Crown Holdings, Inc.

Good morning and welcome to the Crown Holdings' fourth 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, Kirby, and good morning. With me on today's call is Tim Donahue, President and Chief Executive Officer. If you don't already have the earnings release, it is available on our website at crowncorp.com. 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 $1.12 per share compared to $0.64 in the prior year quarter. Adjusted earnings per share increased to $1.50 in the quarter compared to $1.04 in 2019. Net sales in the quarter were up 6% from the prior year, primarily due to increased beverage and food can volumes. Segment income improved to $397 million in the quarter compared to $285 million in the prior year. due to higher sales unit volumes. As outlined in the release, we currently estimate first quarter 2021 adjusted earnings of between $1.35 and $1.40 per share and full year adjusted earnings of between $6.60 and $6.80 per share. These estimates assume exchange rates remain at their current levels and a full year tax rate of between 24% and 25%. We currently estimate 2021 full-year adjusted free cash flow of approximately $500 million with approximately $850 million in capital spending. Dividends to non-controlling interests are expected to be approximately $100 million. We expect full-year 2021 adjusted EBITDA as defined in the release of approximately $2 billion and year-end 2021 net leverage of approximately 3.5 times. With that, I'll turn the call over to Tim.

Thank you, Tom, and good morning to everyone. Our continued best wishes for the health and safety to all of you and your families. Before the reviewing the operating performance for the fourth quarter and the full year 2020, we want to again express our appreciation to our global associates for their continued efforts during the pandemic. Your efforts to meet the unprecedented demand from our customers in a safe and timely manner has been exceptional and we thank each of you. And we ask you to please remain vigilant in your adherence to recommended behaviors to ensure your safety and the safety of those around you. As described in last night's earnings release, 2020 was an outstanding year for the company. Record performances in segment income, EBITDA, cash from operations, and earnings per share were achieved in 2020 and 2021 will be even better. At the same time, the company continues to invest for future growth with more than 15 billion units of annualized beverage can capacity, having been commercialized or announced for commercial startup from 2020 through the end of 2022. The major projects are detailed in last night's earnings release, so we won't repeat them here. In America's beverage, demand continues to outweigh supply, and we have eight production lines including three new plants currently in various stages of construction to bring more supply to these markets. In North America, unit volumes advanced 11% in the fourth quarter and 15% for the year with our only limitation on further growth being available capacity. In Brazil, units were up 8% for the year with our fourth quarter sales output being limited by capacity. For 2021, we expect the segment to post significant income gains against 2020. Unit volumes in European beverage advanced 10% in the fourth quarter, with strong volumes noted in Saudi Arabia, Spain, Turkey, and the UK. Income was notably improved over the prior year fourth quarter on the back of the improved volumes, as well as continuing contributions from new facilities in Italy and Spain, as well as full production on the now-converted aluminum lines in Seville, Spain. For 2021, we expect further growth in the segment's income. Sales unit volumes in European food increased 4% in the fourth quarter and 7% for the full year as the business benefited from more normal harvest conditions in 2020 compared to weather-related weak harvests in 2019 and 2018. Additionally, production levels in the 2020 fourth quarter were more normal than in the prior year as the natural pull from the 2020 harvest reduced inventories accordingly. For the year, income in the segment advanced $23 million over 2019, despite the negative impact of the 2019 tin plate carryover into the first quarter. For 2021, we expect our European food business to improve segment income by $50 million over 2020, with roughly half of that improvement being realized in the first quarter. Sales unit volumes in Asia Pacific declined by 1% in the fourth quarter and 4% for the year. While demand trajectory is improving, the region is still feeling the impact of virus-related shutdowns and movement control orders across most countries. We expect our Asia Pacific segment to achieve modest income improvement in 2021. And we, like many of you, are monitoring the situation in Myanmar, which appears to have worsened over the last several days. The company has a 70% ownership in a joint venture, which operates a one-line beverage camp plant in Myanmar, with annual revenues approximating $35 million. Results in transit packaging improved as better mix and continuing cost efforts offset weaker industrial demand in the fourth quarter. Despite the impact of the pandemic, the business again generated an outsized portion to the company's overall free cash flow. With general industrial conditions improving, demand for transit products and services is currently strong. First quarter income performance in this segment may lag the prior year, but for the full year, we expect income to improve by approximately $50 million over 2020, with a big chunk of that improvement being realized against an easy comp in the second quarter, with further gains in the back half of the year. Fourth quarter income in the non-reportable businesses benefited from strong North American food volumes and a strong performance in our beverage can equipment making business. The board-led portfolio review is ongoing. With regard to the portfolio review, we are currently marketing our European tin plate businesses. That is food cans, food closures, aerosol cans, and promotional containers for sale. We are in the second phase, if you will, where buyers have already received detailed management presentations and are performing their due diligence on the businesses. Unfortunately, there has been much misinformation in the market concerning the business, including an article in the Spanish press so replete with inaccuracies it does not warrant comment. To clarify any misunderstanding of the business that you may have, we disclose the following. The business for sale had standalone 2020 EBITDA of $250 million, with 2021 projected standalone EBITDA of approximately $300 million. As noted earlier, roughly half of that $50 million income growth will be realized by the end of the first quarter. The business performed well in 2020, and the acceleration and performance will continue into 2021. While food cans comprise 85 plus percent of the business for sale, it shares common coil cutting, coating, and printing activities with the other products. The food harvests in 2018 and 2019 were lower than prior years, owing to very hot and dry weather across the European continent. 2020 not only saw a return to more normal harvest conditions, but also a clear consumer shift towards rigid metal packaging for food products. While some of this was due to the various lockdowns across Europe related to the pandemic, we and our customers share a common optimism in maintaining this consumer level in the future. Consumers have discovered once again the economic and nutritional benefits of canned food, as well as now having a greater appreciation for the food can's unmatched sustainability and recyclability features. Our food division is the clear leader in the market and sets the standard for excellence in quality, service, and innovation. and I believe our food management team is the best in their industry. In recent years, we have invested for capacity expansion, innovation, cost reduction, and upgrades to property plant equipment, including but not limited to new production lines, additional can and print capacity, auto packaging, and lightweighting, just to name a few. Cost reductions have focused on projects designed to take out overhead and fix costs. Our European food business enjoys a diverse business mix servicing various food and geographic markets, and we possess an unrivaled customer portfolio with both large international companies and very strong regional leaders, having a good mix of long-term and short-term agreements. These partnerships allow us to develop strategic growth initiatives and achieve common objectives with our customers. As previously discussed, the business is currently being marketed for sale, although we caution there can be no assurance as to the timing, price realized, or certainty of such a sale. So in summary, a very busy and productive 2020. Numerous projects were completed, and several others started to expand global beverage can capacity. Importantly, we continue to convert our growth into expanded earnings and cash flow. The company had its best year ever in 2020 and we expect 2021 will be significantly better than that. With leverage expected to be at or below three and a half times by the end of 2021, we expect to begin returning significant cash to shareholders this year. The company has never been stronger and our outlook never more positive. Truly a very exciting time to be at Crown. And just before we open the call to questions, we ask that you limit yourselves to two questions initially. so that everyone will have a chance to ask their question. You're always free to jump back into the queue. And with that, Kirby, we are now ready to take questions. Thank you.