on the aerospace performance for the year and where you think that's tracking.
spk17: Yeah, so for 2023, we will exceed 15% earnings growth. Actually, right now, as it's shaking out, we're north of 20. So we will see. We're beginning to step into the backlog that we've won through the years and starting to see repeat builds. Our defense platform is executing really, really well. And I think we navigated some choppiness in terms of supply chain in 22 that has stabilized. So as we sit here today, we should see a much improved operating earnings performance from our aerospace business.
spk31: All right, great. That's a helpful call. I'll pass it on. Thank you.
spk37: Next question from the line of Phil Ng with Jefferies. Please go ahead.
spk28: Hey, guys. How are you doing? Good morning. Good morning. Appreciating earnings will be a little tougher in the first quarter and likely down. Do you have enough levers where earnings will be up year-over-year in 2Q? I think you're targeting 10% to 15% earnings growth for 2023. Is that predicated on the 4% volume growth you were mentioning, or is that more of a flattish backdrop like you previously guided to?
spk21: I think we'll start to see momentum in the second quarter, definitely. It depends on vibes, but As things kind of roll in, we get some PPI pickup here in the first quarter, but as Dan mentioned, the bigger chunk of it comes in the second half of the year. First quarter will definitely be softer year over year, given some of the challenges. We're still working through some of this inventory, both in North America and in South America, so that's where you'll see most of that impact. But that I would expect in North America we'll see nice earnings improvement as we get into the second quarter and year over year as we look through the rest of the year.
spk17: You should see sequential improvement, right, 2Q, Q3, Q4 throughout the year, both with the PPI, the fixed cost savings. And keep in mind, 2Q from a volume standpoint was quite challenged in North America, and so – we get a little modicum of promotional activity there in the peak season, then I think our plans, as Scott indicated, they're more on the conservative side. Where we would need volume in order to achieve our plans is Europe, because we are opening up two facilities there. But Europe has been the most resilient, and the anchor customers are the most resilient that are going to be the tenants of those facilities.
spk28: But just to be clear, guys, to hit your 10% to 15% earnings growth, do you need 4% volume growth, or is it more flat? Because I thought at the analyst day, the messaging was more flat, and we still can get to, like, 10% to 15%.
spk21: In North America, it's flat.
spk17: Global, it's 4%. North America, it's flat. Mid to high single digits in Europe, mid single digits in South America. That's how we get to the 4%.
spk28: Yep. Okay. And then on – Latin America in general, certainly Brazil has been really choppy, and there's certainly some social unrest. What gives you confidence to kind of deliver the mid-to-high single-digit growth in 2023, which has been a pretty tough environment for some time, especially Brazil? Any contractor perennial in 2023, 2024 in that Brazilian market?
spk17: No. We have no open contracts heading into 2023 and 2024. The resiliency relative to South America is going to be the stabilization. First of all, lapping the contract for each in Q1. And then the actual cost position of our customers down there will have the aluminum package being the most cost-advantaged product in Brazil in particular with that customer base.
spk29: Okay. Appreciate the color, guys.
spk17: Yep.
spk37: Next question from the line of Angelica's CEO, Morgan Stanley. Please go ahead.
spk40: Morgan Stanley Hi, thanks for taking my question. In just a quick little near-term one, assuming that you talked about kind of full-year volume growth across the different regions, could you give us a similar walk for what that 1Q number is and how you're kind of thinking about it across the region?
spk21: I think 1Q in total will be down. Again, we had, you know, pretty good growth in Q1 last of 22. And so I think we'll be slightly down in Q1 in total.
spk17: Yeah, I'd say in North America, you'll be flat. In South America, you'll be flat because of the customer breach. So we'll be lapping that. Flat would actually be growth on an apples to apples basis. So we could be a little plus, a little minus there. And we'd expect to be You know, that high single digits growth, mid to high single digits for Europe, that will be a linear number throughout the year. You'll have more opportunity to grow in the back half because of the two facilities that are coming online. But you should see growth right out of the gate in Europe. And then flattish in the other two regions for the aforementioned customer breach and the market dynamics that exist right now in North America.
spk40: Got it. That's very helpful. And then just curious, as you think about the ranges that you gave for the full year, I guess maybe I'm reading too much into this, but South America, Europe, and others seem to be a little bit of a wider range, whereas North America, flat, I think, if I've kind of heard it correctly, flat to slightly down, seems to be a little bit narrower, but this also seems to be an area where, or the region where we've seen maybe some of the more or bigger deterioration throughout the last few quarters. So you kind of mentioned liquor and cocktails as one area of potential growth and promotional activity. But how much of this, I guess, what gives you comfort to have a narrow range there, you know, as you think about the year progressing? Is some of that fossil liquor-related volume, the degree of visibility, is it there? Is things contracted? Like, I guess, yeah, just what gives you comfort in that kind of narrow range? Sure.
spk17: Yeah, well, I mean, flattish, that's not the narrowest range we've ever given, but I appreciate the question. I would say optimism to tighten the range in North America is that we plan on a much more conservative environment. And one thing that I think is important to underpin this business and this industry in particular, we're generally the first to go into the recession, and we're generally the first to come out. And what we need is to see what happened over the last four to six weeks was the elasticity curve on volume and price for our customers has been broken. And now you're seeing volume come off. That means you have to return to some level of promotional activity. That's good for the can. So for North America in particular, we've got a big business. We're with all the customers. It gives us some foothold in understanding the market dynamics of The contracts are secured. We know what we have heading into the year. Could it be up a little, down a little? Yes. That's not going to have an impact on whether or not we can deliver our 10% to 15% EPS target.
spk21: I would also say, I mean, it's been more volatile in the last few years, no doubt. Historically, North America has been more predictable. South America has always had a wider range just because volumes can move around a lot. Those economies are more volatile. And so you could see much, you could see outpaced growth at times and you could see bigger declines at times. So South America has just always been a more volatile region. And despite the dance comments, I mean, you would think with a hundred percent inflation in Argentina, that would be a big negative for cans, but cans grew double digits last year. So It's a little tougher to predict in a place like that.
spk40: That's very helpful. And if I may, just kind of a quick little follow-up on that. I think one of the areas that historically in recessions has helped is, you know, the customer, you know, pairs back maybe how much they're spending on-prem. Some of that off-prem starts to be biased toward cans and health. Have we seen some of that already, or is that still a potential upside as we think about the near term and the customer?
spk17: Yeah, we haven't seen that particularly, but you're exactly right. Those are the early signs and signals that's when you know you're on the uplift coming out. And we've seen the first stages of promotional activity starting. We haven't seen them steering on-prem versus off-prem, but that usually is the next lever to pull. You're exactly right.
spk40: Thank you so much.
spk37: Next question from the line of Mike Roxland with Truist. Please go ahead. Thanks, Dan, Scott, and for taking my questions.
spk43: Sure, Mike.
spk27: Just one quick follow-up. Dan mentioned the weakness in beer, and obviously you experienced it firsthand. We all saw that in the Nielsen data with beer volumes being very challenged late last year. How are you thinking about your exposure to beer at this juncture? Sure. Is it still a core end market? And given what's occurring in beer, are there any opportunities for you to diversify your mix?
spk17: Yes, there's always an opportunity. We're constantly looking at our portfolio and our customers. And how we look at it, Michael, it's a great question. So I look at brand owners and brand builders. And the other thing is we may be talking to Or we may have a portfolio of historical beer customers, but those historical beer customers are moving aggressively into other things from an innovation standpoint. So within the portfolio of some of our customers, we like the fact that they're acquiring products, that they're innovating products, and that they're pushing new innovations. You're right. I mean, there is volume ascribed to beer, and there's big volume ascribed to beer, and that's always going to be an underpinning of us within a volume business. But as that beer skews to other drinks and other alcohol profiles, it'll be a tradeoff within their portfolio. We're selling them the cans. The label they want to put on it doesn't matter to us. We just want to be with the winners on the brand side.
spk27: Got it. That makes sense. And then just quickly, can you comment on any additional portfolio rationalizations or temporary closures you may be contemplating? And I think last quarter you indicated that you had taken all the actions you needed to with respect to plan closures. But then there was an interesting publication came out with some details, I guess, in December about some temporary closures in Brazil. I think you highlighted it broadly in your press release as well. So, you know, first question, are those closures in Brazil temporary or permanent? And then second, quickly, just, you know, given the volatility in Brazil over time, and certainly worse in the last few years, can you walk us through the investment case as to why investing in Brazil makes sense, or really doesn't at this point?
spk17: Yeah, so I would look at the region's Depending on what's permanent and what's temporary, a lot of times labor laws dictate that. And I would tell you in North America and South America, we've always managed our supply chain. So we will curtail lines. We'll have temporary shutdowns. That's more reflective of the conditions with which we are managing supply. Our South America plant, I think it was mischaracterized as to what we were doing with that. It's a temporary closure for now, given the existing conditions and economic conditions in Brazil. It's no different in the analysis, right? It's EVA. We do have a larger risk profile. and hurdle rate in places that are more volatile like a Brazil. So that's already embedded. So it's going to be the length of the contract, the substantive nature, and the economic underpinnings of that contract and whether or not we believe we can generate EVA. I don't know, Scott, if there's anything there relative to Brazil.
spk21: Yeah, I mean, Brazil over a long period of time has been a really good place to invest. The can, you know, the can as a share has grown in all of the markets that we've operated. It does tend to be a more volatile region, and so you have to live with that volatility. But over the long run, it's been a great place to invest, and we expect it to be a really good place going forward. It is not without its challenges, but that's part of why you can make some pretty good money there too.
spk27: Got it. Thanks for all the color, and good luck in 2023. Thanks.
spk37: All right. Thank you, Michael. Next question from the line of Adam Josephson with KeyBank. Please go ahead.
spk26: Thanks, Dan and Scott. Good morning. Hope you're well. Good morning, Dan. Dan, one on back to North America. So your long-term target is two to four. Last year, you were down a touch. You're seeing the beer companies promote more. So it sounds like you're encouraged about what you're seeing in January, yet you're expecting flattish shipments. So that would be two years in a row. a lot of shipments compared to that long-term target of two to four. I guess just given the low base and the promotional activity you're seeing, why are you not expecting more growth in North America, particularly given your long-term target? I'm just trying to understand if there's something I'm missing.
spk17: No, I just think it's earlier in the year, Adam, and we've seen a couple weeks' worth of promotion that's That's not enough for us to get overly excited that we'll return to some modicum of growth. And, you know, candidly, the inflationary, all of the things relative to a soft economy are still present. I think the can will do well. I think you'll see trajectory in the second half of the year that will be helpful if these promotions continue. I'd love to come back to you in six months and say, hey, we're right back on track with the two to four. But as we said here today, I don't have enough data points to say that that's going to happen in 2023.
spk21: But over time, you know, we're still kind of in the post-COVID adjustment period, I think. And 23 will kind of – I think 23 will kind of be the end of that. And I would expect those historical rates that we saw before COVID with sustainability tailwinds and all those things, those aren't going away. Those are going to continue. And so that's why we think longer term those growth rates make sense. But we're still kind of in a – in a period where we're getting through COVID and now through rapid inflation, and we're starting to see things settle down. And that gives us more optimism, I think. No, I hear that.
spk26: Just one follow-up to that, which is I know you shut to plants. I think that was about 8% of your North American capacity middle of last year. So you were down 0.3%. You're expecting to be flat this year. Do you think the market grew dramatically? by more than what you were... Did you underperform the market last year? Do you expect to underperform the market this year? Can you just give me any sense of how you think you're performing in terms of North American volumes versus the broader market?
spk17: Yeah, I think we have... It's a great question. Probably a tick underperformance relative to the market because of the size of our beer portfolio. And that was the most distressed category last year. So that certainly had a knock-on effect The good news is if that area reverts back to more positive promotional activity, then we should be the beneficiaries of that shift moving forward.
spk21: And remember, the impact in a market is going to be dependent on who's bringing up capacity, who's turned on new capacity. You know, in Europe this year, we'll probably outperform the market because we have facilities coming online. So those kind of things. you know, can happen quarter to quarter, year to year. We don't focus on market share. We focus really at the dance point on being with the right customers, the customers that are innovative, the customers that are growing, that are using the can. We focus more on that versus market share. Right.
spk26: No, I get that. So if you end up flat, would it be unreasonable to think that the market would be one-ish just using that logic? Yeah.
spk17: Yeah. I think that's right. I think that's right, Adam. I think you're thinking about it the right way. Yep.
spk26: Okay. And thanks. And Scott, just on the working capital, I think Donson asked about it, that you're expecting a $300 million source. Can you just help me with where that's coming from just compared to what you dealt with last year? Is it coming from any particular place in particular or across the board improvements that you're expecting?
spk21: Mostly inventory, Adam. We still have too much inventory, and that's what we need to work off. So we've got a lot of cash, if you will, sitting in our inventory. And so as we roll that off, we'll be able to generate a lot of cash from it. That's the biggest chunk.
spk26: Got it. Thanks. And just beyond that, so if that working capital normalizes and the capex ends up equivalent to DNA, are there any other swing factors that you would point out as we think about free cash flow beyond 23, lower capex.
spk18: And earnings expansion. Right. Yep. And earnings expansion. Yep. You got it. You got it. Okay.
spk17: Yeah. And we've got really good line of sight, Adam, into it's both raw material and finished goods. We've got really good line of sight. We're working that every single day right now. So we're confident about that source of cash this year.
spk01: Thanks, Ben.
spk17: Carlos, we'll take one more.
spk37: All right, sir. Last question from the line of Kyle White with Deutsche Bank. Please go ahead.
spk25: Hey, good morning. Thanks for squeezing me in here. I just wanted to better understand kind of the bridge to 2023 earnings and I believe the $200 million improvement in comparable operating earnings that you called out. You have the $200 million in net inflation recovery. You have the $150 million in cost savings, partially offset by, call it, $85 million from the Russia business. But that's still about $250 to $265 million of improvement before we have any volume growth. I guess what are some of the major headwinds here that I might be missing in the bridge?
spk17: And the rise in interest rates, interest expense.
spk25: All right, got it.
spk21: And then on the $200 million inflation recovery that you guys talked about, it seems like it's mostly... Going back to your past comment, though, while inflation is moderating, the base cost... So energy costs in 23 are going to be higher than they were in 22. We're just passing them along. But there are things that are built into our plans that are negatives from a cost perspective. And so that's why you got to, you can't just talk about all the positives. There's always stuff that go the other way. And so the balance of those is how I get to my number.
spk25: Right. I guess I was assuming that the net inflation was trying to net for maybe the incremental inflation that you're seeing, but maybe that's not the right way to look at it.
spk20: It's really the net of what we expect and,
spk25: Okay.
spk21: Um, but that's, again, that's just inflation, right?
spk25: Yep. Makes sense. Um, sticking, sticking on that point. So it seems like a large portion of that recovery, the 200 million inflation recovery is in North America, but it doesn't happen just given the contractual time until July. Um, correct. I know it's a day.
spk17: Yeah. 60% of it's in North America, the other forties in Europe.
spk25: Yep. Okay. I appreciate that. That's very helpful. I know it's early days, but do you have a sense of how much of that benefit could actually continue to flow into 2024 in North America?
spk20: Oh, it stays. It doesn't go back the other way. It stays.
spk25: Right.
spk21: The perfect scenario for us is you get a pretty sizable PPI increase and your costs actually go down.
spk17: Effectively, what would happen, your questions, you're thinking about it the right way, so You pass through inflation a year in arrears. If inflation moderates or dissipates, you hold on to that margin expansion for the following year. It was just the opposite of that the past two years for us. But if things come off and energy prices, et cetera, et cetera, come off after we put through the existing cost, then that would be carried into parts of 24. You're right.
spk25: Got it. Sounds good. Well, everything looks much better from a price-cost standpoint going into this year versus the challenging last year, so good luck with the balance of the year.
spk21: Right. Thanks very much. Well, we're glad to be done with 22 and excited about 23.
spk17: Well said. Carlos, and with that, we'll close the call and look forward to talking to you at the end of the first quarter. We are excited for 2023, and we've got the teams and the plans in place to execute, so we'll be following up and iterating on those plans as we move forward. I look forward to the next time we get together. Thanks.
spk37: That concludes today's call. We thank you for your participation and ask you to please disconnect your lines.
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