Crown Holdings, Inc.

Good morning and welcome to Crown Holdings' second quarter 2020 conference call. Your lines have been placed in 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. Thank you. You may begin.

Thank you, Louie, and good morning. 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 $0.94 per share compared to $1.02 in the prior year quarter. Comparable earnings per share were $1.33 in the quarter compared to $1.46 in 2019. Net sales in the quarter were down from the prior year due to the impact of the coronavirus pandemic on unit volumes, the pass-through of lower material costs, and $73 million of unfavorable currency translations. Segment income of $322 million in the quarter was below prior year due to the impact of the pandemic on sales and operations and $11 million of unfavorable currency translation. At the end of the quarter, the company had over $1.8 billion in liquidity between its cash balances and borrowing capacity under the revolving credit facility, and the net leverage ratio of 4.7 times was well within the covenant requirement of 5.75 times. As outlined in the release, we currently estimate third-quarter adjusted earnings of between $1.50 and $1.60 per share and full-year adjusted earnings of between $5.10 and $5.25 per share. These estimates assume exchange rates remain at their current levels and a full-year tax rate of approximately 26 percent. We currently estimate 2020 full-year adjusted free cash flow of approximately $475 million with approximately $600 million in capital spending. And with that, I'll turn the call over to Tim.

Thank you, Tom. Good morning to everyone. Our continued best wishes for the health and safety to all of you and your families. Before reviewing the operating segments, I want to again take a moment to thank You are needed, you are critical, and you are essential to ensure that the global food supply and transportation support systems that so many take for granted operate without interruption. We know that many of you have been directly impacted by the virus, and we continue to take measures and ask you to follow strict From the beginning, our primary concerns have been the health and safety of our employees, their families, our customers and suppliers, and ensuring the liquidity of the company in order to maintain operations and support the essential needs of our customers. Again, thanks to all of you. When we last spoke to you in April, we described what we believed was going to be a challenging second quarter. In late March, early April, significant demand contraction was evident in our non-North American beverage can businesses. Fortunately, demand in those markets has snapped back and a few weeks earlier than expected. The challenge now is meeting the outsized requirements of our customers as they look to rebuild their supply chains after several weeks of mandated shutdowns. From now until the end of the year, and in almost every market where we produce, cans will be in short supply. the addition of two new beverage can production lines in North America. These projects originally scheduled to commence in 2021 have been accelerated into 2020, and as such, our capital requirements have increased back to the original $600 million estimate we provided to you in February. In America's beverage, overall unit volumes declined 3% as strong demand in North America was not enough to offset early quarter weakness in Latin America. Our North American shipments were up 16% as we utilized open Latin American capacity to fulfill U.S. customer demand. Beginning in mid-May, customers in Latin America returned to full operations with demand now far outstripping production capacity. We fully expect the TANs available to support North America in 2020 will not be available in 2021 as those Latin markets return to normal demand patterns and as such have brought forward our plans for the second line in Bowling Green as well as the third line in Olympia, Washington. And while the second quarter was short of the same 2019 period, we expect the second half of 2020 will show growth versus 2019. European beverage, down 38% to the prior year at segment income, reflects demand weakness across all operations except for Saudi Arabia and the U.K. The demand slowdown we began to see in March resulted in overall volumes being down 12% in the quarter, as our operations in southern Europe, that is Greece, Italy, Spain, and Turkey, all suffered from low economic activity, lower expected tourism, and lower consumption during the quarter. Currently, customer activity is strong, and as is the case in Latin America, demand is far more than production capacity. The supply chain and the can is Because of this, we do not have the ability to make up months of demand in a shorter time period. Frustrating for Crown and many of our customers, but perhaps if we are ever faced with such severe demand contraction with the possibility of such a sharp recovery, that we and our customers will find a way to fairly distribute carrying costs so that inventories are available when needed. Our engineers were able to complete the conversion of our beverage can plant in Seville to aluminum, adding much needed capacity to the system. We expect the third and fourth quarters to outpace the prior year respective quarters. Sales unit volumes in European food advanced 10% during the quarter compared to a soft 2019 period. Initial plantings were low this year due to customer concerns over a shortage of necessary harvest labor. However, we are three weeks into July, and demand remains very strong, the weather looks good, and all signs currently point to good third quarter crop yields. Build inventories are expected to be very low from the 2020 season, and when combined with what our customers believe to be a more permanent consumer return to the food can, We expect full-year segment earnings to be slightly ahead of the 2019 level, implying that we will more than make up for the headwind of first quarter inventory carrying costs. Sales unit volumes in Asia Pacific declined 7% in the second quarter. Shipments in China were up 11% and reflect that country's apparent pandemic recovery. while Southeast Asia, with volumes down 10%, struggled in April and May as alcohol sales were prohibited across many locales to curb the spread of the virus. We expect gradual improvement in the third and fourth quarter as demand picks up across the region. Commissioning of the new beverage can plant in Nankai, Thailand, was completed within the last two weeks, and we are currently in customer qualification. Demand for consumables, that is strap and film, began to show recovery in June, although our higher margin equipment businesses are still impacted by an inability to access customer sites in many cases. We expect income improvement in the back half of the year versus the second quarter, with significant income improvement expected in 2021. Demand was firm in our North American food business, almost fully offsetting weakness in global aerosols. In summary, it was not the quarter we envisioned at the beginning of the year. However, our teams did an outstanding job maintaining productivity and efficiencies in such a challenging environment. As Tom noted, we've reinstated guidance for the third quarter and full year based on what we see currently. Despite the pandemic, we came within 5% of last year's currency-adjusted second quarter earnings performance, and we currently expect full-year adjusted earnings this year, and with significant liquidity, we continue to invest in capital projects where we see opportunities for growth and productivity improvement. And with that, Louie, we are now ready to open the call to questions.