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spk01: Good morning and welcome to Crown Holdings' second quarter 2021 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.
spk13: Thank you, Harley, 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 crownfork.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 2020 and subsequent filings. Earnings for the quarter were $0.95 per share compared to $0.94 in the prior year quarter. Adjusted earnings per share increased to $2.14 in the quarter compared to $1.33 in 2020. Net sales in the quarter were up 34% from the prior year, primarily due to increased volumes across all segments, payroll foreign currency translation, and the pass-through of higher material costs. Segment income improved to $395 million in the quarter, compared to $250 million in the prior year, primarily due to higher sales unit volumes, including recovery in many locations affected by COVID in last year's second quarter. As outlined in the release, we currently estimate third quarter 2021 adjusted earnings of between $1.90 and $2 per share. This estimate includes the results of the European tin plate operations through August 31st. We are increasing the midpoint of our full year adjusted earnings guidance from $6.70 per share to $7.35 per share. Again, assuming the sale of the European tin plate business closes at the end of August. Our expected adjusted tax rate for the full year remains at 24 to 25%. I'll now turn the call over to Tim.
spk15: Thank you, Tom. Good morning to everyone. And thank you for joining us this morning and our continued best wishes for the continued health and safety of you and your families. As reflected in last night's earnings release, the company recorded another strong quarter for the three months ended June 30th, 2021. And despite numerous transitory headwinds, such as supplier and transportation delays, COVID lockdowns and cost increases, Our global associates continue to rise to the challenge of supplying our customers with high-quality packaging products in a safe and timely manner. Demand remains strong across all product lines and geographies, and importantly, the company continues to convert this growth into record earnings. Average segment income from continuing operations over the last four quarters, or last 12 months, June 2021, is approximately $100 million per quarter higher than the average of the four preceding quarters, or LTM, June 2020, with approximately $60 million of that income growth found in the America's Beverage segment, clearly a step change in our earnings output. We look forward to commercializing significant new capacity in the second half of this year into next to take the next step change up. The results of the European SYNPLATE operations are now shown as discontinued. Had the business been included in continuing operations, LTM June EBITDA would have approximated $2.1 billion. Before reviewing the operating segments, we remind you that delivered aluminum in North America is approximately 65% higher today than at this time last year. LME and delivery premium are contractual pass-throughs. so reported beverage revenues reflect both the volume increase and the higher aluminum cost. As last year's second quarter was the so-called COVID quarter, we will also provide beverage growth percentages for the first half of 2021 versus the first half of 2019 to give a bit more information, perhaps relevance, related to our beverage can unit volume growth. In America's beverage, demand remains strong across all the markets we serve with overall segment volumes up 18% compared to the second quarter of 2020. First half 21 versus first half 19 volumes advanced 19%. As described previously, we expect demand will continue to outweigh supply for the foreseeable future. Commercial shipments from the first line of the company's new beverage can plant in Bowling Green, Kentucky commenced in June. with shipments from the second line scheduled to begin in September. The third line in Olympia, Washington, and the second line in Rio Verde, Brazil, are now scheduled for an early fourth quarter startup. As previously announced, the company will commercialize five new can lines in 2022. New two-line beverage can plants are being constructed in both Uberaba, Brazil, and Martinsville, Virginia, along with a second can line being installed in Monterrey, Mexico. Additionally, The company announces today that it will construct a new two-line beverage can plant in the southwestern United States with commercial shipments commencing late second quarter of 2023. Customer commitments have already been secured for the plant's production capacity. Unit volumes in European beverage advanced 28% over the prior year's second quarter and 14% for the first half compared to the first half of 2019. Income reflects contribution from the volume growth which was recorded throughout the segment. Asia Pacific recorded 15% volume growth in the quarter and 8% for the first half versus the first half of 2019, as most operations across Southeast Asia were able to grow despite numerous COVID lockdowns and movement control orders. We do expect both crown and customer operations to be subject to various and intermittent COVID lockdown measures throughout the balance of the year. Commissioning will commence at the new plant in Vung Tau, Vietnam in September, with customer shipments beginning in October. Results in transit packaging were significantly higher than last year and in line with our expectations, as strong demand for transit products and solutions mirrored the surge in overall industrial activity. The business did well to navigate transportation delays, cost increases, and supply shortages, and is well positioned for continued earnings growth as these conditions gradually ease. We expect earnings growth in the back half of the year to approximate first-half growth. Demand remained firm across North American food and aerosols, along with the beverage can equipment-making businesses. In summary, a record first half for the company, New capacity was commercialized during the quarter, and significant new capacity will be commissioned over the back half of the year. Importantly, we continue to convert growth into expanded earnings and cash flow. Segment income and adjusted earnings in the first half up 50% to 60% over the prior year, and leverage at 3.6 times after repurchasing $300 million of company common stock is ahead of plan. As Tom discussed, we have raised four-year guidance and the expected closing of the tin plate sale still remains in the third quarter. And with that, Harley, we are now ready to take questions. Thank you.
spk01: Certainly. We will now begin the question and answer session. If you would like to ask a question, you may press star followed by the number one. Please unmute your phone and record your name slowly and glitter when prompted. To cancel your request, you may press star followed by the number two. The first question is from Mike Leathead from Barclays. Your line's open.
spk16: Great. Thanks. Good morning, guys, and congrats on the quarter. Thank you. Tim, I think you touched on some of the supply chain disruptions that you overcame in the quarter. I was hoping you could talk a little bit more about where you're seeing that. And is it quantifiable how much you maybe left on the table or missed out on this quarter because of some of these disruptions? And does that just get pushed into the third quarter or just any way to kind of help us think through that?
spk15: Yeah, so I would say that I think you're all well aware of, you know, there are container shortages globally. So suppliers getting containers to move product around has been a challenge. There are, you know, with the rapid restart of the economy, both here and in Europe, there component manufacturers are overwhelmed and so their ability to manufacture components for assembly for us for example in our beverage can equipment making business and or the transit businesses a little bit delayed construction steel other construction products whether it's lumber cement drywall all of that in high demand and a bit delayed So I don't want to characterize, I mean, clearly there's the biggest impact we had in earnings in transit would have been in the transit business. And, you know, maybe that's a handful, $5 or $6 million. It probably gets pushed into the next several quarters, not just the back half of the year, the next several quarters. There's a limitation as to how much our team's You know, if we received everything we were waiting on tomorrow, there's still a limitation on how much our teams can process at one time as well, so that'll take a little while. But, you know, given the performance and the trajectory of the overall company and each of the individual businesses, I'm not overly concerned about it. We are in the business of providing, you know, service to our customers, whether that be high-quality products or service, and so you always hate... to tell the customers, you know, they're going to have to wait or turn customers away. But they're generally, they're hearing it from all of their suppliers, and we're hearing it from many of our suppliers, as I expect many companies are.
spk16: Great. That's helpful, Collar. And then maybe a follow-up question for Tom. I was hoping, could you give us how much the pass-through of aluminum and other input materials boosted sales year over year in the quarter? I was just hoping to get a cleaner look at overall incremental margins of the business.
spk13: Yeah, I don't have that in front of me, Mike. I can follow up post-call on that.
spk01: Got it. Thanks, guys.
spk13: Thank you.
spk01: Thank you. The next question is from Erwin Viswanathan of RBC Capital Markets. Your line is open.
spk00: Good morning. Thanks for taking my question. Congrats on the strong results. I guess I just wanted to understand, maybe get your thoughts and perspective on some of the scanner data. So, you know, we've obviously seen some conflicting reports on volumes, and those are up against some tough comps. So when you think about your own kind of beverage can volumes, you're obviously up nicely year on year. Where would you expect those volumes to kind of, I guess, shake out over the next couple of quarters? Would you expect similar kind of percentage gains within your own system? And, again, could you help us kind of understand maybe or maybe just offer your own perspective on what we're seeing in the scanner declines as well? Thanks.
spk15: Yeah, so, you know, we provided you not only the second quarter volumes versus the second quarter of last year. And I don't want to say it's not relevant. but clearly the second quarter of last year had a large event that none of us anticipated at that time, making the comparisons very easy this year. It's why we gave you the first half of 21 versus the first half of 19. You get a better picture of perhaps it forces you to extrapolate what growth is because it's over a two-year period, but nonetheless it's extremely significant, especially for a packaging business. The growth, we continue to expect growth across the businesses, all of the businesses. Perhaps the Asia business will be a little slower depending on some of the COVID lockdowns, but we expect significant growth through the back half of the year. It will not be at the second quarter levels because the second quarter last year was so depressed in certain markets, but significant growth. We are still turning away, unfortunately, in Europe and the Americas, we are still turning away customer requests. We're still importing cans in the United States, not quite at the level of last year, but fairly close. And demand remains high. So I understand some of the scanner data may have some of you worried. I think I'm not sure that scanner data includes all retailers. And when it doesn't include all retailers, especially the largest retailer in the country, You know, you need to take that, you need to try to find another way to measure it. But I can tell you where our company sits and within our industry, what we're hearing from our customers, they are desperate for cans. We're desperate to get as much capacity up and running as quickly as we can. And so the growth outlook for us remains very strong.
spk00: Okay, great. Thanks. And as a quick follow-up, maybe I can just ask a question on capital and cash. Um, you know, so you'll be exiting this year at a relatively high rate of CapEx and obviously, you know, your investor day, you kind of laid out, uh, you know, uh, a plan and outlook for, for capital from here on, but you also have, uh, some, some new, uh, commitments as far as a dividend and, uh, potentially some stock buyback, um, actions. So could you just kind of review the priorities for cash use at this point and, um, where you expect to kind of finish the year on, uh, on net debt and leverage? Thanks.
spk15: Well, I think what we've said before is, you know, leverage we'd like to be in the three to three and a half times, and depending on how we see capital requirements going forward, that'll determine whether or not we're at the higher end of that range or the lower end of that range. I think we should be comfortably within that range by the end of this year, and it'll allow us to buy back a significant amount of stock. Obviously, we've initiated a dividend. We're going to, you know, the intention is to continue to pay the dividend. And depending on capital requirements going forward, I think the leverage is going to be, you know, where we want it by the end of the year, especially after the tinplate sale. And, you know, so the piece that moves around is how much stock you buy each year. So, you know, in other words, almost all of the cash flow, free cash flow we generate each year will be used for dividends and share buyback. You know, one thing I'll say, I think some of you fellows that have been covering the industry for a longer time than some of the newer fellows and some of the newer investors on the buy side who are unfamiliar with the cash flow characteristics of a packaging company, especially a metal packaging company, you're not so comfortable with higher levels of debt. We have tried to maintain, and we still maintain, we never had a leverage problem. And as you can see, even with buying $300 million of stock before the proceeds from Tinplate, the leverage is 3.6 times. So leverage is not an issue for a metal packaging company. You may not like the time it takes us to get there, but we're fully confident we're going to get there and we're going to generate the cash. Now that we're there, we're going to buy back a lot of stock.
spk01: Thanks. Thank you. Thank you. The next question is from Kyle White of Deutsche Bank. Your line is open.
spk11: Thanks. Good morning, Tim, Tom. Congrats on the quarter. Good morning, Kyle. I just wanted to walk through the guidance for the full year, the raise specifically on the back half, kind of get to about a 26 EPS raise for the back half. Just wondering how much of that is driven by having the European template results for July and August? How much is driven by some of the repatriates that you've made in the quarter? And then just how much is driven by underlying business growth? Thank you.
spk13: Yeah, I mean, so the European template business, the two months is worth about 20 cents. So then the residual is effectively everything else you mentioned. Improvements in the underlying business net of anything going the other way.
spk11: Gotcha. And then I want to talk about Europe. You know, you announced some new capacity here in the U.S. You haven't really announced any new capacity in Europe, while other competitors or peers have. Are you concerned at all that you might be losing share in that region? Is it just a function of the markets you're in and the customers you have maybe not growing as fast? Or is it just you'd rather allocate the capital to, you know, better markets such as America's and Asia-Pac?
spk15: No, I think it's just a matter of timing. And... Don't go to sleep on us. That's all I'll say. So, you know, we have, with the exception of the one market over there that we don't participate in, we participate in the balance of the Western European market. So crown at the appropriate time. We'll make those decisions and make those announcements. But, no, we're fully competent in our platform in Europe and the platform's ability to offer continued growth to the company. Got it. Thanks.
spk11: Good luck in the balance of the year. Thank you.
spk01: Thank you. The next question is from George Stafford of Bank of America, Maryland. Your line's open.
spk05: Hi, everyone. Good morning. Thanks for the details. Congratulations on your progress so far. I want to come back to some commentary from last quarter and see what, if any, effect we should consider for the rest of the year in 2022 from your comments. So last quarter you said you were worried a little bit about a pull forward of volume, accelerating volumes, and that was a reason why sequentially you were looking for a downtick in 2Q versus 1Q. As it turned out, that was not the case. You had a better quarter sequentially. Do we still have to worry about that pull forward, or are you less concerned about that in terms of the back half of the year? And, you know, stretching a bit, recognizing it's not fourth quarter, Do you think that given what you're seeing from customers, from your capacity plans, and your ability to allocate capital, that you should be able to grow through the dilution in 22, considering European template won't be part of the portfolio?
spk15: So I think that, you know, we had this discussion last quarter because, and I understand the I understand the question, George. You know, we're sometimes as baffled by the outperformance as you are. And as I said last time, the reason why you're not overly ecstatic with it is it could go the other way, and then that's a more difficult conversation. Having said that, I would say as we look forward to the back half of the year, the amount of available capacity that we have to have an upside earnings surprise is significantly limited from where we were in the first quarter or even at the end of the first quarter. And then we are, it's the Asian COVID situation across several of the countries. There were some lockdowns in Q2, but not to the extent that we were anticipating. We do anticipate that across Asia, and some of the markets, we're going to get more lockdowns. We have lockdowns in two jurisdictions right now for the next three weeks. So that'll have an impact. The other thing is transitory inflation. We'll get the inflation back in the formulas next year, but there is some inflation in the business. And having said that, we're we're earning through it with the growth we have. You know, looking at the fourth quarter and in the next year, do we have enough growth to earn through the dilution from tinplate? Well, I think one of the ways you're going to earn through the dilution from tinplate is buying back a mountain of stock. And it's not clear to me, George, that we're trading on a PE multiple anyway. So Whether we post $7.50 or $7, it's not sure to me that anybody's really looking at an appropriate PE multiple for our company. I'd leave it at that.
spk05: Fair enough. Fair enough, Tim. And for the record, not that it really matters for this call, but, I mean, your performance was better than expected, as was your guidance relative to our model for what it's worth. But just for the record, what are beverage company – marketing folks telling you about the outlook for new categories, new product innovation. In other words, is there something else that can take the baton or at least keep up in the race with spiked seltzers? Uh, what's your view on that on next categories, if there are any, or do we have to worry just about work, expect just new flavors out of spiked seltzers to be the driver of, of, of can growth over the next couple of years?
spk15: Well, I know of one. I don't want to talk about it because I don't want to expose the idea, which is specific to one customer or perhaps a group of customers. But I think we should expect that the marketers are going to continue to try to develop. It doesn't mean they're all going to be successful, but they're going to continue to try to develop new products and new flavors, new mixed cocktails across a variety of whether it's real alcohol-based or some kind of mash of alcohol mixed with a variety of flavors, be it more healthy or less healthy. And that's probably the wrong term to use, but... But I'll leave it at that. I don't think we see any shortage of ideas coming from them. Historically, we might have been worried about how much we are going to spend on incremental artwork for some of these labels, but given the strength of the market now, we charge for the artwork, so I'm not so worried about incremental artwork that we do if a product fails. I think, as we've said, we continue to maintain the outlook is really strong, and it's given the amount of imports we have coming into North America this year, I'm a little bit more bullish on the next 24 months perhaps than I was before because it hasn't really slowed down from last year like I thought it would.
spk05: Thanks, Tim. My last one, and I'll turn it over just from some inbound that we've gotten. Can you update us on the portfolio and how you look at transit, how you look at North American template relative to the fit, the relevance, the importance in the portfolio, and in particular, what you think the trajectory for transit is over the next couple of years? Thanks, and good luck in the quarter.
spk15: Sure. So the first thing I'll say is that We've pegged August 31st for the tin plate sale for the purposes of the discussion today. We're hopeful that it closes earlier than that. I don't think it's going to close July 31st. As we look at the other businesses in the portfolio, and specifically to your question, the non-beverage businesses, we've discussed previously that they don't require a lot of capital. The return on capital from those businesses is quite high, and the cash flow generated is quite high. And so to the extent that any organization has a lot of demands on its cash, be it a growth capital in one business versus another and or share buybacks, dividends, return of capital to shareholders, it's important in our view to have a well-balanced and businesses that generate a lot of cash flow where you just tend to garden you're not having to plant a lot of trees. And so for the time being, we're running those businesses as efficiently as we can. I would like to have a discussion with all of you at some point where we're able to demonstrate to you the upside to a business like transit packaging. But for the time being, we're just going to tend the garden.
spk05: All right, very good. I'll turn it over. Thanks, Ted. Thanks, George.
spk01: Thank you. The next question is from Gabe Hady of Wells Fargo Securities. Your line is open.
spk03: Tim, Tom, good morning. I hope that you and everyone that's important is doing well. I'm trying to revisit a question that I think George started to go down the path of, you know, recognizing difficult to talk about some of these topics in a forum like this. But I guess, is there anything you can share with us from customer dialogue that gives you comfort that the industry doesn't find itself kind of in a meaningful oversupply situation in 18 to 24 months. And part of it is obviously predicting consumer behavior, but more talking about potential for substrate gains or maybe the multiplier effect of pre-mixed cocktails that maybe we're underappreciating similar to kind of what we're observing in Brazil that's happened over time with returnable glass.
spk15: So, you know, we, We touched on this a bit last time, Gabe. I think even as we come back from the pandemic, I think the spiked seltzers are one thing, right? And mixed cocktails are another. And if you were a bar owner, when you think about people going back to a bar first, and if they're going to drink those products, they're going to be served in a can. They're not going to be served. They're not going to be mixed by the bartender. And if you were a a bar owner, it offers you the opportunity to control inventory and control waste and control theft in a much better way than bottles of alcohol that have to be mixed with seltzer out of a gun, et cetera. So I think from that standpoint, we're not so worried about the reopening. And I think piggybacking on that, when you think about that, it offers a lot of upside to the can into the future. But you're right. You never know what consumer behavior is going to be. I do think there's a large portion of the population, not only in the United States, but especially in Europe, where habits have changed post-pandemic. Or we're not really post-pandemic. We're still in it. And it's going to take a longer time for that to return to what we view as historical normal than perhaps we anticipate, but, um, yeah, there's always a possibility where as an industry, we're going to overbuild and, um, I don't see that happening for the next two to three years. I think as I've said, and I can only say it so many times, you know, demand is going to far outweigh supply for the next several years. And, uh, I don't, you know, you're not going to scare me right now by telling me some guys doing this or some guys doing that. And, How do you feel? You know, where we sit today, we know we've got customers banging the door every day looking for more supply. And, you know, we're not in the business of telling people no. So we're not worried about it.
spk03: Okay. Thanks for that. And then I guess kind of early indications from on-premise and factory opening. And I think kind of going back to the scanner data, something that I don't necessarily think we have great visibility on, at least on the sell side, is obviously the supply chain is much different in pipeline fill ahead of kind of the July 4th holiday. From our research, I think that was pretty robust. Do you have any visibility in terms of or anything you can share with us in terms of kind of where those inventories are? Again, appreciating that, like I said, kind of the Memorial Day holiday I think was somewhat missed just given the timing of reopening across the country.
spk15: Yeah, so it's an interesting question because when cans are in short supply, typically the customers don't warehouse a lot of cans or warehouse a lot of filled product. But given the cans are in short supply, what I don't have a handle on right now is are they buying ahead and warehousing empty or filled cans for the balance of the summer and the Labor Day because they're worried about supply. That, you know, I couldn't honestly tell you, but I can tell you that the demands on us have only increased from the conversation we had three months or six months ago.
spk03: Okay. Thank you.
spk01: Thank you. Thank you. The next question is from Gancham Punjabi of RW Baird. Your line is open.
spk14: Thanks. Good morning, everybody. Good morning, Gancham. Tim, what do you think is realistic in terms of the growth rates for the industry specific to the U.S. in 21 versus 20? And then the new plant that you just announced, the two-line plant, is that for existing product categories, new categories that we just don't know about at this point, or a combination of the two?
spk15: I would say it's existing and new customers, but existing categories. I'm sorry, what was the first part of the question?
spk14: Just the industry growth rate.
spk15: Oh, yeah. You know, the problem is the COVID quarter kind of screws it up, right? So I would tell you that if last year we had, what did we have, Tom, 97 billion units, and with imports we were about 108, 110? 112. You know, is it? Is it reasonable to say that this year you could have 10% on 112? That seems like a big number. I think it depends on the supplier's initiation of capacity output. If we were apples to apples, I'd say that Crown is comfortable with 10% on its base. It could well be that we have 10% this year, but I feel more comfortable in the five to seven percent range as an industry.
spk14: Got it. And then in terms of, you know, the obvious, the Delta variant and the impact on lockdowns, et cetera, you know, what are you seeing across the regions, real time? And then also in Brazil, I don't think you mentioned much about Brazil, but, you know, country's going to lap some pretty significant comparisons for the back half of the year versus an extraordinary last year. Just, you know, I'd look for the back half of the year, specifically Brazil as well.
spk15: Yeah, I think, I mean, we're going to remain sold out in Brazil. The only headwind we have in Brazil is how quickly we get the second lineup in Rio Verde. Yeah, clearly the comparisons are much, higher in Brazil, if we all had more capacity, it wouldn't matter. We're going to chew up all this new capacity. As quickly as we can make the cans, they're going to be taken by the customers. On the Delta variant or the other miscellaneous variants around the world, we talked about Asia, and the Asian governments are really trying to restrict the number of new cases. When I say restrict the number of new cases, You know, you take some big Asian cities with several million people, they don't like to have 20 new cases. So that's why the restrictions there are so much different. Now, the availability of vaccines and the availability of quality vaccines is much lower across many of these Asian jurisdictions than it is in Europe and the United States. I don't I'm not in Europe, and we haven't been able to get to Europe, so I'll pass on that for the time being. I would say in the United States, I don't believe any of the governors want to go back to lockdown, and I would go as far to say to the extent that they were able to use lockdowns for whatever other political purpose they had, they've accomplished that other political purpose. They're not going back to lockdowns at this point. And, you know, with You know, some of the bigger cities, I know we are in Philadelphia, we've got at least 60 to 65% of the people fully vaccinated in the city of Philadelphia. And at some point, perhaps not popular, say, I don't really care. If you don't get vaccinated, don't complain when something bad happens to you. There's an opportunity out there for you to be vaccinated and for you to protect yourself and your family. And, you know, if you're not willing to do that, That's on you, but don't ask the rest of us to suffer and delay living our lives because you've got some belief one way or the other where you don't want to take the vaccine. It's pretty clear, right? Drug companies aren't trying to kill us. They're trying to extend our lives so they can sell us more drugs. I haven't heard a good reason why people don't get the vaccination, so I don't think... Regardless of any of the variants, you know, we might have some cities like Los Angeles that are forcing us to mask up again. I don't think we're going back to any shutdowns in the United States anytime soon.
spk14: Got it. Thank you.
spk01: Thank you. The next question is from Jeff Zikowskis of JP Morgan. Your line is open.
spk04: Thanks very much. You spoke about your year-over-year can growth. What was your sequential can growth?
spk15: in beverage. Oh, from Q1 to Q2? Yes. Oh, boy. Hold on.
spk13: Q1 was up 8%.
spk15: No, no, no. I know that was up 8%, but that's a meaningless number, right, because it's got COVID quarter last year. I think what you really want to know is how many more cans did we sell in the second quarter than the first quarter?
spk04: That's it.
spk15: That's it. That's the question.
spk13: 19.5 in the first quarter.
spk15: Yeah, so you know what I can tell you is globally we're a little over 20% in the – Tom said 19.5, but I think it's – yeah, well, maybe it's 20%, not 19.5, 19.9% in the second quarter, and maybe for the full year we're like 13.5, something like that. So if that gives you help.
spk04: Okay, I'll take what you're giving. In the quarter, what was EPS from continuing operations?
spk15: Sorry, what was the question again, Jeff?
spk04: Sure. In the second quarter, what was EPS from continuing operations and what was EBITDA from continuing operations and pro forma if you didn't discontinue the tin plate business.
spk15: So the EPS is on the schedule, right? The 214? No, but exclusive of disc ops.
spk13: So the earnings per share from continuing operations was $0.57. Discontinued was $0.37. I'm sorry. Continuing was $0.97. Discontinued was a loss of $0.02.
spk04: No, adjusted.
spk15: Yeah, it's the $2.14.
spk04: So is the $2.14 50 cents in disc ops and $1.64 in continuing operations?
spk13: Is that the rough order? You've got to be careful with that because you have to pro forma to, you know, disc ops doesn't mean what we're going to lose, right? You have to back out interest and everything else.
spk15: Yeah, there's no, on the face of the income statement, when we show you, Income from discontinued operations, it's not reduced by any interest expense. All the interest expense is up in continuing operations as required. And your second question was EBITDA for the second quarter from continuing operations?
spk04: Right, and pro forma.
spk15: So I don't have the first quarter press release. So pro forma 12 months June.
spk04: I know pro forma told us.
spk15: So if you had the prior press release, if you backed out.
spk04: So it's $559 for pro forma if you look at the prior numbers. But I don't know if that's correct. Is that the right number? Is it $559 for the quarter pro forma?
spk15: No. So what I was trying to say, Jeff, if we look at the first quarter, LTM March EBITDA was 1,917, and that has food as continued operations, right? There were no discontinued operations. And pro forma 12 months June is 2,081. So the second quarter, if we didn't have discontinued operations, the second quarter is $164 million higher than the second quarter last year. On this call, that's the best I can do for you without spending a lot more time on some others I don't want to spend. Okay.
spk04: Thanks very much.
spk15: Thank you.
spk01: Thank you. The next question is from Mark Wilde of Bank of Montreal. Your line is open.
spk18: Thanks. Good morning, Tim. Good morning, Tom. Good morning, Mark. First of all, Tim, did you provide a capacity number for that new – southern u.s plant i i would tell you to think about two and a half billion uh very similar to bowling green and or martinsville okay all right that's helpful then i'm in transit packaging you know when you acquired the business i think you were pointing to about 85 or 90 million dollars a quarter in ebitda is that a still a uh a reasonable number in your view in light of kind of the efforts you've made to improve the business, or is it a little higher, a little lower than that going forward?
spk15: Yeah, so I think where we see segment income plus depreciation, we're going to be, you know, $90 million would be $360 a year. We're going to be higher than $360 this year, no doubt. And so we'll see what industrial activity is for the balance of this year and into next year and into 2023, but There's no reason why that number shouldn't continue to grow, at least at GDP rates, until such time that we take a different view on how much we want to try to grow that business.
spk18: Would you say, Tim, just if we looked at that second quarter number, were there any pieces of that business that were still cyclically weak, or does that second quarter number reflect the business is pretty much up and running full?
spk15: So there's nothing cyclically weak. What is a little depressed is the equipment business, just because we're having issues on the supply side from our suppliers getting components and other items. And I estimated that maybe at about $5 million earlier during the call. Demand is exceptionally strong. And as I said earlier, even probably far stronger than we can handle right now with the with the folks we have in place if we had all the supply, but we don't have all the supply.
spk18: Okay. And the last one for me, is it possible for you to just talk with us broadly about what Crown is doing to help boost the recycling rate for North American beverage cans? I think that's running about 50%. And I just wondered, you know, given the energy intensity of aluminum cans, if we continue to landfill 50% of all of them, Is this going to somehow threaten that whole sustainability argument around cans if that rate isn't moved over time?
spk15: Oh, Mark, we did this last time, and when I went back and thought about it, I thought crossed my mind that you're a shill for the paper industry. You're a better business. One thing I feel really good about is the paper guys are never going to find a way to package carbonated beverages. However... Your point, your question is a good question. And you and I had a disagreement on whose responsibility it is. No doubt the government is going to make it either our responsibility or our customers' responsibility because we don't vote in elections. Individuals vote in elections. But if consumers who are individuals... don't start properly handling or disposing of products that have real value, in case aluminum has real value, then we're going to find a different answer. But we have talked in the past about higher recycling rates in deposit states versus non-deposit states, and I don't really want to get on one side or the other of that issue because some of our customers have strong feelings of that. However, My view is if we're going to have deposits for aluminum cans, you better start having deposits for everything else that goes into the waste stream. It's not fair to pick on one substrate.
spk10: What is Crown doing?
spk15: We sponsor a number of efforts around the organization nationally and internationally, and we do it not only individually as a company, but we do it in coordination with the Can Manufacturers Institute as well.
spk18: Okay, fair enough. Thanks, Tim. Thank you. Good luck in the second half. Thank you.
spk01: Thank you. The next question is from Neil Kumar of Morgan Stanley. Your line is open.
spk09: Great. Thanks for taking my question. In terms of the 18% segment volume growth year-over-year in America's beverage, could you just break down the volume growth in North America, Brazil, and Mexico? Yes, I could. I think
spk15: you're going to have exceptional numbers in Mexico and Brazil because those markets were so depressed last year. That was the COVID quarter, and many of our alcohol customers were shut down. A lot of those cans were made, but they were sold in North America. So I would say the North American number in the high single digits, the Mexican and Brazil numbers, high double digits. And when I say high double digits, I mean high double digits. Okay. As we said earlier, Neil, as I said earlier, I don't want to characterize some of the growth rates in the second quarter as meaningless, but when we start seeing numbers like that, they're somewhat meaningless because of what the COVID quarter was last year.
spk09: Right.
spk15: That makes sense. Here's what I'll tell you. We looked at If we looked at the first half of 21 versus the first half of 2019, Mexico and Brazil are up high single to mid-double digits in that period, so growth still quite high. And North America up more than 20% over that period. It's just a – I think it's a more relevant – measurement period than comparing against the second quarter of last year. Or we can sit here and talk about unbelievable growth rates that mean nothing because you can't model them forward.
spk09: Right, that makes sense. And then just in terms of beverage can imports, I know you mentioned that Crown's beverage can imports are a bit lower than last year. But it seems that imports through the overall industry are up significantly here today. So I just wanted to get an estimate of how many cans potentially imported this year versus the 7 to 8 billion cans imported last year. And are you seeing any evidence of beverage customers having to independently source cans from abroad as you and the other large producers are generally sold out?
spk15: Yeah, so I didn't mean for you to think that we're importing a lot less cans. We're importing a lot of cans this year, again, slightly below what we imported last year. So I don't know what the industry imports were last year. You mentioned a number of 8 billion. If that's the case, we probably imported 25% of those. I can't tell you what the other what the other guys did, but we're still importing an extraordinary amount of cans this year. There are customers out there trying to make their own deals to import cans because we and the other global manufacturers, there's only so much we can do.
spk09: Great. Thank you. Thank you.
spk01: Thank you. The next question is from Alton Stomp of Longbow Research. Your line is open.
spk07: Great. Hi, Tim and Tom, and, you know, thanks for taking my question. You know, of course, you guys pretty much beat, you know, every segment versus expectations, but the big surprise to me, you know, was the European BevCan volume number and, you know, particularly the first half, you know, versus first half 19 being almost as strong as America's. You know, I guess what drove a certain region where you are seeing strength to drive that, you know, huge growth of, you know, mid-teens versus, you know, first half of, you know, two years ago?
spk15: So, well, you know, there is growth in the market. And even prior to all this beverage can euphoria, there's been consistent 3% to 5%, 4% to 6% growth across Europe year in and year out for the last decade or decade and a half. You couple that with we have installed new capacity. throughout our European operations, although we don't have anything announced right now. Between 2019 and today, we put a new two-line camp plant in Valencia, Spain, and a new one-line camp plant in Parma, Italy. So we have new capacity. So that would be specific to Crown. That will be the reason why our growth numbers are pretty high compared to the first half of 2019. Great.
spk07: Great. Makes sense. And then just, you know, as you just referenced, you, you know, have announced air capacity. You know, how soon might that be coming? Or, you know, how big is the need over the next 12, you know, 18 months to air capacity in Europe, in your view?
spk15: Oh, I don't, you know, we'll, I don't want to, I guess we're not going to talk about that right now. We'll let you know in due time.
spk07: Okay. Makes sense. Thanks, guys.
spk15: Thank you.
spk01: Thank you. The next question is from Anthony Petaneri of CDE Group. Your line is open.
spk17: Good morning. At the analyst day, you talked about expectations to grow global beverage can volumes, I think, by 10% in 2021. I think in your response to Jeff, you talked about maybe being able to grow 13% plus, if I heard that right. So that's the first question. And then to the extent that there has been that change in view, is it primarily driven by better than expected demand, or is it really driven more by better operations in terms of getting some of these plants up earlier than expected and running well?
spk15: Well, so what we said was, I think Jeff was asking the rate of growth in the second quarter versus the first quarter, and what we said was the second quarter was up about 20%, and year-to-date June we're up about 13% or 13.5%, so clearly the second quarter had higher growth than the first quarter, some of which is due to COVID. I still think, you know, we're going to grow in the third and fourth quarter, but those growth rates in the third and fourth quarter will not match the growth rate in the second quarter because of the comparison to COVID. So I think perhaps on a global basis, perhaps, you know, 10 or 11% is still a reasonable number.
spk17: Okay. Okay. That's helpful. And then we've read about increases in construction costs, whether it's materials or steel or labor. When you look at the cost of constructing and staffing a greenfield BEVCAN plant, maybe compared to a couple years ago, is it up 10%, 15%? Is there any kind of rough, any kind of color you can give us on that? And then in terms of impact or risk from rising construction costs, the CapEx guidance and maybe the longer-term CapEx goals that you articulated at the analyst day. Any thoughts there?
spk15: So, you know, where we sit today, and it's plant-specific because we expect some of this will – I don't know if the steel guys are at their apex yet, but they might be at their apex. But as we sit today, you know, if I sat down to sketch out a plant cost today – versus what we thought a plant was going to cost us to build two or three years ago. It could be 20% to 25% higher today than it was two or three years ago. I don't think we're going to stay at that level over the next several years. So I don't think we need to adjust our long-term capital planning to take that into account. I think we're going to get a reversion on some of that. The risk to the company by spending, you know, an extra $30 or $40 million to build a factory today versus... Two or three years ago, I think you need to look at that risk over a 40- to 50-year period because when you build a factory for beverage cans, you know, you plop it down in a place, and as we've said before, it's not like moving a call center, right? It's not like moving all you fellows out of New York City to Hoboken. You're not going to move a can plant, so that plant's going to be there for 40 or 50 years, so we're not going to get overly excited. We don't like it, but we're not going to get overly excited nor change our strategy as relating to trying to service our customers. Okay.
spk17: That's extremely helpful. I'll turn it over. Thank you.
spk01: Thank you. The next question is from Adam Samuelson of Goldman Sachs. Your line is open.
spk02: Yes, thank you. Good morning, everyone. Good morning. A lot of ground has been covered. I really just want to clarify. So on the guidance, one of the earlier comments, you mentioned that About 20 cents of the 25 or so increase in the implied second half guidance is really a reflection on the treatment of the divestiture and the timing impact. And then separately, you just said that in May, you thought global canned volumes for the year would be up 10. And you thought that was still a pretty good estimate, maybe 10 to 11. I'm just trying to make sure I'm characterizing that right, especially given the magnitude of the second quarter outperformance. And so is The view, have you tempered your second half volumes if you exceeded the full year range by so much in the second quarter? Just trying to make sure I'm comparing apples to apples there.
spk15: No, but the comparisons in the second half are much different than the comparisons in the first half, specifically the second quarter, right? You've got growth rates in some of the locations that were severely impacted by COVID last year in the second quarter. you're not going to have those same growth rates in the second half because those markets came back in the second half of last year. So while they're still going to be very good growth in the second half, you're, you just can't have a, another COVID quarter, nor do we want another COVID quarter.
spk02: That I get. I just maybe frame differently then is it that in the guidance that you'd given for both the second quarter and frankly, for going back to, for the first quarter, which you meaningfully exceeded in both cases is that, Is the real variance you had left a good amount of kind of volume contingency out of your formal guidance because you were uncertain about the macro, and ultimately mobility was good, demand was good, and operations ran well, that you were able to outperform your initial expectations in both the first and second quarter?
spk15: Yeah, I think, you know, I think – You know, we're doing our best to bring capacity on as quickly and as efficiently as possible. And, you know, if we're up 13.5% through six months, you know, maybe for the full year we're going to be up 11.5% or 12% or 13%. As I sit here today, I'm telling you 10% or 11%. It really depends on how quickly we can get the capacity up and running and how efficient the factory is when it comes up and runs. We have a lot of capacity coming up. in the second half. And I have no doubt that whatever we bring to market, we're going to fully sell out. It's just a function of how quick we can get it up.
spk01: Thank you. Any additional questions, Adam?
spk02: I'm sorry. Yeah, that's very helpful. Thank you very much. Thank you.
spk01: Thank you. The next question is from Adam Josephson. It's key back. Your line is open.
spk06: Thanks. Tim and Tom, good morning. Hope you're well. Good morning, Adam.
spk01: Thank you.
spk06: Just a couple guidance questions. Tom, just on the buyback, can you clarify what you're expecting to buy back this year? Is it just the 379 or an amount significantly greater than that as part of your full year guidance?
spk13: As Tim was saying, we're kind of solving for the leverage. So if we want the leverage to be 3 to 3.5, pick the midpoint of that, we'll buy back – stocks such that we're, you know, such that we're at about three and a quarter. So the 379, there will be more to come as we go through the last six months.
spk06: Got it. Okay. And Tim, on the 3Q guidance, a similar question to what came up on the last call, which is normally your 3Q earnings are higher than your 2Q earnings. I know you're losing a few cents, I assume, in September from European, the presumed absence of European template. But can you just, again, remind me or help me understand why the implied sequential earnings decline? I know you said you think you'll have some production constraints, which I think you thought as well going into the second quarter. You talked about inflation, but I think you also talked about inflation, your expectation of inflation last quarter. And obviously, you ended up beating your guidance quite significantly.
spk15: Yeah, you know, We've modeled and given you a forecast, assuming we keep European tin plate through August. For most of you who followed us for some time, you know the European food business is heavily weighted to the third quarter, and it's heavily weighted to September. So that is a fairly good-sized number. I think that, you know, as we sit here, There are areas where inflation – there is inflation in the business, and it'll take us until we get the contract risers the opportunity to do that next year to recover that. And, you know, I hope we're being a bit cautious, but we'll see, right? It's just – as I said earlier, one of the big things, Adam, is that – The available capacity in the third quarter to outperform what you or I would forecast, the available capacity is lower because you've already built into your forecasts that you're going to sell everything and more that you can make in Q3.
spk06: Got it. I appreciate that, Tim. And just a longer-term one on CapEx. I think you talked about $900 million this year, and obviously you just announced new plants come 2023-ish. Is there any reason to expect a decline in CapEx from this year's presumed levels of 900 million over the next, call it, two, three years?
spk15: I think as I sit here today, I could comfortably tell you that we expect to spend similar or more next year. Beyond that, my crystal ball is not that good, so we'll see.
spk06: And, Tim, just one last one on the cash flow issue. Just given the new assumed closing date of the deal, any thoughts on what your cash flow might look like? I know working capital is going to be messed up. There are other issues that are going to be messed up. But any thoughts on what cash flow is likely to look like given these myriad issues?
spk15: Yeah, so, again, the food business, a lot of shipments over the summer and, again, You know, the cash flow is lower because you lose the earnings from the business for the last four months. Not only that, but the working capital true up with the buyer happens within the purchase price mechanism, not through the cash flow statement, you know, not through free cash flow. So I think, again, I don't like to use the term meaningless, but it's not something that's meaningful for modeling purposes going forward. Right. Appreciate it, Tim. Thank you.
spk06: Thank you.
spk01: Thank you. The next question is from Phil Ng of Jefferies. Your line is open.
spk12: Hey, guys. Thanks for squeezing me in. I guess you mentioned, Tim, your outlook for the next 24 months a bit more bullish than you previously thought. Sounds like maybe you're a little less worried about the reversal from a reopening dynamic, but any more color on why you're a little more upbeat than you were, call it, three to six months ago on the demand side?
spk15: Well, two reasons. The one is that the Customer requests for cans have not subsided at all. In fact, they're increasing. And the level of imports that we and others are bringing in, again, are not really subsiding. And just as we talk to customers and you think about what a reopening might look like or a delayed reopening might look like, It just gives you a little bit more confidence that even in a full reopening, the growth rates are going to far outweigh any impact from a reopening.
spk12: Got it. Were there any pockets that were, you know, more strong or a bigger contribution? Is it any of these new products that we might not be as close to? Spike Seltzer seems to be a little – has moderated a little bit, and maybe the reopening piece. I'm just trying to flesh out a word of any – variables or your customer base where you've seen a little stronger demand than you previously expected?
spk15: Yeah, so obviously they're not going to have the same growth rates that they've had in the past, right? They've had tremendous growth rates, but they're growing off a much larger base. So from the standpoint, from a can company standpoint, there's still significant unit volume growth. And sometimes we get we get hung up on growth rates and we forget about absolute unit volume growth and the contribution we get from that. The demand has been across all products. Without saying something I don't wanna say, I'll just leave it at that.
spk12: Okay, that's helpful. And then when we think about the back half of your guidance, a few of my peers, I've just mentioned that maybe the guidance looks a little more conservative, and there's different reasons why you're accounting for that. And you mentioned maybe the capacity constraints provides a little more limitation for, you know, big upside surprises like we've seen in the first half. I'm appreciating you have some of that capacity coming on later this year, but, you know, when do you kind of expect that capacity to kind of hit its full stride where you would have more optionality for upside? Is that early next year? But just any more color around that would be really helpful.
spk15: Yeah. You know, I'd like to think we are getting better, and I'd like to think we are getting better at bringing lines on and getting up through learning curve quicker and better than we have in the past. I think we are doing that. We have some locations around the world that do it much better than others. So far it feels like the first line in Bowling Green is going real well. Now, are they able to continue that – you know, advancement through learning curve as well as they're doing on the first line when you complicate the plant and you bring up the second line at the same time. We'll see. So typically we like to tell you that it takes us about 12 months to get through full learning curve. Some of the factories do better, as I said. And, you know, the only thing I can tell you is I know that all the teams are trying as hard as they can. Got it.
spk12: All right, thanks a lot.
spk15: Thanks, Phil.
spk01: Thank you. Our last question is from Salvador Tejano of Keyport Research Partners. Your line is open. Yeah, thanks for taking my question.
spk08: Just wanted to check a little bit on the new startups. Firstly, I was under the impression that some of them were scheduled for Q3, so I want to confirm that they are being delayed by a few months as most of the startups are now in Q4. And secondly, as we think about the startup expenses, do you expect most of them to align with the calendar of the startup, say Q4, or with the hiring and training in advance, could Q3 include a lot more startup goals than Q4? How should we think about that?
spk15: So you are correct in saying that there's been a small slippage in bringing some of the factories up maybe a month or two from start. late Q3 and the early Q4. Some of that has to do with raw material supply, building supply. Some of it, quite frankly, has to do with the fact that we're right in the middle of the season and we're trying not to disrupt the plant from running at the highest efficiency it can possibly run at. On startup costs, the only thing I'm going to tell you is we don't talk about the impact of startup costs. We've been building plants, greenfield plants for well over 20 years. We've added significant greenfield capacity to our platform globally in every market. It's something we do, and it's just something that's embedded in the forecast that Tom's provided you, so I don't think I have an answer for you as to whether there's more or less. It's part of the business when you bring up factories, and we're going to We're going to have enough growth and enough positive things happen that we don't need to talk about the impact from startup costs.
spk08: Yeah, I guess I think in the past you've mentioned also that you do not provide an explicit dollar number. My question here will be more about the timing. As we try to model it on our own and make our own assumptions, should we think that because these are early 2-4 startups that a lot of the startup costs will happen in 2-3? Or should we think that, no, it's going to be in Q4, regardless of what amount?
spk15: Oh, if you're going to model it, if you're starting to plan up in Q4, you're going to have a little bit of training and other expenses in Q3, and then you're going to have some, you know, as the plant comes up through learning curve, you've got significant expenditures in Q1 and Q2 until you get the break even. And that's just all part of the number that you're seeing. let you guys model how you want to model.
spk08: Okay, perfect. Thank you very much.
spk15: Thank you. So, Harley, I think you said that was our last call. Thank you very much, Harley, and for all of you, that will conclude our call today. Thank you for joining us. We look forward to speaking with you again in October. Bye now.
spk01: Thank you, speakers, and that concludes today's conference call. Thank you all for joining. You may now
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