Crown Holdings, Inc.

Good morning and welcome to Crown Holdings' first quarter 2020 conference call. Your lines have been placed on a listen-only mode until the question and answer session. Please be advised that this conference is being recorded. I would now like to turn the call over to Mr. Thomas Kelly, Senior Vice President and Chief Financial Officer. Sir, you may begin.

Thank you, Kath, and good morning. With me on today's call is Tim Donahue, President and Chief Executive Officer. On this call, as in the earnings release, we will be making a number of forward-looking statements. Actual results could vary materially from such statements. Additional information concerning factors that could cause actual results to vary is contained in the press release and in our SEC filings, including in our Form 10-K for 2019 and subsequent filings. Earnings for the quarter were $0.65 per share compared to $0.77 in the prior year quarter. Comparable earnings per share were $1.13 in the quarter versus $1.05 in 2019. Net sales in the quarter were flat versus prior year as increased beverage can volumes were offset by $40 million of unfavorable currency translation and the pass-through of lower raw material costs. Segment income of $298 million in the quarter was below prior year as the global tin plate businesses, as expected, were negatively impacted by $34 million related to the carryover of higher price steel from the year-end 2019 inventory. At the end of the quarter, the company had over $1.5 billion in liquidity between cash balances and borrowing capacity under its revolving credit facility. The net leverage ratio of 4.5 times was well within the covenant requirement of 5.75 times. As discussed in the release, we are withdrawing our previous financial guidance. With respect to free cash flow, we do have some discretion with capital spending and in certain other areas, and our goal is a number approximating our original guidance of $600 million, although that is dependent on the duration of the social distancing measures. With that, I'll turn the call over to Tim.

Thank you, Tom. Good morning to everybody, and thank you for joining us on today's call. Our best wishes for the health and safety go out to you and your families. Before reviewing the operating segments, I want to thank all of our fellow employees for their dedication during these trying times. Your efforts ensure that our customers in the food, beverage, and transportation industries are able to deliver their products and services that are vital to our customers and ultimately consumers around the world. To our factory employees who day in and day out manufacture the products that are so critical to the global food supply and transportation support systems, not only do we appreciate your skills and efforts, you are an inspiration to all of your fellow employees. You know, when I first joined the company, someone once said to me, there is hard work and then there is work on a can line. And any of you who ever spent time at a can plant certainly understand that. So when you take really hard work combined with the fear that many feel during this pandemic, a company can only perform with great people. And at Crown, we have great people. The health and safety of our employees, their families, our customers and suppliers remain our primary concern. In early February, under the leadership of our Chief Operating Officer, Jerry Gifford, we established a coronavirus, now COVID-19, task force. Among many measures, the task force implemented visitor and travel restrictions, required pre-entry temperature checks for all employees and visitors at each facility, developed social distancing and sanitization processes, enabled employees to work from home where possible, and developed an action plan when the company becomes aware that an employee may have been exposed to, exhibits symptoms of, or has a confirmed diagnosis of the COVID-19 virus. Like many companies, Crown is doing its part to ensure the supply of necessary equipment to help in the fight against the virus. CMB Engineering, our beverage can equipment business in the UK, is participating in a British National Health Service program to build ventilators needed in that country. We have partnered with a ventilator manufacturer to help in the production of parts for portable ventilators, with 350 units shipped already and an additional 5,500 to follow. Additionally, our transit packaging division has been utilizing its 3D printing capabilities to provide critical PPE to first responders in Monterrey, Mexico, and in multiple locations to employees throughout the company. While first quarter performance was strong despite the initial pressures from social distancing measures, the uncertainty surrounding the severity and duration of the virus precludes us from projecting financial results with any reasonable confidence. Therefore, we have withdrawn our previously issued guidance for the year. We will do our best to tell you what we see in each of the businesses currently, but the dynamic nature of the crisis makes it challenging beyond that. Our primary points of focus remain ensuring employee safety, meeting customer demand, and ensuring adequate liquidity to operate and grow the company, all of which we believe lead to enhanced and sustained shareholder value. We remind you that the pass-through of lower raw material costs, that is tinplate steel down mid-single digits and delivered aluminum down more than 10% from last year, will offset unit volume growth on the revenue line. Additionally, and as Tom just discussed, first quarter segment income was negatively impacted by $34 million, or 19 cents per share, as we carried higher priced tinplate inventories into 2020 from 19. Turning to the segments. In America's beverage, overall unit volumes advanced 15% in the quarter, with North America up 16%. North American shipments accelerated in March, and demand remains very strong in April. We expect the North American market will remain sold out in 2020. As previously discussed, the third line in Toronto began commercial shipments in late January. While the startup of the third line in Nichols is now delayed until early June, a result of the virus pandemic. During the quarter, we announced and broke ground on a new state of the art beverage can facility in Bowling Green, Kentucky, commercial startup scheduled for late Q2 2021. In Brazil, can sales were up 9% in the quarter. However, shipments were down 8% in the month of March, and we expect April and the full second quarter to be well below that. With rising unemployment and declining incomes, Brazilian consumers are reshaping their spending behavior and beer demand has softened considerably. Beer consumption is a social activity and nowhere is this more prevalent than in Brazil where 70% of beer sales occur in the food service channel. Our base scenario is for sharp demand contraction in Q2 followed by some improvement in the third and fourth quarters. Unit volumes in European beverage increased 5% in the first quarter, despite both can lines and the Seville plant being down for conversion. Gains were realized across most operations in the quarter, although we began to see a slowdown in demand in the month of March, notably in Italy, Turkey, and the UK. The situation we expect will continue through the second quarter. Sales unit volumes in European food were flat in the first quarter against a strong comparable 2019 first quarter, with the month of March increasing 1% over the prior year. While it's difficult to gauge the success of the annual food can campaign from first quarter demand, we do expect demand to accelerate in the second quarter. All signs point to strong can demand for the full year as fillers look to replenish depleted filled stocks. First quarter segment income was impacted by 18 million of higher-priced metal carried into 20 from 19. Shippens in Asia Pacific advanced 3% in the quarter, as 6% growth in Southeast Asia offset a 20% decline in China. The new plant in Nankai, Thailand, remains on schedule to begin commercial operations in the third quarter of this year. In the month of March, shipments in China were up 10% as that country began its initial recovery from COVID-19, while Southeast Asian shipments declined 5%. In the second quarter, we expect canned demand in China to return to normal levels and remain so through the balance of the year. However, we expect Southeast Asia will be significantly below the prior year's second quarter as the full impact of social distancing measures takes effect. We do expect demand will gradually improve from second quarter lows in the third and fourth quarters, but still be below the prior year. Sales and transit packaging declined 8% in the first quarter, with the pass-through of lower raw materials accounting for 2.5%, lower overall volumes 3.5%, and currency 2%. Trends in the month of March were similar to the full quarter. To date, the business has performed well with plastic strap and protective, offsetting much of the volume decline in the equipment and tool businesses. We do expect lower demand from some of the industries we serve for some period of time, and we are taking actions to better align our transit cost structure to the current situation. Demand was firm in the non-reported tin plate businesses, with North American food shipments up 5% in the first quarter. The outlook is for continued strong demand for the end of the year. First quarter income in these businesses was impacted by 16 million of higher priced tin plate inventories carried over from 19. In summary, it's going to be a challenging year for all of us. In addition to our people, we derive strength from our product and geographic diversity operating all but two of our 239 factories across 47 countries. Crown has been a truly global company for more than 100 years of its near 130-year history, surviving two world wars during that time. As I heard someone say the other day, the only thing that is certain is uncertainty. However, we continue to operate and deliver products to essential businesses, generate significant cash, and have a very manageable debt maturity profile and adequate liquidity to continue to execute our long-term strategy. And with that, Cath, we're now ready to take questions.