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spk01: Thank you for standing by at this time. Your conference will begin shortly and you will hear music until the conference begins. Please continue to stand by. © transcript Emily Beynon Good morning and welcome to Crown Holdings' fourth 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 Cloutier, Senior Vice President and Chief Financial Officer. Sir, you may begin.
spk08: Thank you, Bel, 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 our Form 10-K for 2022 and subsequent filings. Earnings for the quarter were 27 cents per share compared to 74 cents per share in the prior year quarter. Adjusted earnings were $1.24 compared to $1.17 in the prior year quarter. Net sales in the quarter benefited from 5 percent higher volumes in North American beverage, which were offset by the pass-through of lower raw material costs and lower volumes across most other businesses. Segment income was $382 million in the quarter, compared to $292 million in the prior year, reflecting higher beverage can volumes in America's beverage, the contractual recovery of prior year's inflationary costs in European beverage, more than offsetting the underabsorption of fixed costs. During the quarter, the company decided to optimize its footprint in certain markets. and close a beverage can plant in Batesville, Mississippi, an aerosols plant in Decatur, Illinois, beverage can plants in Ho Chi Minh City, Vietnam, and Singapore. These actions were necessary to align supply and demand and will lead to greater utilization, operational efficiencies, and fixed cost absorption. For the year, the company delivered record-adjusted EBITDA of $1 billion $882 million, an 8% improvement compared to the $1,744 million in 2022. The improvement was driven by a 4% overall volume growth in America's beverage, the contractual recovery of prior year's inflationary costs in European beverage, and cost-saving initiatives in transit packaging. The company achieved $661 million of free cash flow in 2023, driven by record EBITDA, exceptional working capital management that also included the reduction of approximately $200 million in off-balance sheet factoring, and a continued discipline approach to capital spending. For 2024, we see EBITDA in line with the 2023 record performance as continued strong performance in North American beverage and transit packaging are offset by lower results in the can-making equipment and aerosol businesses due to lower demand. As stated in the earnings release, first quarter adjusted earnings per diluted shares are projected to be in the range of 90 cents to a dollar, with the full year projected to be $5.80 in the range of $5.80 to $6.20 per share. The adjusted earnings guidance includes net interest expense of $380 million, It assumes average common shares outstanding of approximately 120 million shares, with an exchange rate at current levels with the Euro at $1.08 to the dollar, full-year tax rate of approximately 25%, depreciation of approximately 320 million, non-controlling interest to be in the range of 130 million, and dividends to non-controlling interest are expected to be approximately 110 million. We currently estimate 2024 full year adjusted free cash flow to be in the range of 700 to 750 million with no more than 500 million in capital spending. At the end of 24, we would expect net leverage to be at the lower end of our targeted leverage range of 3.0 times to 3.5 times. With that, I'll turn the call over to Tim.
spk04: Thank you, Kevin, and good morning to everyone. As reflected in last night's earnings release and as Kevin just reviewed, operating performance in the fourth quarter was well ahead of the prior year's fourth quarter. Beverage can volumes remained strong in North America and Brazil, offsetting demand weakness in Europe and Asia. Cash flow performance was well above the prior year and earlier expectations as we significantly adjusted production schedules to drive down working capital. As has been the case throughout the year, below the line items, that is interest expense, pension, and equity earnings, were all negative to prior year. In total, earnings ahead of last year but short of prior expectations due mainly to a higher tax rate and lower equity earnings. As Kevin noted, a record EBITDA performance for the company in 2023 with double-digit segment percentage gains found among the three largest businesses, Americas and European Beverage, and transit packaging more than offsetting headwinds faced from the 2022 steel repricing and weak aerosol can demand. Also, as Kevin noted, during the fourth quarter, we made the decision to close five production facilities globally based on our installed capacity, including newer facilities which continue to progress through learning curve and our view of future market growth and demand. Difficult decisions, but necessary to adjust our cost structure with expected future demand. Looking ahead to 24 in America's beverage, we expect another year of volume growth in North America and Brazil, although that will be somewhat offset by the glass business in Mexico. After two strong years of returnable glass shipments, we project a mixed change to more one-way glass, combined with the timing lag for our glass PPI adjustment. In Europe, shipments were down mid-teens in the fourth quarter, with our shortfall compared to the market being the result of our weighting more towards southern Europe versus northern Europe. We do expect a flatter demand environment in 2024, and projected income in the segment will return to 2021 levels. As provided in last night's release, we recast European corporate costs from corporate and other to the European beverage segment, Post the sale of the European tin plate business and completion of all associated service agreements, all remaining costs relate to the European beverage business. And as you can deduce from the table, it is 5 to 6 million per quarter, totaling 21 million for 2022 and 22 million for 2023. Volume softness was noted across each Asian country we operate in as the region continues to struggle with the effects of inflation. which have led to higher base cost levels against declining consumer purchasing power. For 2024, income is projected to be in line with 2023 as cost reductions offset continuing demand weakness. Transit packaging realized the benefits of significant cost savings in 2023 leading to their highest ever income performance despite a muted industrial backdrop. Free cash in the segment was again strong, with more than 300 million being generated on an unlevered basis. Income growth is again forecast for the segment in 2024, albeit weighted towards the back half of the year. And the business has a cost structure that positions well for further growth when industrial activity accelerates in the future. Across our non-reportable businesses, income is forecast to be down in 2024 versus 2023. The result of continuing weak aerosol can demand and a significant slowdown in orders for new beverage can manufacturing equipment. As you may recall, in the first quarter of 2023, we initiated a downsizing of the beverage equipment business in response to slowing demand for can manufacturing equipment. The North American food business, with income above pre-pandemic levels, is well capitalized and continues to experience growth in the pet food category. Operationally, 2023 was a strong year. with segment income up more than $100 million. We generated significant free cash flow with deleveraging on plan to the lower end of our targeted range. The higher interest rate environment led to significant headwinds below the line in the form of higher interest and pension costs and lower equity earnings. We did take significant action to right-size production capacity in both the U.S. and Asia given our view of market demand, which will lead to higher utilizations near-term while allowing for the company to meet future demand growth as new plants progress through learning curve. Looking ahead to 2024, segment income is projected to be in line with 2023, as continued growth in beverage and transit will offset headwinds in aerosols and equipment. We remain focused on operational improvements, generating cash from the businesses, and further strengthening the balance sheet, positioning the company well for future growth. Before we open the call to questions, we just ask that you limit yourselves to two questions so that everybody has an opportunity in the time allotted. And with that, Bill, we are now ready to open the call to questions.
spk01: Thank you. We will now begin the question and answer session. If you would like to ask a question, please press star 1. Please unmute your phone and record your name and company name clearly when prompted. Your name and company name is required to introduce your question. To withdraw your request, you may press star and the number 2. One moment, please, for the first question. We have the first question coming from the line of George Tafas of Bank of America. Your line is now open.
spk09: Thanks, everyone. Good morning. Tim, thanks for the details. Same to you, Kevin. George, can I speak up a little? Yeah, sure. Can you hear me okay now?
spk02: Yes.
spk09: Okay, sorry about that. Again, thanks for all the details. My two questions, first of all, is there any carryover into 2024 from higher inventory that you need to still work down and or any kind of inventory charge on steel. That's question number one. Question number two, Tim, obviously quarters come and go. Sometimes some segments do better than others. As you look at the non-beverage segments, what makes you still comfortable with the portfolio as it's aligned with And why do you think the tin plate businesses, machinery, and transit can be drivers of earnings as you're seeing in America's beverage? Or you may be rethinking things as we sit here today. Thank you and good luck in the quarter.
spk04: Sure, George. So the answer to the first question, no, no carryover. Inventory is pretty much in line with where we think the business is going to go going forward in the tin plate businesses. To your second question, listen, I think the answer is any business is for sale under the right terms and conditions. But we're not in the market to give our businesses away in the hopes of driving some short-term multiple gain just so the private equity guys can make money because we sold a business below where the true value is. These businesses all generate pretty substantial cash. Pretty difficult. I have a difficult time understanding how we create more value by getting smaller. We sold a business a couple of years ago, a very large business. We got a very good price, especially historically when you consider where a food can business trades. Didn't move the needle on valuation, so I have a hard time understanding that. Now, specifically to the businesses you mentioned, listen, transit's an excellent business. We don't spend a lot of time talking about it because you folks don't want to talk about it, but this is a business with low to mid-teens margins that requires almost no capital investment. I wish I had five more businesses like this where I didn't have to invest any money and all it did was send me cash every day. Pretty stable business. Some of the end markets, as we've said before, might not be as stable or they might fluctuate more than than other businesses, but our business, servicing a variety of end markets, is remarkably stable with the exception of the COVID year. The tin plate businesses, the food businesses, as we said, well capitalized, doing quite well, income above pre-pandemic levels. Aerosol, well, you know, it is an expensive way to dispense products. There are some things happening in the aerosol market, I would say that some of the large CPGs, despite their claims to meet their environmental goals, if you were to go into a market, you'd see that a lot of air fresheners now are in all plastic. They're not in metal anymore. They're not in aluminum and or steel. So it is a changing business. We're going to right-size the business for what we expect future demand to be, and we'll see where it goes from there. The beverage can equipment business, it's been an excellent business for us for a number of years. I would project that this year and next year that it's predominantly a service and parts business, that there are few new machine orders or new lines being installed globally, with the exception of China. And so we'll hold on. We've right-sized the business. We'll see what other end markets are. that our skilled technicians and mechanics can service besides beverage can equipment. But this is a charge we took in the first quarter last year, George, and I won't say which analyst, but one of you analysts called me afterwards and said, you know, this is kind of the canary in the coal mine. You talked about your beverage can equipment business taking a big charge because of reduced expected demand, and nobody brought up the question as if nobody wanted to understand that. what was going on with expected future growth in beverage. And so I'll leave that answer to a future question. But that's my long-winded answer to your question, George. I apologize for it being so long.
spk09: No, Tim, not at all. We appreciate the thoughts. We'll turn it over. And thanks and good luck in the quarter. Thank you.
spk01: Thank you. We will move now to the next question coming from the line of Phil Eng of Jefferies. Your line is now open.
spk11: Hey, guys. 1Q earnings EPS is a big step down, and if I look at your full year guidance, it seems to be more front-end loaded in terms of headwinds. Tim, can you kind of flesh out some of the things that might be weighing on your results in the early parts of the year versus hopefully the later part of the year, if maybe any other good guys that could kind of kick in?
spk04: Yeah, I think that... Again, our guidance versus your estimates. These were your estimates, not ours. And I understand your estimate for Q1 was trying to somewhat move from what we reported in the first quarter of 23 back towards the first quarter of 22, and we're going the opposite direction. I would say that European beverage probably a bit weaker in Q1 than than we would have or you would have anticipated, and that's largely the result of Q1 being a smaller quarter. And while we do expect the European market to pick up in 2024, we would expect that to be more summer-weighted, not Q1. And then the other segments, we had a very strong result in the equipment business in Q1 – last year, and I'll bet you, if I had numbers in front of me, I'll bet you our equipment business is probably down on the order of $10 to $12 million alone, Q124 versus Q123. And then aerosol probably makes up another handful of the shortfall. So they would be the three buckets.
spk11: Okay. And then can you give us a little more color on what's going on in Europe? Certainly, it's well telegraphed. Europe's been soft. Where are things right now? I mean, is inventory really already flushed out in Europe? Are you starting to see any green shoots in terms of order patterns with your customers in Europe? And I guess one follow-on. On the DNA side, you guys talked about, you know, potentially a 36 tail to Ellen. Is that in the guide already, or that's something that, you know... No, it's in the guide already. Okay, it's in the guide.
spk07: So I think...
spk04: In Europe, as I said in the prepared remarks, we're much stronger in southern Europe than we are in northern Europe. So if you want to think about Spain, Italy, Greece, and those markets were significantly weaker than the northern European markets. We actually did quite well in the Middle East and Turkey, but our weakness was in the southern continental European countries. I think that... There are some things in the European market that are certainly different from a retail perspective and a customer promotion perspective than what we see in North America. But I do think Europe's a market that will grow this year. It's a market that might be down one year, but it doesn't stay down for long. If we have a down year in Europe, we generally bounce back pretty quick within a year, not much more than a year. So I do expect Europe... Although Q1 we're projecting to be weak, I do expect some strength beginning in Q2 and forward.
spk11: Have you seen order patterns and inventory get flushed down the channel at this point, like orders pick up or still too early to call? No, I think it's still too early for that. Okay. Appreciate the call, Tim.
spk01: You're welcome. Thank you. We will now move to the next question coming from the line of Mike Roxland of Truva Securities. Your line is now open.
spk07: Thank you, Tim, Kevin, and Tom for taking my questions. Just wanted to follow up on the last one that had been asked about Europe, especially as it relates to some of the retailers. The Carrefour said it would stop selling Pepsi and 7-Up given unacceptable price increases. We've been hearing that other retailers are doing the same. Has that impacted demand in Europe? And if it hasn't, do you expect it to impact demand in Europe if an agreement can't be reached between these retailers and the CPGs?
spk04: Well, I think what's impacting demand in Europe is the pressure on the consumer from all the other things that they're faced with, energy and all their other costs. I don't think the expulsion of one particular brand from a large retail chain affects us because it's just replaced with other products on the shelves. Part of the issue in Europe is that... This has more to do with government control around inflation than it does with the retailer. And so the retailer, in my view, I think the retailer is looking to avoid a government problem by putting the blame on the big soft drink company. I think if somebody was to walk through the store, you would see that that particular soft drink company, what they're charging for beverages is not the highest charge for beverages on the shelf, but they do have other products perhaps in the retail store and they're being punished across their entire portfolio, be it snacks and soft drinks, whereas their soft drink pricing is not the highest in the store. But this has more to do with overreaching government regulation in that central banks around the world have created a problem for all of us, specifically consumers on the lower end of the scale, and they're trying to paint somebody else as the bad guy. And they first point their finger at the retailer, and then the retailer points their finger at the CPG. So this will sort itself out in time. But specifically, the expulsion, again, I'll say it again, the expulsion of one product does not impact demand. It's just replaced with another product. What impacts demand is significant inflation across a variety of cost buckets for the consumer, notably energy.
spk07: Got it. Thank you, Tim. Just one quick follow-up on North America. How much additional runway do you think you have with respect to share gains? It's something that has benefited the company in recent years. Do you think a lot of those share gains versus some of your peers are now behind you, or do you still think there's some runway left ahead of you?
spk04: How do I say this? I would say that I would say that we've not been, well, let me say it this way. I think you should be able to appreciate from the margins we have versus others' margins that we've tried to grow our business in a responsible way in the marketplace. That is to say that the share gains we've experienced were more likely the result of higher aspirations by others which were not fulfilled and or customers wanting to rebalance. I do think that by the end of, I think by the end of 2024, from where we sit, we think the market vis-a-vis customers and suppliers is probably set where it's going to be for the next couple of years. It would be difficult for me to understand significant share moves beyond that unless somebody does something extremely foolish.
spk07: Got it. Thank you very much, John. Good luck in 2024. Thank you.
spk01: Thank you. We will move now to the next question coming from the Lamborghini in Punjabi of RWE Baird. Your line is now open.
spk02: Hey, guys. Good morning. Good morning. Good morning. Maybe we could first start off with an EPS bridge, if you could, off of the 586 in earnings for 2023. You have a lot going on, right? Cost savings, change in useful lives for the asset, last issue you called out, and non-reportable. Can you sort of dimensionalize those impacts on the EPS bridge?
spk04: Yeah, so what do we have? We've got roughly $0.28 to $0.30 coming from the depreciation change. You've got higher depreciation year on year just from prior year's capital investment. So I wouldn't say it's a wash, but it's probably 2 thirds of the depreciation changes offset by higher depreciation from prior year's capital investment. You've got the benefits of restructuring. And then you've got pretty sizable headwinds if you combine equipment, aerosols, and Mexico. And I bet you if you took the equipment business, that could be down, Gansham, year on year, that could be down on the order of $40 million. Aerosols and Mexican mix, more one-way glass versus returnable, and the PPI lag. We're on a one-year lag basis for PPI in Mexico. So as utility prices go up and down, we either get it and pay it the next year or pay it this year and get it next year. And we're in the cycle where we'll get it next year. But I would say if you took the equipment business aerosol in Mexico, you're looking at combined $80 million across those three buckets, offset by volume gains and some restructuring gains.
spk02: And the cost savings associated with restructuring, what is that number?
spk04: Yeah, I mean, think about this year, by the time we get everything done, think about like $15 million and we get more next year. Generally, these are one-year paybacks. The two plants in Asia were older plants built in the early 90s by a company we acquired. The one was built in a market it should have never been built in. These were initially built as slow-speed lines. We've sped them up to median-speed lines. But in today's marketplace, they can't compete with a high-speed line factory, so the savings there are not as great as you would otherwise imagine because they weren't very expensive to begin with. You've got to remember, you take an old plant out, there's no depreciation on it, so you don't get the depreciation savings.
spk02: Yep, understood. And then on North America, you know, with the shutdown in Mississippi, is that just sort of a one-off sort of, you know, adjustment, or is this something that's part of a more holistic approach towards optimizing your footprint in North America? And then just the last question, just to clarify, on the off-balance sheet, you know, financing Unwind, I think it was $200 million in 2023. Is that going to be an incremental headwind in 2024 as well? And if so, how much?
spk04: It will not be a headwind in 2023. We took the opportunity to reduce the off-balance sheet finance. It's just financing of another form, Ganshan. We're just trying to optimize the cost of financing. We generated probably on the order of $300 to $350 million of working capital source of cash, so we offset it by buying that down off-balance sheet. The closure of Batesville, I described that to you as one-off. Post the closure of Batesville, our utilization rates are mid-90s. I'll bet you the industry is 90 to 92 right now, and we're probably 94 to 96. So we're in pretty good balance in North America. Thanks so much.
spk01: You're welcome. Thank you. We will move now to the next question coming from the line of Adam Samuelson of Goldman Sachs. Your line is now open.
spk05: Yes, thank you. Good morning, everyone. Good morning. Good morning. The first question, maybe just if we could unpack the outlook on transit specifically, and as we think about the outlook for the year, just talk about income growth, but can you talk about these top line volume price mix assumptions against that? Is there any kind of carryover savings from the restructuring actions? Are those effectively annualized at this point? And just how should we think about incremental kind of margins from here if demand did actually improve?
spk04: Yeah, so I think, you know, we described the business to you all when we acquired it in 2018 as a GDP-like business. So, You know, in the absence of a large capital plan, organic or inorganic, this business is going to grow with GDP. And as you know, the industrial activity is down. We've been able to offset that with cost reductions over the last couple of years. I'd tell you that it's a little difficult to describe volume to you, but I can give you volume dollars. Our volume dollars in Q4 were down on the order of 3.5%. And for the full year, we're down on the order of 8.5%. That's volume dollars. But obviously, as you can tell by the income results, that was significantly offset by cost reduction activities and better price cost management. So we would expect that first half of this year, again, volume dollars to be a headwind. We'll continue to offset that a bit with costs, but the income growth that we're looking to experience in transit weighted more towards Q's three and four than the first half of the year. But, again, you know, a pretty – I know you guys are tired of hearing because you don't like the business, but it's a solid business that generates low to mid-teens returns on no capital.
spk05: Okay. No, that's helpful, Collar. And then just going over to America's Beverage, you've lumped the PPI headwind on Mexico Glass with the other – non-reportables, but the whole segment is up inclusive of what I presume to be, what, 25, 30 million or so headwind in Mexico. So just help us think about the volume assumption embedded.
spk04: No, I think America's beverage, you've got growth in North America, in Brazil, and I'd say it's mostly offset by the headwind in Mexico. So I think that the segment is largely flat year on year, given the Mexican headwind.
spk05: Got it. And what's the volume assumption for North America and Brazil within that?
spk04: So I think that, you know, we project the market in North America to be flat to up 1%. And just to remind ourselves, we believe the market was down on the order of 5% in 22% and it was up about 1% in 23%. We don't see why 24 is up any more than 1%, so flat to 1%. And in that kind of market, we're currently projecting we'd be up 4% to 5%. Having said that, obviously January off to a rocketing start, but it's one month and it's a small month, so we don't get too excited about it. Brazil, again, I'd suggest to you that we think the market and ourselves are up in the 2% to 3% range.
spk05: Got it. That's all very helpful. I'll pass it on. Thank you.
spk04: You're welcome.
spk01: Thank you so much. We will move now to the next question coming from the line of Aaron Viswanathan of RBC Capital Markets. Your line is now open.
spk03: Great. Thanks for taking my question. Hope you guys are well. So first question, on the EBITDA line, it looks like if you annualize kind of the reduction in depreciation that you're expecting that's about 48 or 50 million bucks. And then we kind of walk through your guidance of the $5.80 to 620. We're coming up with EBITDA of around a billion, 1.82 billion or so, 1.81 in that range. I guess, is that right? And then that would also imply kind of down segment EBIT in the Americas. So I just wanted to clarify those kinds of questions. Thanks.
spk04: Should I ask the second question again?
spk03: Sorry, go ahead.
spk04: I'll answer the EBITDA question. You got to ask me the second question again. So if we had 1.882 of EBITDA in 23, the number you just quoted far too low. We're within $10 to $15 million of that number in 24. So think about 1860 to 1870. So you're well off that number. And then what was your second question?
spk03: Yeah, the second question was, what are you expecting per segment EBIT in the Americas? Um, it does appear that, that maybe that would be, would that be flat to down or, or are you still expecting growth there?
spk04: No, no. So I think what I just answered to Adam's question, we said flat year on year and that's growth in North America and Brazil offset by glass in Mexico.
spk03: Okay. And then if I could just squeeze in one last one, sorry. Um, but then when you think about the other businesses, you know, it is a little surprising that there is so much volatility and, um, You know, I know you've been asked this before, but would you consider – is there any way that you could maybe shift a little bit more into the aluminum aerosol business, or is that not necessarily a good use of capital? Thanks.
spk04: Well, I think we could consider doing anything. I don't particularly like the economics of aluminum aerosol. Really expensive. Okay. and it doesn't provide you with the incremental growth opportunities that you see in D&I beverage cans. So the impact-extruded aluminum aerosol can is generally one line gives you the output of X number of units, and there's really no way to add equipment to it to increase those X units to Y units on that one line. If you want more units, you need to add more lines. So for me, the It's an expensive business. Okay, if you're already in it, like a lot of businesses, if you're already in it, you can talk yourself into spending more money. It's really difficult to talk yourself into getting into that business. There are better uses of capital.
spk03: Okay, thanks. I'll turn it over.
spk01: Yep. Thank you. We will move now to the next question coming from the line of Anthony Pitinari of Citigroup. Your line is now open.
spk06: Good morning. I was wondering if you could talk a little bit about competitive intensity in Asia and just, you know, when you might be able to get back to kind of mid-single digit plus growth. It seems like the region was growing, you know, for several years and a lot of capacity was added. You know, are you seeing foreign entrants from China or Japan kind of impacting competitive intensity within the region or just how you sort of characterize the environment?
spk04: Good question. You know, the first thing I would say is that the real headwind that you face last year and looking into this year is just the consumer is weak. And, you know, it's a much weaker consumer to start with than we're used to in Western Europe or North America. And so what would really help is if we had volume growth, obviously, and for that we need – some kind of economic stimulus in the region. Now, obviously, there has been a significant amount of capacity installed, mostly in China, where we're very small. There has been some incremental capacity installed in Southeast Asia, but not to the level that would give you concern if there was adequate growth in the market, and adequate growth being defined as mid-single digits, which should be achievable in a market like Southeast Asia with a consumer that's continuing to experience more purchasing power, albeit over the last year and a half, last two years, they've had declining purchasing power. So that's the real challenge at this point.
spk06: Okay, that's helpful. And then just following up on, I think it was Gansham's question, I think you identified Mexico as, can-making machinery and aerosol as an 80 million headwind, potentially, if I got that right for those three things. Rough number, yes. Yeah. It's obviously too early to think about 25, but just from a big-picture perspective, you'd expect Mexico to kind of come back on that pass-through in 25, if I characterize that correctly. You know, for aerosol and can-making machinery... Do you think we're at a trough? I mean, do you think it gets better as the year goes on? Like just how would you characterize, you know, where those businesses are kind of within their earning cycle and the potential for maybe some kind of recovery in 25 or not?
spk04: So Mexico, as you stated, comes back next year, no doubt. Can making equipment business, as I said earlier, we are, This year will be a service and parts business for previous equipment sold and installed. So there won't be a headwind next year from less machines sold because there will be no minimal machines sold this year. So that business will come back in the future, but it's probably 26 and after. I don't forecast. Based on where we see global growth rates for beverage cans outside of China... I don't see the need for more beverage can equipment in any market. But we do expect there will be enough growth that there will be further lines installed in the future. But that's a 26 and after phenomenon. Aerosols, as I said, there are some things happening in the aerosol business. I think that there's some substrate change to plastic. I would say the business is, I don't see the business getting any worse, but it could be a year or two before it gets better. We need some demand pickup in that business, and certainly with demand pickup, perhaps some better behavior by some of the others in the marketplace.
spk06: Okay, that's helpful. I'll turn it over.
spk01: Thank you. We will move now to the next question coming from the line of Gabe Hady of Wells Fargo Securities. Your line is now open.
spk10: Kim, Kevin, Tom, good morning. Good morning, Gabe. Good morning, Gabe. Kim, bear with me here. I wanted to ask a question about America's BEV, and it's always tough to pick a starting point. If I look at sort of pre-pandemic segment profit, Europe – I don't know, maybe 450 million. I think there's roughly maybe 13 billion units more sold. So maybe that gave you a 200 to 225 million. So there's another 225 million or so of favorable mix and price in there. So I'm just curious, sort of replicating the competitive intensity question in North America. You talked about your system being mid-90s utilized and the rest of the market maybe low 90s. So as we go into the middle of the decade and forward, do you feel like that improved profitability is sustainable? And then a similar question in Europe, but a little bit different in the sense that whenever there's been conflict in the Middle East, sometimes some of those cans find their way into Eastern Europe, and then Eastern Europe ships into Western Europe. Is there any fear of that and risk to your 24 outlook as it relates to Europe, Bev? Thanks.
spk04: No, I think to answer the second part of your question, the Middle East has remained, despite the conflict, has remained very firm. I think perhaps the labels are different, but the volume is similar to higher. So we don't see that challenge that you just described. So North America, I think that there's no reason why we can't, as an industry, remain disciplined at utilization rates in the low to mid 90s levels. These are very high utilization rates. So in the absence, as I said earlier, in the absence of somebody doing something foolish, we don't see significant share shifts beyond 2024. Okay.
spk10: And then I'm going to try to sneak in two last ones. If I take your comments on the equipment business and the sort of flat to up 1% growth in North America, Does that suggest that's sort of your medium-term outlook in terms of like, hey, our BEV equipment business is sort of at a normalized spot, and that's how we should think about growth? And then are you telling us that $15 million of total restructuring savings from the five plant consolidation efforts, or did I mishear what you're trying to tell us? Thank you.
spk04: 15 million this year with more to come next year. I mean, obviously, you announce them. It takes you some time to get the plant closed and realize the benefits through the remaining system. No, I think on the beverage can equipment business, I wouldn't say this is normal run rate. I would say this is a low point considering that we don't project any machine sales this year or next year. Clearly, when machine sales return, the profits go back up. So I don't think this is the normal. I do think that it's hard to project as we sit here today, after the last two years, that the market for North American beverage will grow any more than zero to 1%. I know some others have higher growth aspirations for the market than that, but we're going to grow more than that this year, but I don't see the market growing more than that. As you know, the customers have a new value over volume model. It's hard for me to understand how much more volume they would need to sell to offset price loss if they do significant promotions. And I'm sure they're much smarter about that and they target their promotions in a way that I wouldn't understand market by market. But you'd have to sell an incredible amounts of volume more than you're projecting now to offset the price that they've realized. So if a 12-pack used to be three bucks, Gabe, that's six bucks for a case versus $18 for a case now, not promoted. And even promoted, if you're talking about buy two, get one, that's 12 bucks a case. So significant price inflation that they put into the market. Hard to understand how they can reverse that and keep profits moving in the right direction for them. I understand for them that Like all business, you always say volume covers all sins. Well, I don't think they want to create the sin of underpricing their product anymore. So I think that 0% to 1% for the market is probably a fair assessment as we sit here today.
spk10: As always, thank you. You're welcome.
spk01: Thank you. We will move now to the next question coming from the line of Edlin Rodriguez of Mizuho. Your line is now open.
spk00: Thank you. Good morning, guys. Two quick ones for me. One, on European beverage, what do you think is driving the softness we're seeing right now and what will drive the rebound in the second half as you expected? And then the second one, you've talked about right-sizing the aerosol business, but how long do you think it will take you to get to where you want to be in there?
spk04: Second question. Listen, I think we announced the closure of Decatur. I think we're in a much better position after the Decatur closure. Now you're back to you have the capacity you need. A little more volume would help. And I think, as I said earlier, a little more volume perhaps brings about a little bit better behavior across the industry. I'll leave it at that. On Europe, as I said earlier, the The challenge, and you've probably heard others say as well, the challenge that we have right now is the consumer is under incredible pressure across Europe. You know, if you were to look at any index measure of economic activity or consumer confidence, it's pretty low across Europe right now. But I do think, as I said earlier, we've had periods before where in the can business where Europe has been down, it never stays down for long. So I do think by the summer months here. As we get into the summer months, we'll start to see a pickup late in the second quarter through the summer.
spk00: Okay, thank you very much.
spk01: You're welcome. We have the last person to ask a question coming from the line of George Tafis of Bank of America. Your line is now open.
spk09: Oh, hey, guys. Thanks for taking the follow-on. I just want to make sure factually the restructuring savings we're talking about this year It's a $1.5 million, not a $5.0 million. And what would you say the carryover is into 2025, recognizing it's only February of 2024? And then secondly, Tim, if you had a figure for European beverage can growth for this year, if you mentioned I had missed it, what is that figure? And with that, I'll turn it over. Thank you.
spk04: Thanks, George. So I think $1.5 this year and perhaps another $1.5 next year. Keeping in mind, these are all old plants, so there is no depreciation, right? So you don't get the depreciation savings that you see from a plant that's not 30-plus years old. For Europe, we're expecting a flatter, so 0% to 1% volume environment for crown in 2024. I think the market up on the order of 2% to 3%.
spk09: Hey, Tim, maybe I'll double up here one last one. And I recognize it's a small business in relation to the entirety of Crown. But as you talked about the aerosol business in North America and globally, and we've obviously followed it for Crown for a number of years, it doesn't sound like things are going to get measurably better from a secular basis longer term. So, yeah, you've right-sized it. Yeah, maybe you get some volume growth. but it doesn't sound like it's a real driver for you going forward. Is it something that you could ultimately parse from the rest of template, or is it so integrated that it's really hard to do, and so it stays as long as you're in the North American template, which you still seem to like? Thank you, and good luck on the quarter.
spk04: Yeah, good question. So, listen, I think you're right. It doesn't get measurably better in the future, but it doesn't get any worse from where we're at, where we're projecting in 24. Yes, it is integrated. As you think about the, and I know, George, you know this as well as anybody, the process to cut, coat, and print sheet across aerosols and food, very integrated. You could carve it out, but it probably leads to more dis-synergies than it's worth. And again, as I said earlier, the prospect of selling any business is always on the table, but you have to think about how you're going to replace the cash flow with if you'd sell any one or a combination of businesses, specifically North American template, we still generate a sizable amount of free cashflow across these businesses. And on an annual basis, uh, as you consider, we don't spend any capital in these businesses. And I think I addressed earlier why we're not interested to spend any capital in the aluminum aerosol business. So, you know, we run these, those businesses we specifically run for cash. And, um, and we'll continue to run them for cash until something else breaks. But they are cash positive.
spk09: Understood. I appreciate the call, Tim. Thank you very much.
spk04: Thanks, George. So, Bill, I think you said that that was the last question. So we thank everybody for joining us, and we'll speak to you again in April after the completion of the first quarter. Thanks very much. Bye now.
spk01: Thank you, and that concludes today's conference. Thank you so much, everyone, for joining Emina Disconnect, and have a great day.
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