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Operator
Ladies and gentlemen, thank you for standing by and welcome to the Ball Corporation second quarter, 2010 earnings conference call.
During the presentation, all participants will be in a listen-only mode.
Afterwards we will conduct a question and answer session.
(Operator instructions) As a reminder this conference is being recorded Thursday, July 29, 2010.
It is now my pleasure to introduce Dave Hoover, Chief Executive Officer.
You may go ahead, sir.
Dave Hoover - CEO
Thank you France and good morning everyone.
This is Ball Corporation's conference call regarding the Company's second quarter, 2010 results.
The information provided during this call will contain forward-looking statements.
Actual results or outcomes may differ materially from those that may be expressed or implied.
Some factors that could cause the results or outcomes to differ in the Company's latest 10-Q, and in Company SEC filings, as well as Company news releases.
And if you don't have our earnings release, it's available on our website, which is at ball.com.
Information regarding use of non GAAP financial measures may also be found on our website.
Joining me on the call today is John Hayes, Ball's President and Chief Operating Officer, and Scott Morrison, Senior VP, Chief Financial Officer.
In a moment Scott is going to comment on our financial performance for the quarter and for 2010, and then John will follow with details about our operating performance.
Ball reported strong second quarter results.
Increasing volumes across our packaging businesses, strong operating performance, and positive contributions from the strategic actions we've been taking during the last couple of years, led to our improved results.
During the quarter we closed our acquisition of the JFP joint venture plant in China, and we announced our agreement to sell our plastics business to Amcor for $280 million in cash.
We also increased our authorization repurchase up to 12 million shares.
Also in the quarter, Ball published its second corporate sustainability report, highlighting progress on our goals in five key areas of focus, which are packaging, energy, water and waste, safety, and talent management.
You can read the report in expanded details on ball.com.
Earlier this week we announced the acquisition of Neuman Aluminum, the largest North American manufacturer of metal disks that are made into extruded aluminum bottles and containers, used for personal care and beverage products.
Well, we're very pleased with our strengthening performance this year, and with that I will turn it over to Scott.
Scott Morrison - Senior VP & CFO
Thanks, Dave.
Ball's comparable diluted earnings per share from continuing operations were $1.38, well ahead of last year's $1.14, a more than 20% improvement.
Volume improvements in our Global Metal Packaging businesses, efficient plant operating performance, and disciplined cost controls, contributed to the improved results.
These positive factors were offset somewhat by a higher interest cost, and a higher effective tax rate.
A weaker Euro negatively impacted diluted earnings per share by $0.02 in the quarter and $0.06 year-to-date.
At present rates the FX headwinds are expected to increase in the second half of the year.
The plastics business is now reflected under discontinued operations in our financial statements.
The sale resulted in a charge of approximately $76 million in the second quarter.
The bulk of this charge is related to goodwill impairment.
For a complete summary of second quarter results on a GAAP and non-GAAP basis, please refer to the notes section of today's earnings release.
Turning to some key financial metrics.
Interest expense in the quarter was up as expected, due to the acquisition financing from last year's purchase of the four metal beverage plants, and an extra month of interest expense from carrying both the new bonds issued in March, and the 2012 notes we redeemed in April.
We still anticipate full year interest expense to be approximately $140 million.
Given the improvements seen to date in our North American packaging operations, we expect the full year tax rate to be around 33%.
At current exchange rates, year end net-debt is expected to be approximately $2.4 billion, essentially where we ended 2009.
Though on a comparable basis we are down over $200 million due to the AR securitization being reflected on the balance sheet.
Even without the cash flow we would have historically generated in the second half of the year from our plastics business, we expect free cash flow to be approximately $500 million in 2010, excluding the impact of the AR securitization coming on the balance sheet.
As stated in this morning's press release, and as a result of our strong free cash flow, we expect to repurchase in excess of $400 million of our stock during 2010.
As of today's conference call, we have acquired $250 million of stock this year.
Our balance sheet, liquidity, and capital structure are where we want to be.
So we expect -- so expect us to return a majority of our free cash flow to share repurchases, absent other significant strategic opportunities.
With that I will turn it over to John to talk more about the operations.
John Hayes - President & COO
Thanks, Scott.
The optimism we felt heading into the busy summer season has materialized in the strong second quarter results.
In our Metal Beverage Packaging Americas and Asia segment, profitability for the quarter exceeded our expectations, with EBIT of $114.5 million, versus $74.8 million in second quarter last year.
This was driven largely by the impact of the acquired plants, excellent plant performance, and strong volume trends in CSD, certain specialty sizes, and the emerging craft beer category.
Key US retailers led significant promotional activity around the Memorial Day holiday, and that activity provided a volume lift relative to our expectations throughout the quarter.
These promotions were in place for the Fourth of July holiday as well, though it appears that they have since subsided somewhat.
Best practice sharing and plant floor information system upgrades continue to drive efficiency gains in our plants.
Our strong position in the specialty can arena, and focus on innovation, are providing opportunities for our customers to launch new products in the US.
And our ability to respond to the growing needs of the craft brewing segment, all have contributed to improving volume trends.
In China, both the overall market, as well as Ball, saw strong double-digit volume growth rates in the quarter.
Herbal tea and beer demands continue to be the main catalyst behind the volume improvement.
The newly acquired JFP plant will play a pivotal role in being able to supply the growing demand for beverage cans in Southern China.
We have a variety of opportunities to improve this new facility without spending significant capital, and the payback will exceed Ball's hurdle rate by the year end 2011.
Double-digit volume growth continues in Brazil.
We have had a very close relationship with established partners there for a long time, and the three plants in our joint venture are performing well.
We continue to evaluate further growth opportunities in this region but, as always, we'll do it in conjunction with secured customer contracts.
In our European operations, trends are also positive.
Results in the quarter were EBIT of $72.5 million, versus $64.8 million in the second quarter last year, on volumes that were up mid single digits percent.
This was offset by lower export volume, and a slight FX translation headwind, which Scott mentioned earlier.
A rebound in specialty can demand also provided improved price/cost mix for the quarter.
We mentioned in the news release encouraging signs in Germany for the return of the beverage can.
Several significant discounters in Germany began relisting beverage cans in their outlets during the second quarter, which helped to increase the total industry can sales in that country by more than 30% year-to-date, and more than 50% in the second quarter.
Obviously, that is on a base smaller than what we would like, but it is another step forward, and we continue to work with retailers and others to bring back this important market.
As in the Americas/Asia segment, we expect earnings improvement, albeit on a Euro basis, in 2010 in that segment.
Our Food and Household Packaging product segment continued to perform very well.
Volumes in the food side of the business were up low to mid single-digits in the quarter, with aerosol volumes experiencing mid to high single-digits growth, both for the industry as well as for Ball.
Second quarter year-over-year EBIT of $33.4 million, versus $35.1 million, was down slightly, but against a difficult year-over-year comparison, due to inventory holding gains recorded in the second quarter of 2009.
The segment had another solid quarter, due largely to excellent operating performance, product mix and the improved volume trends mentioned earlier.
While food volumes have also rebounded nicely, the fresh pack crops are behind schedule by a couple of weeks, especially the tomato crop.
That being said, the Food and Household segment is running ahead of expectations, and all indications are that this segment will have another solid year in 2010.
We will just look for some cooperation from the weather as we head into the pack season.
Dave mentioned Neuman Aluminum.
We acquired that business this week, and it is a great strategic addition to our Food and Household Packaging segment.
Neuman supplies more than 90% of the aluminum disks, called slugs, used to make extruded aluminum bottles in North America.
It brings us technology, and entry further up the supply chain, into an adjacent market.
Neuman isn't a big acquisition in terms of size, but it fits well within our portfolio, and we intend to leverage it's capabilities to help us grow this segment.
Aerospace segment second quarter earnings of $18.6 million, were up from last year's $14.8 million, on essentially flat revenue.
Strong program performance on existing fixed price programs, made up most of the difference.
As we have indicated throughout the year, recent contract wins will likely not have a big earnings impact in the second half of 2010, but they do firm up the backlog, and set us up nicely going into 2011.
Those glimmers of future contracts awards noted in the first quarter conference call, are slowly starting to move forward through the process, so stay tuned as we progress through the year.
In summary, our plants are running very well.
Packaging volume trends continue to improve, and numerous opportunities exist for us to prosecute prudently.
We are in a strong position operationally as we head into the second half of the year, and we will expect to see good momentum continue into 2011.
Dave?
Dave Hoover - CEO
Thank you, John.
And thank you, Scott, for your comments as well.
Well, we are pleased with our performance so far this year, and while we expect the positive momentum to continue, we recognize that the world economy still faces challenges.
But so far so good for Ball.
We continue to seek opportunities for growth, both organically and through acquisition.
Rest assured that we are going to remain focused on maintaining our track record of disciplined, balanced capital deployment.
Last year from continuing operations, adjusted for the sale of the plastics business, we made $3.92 for the full year.
In the first half of this year, the comparable earnings were $2.25, a very strong performance.
And we are going to do our best to meet, or exceed, the first half performance in the second half of 2010.
And with that, France, I believe we are ready for questions.
Operator
Thank you, ladies and gentlemen.
(Operator instructions) Our first question is from the line of George Staphos, Bank of America Merrill Lynch.
George Staphos - Analyst
Thank you.
Hello, guys, good morning.
Dave Hoover - CEO
Good morning.
Scott Morrison - Senior VP & CFO
Good morning.
John Hayes - President & COO
Good morning.
George Staphos - Analyst
The question I had to start with, could you go back through what the volume growth was if you had provided it, and if you hadn't, if you could give us a color for the United States, or North America in beverage, and also in Europe?
And then separately for both regions, what types of operating rates do this you'll be at for the whole of 2010?
John Hayes - President & COO
George, this is John.
Why don't I try and tackle that.
I think we mentioned on the first quarter call, and I will talk North American first, North American beverage.
We run our business as a system, and we've had volumes moving around within our newly acquired facilities, and our existing facilities.
So it's difficult to separate out.
Having said that, we acquired relatively full out plants from Metal Container nine months ago, or so.
If you take those out of the equation, our remaining plants were about down 3% or so for the quarter.
But as we also said in the first quarter, as we go into 2010, and '11.
In 2010 we stepped back in terms of some of our volumes over the last 18 months or so, related primarily to the plant closures.
Remember Kent, Washington, and Kansas City, among others.
And we are trying to be a bit more disciplined.
Having said that going into 2011, we expect to be up relative to the market, as we rebalance our customer portfolio.
Over in Europe, it was some of the trends that we saw, certainly in western Europe continued.
It was up high single digits, I think in the 8% range.
Eastern Europe was a bit soft.
I think the economy is not improving in Eastern Europe relative to Western Europe, and there's a bit of a lag there.
But overall we were up mid single digits.
Our exports remained a bit soft.
But some of our bigger markets, including the Netherlands, and the UK, were up quite nicely, and there's been good weather in Europe, in addition to the World Cup.
So we feel relatively constructive as we go into the second half of the year, that the trends we saw in the second quarter will continue.
George Staphos - Analyst
Would it be fair, John, that operating rates were more or less around the mid 90%'s in both regions.
John Hayes - President & COO
Yes.
As you know the seasonality plays a factor in it, but we were running hand-to-mouth in North America and Europe in the second quarter.
And certainly as we go into 2011, we expect to be full out.
George Staphos - Analyst
Okay.
Two quick ones and then I will turn it over.
One, what opportunities are next perhaps for specialty cans, either within traditional markets like CSD, or perhaps even for craft beers.
And then, it's one of the concerns, at least, that we've heard in the marketplace, is that given the high stepping off point that's created by this year's retailer promotions, that next year is up against a much tougher comparison.
It sounds like again, that given some of the volume work you've been doing, you don't seem terribly concerned about that for 2011.
Thank you.
John Hayes - President & COO
I think I will tackle that last question first.
I don't think we are terribly concerned.
It's a bit premature to talk about 2011.
Even with some of the promotional activities, let's remember that the overall can market is flat.
It's not like we've seen a big bump-up relative to last year's comps.
As we go into 2011, I think the CSD and the beer people, are looking at the value-versus-volume equation.
We can tell you the can has taken a little bit of share relative to other packaging substrates in some of those markets, but I don't think any meaningful deviations have occurred.
On the specialty side we continue to see strong interest in a whole variety of different sizes.
As you know, this year, with a big CSD customer we launched a 7.5-ounce container.
We are seeing strong growth in some of the smaller sizes, as well as some of the larger sizes.
Remember in 2009, the larger sizes, largely on the energy drink side, were impacted because of the housing downturn, and the people were purchasing much less at the C store level.
We are seeing that starting to come back, and so we continue to believe that our good position in the specialty side will continue to give us benefits as we go forward.
George Staphos - Analyst
I'll turn it over.
Thank you.
Operator
Our next question is from the line of Claudia Hueston, JP Morgan.
You may proceed.
Claudia Hueston - Analyst
Hello, thank you very much.
Good morning.
Dave Hoover - CEO
Good morning.
Scott Morrison - Senior VP & CFO
Good morning.
John Hayes - President & COO
Good morning.
Claudia Hueston - Analyst
You've said the balance sheet is where you want it to be, and obviously buybacks, seem to be a priority.
But could you just talk a little bit about where acquisitions fit, and maybe just comment a little bit more on the motivation behind the Neuman acquisition.
Dave Hoover - CEO
This is Dave.
Acquisitions, as you know us, Claudia, and as you go back over many years here, we've been able to find value, acquire it, integrate it, take on debt, pay down debt, buy stock, and so forth.
So it's something we understand and know how to do.
We are continuing to look for value creating acquisitions, and as Scott mentioned in his comments, we think our leverage is certainly at a very comfortable level.
So, even though we said we are going to buy more than $400 million in stock this year, that's certainly not going to be a hindrance to our being able execute acquisitions.
We are well financed, and in good shape, flowing a lot of cash.
Scott Morrison - Senior VP & CFO
On the Neuman Aluminum side, it's very good business with technology that allows to us participate in this adjacent market.
It does provide good opportunities to pursue the aluminum aerosol market, which you know we also do tin on the aluminum side, so there's a customer leverage point there.
We acquired it on financial terms that are quite attractive, and we are going to exceed our cost of capital in the first year, and it also does play well into our initiatives around sustainability and recycling.
As we said, it wasn't a big acquisition.
We paid approximately $60 million.
But it does give us a lot of various options as we go forward, to help grow our business in the part of the space that we understand quite well.
Dave Hoover - CEO
Not only here but globally as well.
Claudia Hueston - Analyst
Okay, thank you very much.
That's helpful.
I was just hoping you could also, just comment on Germany, and how we should think about your ability to meet the additional demand that seems to be coming online there.
John Hayes - President & COO
This was very good news in the quarter, and as I said, off a very low base it was still up 50%.
There's a number of big box retailers in Germany, and the number three and number four retailers are the ones that have been listing, so that's good news.
We would love to see number one and number two, but that's for tomorrow, not today.
We believe as we look forward, that we have the ability to optimize our system to provide growth in that market as we go forward.
As you know, that's a very important market to us, and we are going to make sure that we have the necessary capacity in place.
I think you should not expect us to be spending capital in that region.
We can do various speed-ups and optimization projects, without adding a lot of capacity, and get more out of the system.
It varies by the seasonality of the business as well but we feel quite confident that we will be able to service that market as it continues to grow.
Claudia Hueston - Analyst
Great.
Thank you very much.
Operator
Our next question is from the line of Ghansham Panjabi from Robert W.
Baird.
You may proceed.
Ghansham Panjabi - Analyst
Hello guys, good morning.
Given the World Cup, which I assume somewhat impacted your European business favorably, have you seen any fade in Europe post the World Cup, in terms of volumes.
John Hayes - President & COO
Not really at all.
As I said in the first quarter of this year Eastern Europe was strong, and in fact stronger than expected, but that was off a very weak comp in the first quarter '09.
Second quarter was soft a bit, and all of our indications, it's more economically driven, where the economies are not recovering as fast.
There's a bit of a delay relative to Western Europe.
That aside, yes there probably was a bit of a bump.
It was good to see the Netherlands in the finals, and Spain in the finals as well.
So there is probably a little bump but it's very difficult to quantify.
But the trends we saw in the second quarter continue to the third quarter.
Ghansham Panjabi - Analyst
Okay, and just separately.
One of your competitors in North America noted yesterday that they anticipate some share loss in '11 as part of contract renegotiation, but they expect to recover that loss volume within three years.
It seems like the entire industry is moving volumes between each other to somewhat diversify the customer mix, and that's healthy to a certain extent.
But is this some sort of new norm for the beverage can industry in your view?
And more importantly how do you manage the capacity footprint in the context of all these movements?
John Hayes - President & COO
From Ball's perspective, this was a bit of a deliberate activity over the past couple of years, and we've talked about that in the past, certainly in the first quarter call.
I think as we look forward over the next couple of years, most of our volumes are contracted under long-term contracts.
So we believe that, generally speaking, we are going to be entering in a period of relative volume stability, where over the past couple of years, it hasn't been as stable as it has historically been for Ball.
Ghansham Panjabi - Analyst
Interesting.
Okay.
Thank you.
Operator
Our next question is from the line of Chris Manuel, KeyBanc Capital Markets.
You may proceed with your question.
Chris Manuel - Analyst
Good morning.
John Hayes - President & COO
Good morning.
Chris Manuel - Analyst
Congratulations on an exceptional quarter.
John Hayes - President & COO
Thank you.
Chris Manuel - Analyst
I do actually have a question, though.
First, if we could ask a little bit about Neuman Aluminum.
Could you give us more color there?
I'm sure it's going to show up in the Q in the next few days, but how much did you pay for the acquisition, do you have any intentions through time?
I know you just mentioned getting into the aluminum aerosol markets, but I think this just makes slugs if memory serves.
Is there the ability to actually make some cans or bottles as well, or what your plan is there?
Dave Hoover - CEO
Well, John just mentioned that we paid about $60 million for the acquisition.
And it does not have capacity to manufacture cans.
But it is a supplier to the people who do.
And it was described as adjacent in the supply chain to that.
I think it's fair to say that our long-term interest is in that part of the business, not only here but around the world.
We just feel it's a good fit, and a place that we have a strong interest in.
And we'll be prosecuting that interest.
We haven't made any decisions yet to do anything, but certainly you shouldn't be surprised if we do.
John, did you have anything to add to that.
John Hayes - President & COO
I think it's a good summary.
The long-term intent wasn't necessarily just to get in the slug business.
It's probably something more, and as we develop those plans people will probably hear about them.
Chris Manuel - Analyst
That's helpful.
The second question I had was, as you look at beer markets, I think you mentioned particularly being a little bit weak in Eastern Europe.
As we look at some of the other substrates, they are down notably more than what you're citing as a bit of softness.
It's a lot more than just soft.
Is there anything going on potentially from a substrate perspective of shifts between, cans, to glass, to plastic, et cetera, that's favoring the bev can today.
John Hayes - President & COO
I think not only in Eastern Europe, but in many parts of the world, we have seen over the past 12 to 18 months, shifts in packaging materials that have been favoring the can.
We've seen it in Asia.
We've seen it South America.
We've seen a touch here in North America.
And again in Europe as you said.
I don't think it's just unique to one area, but the can has been gaining shares because I think people are recognizing that it's one of the best packages in the supply chain from a value, and a sustainability perspective.
Chris Manuel - Analyst
That's helpful.
Thank you, guys.
Operator
Our next question from the line of Chip Dillon from Credit Suisse.
You may proceed.
Chip Dillion - Analyst
Thank you very much.
Could you first, just so we don't over count the sales, you mentioned in the press release Neuman sales, but I would imagine some of those sales are already going to Ball.
Could you give us an idea of what that is?
Dave Hoover - CEO
No, none of the sales go to Ball and I think we said in the press release, annual sales the last time measured, were about $128 million.
Chip Dillion - Analyst
Okay.
And none to Ball.
Then secondly, when you step back and look at 2011, 2012, I mean obviously this year has been more about assimilating metal container, and you increase your presence in the Chinese joint venture.
Are you thinking more proactively about adding new lines as one of your competitors has kind of done, on an accelerated basis the last couple of years?
Do you think it would be more likely we would see activity in both China and Brazil, or maybe would you favor one market over the other?
Dave Hoover - CEO
I think you are seeing activity in both those markets from us.
In Brazil, we opened a new plant, the first of the year.
We are installing a second line in that plant and are adding as we contract for business, long-term contract for business capacity.
The new plant has room for at least one more line, and there may be other possibilities.
And in China, I think that market, particularly driven by the beer and the tea business, affords us a continuing opportunity.
We've been in China since 1985, and we've got a large market share there and certainly intend to continue to prosecute it.
We also would look elsewhere in Asia if the opportunity were right, if we could contract and if we could make a good return.
So I don't think we would favor one place over another.
What we really look for is the opportunity.
Chip Dillion - Analyst
Okay.
And I think just lastly -- I'm sorry?
Dave Hoover - CEO
Please go ahead.
Chip Dillion - Analyst
I heard an echo there.
Sorry about that.
Lastly when you look at the Aerospace segment, which we don't focus enough on sometimes, you mention that some of the recent contracts, and how that could actually help 2011.
Is it too early to the give us an idea how you could see those contracts phase in, maybe when we look at year-over-year EBIT comparisons next year, is it more back-end loaded, or spread the improvement over the year?
John Hayes - President & COO
It really is too early to comment.
As we said, we have a variety of proposals out.
We always expect come the third quarter that's when the rubber would meet the road, and we're at that point right now.
We feel constructive about some of them.
Some of them have been pushed out to the right, because of the government's decision-making process, I'll call it.
But it is premature to talk about quarter by quarter certainly in 2011.
Chip Dillion - Analyst
Lastly, in Germany, you all talked about the improvement there.
How far, if zero is sort of the bottom, and 100 was where you were before the change in the deposit laws over there, how far back up has it recovered, and do you think you can get all the way back eventually?
John Hayes - President & COO
Let me put it this way.
Back before the deposit it was about a 7.5 to 8 billion can market, of which about 1 billion were exported out of Germany.
So call it 6.5, 7 of consumed in the country.
It got down to a low of a couple hundred million units afterward, but it wasn't but two or three year ago that it was still only at about 500 million for the year that were consumed in Germany.
Through the first six months of this year it's 500 million.
So over the past couple of years we've effectively doubled what it is, and so the future will be what the future is.
But we have -- we are feeling a lot more constructive today than we have in the past relative to cans getting back on the shelves in Germany.
Chip Dillion - Analyst
Thank you.
Operator
Our next question is from the line of Rick Skidmore from Goldman Sachs.
You may proceed.
Rick Skidmore - Analyst
Good morning.
Thank you.
This may be a question for Scott.
Specifically since the end of the second quarter, I think you said you had repurchased $250 million year-to-date of shares versus what was $140 million in the cash flow statement.
So you've repurchased $110 million in the third quarter so far?
Just wanted to verify that.
And then what's your share count as of today?
Scott Morrison - Senior VP & CFO
We have repurchased, since the end of the quarter, we have repurchased another $110 million.
That's how I got to the $250 million year-to-date.
And we plan to continue that, the purchases to get us to at least $400 million for the year.
The share count as of year-to-date, I'll come back to you, I don't have the exact number right as we sit here today.
Rick Skidmore - Analyst
While you look for that, how are you thinking about the term loan, I think it's a $250 million term loan that's either due this year or next, are you thinking of repaying that with proceeds from the plastics sale, or terming that out again?
Scott Morrison - Senior VP & CFO
If you look at our free cash flow, what we said this year, we've got about $250 million of term loan payments this year that would come out of free cash flow.
The rest of that free cash flow being used to repurchase shares.
And then the bulk of the proceeds from the plastics sale, to use to repurchase shares.
So we see that payment coming out of free cash flow.
And shares outstanding, as of the end of the quarter, were 91.5 million.
Rick Skidmore - Analyst
Okay.
Thank you.
Then just maybe one question for John, I think you mentioned in your comments that you've seen some development with cans into craft brews.
Just wondered if you could discuss that a little further, are you seeing that accelerate?
Are you seeing some of the craft brews move away from glass into cans?
John Hayes - President & COO
The answer to both of those questions is yes, absolutely.
I don't have the exact numbers on, but the growth of the can in the craft segment is quite strong.
There is over 2,000 craft brewers in America.
You are seeing a lot of the big ones starting to go in.
Here in Colorado, there's New Belgium, there's Oscar Blues, that have really been pushing it strongly.
We continue to see those trends improve, and in fact in several major publications over the last six months, there's been various articles about the resurgence of cans as a premium package in the craft brewing segment.
I think all the chatter we hear from our various customers, and new potential customers is bullish, relative to craft beer going into the cans.
Rick Skidmore - Analyst
And maybe just a follow up to that, as you see that discussion around the craft brews.
Are some of more national premium beers having discussions with you with regards to moving some of their volume into cans?
John Hayes - President & COO
We don't comment, necessarily, on specific customer types of things.
But as an industry, generally speaking, the craft brewing industry does have interest in cans.
Rick Skidmore - Analyst
Great.
Thank you.
John Hayes - President & COO
Okay.
Operator
Our next question is from the line of Mark Wilde from Deutsche Bank.
You may proceed.
Mark Wilde - Analyst
Good morning.
I wondered if you could walk us through the impact of tin prices going up.
I know there's not a lot of tin in tin plate, but if you could talk to us about the implications of those higher prices for both tin plate and then the competitiveness of your packaging.
Scott Morrison - Senior VP & CFO
As you pointed out, tin is a small part of the overall tin plate.
When we talk with our suppliers around the price of tin plate steel, we talk about the price of tin plate steel, not about, necessarily, the varying components of it.
There is a level of, of the cost inputs play an important factor in that, but it's also about supply and demand of steel generally speaking.
To summarize, we don't specifically talk about the cost of tin going into tin plate.
Mark Wilde - Analyst
So based on what we've seen so far in the tin market recently you wouldn't expect that that's going to be a real cost push element on tin plate?
Is that correct?
Scott Morrison - Senior VP & CFO
Everyone faces costs going up and down.
The only thing I can comment is, we buy tin plate, our discussion is around the cost of tin plate.
Mark Wilde - Analyst
That's fine.
Just a second and follow-up question.
As you're exiting the plastic business, I wondered if you guys have any thoughts on sort of lessons learned from that business?
Dave Hoover - CEO
Well, there's a leading question if I've ever heard one.
We learned that if you invest money on places that don't make their return on the cost to capital, it's not as good as if you do invest money, in investments that earn their cost to capital.
Mark Wilde - Analyst
Just generally though, Dave, any kind of thing would you walk away from, and look at and say, this is kind of a lesson we learn as we grow in packaging.
Dave Hoover - CEO
No, I think a few things, as I think about all that.
We didn't get into it thinking that we were going to perform as we have.
The market has changed quite a bit over the last couple of years.
And particularly on the CSD and water side.
And as we look out into the future.
Consolidation was an appropriate thing to have happen in the market.
We did not believe that where we were positioned, it made sense for us to be the consolidator.
And it's as simple as that.
We had great plants.
We did make money.
And we flowed a lot of cash out of that business over the years that we had it.
As we got to making the decision, I think what happened for us is going to be very good as we look into the future, and what has happened for the person that bought this, or the company that bought it.
It ought to help them.
Not that that's our goal necessarily is to help our competitors, or other companies, but it's a situation where we've got lots of good people in that business who worked really, really hard, and the market just wasn't ever set up so that we could earn.
I think what you have to try to figure out is, where can you have advantage in whatever you do?
And the kind of businesses that we are in, are slug it out tough businesses.
Cost is very important, and you've got to do everything as near perfectly as you can to satisfy customer need.
But, you know, there's no doubt in my mind that we've got lots of opportunity now, particularly on the metal side of the business all around the world the things that we are looking at, and the possibilities including organic growth, including acquisitions, and we are flowing lots of cash.
The Company is in wonderful shape.
I can see it improving over next few years, just from the hand that we are dealt right now.
So barring some unforeseen events, this Company is in good strong position, and that business just didn't fit our portfolio any more.
Mark Wilde - Analyst
Okay.
Fair enough.
Thanks, Dave.
Operator
Our next question is from the line of Tim Thein from Citigroup.
You may proceed.
Tim Thein - Analyst
Hello, thank you, and good job on the quarter.
A question on Europe.
What is the growth rates, or what were the growth rates of specialty versus conventional cans in the quarter, and what is the composition of the total, i.e.
how much is specialty now in Europe?
John Hayes - President & COO
Yes, you know, I don't have that right in front of me, but if you define specialty as anything other than 33 cL, or 50 cL, that's been growing at a rate of two to three times the overall market.
50 cL is typically the beer package and 33 cL is the soft drink package.
Beer has been a bit soft if you look at some of the results the global brewers have put out, you can see it in there.
The 33 cL has performed well but some of the other ones, 15 cL for soft drink has performed well, some of the larger sizes, 5, 6, 8 for energy drinks, things like that.
And they have been growing at a faster rate than 33 cL and 50 cL.
Tim Thein - Analyst
Presumably then, if you look at kind of the EBIT improvement year on year I'm guessing mix was a positive.
What about, how was price cost if you just look at a year-on-year bridge, and you rank it, and you mentioned the FX headwind but how would you rank the other drivers?
John Hayes - President & COO
Yes Thein.
Our folks have been doing a wonderful job in terms of cost optimization in our plants.
We've seen a lot of very continued, good improvement at the plant level.
In terms of price, there wasn't a lot of price gains necessarily.
So I think the majority of the gains in profitability had to do with volume, and with cost improvements.
Tim Thein - Analyst
Okay.
Switching to the US, you mention a lot of positive factors there, a lot of heavy promotional activity.
Bottlers talking more and more about changing, that's kind of the price pack architecture.
You can argue it's almost a counter cyclical business, and despite all that, I think the industry in general, if it grew 1% it wasn't much more than that in the first half of the year.
So what, as you look forward, is this going to be an industry that, into perpetuity, is stuck at this 95 to 100 billion cans a year, and you just manage it accordingly.
I know you wouldn't bill it as a "growth," industry but I guess kind of what gets -- where do you get growth going forward?
And I'm just curious again how would you manage capital accordingly in that business?
John Hayes - President & COO
I think in North America, as you're speaking, we don't view it necessarily as a "growth" market.
You have to understand you are who you are.
We do think there's growth pockets.
We talked about specialty.
We talked about craft brewing, and we talked about the market share gains even in the beer segment.
CSD, some of the larger CSD customers are trying to figure out how to reinvigorate the growth.
In fact every one of them has specific plans in doing that.
They are in the midst of implementing them.
And as we glow o forward who knows what it is, but we also recognize it probably won't a growth market in terms of the CSD side, but on the standard container.
But on some of the specialty ones, we've seen growth in those segments offset some of the declines we saw in 12-ounce.
Dave Hoover - CEO
I think as to how that causes us to allocate capital, you see us generating $500 million in free cash.
Likely growth opportunities, then, in terms of where markets are growing, aren't right here.
At the same time we've got very good install base, a very good system.
Our plants are very, very good.
So when we do spend capital it's to maintain the good positions that we have, and/or one-off opportunities, like the Alumi-tek bottle can that we are manufacturing, and/or the new small cans for soft drinks, where we commit capital for growth within a market that, overall, may not necessarily be growing.
Remember, we've closed a number of facilities in this industry over the last decade or so, including a couple within the last two years.
I think what John said is you have to know who you are and where you are.
We can make lots of money and flow lots of cash in a nice flat can market in North America, that's what I will tell you.
Tim Thein - Analyst
Yes.
Okay, thank you.
Operator
Our next question, from the line of Alton Stump from Longbow Research.
You may proceed.
Alton Stump - Analyst
Thank you.
Good morning.
John Hayes - President & COO
Good morning.
Alton Stump - Analyst
As you look at the market in Germany, if we were to see a couple billion cans come back to that market over the next 18 to 24 markets.
The question is, is there capacity in place to respond to that and if not how quickly could you get capacity running up to respond to it?
John Hayes - President & COO
Let's not forget we have our Lublin facility, that we have not talked about turning back on stream.
And that provides a lot of option value for us in that, and where we stand today is where we stood at the end of the first quarter.
We've seen some growth in the market.
Germany is quite helpful.
It has been growing.
Is it enough to turn on Lublin now?
No, it's not enough, but we monitor that very closely, and we have plans in place, that if the market does continue to grow quite strongly, that we can service the demand there.
Alton Stump - Analyst
That's helpful.
Then if you could give me an idea of as we do look out three to five years, how much of that loss, $6.5 billion, $7 billion can market do you think can come back, or is it too early to say?
John Hayes - President & COO
It's just too early to the say.
The can really hadn't been on the market in any meaningful way for approximately eight years, and so there is a bit of re-education by the consumer, and because of that, it is just premature to predict anything.
Dave Hoover - CEO
But we like what's going on.
John Hayes - President & COO
Absolutely.
Alton Stump - Analyst
Okay.
Great.
Thank you, guys.
That's all I have.
Dave Hoover - CEO
Thank you.
Operator
Our next question is from the line of Albert Kabili from Macquarie.
You may proceed.
Albert Kabili - Analyst
I was wondering if you could clarify on Eastern Europe, specifically what you saw for beverage can volumes?
John Hayes - President & COO
Generally speaking it was off mid to upper single digits.
It depends by country.
I'm excluding Russia in all this, although I think Russia was off about 8%, which is consistent with the rest of Eastern Europe.
The weather wasn't as good there as in Western Europe, but I wouldn't attribute it to that.
It's just a function of the economies in that region, were on such a growth tear, it came off very strong in the second half of '08 and '09.
There's a lag relative to Western Europe, and I think we are just seeing that lag right now in terms of economic recovery.
Albert Kabili - Analyst
Okay.
And as in the latter part of the quarter, or maybe recent trends, have you seen any pick up there?
And if you could just comment generally about your volume trends throughout the quarter, if there was any appreciable changes there.
John Hayes - President & COO
There really were not any appreciable changes in volume trends sequentially through the quarter.
I'm trying to think by region.
I can't think of anything off the top of our heads.
Albert Kabili - Analyst
So Europe is still kind of trending down that mid to upper single digits, it sounds like.
John Hayes - President & COO
Well, not Europe, that's just Eastern Europe.
Albert Kabili - Analyst
I'm sorry, Eastern Europe.
John Hayes - President & COO
Overall Europe is up in mid single digits.
Albert Kabili - Analyst
Okay.
The, was there any appreciable difference between beer and soft drinks in can volumes that you noticed in Europe?
John Hayes - President & COO
Nothing appreciable.
Albert Kabili - Analyst
Okay.
Switching to North America bev cans, you mentioned promotional activity starting to taper off more recently.
Have you seen a corresponding slow down in your volumes as a result of that?
John Hayes - President & COO
A little bit, but this comes with ebbs and flows.
We have the Labor Day weekend coming up in a months time, and with the chatter we hear in the industry, that there may be promotions there again.
So, it comes and goes, so I wouldn't read into it too much.
The only thing we can say is there was continual promotion from Memorial Day through Fourth of July, and for the most part it was discontinued after the Fourth of July.
But that doesn't mean it won't pick up again.
Albert Kabili - Analyst
Okay.
Then on food can volumes, I think you said mid to high single-digit growth, if I got that right which would be quite a bit better than the overall industry.
And I was wondering if you could comment on that, and if you think that trend would be sustainable?
John Hayes - President & COO
No, that is not correct.
I think the overall industry was up 3%, 4% in the food cans, and we were consistent with that.
Where we are up higher, and the industry was up higher, was on the aerosol side.
And that was in the 8% plus or minus range of growth, not only for us but also for the industry, where you saw a lot of destocking last year, people were starting to put things back in their garages and pantries.
Albert Kabili - Analyst
As it relates to the earnings in the segment, it was quite a bit higher than I would have expected given the difficult comps.
Was there anything out of the ordinary there that might have helped earnings?
Scott Morrison - Senior VP & CFO
We have had wonderful operational perform at the plants.
Dave Hoover - CEO
Combined with, the strong volume obviously helped, too.
Scott Morrison - Senior VP & CFO
Yes.
Albert Kabili - Analyst
All right.
Thank you very much.
Operator
(Operator instructions) Our next question is from the line of Peter Ruschmeier, Barclays Incorporated.
You may proceed.
Peter Ruschmeier - Analyst
Thank you, good morning, and congratulations on a strong quarter.
John Hayes - President & COO
Thank you.
Peter Ruschmeier - Analyst
A couple questions.
On Germany, can you remind us Lublin, how much capacity is there if you were decide to ramp that back up?
Scott Morrison - Senior VP & CFO
Well, Lublin is in Poland, but we never even started it up, but what it would allow us to do is serve as some of our Polish volume that's currently being served out of the Germany, we would be able to do that.
And given that we haven't started it up, as all you know the first line you can get out of the block is probably 700 million cans, and then that would grow over time as you optimize that line, and then each incremental line is about the same.
Peter Ruschmeier - Analyst
Okay.
And so would you consider putting more capital to work on the ground in Germany, John or Dave?
John Hayes - President & COO
I think what we do if it really started to take off, we would optimize our system in terms of freight and other things, going across borders between countries.
Peter Ruschmeier - Analyst
Okay.
And just to get this one question out of the way, how do you think about new markets, India, other markets, do you put much emphasis on that, or are you really happy with your current footprint in terms of growing?
John Hayes - President & COO
We are looking everywhere in the developing world.
We've got strong positions in China and in Brazil, and they are both growing.
But there are other parts of the world where there are lots of people and not many cans, and so we are looking all the time.
We are also conscious of the fact that build it and they will come strategy in this industry makes no sense.
So if we go to someplace new, we are going to have contracted volume, over a long enough period of time that we believe that we can get there and be solid.
But we think, over a time, these economies are going to continue to keep growing.
They are going to continue to create a stronger middle class that has more purchasing power.
We are going to be following our customers, our good customers, and I think from time to time, adding capacity in those markets.
Peter Ruschmeier - Analyst
Dave, I was wondering if you could weigh in on the buy back again.
I guess in the past, you've certainly been willing to lever up at times for the right acquisition, and I guess the question is, the degree to which you considered levering up to buy your own shares, rather than just using free cash flow.
How do you think about the puts and takes?
Dave Hoover - CEO
Well, I have conversations with Scott Morrison about that all the time.
Seriously, what Scott said and where we are, we are telling you a couple of things today.
One is that we are looking all the time to buy things.
But we are very disciplined about that, and we are going to selectively invest in our business, and we are disciplined about that.
But we are flowing enough cash in our balance sheet right now, as if anything we have a little less there than we need.
My judgment on that is we are just fine, and that's why we are telling you it's more than $400 million this year.
How much more I don't know.
But Scott, could you temper me a little bit?
Scott Morrison - Senior VP & CFO
No, I would agree.
We have -- we are in a fortunate position.
Our balance sheet is in great share.
Our capital structure is where we want it to be.
In these times in the past we've oriented most of that free cash flow to buying back stock, until that next opportunity comes along.
We've been able to buy things in the last year or so, and our cash flow has been so strong, that our debt has actually gone down.
We are in a good place, and we can be opportunistic.
Dave Hoover - CEO
You know you've heard me say before, if we get down to one share, I just hope I own it.
Peter Ruschmeier - Analyst
A quick one for Scott and I will turn it over.
Within your free cash flow guidance, Scott, can you comment on what you've incorporated for working capital for the second half of the year, I guess normally it's a big source of cash.
I would assume that that's fair this year as well.
Scott Morrison - Senior VP & CFO
Actually last year it was a use of cash.
This year it will be a slight source of cash.
John Hayes - President & COO
For the full year.
Scott Morrison - Senior VP & CFO
For the full year, yes.
Peter Ruschmeier - Analyst
Okay.
Very helpful.
Thanks, guys.
Scott Morrison - Senior VP & CFO
You bet.
Operator
Our next question is a follow-up question from the line of George Staphos.
You may proceed.
George Staphos - Analyst
Thank you.
Hi, guys, I will try to make it quick.
In terms of specialty cans, realizing that last year there was some puts and takes, and obviously there is some definitional problems in trying to quantify what the actual amount of volume is by size, et cetera, what do you think your year-on-year change is either year-to-date, or in the quarter, for specialty cans number one, both in the US and Europe if you had that?
And then, are you out of capacity within your ability to produce for any of these markets?
Might you need to put on some capacity for slim cans, for example, if that product has been doing very well.
John Hayes - President & COO
George, my apologies in advance because I don't have the specific numbers in front of us.
But in North America, the specialty volumes have been growing approximately in the upper single digits, if I remember correctly.
And, yes, in terms of some of the sizes we are bumping up against capacity constraints.
And so what we've been doing, as you know in the specialty side, is typically, unless it's Alumi-tek as Dave had mentioned earlier, we will look to convert 12 oz.
if that makes sense to some of the smaller specialty sizes.
And if there's real growth opportunities, we might look into doing something else if we need to.
In Europe, I think I mentioned it before, other than 33 cL and 50 cL, it has growing more than two times the overall growth.
And it varies by country, and it varies by CSD, versus beer.
The CSD has been growing a little bit faster than the beer has on specialty sizes over in Europe.
And so that's the key take aways, I think.
George Staphos - Analyst
John, I mean, a long time ago there was something called spin flow which allowed, it never really worked well from what I can recall, but allowed you to change diameters on cans, at least it was supposed to happen on the fly.
Is there anything from a manufacturing standpoint where you could actually have a beverage can line that could swing pretty quickly between traditional 12 ounce, and your standard, if that isn't an oxymoron, standard specialty can sizes.
Operator
Ladies and gentlemen, please continue to stand by.
We will get the speaker back on the call.
One moment, please.
Please continue to hold.
Mr.
Hoover, you are back into the call.
You may proceed.
Dave Hoover - CEO
George, are you still on the line.
George Staphos - Analyst
I'm still here.
Hopefully I didn't put to you sleep with my question.
Dave Hoover - CEO
I just want to tell you I did not hang up on you.
John Hayes - President & COO
And I wasn't trying to avoid the question either.
No, I was able to pull out, actually the specialty can has been growing in both Europe and the US at a rate, at least year-to-date three times the amount of that.
And so we are seeing double-digit growth in North America, and a bit higher even in Europe.
George Staphos - Analyst
When you bring on new lines in specialty, is there a way where the capacity can be structured, so that it really can swing between traditional 12-ounce, and special sizes?
John Hayes - President & COO
Yes.
George Staphos - Analyst
Okay.
Last two questions quickly, you mention that you expect European EBIT will be up at least in Euro terms.
I guess the implication is, we could see, depending on what happens with currency, flat to down European EBIT the second half.
Is that what you're suggesting?
Scott Morrison - Senior VP & CFO
Yes, if you look at the currency last year, from May on, the Euro really strengthened, and so unless that happens again we have a fairly sizeable headwind from a Euro conversion standpoint.
But we think we are making more money in Euros, which is the translation that's hurting us.
George Staphos - Analyst
Last question, what do you think your normalized free cash flow is, do you think that $500 million is a sustainable rate, or is it more something around $400 million?
I realize it's difficult to forecast into the future like that but what are your thoughts at this juncture?
Thanks, guys, good luck in the quarter.
Scott Morrison - Senior VP & CFO
We expect it to still be around $500 million as we look forward, and improving.
We think our businesses have opportunities to improve the earnings going forward.
And we don't see big changes as relates to what our working capital needs are.
John talked about some opportunities in specialty, and new geographies that might bump up our CapEx over time, but not meaningfully.
John Hayes - President & COO
We think the earnings improvement in the business will be able to help fund any incremental capital.
George Staphos - Analyst
Well, you all have done a great job on that front, and congratulations to Ray on that free cash flow number.
Take care, guys.
Dave Hoover - CEO
We will pass it on.
Operator
There are no further questions at this time.
You may resume with your presentation or closing remarks.
John Hayes - President & COO
Well, thank you France, very much, and thanks for calling us back.
But thanks to all of you for signing in for the conference call.
We will look forward to speaking with you after the third quarter.
Operator
Thank you ladies and gentlemen.
This does conclude the conference call for today.
We thank you all for your participation.
And kindly ask that you please disconnect your lines.
Have a great day everyone.