Crown Holdings, Inc.

Thank you for standing by. Conference will begin momentarily. Until such time, you'll hear music. Thank you and please continue to stand by. Good morning and welcome to Crown Holdings' fourth quarter 2022 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. Kevin Clothier, Senior Vice President and Chief Financial Officer. Sir, you may begin.

Thank you, Nicole, 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 crowncourt.com. On this call, as in the earnings release, we will be making a number of forward-looking statements. Actual results could vary material 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 Form 10-K from 2021 and subsequent filings. Earnings for the quarter were $0.74 per share compared to a loss of $7.95 in the prior year quarter. Adjusted earnings per share were $1.17 compared to $1.66 in the quarter. Net sales in the quarter were down 1% from the prior year as global beverage can growth of 3 percent and the pass-through of higher raw material costs were offset by foreign currency and, as expected, lower volumes in the transit packaging business. Segment income was $292 million in the quarter compared to $357 million in the prior year, primarily due to timing of costs associated with higher inventory levels, lower cost absorption, from planned inventory reductions and higher energy prices in Europe. As outlined in the release, we project EBITDA to grow between 8 and 12 percent in 2023. The projection assumes better results in our global beverage can and transit packaging businesses, offset by lower results in North American tin plate business, the result of Q1 inventory gains not recurring in 2023. As stated in the earnings release, first quarter adjusted earnings per diluted share are projected to be in the range of $1 to $1.10, with the full year projected to be between $6.20 and $6.40 per share. The adjusted earnings guidance includes net interest expense of $400 million in 2023 compared to $270 million in 2022, 40 cents of incremental non-cash pension and post-retirement costs, average common share is outstanding of approximately $120 million, exchange rates at current levels with the euro at 1.07 to the dollar, and full-year tax rate between 24% and 25%. Depreciation of approximately $350 million compared to $301 million in 2022. Non-controlling interest to be in the range of $140 million. Dividends to non-controlling interest are expected to be approximately $110 million. We currently estimate 2023 full-year free cash flow of approximately $500 million with approximately $900 million in capital spending. We expect a net 100 million improvement in working capital, which is driven by lower inventory, partially offset by continued investment to support beverage can growth. We expect the majority of free cash flow to go towards debt reduction until we get within our stated leverage range of three to three and a half times. With that, I'll turn the call over to Tim.

Thank you, Kevin. And good morning to everyone. Before reviewing our fourth quarter results, we want to briefly update you on the company's situation in Turkey. For those of you not aware, twin earthquakes, the first registering 7.8 magnitude and the second at 7.5 struck southern Turkey on Monday. Across the region, several thousand buildings have collapsed, resulting in significant loss of life. with brutal winter weather further complicating rescue and recovery efforts. The epicenter of the first quake was only 50 miles from our beverage can plant in Osmani, and we at Crown feel truly blessed that all employees are alive and accounted for. Electricity has been restored to the plant, and with no damage to the physical plant structure, equipment or inventory, we have resumed shipments to those customers able to receive deliveries. The company is currently coordinating shelter for displaced employees and their families, and we have every confidence that the Global Crown family will again rise up to support their fellow associates in Turkey. As reflected in last night's earnings release, performance in the fourth quarter was a bit ahead of our previous expectations. due primarily to firm global beverage can demand, cost reduction activities within transit, and the weakening of the U.S. dollar. Compared to the prior year fourth quarter, lower cost absorption from planned inventory reductions, higher cost inventories related to the timing of customer sales, higher energy costs and inflation all weighed on income results. Looking ahead to 2023, we expect significant improvement in segment income as higher beverage can volumes Contractual cost recovery and benefits of cost reduction activities will more than offset the significant 2022 steel repricing benefits realized within our North American tinplate operations. Below the line, as Kevin described, we will face headwinds from higher interest and pension costs. As Kevin also noted, capital expenditures for 2023 are currently estimated at $900 million, and looking forward, we project $500 million of capital expenditure in 2024. The commercialization of our various beverage and food can capacity expansions are described in last night's release. Turning to the operating segments, in America's beverage, unit volumes advanced 4% in the fourth quarter, with the gain found primarily in Central and South America, as North American volumes were up only modestly. Volume advances were offset by lower cost absorption, the result of planned inventory reductions, and the timing effect of higher cost inventories. We estimate that the North American market, that is Canada and the United States, was down 8% in the fourth quarter, with much of the decline found in fewer imported cans year over year. While only five weeks into the new year, we remain confident in our outlook for 10% North American volume growth in 2023. Volume growth combined with contractual inflation recovery leads us to expect income in the segment to be up significantly in 2023, with flatter performance in the first half and the gained prior year spread over the back half. Our North American growth assumption assumes an overall flat market. Unit volumes in European beverage increased 2% in the fourth quarter, with growth noted in Greece, Jordan, and Turkey. As previously discussed, the impact of higher inflation and energy costs coupled with timing of higher cost inventories negatively affected income in the segment for 2023 We expect to begin to claw back margins about halfway back to 2021 levels as low to mid-single-digit volume increases coupled with the benefits of renewed contract terms and recovery of prior costs accelerate income performance beginning in the second quarter. Beverage can volumes in Asia Pacific advanced 2% in the fourth quarter as growth in most Southeast Asian countries was partially offset by economic weakness in Cambodia. The carrying cost of higher cost inventory ahead of customer sales continue to weigh on income performance, which we expect will continue into the first quarter of 2023. However, we do expect income in the segment to advance in 2023 as comps in the back half of the year become much easier. When adjusted for currency and the divestiture of the Kiwi plan business, fourth quarter segment income in the transit packaging business was within $3 million of the prior year. The benefits of the previously announced overhead reduction program coupled with positive price almost entirely offset high single-digit volume declines. Continued benefits from the overhead reduction program combined with a more favorable steel cost-price relationship is expected to drive mid- to high-single-digit income improvement in 2023. The North American tinplate and can-making equipment businesses closed out an exceptional performance in 2022 with another firm performance in the fourth quarter. Segment results in 2023 will be down compared to 22, mainly the result of inventory repricing benefits realized in the first two quarters of 22, not recurring in 2023, coupled with continuing weak aerosol can demand. As Kevin described, target leverage, given the existing business portfolio, remains in the range of three to three and a half times, and we are committed to applying excess free cash flow towards reducing leverage to that range. Over the last two years, we have returned in excess of $1.9 billion to shareholders in the form of quarterly dividends and share buybacks. In summary, and looking ahead to 23, we remain confident in our ability to reaccelerate EBITDA growth in 2023. Contractual terms will allow us to begin to recover significant inflationary increases. Our inventory positions have largely been right-sized at year-end 22, renewed European contracts with more appropriate terms, initiated significant overhead cost reduction activities within transit packaging, and have or will commercialize significant new beverage and food can capacity in the United States and Europe to continue to serve our customers' growing requirements. And just before we open the call to questions, we ask that you limit yourselves to one or two questions so that others may have the opportunity to ask their questions before we run out of time. And with that, Nicole, we are ready to open the call to questions.