Crown Holdings, Inc.

Thank you for standing by. The conference will begin momentarily. Until such time, you will hear music. Thank you. Please continue to stand by. Thank you. Good morning and welcome to Crown Holdings' first quarter 2023 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. Kevin Clothier, Senior Vice President and Chief Financial Officer. Sir, you may begin.

Thank you, Marcia, and good morning. With me on today's call is Tim Donohue, President and Chief Executive Officer. If you do not already have the earnings release, it is available on our website at crowdcourt.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. in our SEC filings and our Form 10-K for 2022 and subsequent filings. First quarter earnings were $0.85 a share compared to $1.74 a share in the prior first quarter. Adjusted earnings per share were $1.20 in the quarter compared to $2.01 in 2022. Net sales in the quarter were down 6 percent from the prior year reflecting higher unit sales volumes in America's beverage, offset by lower unit volumes in most other businesses. The pass-through of approximately $100 million of lower raw material costs and $36 million from the impact of a stronger U.S. dollar. Segment income had $320 million in the quarter compared to $383 million in the prior year and reflects the benefit of contractual recovery of prior years, inflationary cost increases in European beverage, cost reduction initiatives in transit packaging, offset by 60 million of year-over-year steel repricing in the North American tin plate businesses. That is 48 million of gains in Q1 of 2022 versus 12 million of losses in Q1 of 2023. We had a better than expected first quarter and remain optimistic for 2023. We reaffirm full year guidance as follows. We expect EBITDA to grow 8% to 12%, and we expect full year adjusted EPS to be in the range of $6.20 and $6.40. Second quarter adjusted EPS is expected to be in the range of $1.60 to $1.70 per share. Our full-year Adjusted Earnings Guide concludes the following, which remains unchanged from our previous guides. Net interest expense of $400 million in 2023 compared to $270 million in 2022. Forty cents of incremental non-cash pension and post-retirement costs. Average common shares outstanding to be approximately $120 million. and the full-year tax rate to be between 24% and 25%. Depreciation of approximately $350 million compared to $301 million in 2022. Non-controlling interest to be approximately $140 million, and dividends of non-controlling interest are expected to be around $110 million. Free cash flow is projected to be $500 million, with capital spending of $900 million. We expect the majority of free cash flow to go to debt reduction until we get within our target leverage ratio 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 everybody. I'll be brief and then we'll open the call to questions. As reflected in last night's earnings release and as Kevin just summarized, first quarter performance was better than expected on the back of stronger results in European beverage and transit packaging. Compared to the prior year, net results were impacted by prior year steel repricing and higher interest and retirement benefit expenses. Global beverage can volumes were down 2.5% to the prior year and reflect the impact of an inflation-weary consumer as well as economic slowdowns in some markets. From 2019 through the end of 2023, We will have added more than 25 billion units or 30 plus percent of annualized beverage can capacity globally from which to serve local and regional customers. Our Americas and European beverage can platforms are well positioned to continue to serve our customers' diverse and growing needs. As discussed with you in February and as Kevin just reiterated, we expect capital expenditures to approximate $500 million in in 2024, with resulting incremental cash flows being used to deliver and return cash to shareholders. In America's beverage, unit volume growth was 6% in the quarter, with North America up 4% and Brazil up 23% off an easy comp from Q1 of 2022. While promotional activity was lighter than anticipated in North America, we remain optimistic that summer selling season promotions will begin during the second quarter. We estimate the North American market was down 2% during the quarter, with the entirety of the decline found in imported cans. That is, domestic producers were flat in total. Importantly, from April 1st, the formulaic PPI increases are reflected in our selling prices, beginning the recovery of cost increases experienced over the past year. During the quarter, the second line at our new plant in Martinsville, Virginia began commercial shipments, and we expect the first line in Mesquite, Nevada to commence shipments in July, followed by the second line in October. During the first quarter, a Brazilian beverage can customer filed for bankruptcy protection, and we have adjusted our Brazilian sales outlook for the balance of the year to reflect this specific customer situation. we believe the registered collateral provides adequate security for our receivable balance. Income in the segment is still expected to improve meaningfully for the full year, and as discussed previously, will be weighted towards the back half. Unit volumes in European beverage declined high single digits during the quarter, with notable weakness experienced in Spain, Turkey, and the UK, primarily due to the impact of the earthquake in Turkey, retail price increases, as well as customers managing their working capital by deferring their purchase of cans closer to the summer selling season. Importantly, our efforts to restore margin with more appropriate contractual recovery mechanisms are underway, with the first quarter registering notable sequential improvement from the second half of 2022. We expect the business to continue to perform well, with improvement expected year over year in each of the remaining three quarters of the year. Beverage can volumes in Asia Pacific declined double digits, with declines noted in almost each market. The impact of higher retail prices, inflation in general, and slowing economies all contributed to lower overall demand. We do expect the segment's income to approach prior year levels, albeit weighted towards the back half of the year. Income and transit packaging improved almost 30% over the prior year, as benefits from the overhead reduction program initiated last year, coupled with the mixed benefit of selective pruning of lower margin SKUs and accounts more than offset like-for-like volume declines. Margins were improved across commodity product lines and in equipment. As expected, headwinds from prior year inventory repricing gains coupled with weak aerosol demand offset the benefit of higher food can sales, driving income in other well below the prior year. During the quarter, we made provision to right-size headcounts in our UK can-making equipment business to reflect lower expected activity. So in summary, a solid start to the year and overall ahead of plan. Looking ahead, we expect the second quarter will continue to reflect improving results in European beverage and transit, with America's beverage beginning to show improvement by the third quarter. It's still early in the year, so we maintain our earlier guidance range of 8% to 12% EBITDA growth, despite the outperformance in the first quarter. And with that, Marcia, I think we are now ready to take questions.