Crown Holdings, Inc.

Good morning and welcome to Crown Holdings' second quarter 2024 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 Cloutier, Senior Vice President and Chief Financial Officer. Sir, you may begin.

Thank you, Elle, and good morning. 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 actual results to vary is contained in the press release and in SEC filings, including our Form 10-K for 2023 and subsequent filings. Earnings for the quarter were $1.45 per diluted share compared to $1.31 per diluted share in the prior year quarter. Adjusted earnings per diluted share were $1.81 compared to $1.68 in the prior year quarter. Net sales in the quarter were $3 billion compared to $3.1 in the prior year, reflecting a 6% increase in global beverage can volumes, with North America up 9% offset by $94 million from the pass-through of lower raw material costs. Segment income was $437 million in the quarter, compared to $414 million in the prior year, reflecting improved results in global beverage. Free cash flow in the first six months was $178 million, a record amount through the first six months, driven by strong operational performance, reduced capital spending, and tightly managed working capital. The balance sheet strengthened further in the quarter, with net leverage at 3.2 times compared to 4.0 times in the same period in the prior year. In June, KPS Capital Partners agreed to sell EVOSIS. We expect proceeds of approximately $300 million net of tax from our 20 percent interest in EVOSIS. As stated in the earnings release, third quarter adjusted earnings per diluted share are projected to be in the range of $1.75 to $1.85, with full-year guidance of $6 to $6.25 per share. An increase from our previous guidance of $5.80 to $6.20 per diluted share. Key assumptions supporting our updated guidance include net interest expense of $380 million, average common shares outstanding of approximately $120 million, exchange rates at current levels, full year tax rate of approximately 25%, depreciation of approximately 310 million, non-controlling interest expense between 140 and 150 million, dividends to non-controlling interest of approximately 125 million. We now project 2024 full year adjusted free cash flow to be at least 750 million with no more than 500 million in capital spending. With the combination of projected strong free cash flow and proceeds from the EVOSA sale, we expect to finish the year below the low end of our previous near-term net leverage target of three to three and a half times. We expect cash flow to remain strong, allowing us to resume share repurchases while continuing to drive the deleveraging process towards our new long-term net leverage target of two and a half times. With that, I'll turn the call over to Tim.

Kevin, thank you. Good morning, everybody. Some brief comments, and then we'll open the call to questions. As reflected in last night's earnings release and as Kevin just summarized, second quarter performance came in ahead of expectations as a result of 6% global beverage volume growth contributing to income for combined global beverage operations expanding 21% compared to the prior year. Strong beverage results combined with lower capital expenditures and tightly managed working capital in our non-beverage businesses resulted in positive free cash flow in the second quarter, some $350 million better than last year. Net leverage at the end of the second quarter was 3.2 times lower than both the first quarter and prior year end. America's beverage reported a 15% increase in segment income on the back of 10% volume growth in the quarter. with 9% growth in North America and 12% in Brazil. Our full-year volume growth estimates are now at 5% to 6% for North America and mid to high single digits for Brazil. Unit volume demand was again strong across our European operations, with shipments growing by 7% in the quarter, with more fillers increasingly viewing aluminum cans as their preferred package of choice To address necessary sustainability goals, the conversion to aluminum cans continues to accelerate. Market sentiment has certainly shifted from Q4 of last year, and our outlook for the future remains positive. Income in the segment advanced 27% in the quarter, and we should comfortably exceed the 2021 income level this year. Income performance in Asia Pacific improved by almost 45%. pushing the segment's margin to 19% of net sales in the quarter, the result of a significant improvement to our cost base and actions taken to improve revenue quality beginning in Q4 of last year. Shipments were down 5% in the quarter, and while we expect full-year shipments to be down a similar amount, the result of our improved cost base is expected to continue to generate further income improvement in the third quarter. As expected, transit packaging income was down to the prior year, primarily a result of lower volumes in the strap and protective businesses. Freight markets remain soft with lower load volumes and purchasing managers indices, that is the PMI, in both the U.S. and across Europe remain in contraction. We therefore remain cautious in our outlook for a broad industrial recovery. Until then, we will continue to keep costs down and manage the business very tightly. Income in Q2 was better than Q1, and we currently expect Q3 to be better than Q2. Kevin discussed the approximate $300 million in net of tax proceeds from the EVOSA sale. As we become more comfortable with the receipt of those proceeds this year, it is likely that we would use the bulk of those proceeds to buy back shares. In summary, global beverage operations had a very good first half, and we see that momentum carrying over into the third quarter. Transit packaging is expected to improve in Q3 versus Q2, and it feels as if both food and aerosol can volumes may have found a bottom. Margins are healthy, and we currently expect that 2024 EBITDA will exceed the record EBITDA recorded last year. The company is generating significant free cash flow per share. The balance sheet is strong and getting stronger, and we look forward to the receipt of the EVOSA sale proceeds before year-end. And with that, Elle, I think we are now ready to open the call to questions.