Crown Holdings, Inc.

Thank you for standing by. The conference will begin shortly. Until such time, you will hear music. Thank you and please continue to stand by. Thank you. Good morning and welcome to Crown Holdings' second quarter 2023 conference call. Your lines will be placed in the listen-only mode until the Q&A session of today's call. And please be advised that this call is being recorded. I would now like to turn it over to your host, Mr. Kevin Cloutier, Senior Vice President and Chief Financial Officer, so you may begin.

Thank you, Jackie, and good morning, everyone. With me on today's call is Tim Donahue, President and Chief Executive Officer. If you do not 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 materially from such statements. Additional information concerning factors that could cause the actual results to vary is contained in the press release and in our SEC filings, including in our Form 10-K for 2022 and subsequent filings. Second quarter, diluted earnings were $1.31 a share compared to $2.43 in the prior year. Second quarter, which included $0.60 per share net from the sale of our Kiwi business. Adjusted earnings per share were $1.68 per share in the quarter compared to $2.10 in 2022. Net sales in the quarter were down 11% from the prior year, reflecting higher sales unit volumes in America's beverage, offset by the pass-through of approximately $300 million of lower raw material costs, lower unit volumes in most other businesses, and $25 million from the impact of the stronger U.S. dollar. Segment income at $414 million in the quarter compared to $432 million in the prior year and reflects the benefit from contractual recovery of prior year inflationary cost increases in European beverage and cost reduction initiatives in transit packaging offset by lower overall net volumes. Operating cash flow was $293 million for the six months of 23 compared to $196 million in the prior year. The operating cash flow at this point of the year was the highest in the last 10 years, and the approximate 100 million improvement in operating cash flow reflects our efforts to reduce elevated inventory levels from year end. The results in the second quarter were as expected. We expect third quarter adjusted EPS to be in the range of $1.70 to $1.80 per share. We expect full year EBITDA to grow between 8% and 12%. We expect full year adjusted EPS to be in the range of $6.10 to $6.30 per share with higher transactional foreign exchange expense and lower equity earnings being the difference from our previous guidance. Our full year adjusted earnings include the following, which is in line with our previous guidance. Net interest expense of $400 million in 2023 compared to $270 million in 2022. A $0.40 of incremental non-cash pension and post-retirement cost. Average common share is outstanding to be approximately $120 million. And the full-year tax rate to be between 24% and 25%. Depreciation of approximately $345 million compared to $301 million in 2022. Non-controlling interest expense to be approximately $135 million. And dividends to non-controlling interest of approximately $120 million. Free cash flow is projected to be $500 million with capital spending of $900 million. We expect the majority of our free cash flow to go to debt reduction until we get within our targeted leverage ratio range of three to three and a half times levered. With that, I'll turn the call over to Tim.

Kevin, thank you, and good morning to everyone. Trends were similar to the first quarter, so our prepared remarks will be limited before we open the call to questions. As reflected in last night's earnings release and as Kevin just summarized, second quarter performance was in line with expectations as beverage in the Americas and Europe and transit packaging continue to perform well, offsetting below the line foreign exchange losses and lower equity earnings. Kevin also briefly noted our efforts to reduce raw and finished beverage inventories from year-end levels. the initial results of which are evident on the cash flow statement, and as important, inventory carrying risk that we experienced in the second half of 2022 has been mitigated this year. In America's beverage, unit volume growth was 1.5% in the quarter, with North America up 2.5% and Latin America flat versus the prior year. After a weak April, promotional activity in North America accelerated in May and June, and we remain optimistic about the prospects for improved volumes in the back half of the year. And while still very early in the third quarter, volumes to date in July are also strong versus the prior year. Based on customer commentary, we estimate that the North American market was down in the 3% to 5% range for both the second quarter and for the six-month period. Accordingly, we revised the volume growth assumption for the full year to approximately 7% given the market decline in the first half. Income performance was strong in the quarter with volume growth and the April 1st PPI increases almost fully offsetting Bowling Green insurance recoveries of $20 million in the 2022 second quarter and the impact of lower activity levels designed to bring down inventory levels. Construction on the Mesquite Nevada facility is nearing completion, with commercial startup scheduled for late August. Unit volumes in European beverage declined 5% in the second quarter, with weakness in Greece, Italy, and Spain, offsetting growth in France, Turkey, and the UK. More importantly, we have made significant progress in restoring investment-justifying margins to this segment, which you will continue to see in second-half performance. The construction of the Peterborough plant in the UK is nearing completion, with commercial shipments expected in August and October from lines 1 and 2, respectively. Similar to the first quarter, beverage can volumes in Asia Pacific declined double digits. We did see recovery in Cambodia, but Vietnam remains soft. The cumulative effects of inflation combined with slowing economies are contributing to lower consumption across Southeast Asia. We do expect second half income performance to improve over the prior year, albeit against easy comps, and be weighted more towards the fourth quarter. Transit packaging had another solid quarter with income up 20% over the prior year with margins improving across all product lines as reductions to overheads and SKUs combined with price cost management have more than offset the impact of lower volumes. With 2023 income performance expected to be the highest ever, The business is well positioned to deliver even more as industrial activity improves in future years. In summary, performance in the second quarter was on plan, a solid first half with improvement expected in most businesses in the second half, leading to significant year-over-year improvement in segment income and EBITDA in the third and fourth quarters. Turning to the balance sheet, at the midpoint of the year, leverage is just under four times. With improved EBITDA expected in the second half, again, against easy year-over-year comps, we expect to close 2023 leverage well within our stated range of three to three and a half times. And just before we open the call, we ask that you limit yourselves to two questions so that as many of you as possible will have an opportunity. And with that, Jackie, we are now ready to take questions, please.