Ball Corp (BALL) 2012 Q1 法說會逐字稿

Ladies and gentlemen, thank you for standing by.

Welcome to the Ball Corporation first-quarter 2012 earnings conference call.

During the presentation, all participants will be in a listen-only mode.

Afterwards, we will conduct the Question-and-Answer session.

(Operator Instructions) As a reminder, this conference is being recorded Thursday, April 26, 2012.

I would now like to turn the conference over to John Hayes, President and Chief Executive Officer.

You may begin, sir.

Thank you, friends, and good morning, everyone.

This is Ball Corporation's conference call regarding the Company's first-quarter 2012 results.

The information provided during this call will contain forward-looking statements.

Actual result or outcomes may differ materially from those that may be expressed or implied.

Some factors that could cause results or outcomes to differ are in the Company's latest 10-K and in other Company SEC filings as well as Company news releases.

If you don't already have our earnings release, it's available on our website at www.ball.com.

Information regarding the use of non-GAAP financial measures may also be found on our website.

Joining me on the call today are Scott Morrison, Senior Vice President and CFO, and Ray Seabrook, Executive Vice President and COO of global packaging.

In a moment, Scott will discuss our financial results for the quarter.

Ray will follow with details about our packaging operating performance.

And I will close with comments on aerospace and the outlook for the remainder of 2012.

Ball reported improved comparable first-quarter 2012 results during a seasonally slow first quarter.

Recall that we had mentioned in January that our first half of the year would be relatively flat as compared to 2011.

And we performed slightly better than we expected.

Maximizing the value and performance of our existing businesses is one of the strategic levers of our Drive for 10 strategy, and our people and businesses are executing well in this environment.

The other levers of Drive for 10 include broadening our geographic reach, expanding into new products and capabilities, aligning ourselves with the right customers and markets, and leveraging our technology expertise to create a competitive advantage.

We're making good progress in all of these and several highlights include; completing the construction of our previously announced capital projects in Qingdao, China, Alagoinhas, Brazil, and Ho Chi Minh City, Vietnam, further broadening our geographic reach.

Increasing the production and sales of our specialty can product portfolio in North America, which grew approximately 20% due to expanding volume in the 7.5 ounce, 16 ounce, and Alumi-Tek product categories.

Leveraging our technological expertise by announcing ReAl can technology, an innovation in sustainability breakthrough in our extruded aluminum packaging business.

ReAl enables significant lightweighting of our aluminum aerosol container while utilizing aluminum our beverage can plants in the manufacturing process to add up to 25% recycled content into aluminum aerosol containers.

And, finally, we've been working hard on our third sustainability report which will be out at the end of May.

Sustainability is an important part of our Drive for 10 and places a key role in both maximizing the value of our existing businesses and leveraging our technology.

Our new report will provide detail on our progress since 2010, as well as our future goals and objectives.

You'll hear more examples of our Drive for 10 progress from Scott and Ray.

There's a lot going on here at Ball.

And while it's still early in the year, 2012 is off to a nice start.

I'll turn it over to Scott, and we'll talk about the quarter and then Ray will provide color on our operations.

And I'll return with comments on our aerospace business and the outlook for 2012.

Scott?

Thanks, John.

Ball's comparable diluted earnings per share from continued operations for the first quarter of 2012 were $0.63 versus last year's $0.58, an increase of nearly 9%.

For the first quarter, the following factors contributed to these results, higher European and specialty can volumes, solid program performance in our aerospace business, a lower share account, and a lower tax rate.

For a complete summary of the first quarter results on a GAAP and non-GAAP basis, please refer to the notes section of today's earnings release.

The key financial metrics for 2012 that I gave you in January are all the same other than the tax rate.

Taking into account certain tax benefits achieved in the first quarter and those that are expected later in the year, the full year effective tax rate will now be approximately 30% for the full year 2012.

Other than that one change, everything else looks the same.

Interest expense will remain at approximately $175 million.

Full-year 2012 CapEx is still expected to be in the range of $400 million.

And as always, the timing of future projects will impact actual spending.

So we'll keep you updated as the year progresses.

And we still expect 2012 free cash flow in the range of $450 million.

The Company's annual funding of our US pension plans was largely completed in the first quarter.

And at current exchange rates year end net debt is expected to be approximately $3 billion, roughly flat versus 2011.

As we will continue to return our free cash flow to shareholders via share purchases and dividends, versus debt pay down.

With that, I'll turn it over to Ray to talk more about the packaging operations.

Thanks, Scott.

Comparable operating earnings through the first quarter in the Metal Beverage Americas and Asia segment were below last year's level.

For the most part, the first quarter earnings short fall was in Brazil.

First quarter sales volumes in Brazil were lower by mid-single digits compared to a year ago, primarily due to a change in a customer filling location and the temporary loss of another location due to higher freight costs until our new capacity came on stream.

The new can plant Alagoinhas successfully started making cans in late March and is now supplying our customers in the northeast, which will catch up our volumes in the second quarter.

With this new capacity coming on stream, we anticipate full year Brazil volumes will be up 15% or more from 2011 levels.

In Asia, our new joint venture can plant in Vietnam also started up in March.

And we are now selling cans to our customers in that marketplace.

The newly constructed plant in Qingdao, China, is still in checkout phase and is scheduled to making and selling cans to our customers next month.

All in all, it's been a very busy first quarter finishing up these major capital projects.

Sales volumes in China were also off to a slow start due to a very cold winter in the north and an earlier than normal beginning to the Chinese New Year.

First quarter Asia results were a little behind last year's level but we still expect low double-digit volume growth in Asia for the full year.

First quarter sales volumes in North America were up slightly compared to a year ago.

And we started to see a more favorable sales mix as we got to the end of the quarter that has carried into the second quarter.

Higher auto pad and freight costs occurred in the first quarter as we move to improve plant utilization rates.

Comparable European operating results were slightly better than a year ago, despite currency headwinds and continued price cost compression in beverage cans.

Beverage can volumes were up mid-single digits and aerosol volumes were up low double-digits in the quarter.

While Aerocan continues to make year-over-year earnings improvements.

First quarter earnings in the US Metal Food and Product segment were ahead of plan, but below last year's first quarter, due to inventory gains made in 2011 that were not realized this year.

Food can volumes in the quarter were slightly below last year's level.

But our total year forecast is for improved volumes due to relatively easy comps from a year ago.

As we said in our January conference call, the quarterly earning pattern in this business in 2012 will return to a more typical seasonal pattern, which was reversed in 2011.

A more typical quarterly earnings pattern would be for 40% of segment earnings to be made in the first half of the year and 60% in the second half.

As we look to a full year earnings for this business, we continue to see another strong year.

With that, I'll turn it back to you, John.

Thanks, Ray.

Aerospace and technologies posted near double-digit EBIT margins for the quarter.

Back log ended the quarter at $855 million, which is holding in nicely as we await word on key bids outstanding.

Previously awarded fixed price programs continue to ramp up and we anticipate another good year in aerospace despite the uncertainty around funding in this election year.

Now, during the quarter Ball's Ozone Mapping and Profiler Suite instrument on board the NPP satellite began collecting data that will provide information about the global distribution of ozone.

And in early April, NASA extended the Kepler mission to 2016.

Kepler is designed to search for planets around other stars and has identified so far more than 60 confirmed planets and hundreds of other planet candidates.

Ball's Aerospace is the mission prime contractor for Kepler.

Finally, we also announced the addition of Rob Strain as Chief Operating Officer of Ball Aerospace.

Rob comes to us from NASA where he was the Director of the Goddard Space Flight Center and has a wealth of experience in the civil defense and commercial aerospace markets.

And we're delighted to have him on board as he works closely with Dave Taylor and the rest of our aerospace team in the pursuit of our Drive for 10 strategies.

So in summary, and as we said in January, we expect our first half of the year to be largely flat as compared to 2011.

And with an improved first quarter behind us, we are slightly ahead of where we thought we would be at this point.

We continue to see noticeable upside in the back half of the year as new emerging market plants complete their start up curves and begin selling product and our North American and European beverage businesses move into the busy summer selling season.

As Scott mentioned, Ball will continue to generate significant free cash flow and we remain focused on our disciplined capital deployment strategy to return value to our shareholders and grow our Company.

Drive for 10 is a mind-set around perfection in everything we do and it will play a key role in achieving our goals and more than doubling the EBA dollars generated over the next ten years, as well as generating a compound average growth rate of 10% to 15% earnings per share over that time, and more specifically in 2012.

So with that, we are ready for questions.

(Operator Instructions) George Staphos; Bank of America Merrill Lynch

Ray, I was hoping you could go through the volume percentages or guidance for the first quarter, specifically with the America segment for beverage.

I couldn't keep up with some of your discussion.

Yes.

Okay.

Sure, George.

Brazil, we were down about 6%, and the market was up maybe 4.5% to 5%.

And I think I explained in our comments that that's just mainly timing for us.

In North America we were up, pretty much like the market through the quarter.

Right.

And in China, we were pretty flat.

Slightly down, but pretty flat.

Okay.

I mean, you mentioned the reasons there.

Given the growth economically still being, high to single digits, were you disappointed even with the weather, even with the late recovery out of the new year with that volume growth in China?

Well, I think it surprised us quite frankly.

And it wasn't just us.

I think if you went to talk to our competitors in China, they would probably give you the same story.

I think the early Chinese New Year probably meant that our sales in the fourth quarter last year were a little stronger than they otherwise might have been because people were taking cans in the fourth the quarter.

It was terribly cold in the north this year.

That's one of the reasons that Qingdao, it should be up and running by now.

It's not and that's one of the reasons.

It was hard for us to get some of that concrete poured because it was so cold.

But, all in all, I've been talking to our guys constantly.

The volume is starting to pick up.

As we sit now, the weather has gotten a lot better.

So we're still predicting low double-digit volume increases in China and we think most of that was just timing.

George.

This is John.

Let's not forget that in 2011 we were sold out.

So we didn't have any additional capacity.

We're anticipating the ramp up of Qingdao to provide us that flex capacity going forward.

So now that we have it, our salespeople have had discussions with our customers, which is not unimportant as we think about going into the second half of 2012.

Actually, that's a good point, John.

Actually in our plan this year, we thought we'd actually have to buy cans for China.

And now, because of the little slower start, I'm not sure we're going to have to do that.

Of course, when we buy cans, we don't make any money.

So we're looking at that as just primarily timing.

Okay.

And related question, not trying to overdo it, you know given that there were some one off factors that created the slower start both in Brazil and China, would these be a reason that perhaps you'd take a more wait and see approach on the next slug of capacity to see how the market digests it?

Or, not really, you're still more or less all guns blazing relative to the plants you already have in place.

Remember, George, we really don't build a plant and hope somebody shows up.

That's not how we do business.

Understood.

We really don't do anything unless we have customer contracts in hand.

So if we have customer contracts in hand that have the right parts to them that says we're not taking all the risks, then in fact we put capacity in.

So that's the way we operate, and we'll continue to do that.

We're not building anything we don't have contracts for.

That's how we're going to continue in the future.

We have slowed down a little bit because the market's slowed down a little bit.

But that's always the way we do things.

Fair point.

Last question and I'll turn it over.

One, have you seen any kind of pick up in promotional activity or interest in North America on the beverage side?

Two, what are your plans with the lines that have been idled in Columbus?

And, three, are you seeing any more competition in the aluminum bottle market vis a vis your Alumi-Tek technology?

Lets see, the first question, is we are seeing some promotional activity.

We have some lines idled in Columbus.

We just had some discussions yesterday.

We may have to turn some of those lines on.

We are to the walls in every single one of our plants in the US.

Absolutely to the walls, except we've idled those two lines in Columbus.

And I'm not sure, we're not going to have to at least turn one of them on before we get to the end of the year.

Especially if the market picks up a little bit for sure.

We're not seeing any competition for Alumi-Tek.

As a matter of fact, in our R&D shop we continue to look at various things and I'm pretty excited some of the R&D things that we're developing that relate to that.

Not exactly Alumi-Tek, but are Alumi-Tek type technology.

So we're really doing some really good things over there that I think is going to pay dividends for us in the future.

Okay.

Thanks, Ray.

I'll turn it over.

Scott Gaither; Barclays.

Correct me if I'm wrong, but I think you might have mentioned on the last call that you could possibly see Metal Beverage America Asia operating profit up 15% year-over-year but 1Q operating profit looks like it was down.

Do you still think you can get that kind of results?

And what has to happen from here on out to potentially get there?

Yes.

We definitely foresee that segment operating profit up.

I just don't have the number in front of me.

If it's 15% up.

We see it's significantly up.

The first quarter was pretty much as we thought.

Remember, Brazil last year.

If we're thinking about Brazil's comps.

Last year Brazil, our volume increased 18% in the first quarter and was down 18% in the second.

So we were flat halfway during the year.

And I think we were up double-digits by the time we got to the end of the year.

This year our volume was up.

It was off 6% but the market was up.

We expect with our earning capacity coming on in Brazil that volumes will be up at least 15% year-over-year.

We are expecting volumes up in China.

We are expecting them up in Brazil.

And so for the US is starting up fairly strong.

So we expect that segment profit up certainly more than 10%, somewhere between 10% and 15%, I would tell you.

Okay.

To reiterate what Ray said, the first quarter came in as we thought.

And we see nothing as we go forward that's a deviation from what we thought in January.

Okay.

And do you get a little bit of a mix shift there, in that, it looks like Brazil volumes or top line growth, you might have taken that up a little bit?

And China's maybe a little bit lower?

Do you get a positive mix shift with better volumes out of Brazil and maybe a little bit weaker in China?

Nothing appreciable.

I think as we look at the various areas within that segment, Asia, Brazil and North America, you always hit little shifts here and there.

But I wouldn't from a profitability point of view, it's nothing appreciable.

Okay.

Thank you very much.

Ghansham Panjabi; Robert W.

Baird.

Ray, on the promotional activity commentary.

Can you differentiate between beer and CSD in North America?

Is it equally spread between the two?

Is one stronger than the other?

I think what we're seeing it a little stronger, we're hearing it a little stronger in the CSD side.

Yes.

Having said that, on the beer side, the overall beer market in the first quarter was actually up slightly.

And that's after a couple years straight of being down in the low single digits.

And our beer customers are making a lot of renewed noise and push around the marketing and innovation which is not only helpful to growing the category, but it's helpful for us because it's key to our strategy.

Okay.

And switching to Brazil, obviously the market's slowed.

I don't know how it shaped up inter quarter, but did you have any sort of downtown time to realign inventory with what you started to see in terms of deterioration there?

Absolutely.

We took down time in our plants.

We didn't build inventory.

Can you sort of quantify that for us?

As they say, a 6% reduction in the quarter is like a 50 million cans.

And we took down time to cover that off.

Okay.

All right.

And then just real quick on the extruded aluminum pack in Europe, what's behind the double-digit increase there?

Continued customer demand.

Despite some of the economic ills in Europe, we're continuing to see strong demand.

I think we're aligned with the right customers.

Okay.

All right.

Thanks.

Philip Ng; Jefferies and Company.

Just pigging backing off of Ghansham's questions.

Margins actually held up pretty well in Europe bev, certainly volumes were strong.

But price was supposed to be down a little bit.

Is the margin strength driven by the aerosol side?

Yes.

We have had price cost compression in Europe.

There's no question about it.

Mainly in beverage.

So it sounds like the lift came from the alum aerosol business right?

Yes, that.

And also the volume increase.

Okay.

That's helpful.

Our guys have been doing a good job over in Europe controlling the costs relative to the price compression.

Okay.

And then when you're looking at acquisitions going forward, are you looking to stay in your core products that you're in already?

Or are there opportunities for you to expand into something different?

Like a few years ago you guys branched out into aluminum slugs in the aerosol business.

That acquisition was very much adjacent to what we were doing.

And when you think about selling aluminum containers and the slugs were a key component of it.

I would not expect us to go far afield certainly.

We have more opportunities than what we do today than we've seen in a while, and so we're going to stick to our knitting, generally speaking.

Technology is an important part of what we do.

I think the slug business is a good example of that.

And our announcement in the first quarter about taking our scrap from our beverage can plants and putting it into the slugs was exactly what we had anticipated as we acquired that.

And so things like that, I don't think are too far afield.

But as we sit here today, as I mentioned, we have a lot of opportunities within what we know very well.

And this is the last question for Scott.

It's early in the year, but free cash flow is a little bit light and I think you guys guide toward working cap being flat potentially.

What's driving the uptake in working cap?

We think the working cap, actually we made significant improvements in working capital last year.

And we've got a number of programs in place this year that we think we could actually improve upon where we ended up last year.

So it's early in the year, but we think we can have a bit of a source of funds from working capital this year as well.

Okay.

Thanks guys.

Thanks.

Phil Gresh; JP Morgan.

Just on the guidance for Americas Asia beverage of up 10% to 15% this year.

I just want to kind of peel it back a little bit and understand how much of that you think would come from North America versus emerging marketing?

I'm trying to basically take into account North America you have the switch over to specialty.

And you have the Torrance closure, which I assume has some savings to it.

So is it kind of 50/50 emerging markets versus developed or how would you think about that?

I don't have that in front of me but I think that's reasonable.

But I don't think we're getting much from Torrance.

Torrance we closed in the first quarter of 2010 I think, it was.

We're already into 12 so a lot of that's come.

Some of that Torrance equipment is sitting in Vietnam and other places.

So we've got some nice benefits from doing that, but I would say it's in the neighborhood of 50/50.

Okay.

And then, just in the current quarter, the $10 million decline, was that was it all emerging markets basically?

Not all of it's Brazil, but by far, the majority of it's Brazil.

Okay.

And then just the guidance commentary in the first half being flattish, does that still hold at this stage?

Or would you say you're thinking, it would imply 2Q would be down, but it doesn't seem like that should be the case.

I think what I said in my prepared remarks is given that we're slightly above in the first quarter, we'd expect the second quarter to be roughly flat because as we sat here in January, we said the first half would be flat.

We're a little bit above after the first quarter, so we'd expect that to carry through.

But I wouldn't read into it too much for the second quarter.

Okay.

And one other question, how big is your specialty can business at this stage?

You said it was up 20% in North America.

How big is it overall and in North America?

Well in North America it's about 17% or so.

And in Brazil it's probably a little bit higher.

In Europe, it's probably about the same.

And in Asia, it's a little bit lower.

But I think the trends in the emerging market we're seeing a shift from 12-ounce or 33-centolitre to more specialty cans accelerating as time goes on.

Okay.

All right.

That's it.

Thanks.

Alton Stump; Longbow Research.

This is actually Phil Terpolilli calling in for Alton.

I just wanted to focus a bit on your outlook in Europe.

You mentioned in the press release a pick up in promotional activity there ahead of the summer's special events.

Any sense of how things are playing out maybe versus your initial expectations?

Is it safe to say you expect a sequential volume acceleration versus what we saw this first quarter?

Yes.

We did get off to a strong start in Europe.

Let's take a step back and think about all the drivers as we go forward.

We've got the European Cup Championships that are in the second half of June.

We've got the Olympics that are in London in July.

Recall that last summer from a weather perspective in Europe was dismal.

And in fact, the third quarter last year we had said that we had taken some down time in August which was unprecedented for us in our European beverage can plants.

So we don't expect that to happen.

The can is continuing to take share on the CSD market.

And across Europe generally speaking it's been relatively flat from a total CSD perspective.

But the cans are up mid-single digits which means they're taking share.

And the beer was off a little bit in totality but cans were up in the upper single digits in terms of filling.

So I think another example why it's taking shares.

So as we look to going through the balance of the summer and into the second half of the year, we feel pretty good about the volume trends in Europe.

Okay.

Great.

That's helpful.

Thank you.

Alex Ovshey; Goldman Sachs

You mentioned some pricing compression that you're seeing in Europe.

Can you just talk about when you expect to cycle through that pricing compression?

And then as you look through the other parts of the world that you participate in, is there any issues with pricing there to note?

Well, when we look to Europe, as John talked about, the volume's increasing so the capacity demand situation is tightening up.

We had a situation where we had some people passing capacity and we had a little bit of capacity.

We are fundamentally sold out pretty much by the end of this year in Europe.

And as that capacity tightens up, we would expect pricing to tighten up in Europe.

I think in China there's a little bit more open capacity than we'd like to see.

The market's growing double-digit growth.

We don't see that slowing down in the near future.

People have added capacity so we're probably in a cycle where we've got a little bit more capacity in China than we'd like to see.

Pricing's more difficult there as that market grows that will tighten up for us.

In North America, we're pretty stable.

It's pretty stable.

I think pricing in North America is pretty, as I said, pretty stable.

Thanks for that Ray.

And on to volume trend in North America.

Seems like it's coming in positive for you.

Not just for you but a number of other companies exposed to the beverage end market.

And it's better than we were expecting.

And the part of that is we tend to look at some of the end market data as reported by AC Nielsen and the retail channel which continues to be pretty soft.

Can you talk about whether some of that volumes that you guys are seeing in North America, if maybe that's maybe driven by some inventory build that's happening?

Or just the benefit of nice weather which is driving consumption in other channels outside the retail channel?

Do you have any thoughts on that?

Yes, I really think there's three issues ongoing.

Number 1, the economy in America is not great.

It's certainly getting better from a year-over-year perspective.

So that's point 1.

Number 2, the weather has been quite favorable in this winter and spring season across the United States, and I think that is helping.

And then number 3, we've talked about over the past couple of years, there's been a fair amount of price taking by our customers at the expense of volume.

And as Ray had mentioned earlier, we're seeing and hearing about more increased summer promotional activities so that bodes well for the can as we move into the summer.

Okay.

Thanks, John.

James Armstrong; Vertical Research Partners.

The first question is on the aerospace division.

Could you update us on your aerospace expansion project and have you started looking at doing any geosynchronous or telecommunications projects?

Well, we are building out and adding capacity fuel to our satellite manufacturing facility, and that's well underway.

In fact, it should be commissioned probably at the end of this year.

It does provide us capability to do some things in addition to what we've historically done and some of the larger buses which you're referring to in terms of geosynchronous activity.

That's an area that we can certainly explore.

But as we sit here today, we don't really have anything to comment on, other than it does provide us a capability to expand into additional markets that from a manufacturing perspective we are unable to pursue prior to doing this.

Okay.

That helps.

Switching gears a bit.

Your tax rate was especially low.

Could you give us some context around it?

And is there any chance we could expect something similar going forward?

Sure.

This is Scott.

We have reserves for a variety of uncertain tax positions and when we get to the point in an audit process that our position with regard to those issues is determined we can then release those reserves.

So that's what occurred in the first quarter.

We see a little bit more of that happening potentially late this year.

That's why I said our tax rate for the full year would probably be around 30%.

Okay.

That's helpful.

And lastly, as you look out beyond 2013 or so, what are the top two or three markets that you think that you could expand into organically?

And by that point, do you think the Brazilian market will be saturated north and south?

Well, we're not going to go into great detail here obviously given the competitive nature of it.

But as Ray has and we talked about in calls, we think Asia, generally speaking, China, in particular, but Southeast Asia as well, bodes well just because the overall demographics.

The retain chain in China is one of the largest in the world right now.

It's supposed to double in the top 50 cities of China over the next 10 years.

And there's just a lot of built-in improvement from a can share perspective.

We've talked about the can as a share of the package mix.

And beer for example is only about 6%, yet it's the biggest and fastest growing beer market in the world.

So we continue to see that going well.

We've also talked about in Brazil that we have been experiencing strong growth driven by the improved economy and driven by a rise in middle class, driven by improved overall beverage volumes and can share penetration gains.

We're in the upper 30s right now in Brazil.

We're also benefiting and we will for the next couple years because the infrastructure builds related to the World Cup and Olympics.

But at some point in time that will moderate out.

So we have been building some capacity in there because we see in the next couple years some good trends.

But that is going to start to level out over time and that hasn't been lost on us.

Then we continue to look at other areas that it's probably premature to talk about.

The beverage can over the past few years has really taken hold in some of these more emerging markets, and it's actually solidifying in some of the stable markets.

I mentioned the can share penetration growth in Europe.

Ray talked about the solid performance, at least in the first quarter, which is not a trend necessarily.

But we feel pretty constructive about what's happening in North America.

So we have solid underpinnings in the mature markets.

And we think we have some growth opportunities in some of the places that we already play in.

Thank you very much.

Chris Manuel; Wells Fargo Securities.

Just a couple follow up questions, if I may.

Is there a way to somehow quantify the price compression you're seeing in Europe?

Maybe a different way of coming at this is, I think earlier in the year you guys had talked about thinking that volumes might be up only flat to up a couple points.

But you've been in better shape, kind of mid single digits here this quarter.

And it sounds like now you're more in line that things might be mid single digits.

And we're seeing that other business, the aerosol business, over there doing well, too.

So how should we think about total profitability there for the year and is there a way to somehow help us quantify how much price compression we've been seeing?

Well, I think, Chris this is Ray, what I would do is look at the margins in our European business.

You'll probably find they're off, 100 do 150 basis points.

So the volumes up and the margins off.

That's the way to quantify it.

Okay.

That's helpful.

I'll think about contributions in the pieces.

Second question I had was with respect to over there in Europe.

If by the end of the year you're in a position, again, where you're sold out, can you maybe talk a little bit about how you would feel regarding adding additional capacity during 2013?

Or specific markets where you think might be reasonable targets that would best support further capacity?

Yes, a couple of thoughts on the way we think about it this.

Recall back in January, Ray, I believe had said that we had actually thought about sometime in 2012 we might need to add capacity.

And we put that on hold, and it's going to remain on hold because we're trying to get the profitability where we think it ought to be.

We would much rather run full out, because this is a fixed cost business, and you need to do that.

So that's one observation.

The other observation is Ray also talked about was we don't add capacity unless we have it effectively sold out with customer contracts.

And so as our customers are continuing to look at growth at large in Europe because of the can share penetration and other things, we're in very close contact with them.

But we just don't want to add capacity because the market in the short-term has been a little higher than our expectations.

Now that's not to say we won't.

But we'd much rather really focus on what we can control right now, which is the cost side of our business and the volume production side of our business and then let the demand side dictate what we do.

Okay.

Then last question I had was regarding the new extruded aluminum technology.

Is that something that was developed out of the JV in Europe?

Or is that something that you guys did on your own on the slug side I'm guessing?

And then, is that transferable here to North America?

I think I read in the press release that it was intended to start over there in Europe.

And is that something that as you save the metal that you can effectively retain in your own profits?

Or how does that work?

Well, first we developed it on our own here in North America.

And it's using the technology of beverage can as I mentioned beverage cans as well as the slug.

Because we produce the aluminum bottles and aerosol cans over in Europe, we're going to start manufacturing them then.

You know, this is as much about a environmental sustainability play as it is an economic sustainability play.

And we think that we've created a real breakthrough.

So we expect to keep a fair amount of those savings while at the same time providing an incentive for our customers to really push this product.

Okay.

Thank you much.

Al Kabili; Credit Suisse.

I guess the question on 2013 and North America's contract, re-negotiations and if you had any sort of early thoughts along those lines, how you?

Well, this is Ray.

We only had one contract to do, and we're in the process of doing it.

So everything else is under contract.

Right.

But I guess it's large contract.

It's not that large.

There's two parts to it.

So it's not as large as you might think.

Okay.

All right.

That's helpful.

Second question is along the lines of aerosol, I may have missed it, what your aerosol can volumes did.

I was a bit surprised just looking at the industry data how weak aerosol was, and you know what you're hearing along that front?

Well, tinplate aerosol was down.

You're right about that.

Our aerosol volumes in North America were down, a little soft in the first quarter.

However, they seem to have popped back up, at least at the start of the second quarter.

Food was just down a little bit.

When I look at the aerosol volumes in Europe, we talked about it, it was up low single digits.

Okay.

And then North America, should we be concerned or are you seeing any shift to aluminum away from tinplate?

I mean that would obviously benefit you in Europe.

But as we look at North America on aerosol, is there any headwind on a package mix shift to aluminum away from aerosol that is noticeably have impacted you thus far?

Nothing appreciably.

Tinplate has its home in terms of insecticides and household products.

And the aluminum has captured a fair amount of the growth because that's in the beauty and personal care.

So everything from suntan lotions that are now going into aluminum impact extruded when they used to be in plastic tubes and other things like that.

But there really hasn't been a shift because both tin plate on one hand, and aluminum on the other hand, have natural sub markets relative to the overall aerosol category.

Okay.

Understood and then final question on aerospace, the backlog.

You know it's down a little sequentially.

How do you see that playing out the rest of the year here?

What are some of the next big projects if there's any sort of on the radar screen that we should be looking out for?

Thanks.

Well, we have a number of bids outstanding right now.

And candidly, more bids than I can recall in the recent past, and that's the good news.

One of the problems is we have a government right now that's in a an election year.

So the ability to make decisions is a bit uncertain.

We have a lot of the economic about sequestration happening at the end of the year, and tax cuts expiration, as well as debt ceiling.

So I think their focus is more on that and what to do with it.

I will say this, in terms of some of the things we've been bidding on, we expect those things to continue as we go forward because as all of you know that what we do in the aerospace side.

Those things are of nationally importance to what we do as a nation.

So we feel pretty good.

We always about it being bit lumpy and back log is no different.

We're down 40 million to 50 million from the year end.

It's too early to predict exactly what it will be like in each quarter as we go forward, but as I said, we have an awful lot of bids outstanding.

Okay.

And along those lines, John, is there any way to maybe help us quantify like an aggregate how big that bidding activity is in total size?

Like if it were 100% which I know it never is, but a way for us to you know, gauge just how big that is?

You mentioned it's healthy.

Yes.

Let's put it this way.

When we talk about backlog, it's funded backlog.

And so that is what has already been funded by the US government.

We have a lot of unfunded backlog and rough order of magnitude it's usually twice what funded backlog is that is out there.

And then on top of that, we have bids outstanding, and it's usually much greater than the funded backlog.

So at any given time, we have well in excess of what our funded backlog is.

Well in excess in terms of things that we've won but have not booked, or bids that we have outstanding.

The trajectory of those types of things that I'm talking about, as I've said, has gotten a little better for us not worse.

Okay.

All right.

That's what I was looking for.

Okay.

Thanks, John.

Debbie Jones; Deutsche Bank.

I was just wondering can you guys talk about your trends in Germany for the quarter.

Yes.

The overall German market was up about 17%.

We were up a little bit more than that, just because we were quite large in that area.

The good news is the beer is actually stronger.

The beer was up 24% to 25%, beer cans.

And that is really a sweet spot we think over the long-term for the German market.

So, obviously, first quarter's a seasonally slow quarter.

But the trends that we have seen in Germany really haven't changed.

We're still hoping and waiting that some of the two largest retail chains in Germany start to lift.

They haven't done that yet.

But there's a variety of discussions going on with them.

But where the can has been lifted the penetration rates have been equal to or a little better than what we had been hoping.

Okay.

I was just wondering are you guys seeing a bifurcation in pricing trend for specialty versus standard cans?

I assume the standard can is under a little bit more pricing pressure.

What we have seen is a little bit more by our customers a gravitation towards more the standard size.

As we talked about earlier, the European economy is tough so there's a lot of, not only for us, but a lot of industry generally a focus on value and cost and those things.

So we see a slight trending down from some of the higher end specialty packages to a more commodity packages.

But to answer your question about pressure trends from a pricing relative to commodity versus standard containers, we don't see any appreciable difference there.

Okay.

I was also curious in China.

There's a lot of capacity coming on, and I'm wondering is there a risk in the near term that some of new capacity does what you know happens to you guys down in Brazil where you lost a bit of volume given your location or proximity to your customers?

And the other thing I've been finding surprising is some announcements about self-manufacturing for some of these players.

And I would think that that would be something that we wouldn't be moving towards at this point in the market.

Yes.

This is Ray.

As I said, we're sold out in 2012 in China.

So I've said that on the one hand.

The other hand, I can tell you that we've lost business.

We've had some business with some customers that we have lost on price.

So we're trying to weight the equation such that we have to be competitive obviously.

We're trying to weight the equation such that we pick the business and we look at the long-term potential of this business.

But we certainly are getting competition in China, and we have lost business.

However, we still remain sold out.

So, obviously, we continue to grow.

The market continues to grow, so that's an equation that we spend a lot of time thinking about and working on, and we try to get it right.

I might add also, that you talk about self-manufacturers.

There's some independent can manufacturers is the way I'd describe it.

And one of the things that we've been spending an awful lot of time is bringing the experience and expertise that we have in the North American markets, that we have in the European markets from a cost, from a technology, from an efficiency, from a know-how perspective, and making sure that we are leveraging it as much as possible in Asia and China, in particular, because at the end of the day in our business low cost always wins.

We do think we have competitive advantages.

We believe our cost structure is better than most if not all of the competition over in Asia.

And we're putting a renewed focus to make sure we're as efficient as possible there because that's the way you win in a game like that.

Okay.

And then just last question on China, what is your mix between beer, CSDNT and do you see that mix changing, going forward?

Well, you know, the Chinese palate's different, so obviously, they like the teas.

So our mix is much more heavily weighted towards beer and tea than it is soft drink.

It's probably reversed to the US.

Okay.

All right.

Thank you.

Adam Josephson; KeyBank.

Of the long-term growth you're expecting in China and Brazil, how much do you expect to come from beer market growth, and how much do you expect to come from a shift from bottles to cans?

Well, I think it's a combination of both, and it varies by market as I said.

In Brazil, from a can penetration perspective on the beer side, we're in the upper 30s.

And we think there's a little bit more run way there but not a tremendous amount of runway.

But the overall beer category has been growing 4% to 5%.

Over the past few years we've been getting a double whammy relative to the growth there.

That's going to start to moderate out.

I think it in China it's a bit different.

We come from a very low level of can share penetration.

It's as we said before it's about 6%.

China is the fastest growing beer market in the world from an overall literage perspective and I think those two issues alone create a logarithmic trajectory.

Just to give you another data point that helps support that, I know in Vietnam three or four years ago the can had a share of the beer market of around 16% to17%, and now it's in the mid 20s, 24% to 25%.

So that's just another proof point of some of the things that we're seeing over there.

Thanks, John.

What would you say is the biggest risk to the long-term growth and profit expectations you have for those two markets other than just GDP growth slowing?

I think in Brazil as we talked about, they're benefiting as an economy right now and a rise to middle class and I think to answer your question that's it, the rise in the middle class.

In Brazil because of the infrastructure around the Olympics, around the World Cup, I think for the next couple years we can clearly see and have good visibility into continued rise of the incomes of the middle class.

In China, I think it's a foregone conclusion as well.

They have spent the last three years or so really putting emphasis on the consumer side of the business and going from an export market on the industrial side to an internal consumption.

And so when you have all those people migrating from the rural areas to the urban areas, I think it just continues to bode well.

But it is an element that when there's a rise in the middle class our products always do well.

And candidly I think of the last three, four years in North America, the reason why we've seen softness in overall categories of beverages as well as the can is because the middle class hasn't been increasing.

It's been decreasing.

Thank you very much for that.

Thank you.

Andy Feinman; Iridian Asset Management.

I know the press release has the weighted average number of shares during the quarter, but can you give me the number of shares at the end of the quarter.

Yes.

It was 156,497,000, Andy, basic.

Okay.

And you said you made your annual pension contribution during the first quarter, so can you say how much it was?

Yes.

I think it was like $85 million to $95 million in the first quarter, which was the vast majority of what we have to fund this year.

And the incremental increase was almost all in the first quarter.

So for some reason, I thought it was going to be $135 million.

Does $95 million include, the pay as you go stuff also, or does that just include catch up?

No.

The incremental.

So right, the full year's still $135 million.

But usually, you know, a chunk of that's spread throughout the year.

The big piece of it was done in the first quarter, so $95 million of the $135 million is done.

Okay.

And then the last question I had was, last year your corporate overhead was I think $71.5 million.

Correct.

I expected that it would be down this year.

I don't know why, but in the first quarter it was up a little.

So the question is whether that number is likely to be lower this year or the same or up?

Still have it in the same range.

The first quarter we had a huge run up in the stock price.

And although we're hedging a good chunk of the stock price impact from various benefit plans, there's still a little bit that's not hedged.

So that cost a us a few million bucks more in the first quarter than what we were expecting.

So it's a little bit higher than what we thought in the first quarter.

Around that range last year is still the number that we're expecting for full year.

Okay.

Great.

Thanks.

George Staphos; Bank of America Merrill Lynch.

Thanks.

I had two last questions.

Back to the question of aerospace, John, if things go as you expect, how many products do you expect to be awarded by the end of this year?

Is it possible to predict that at all?

And then the second question, totally unrelated, in aluminum bottles, I thought one of your competitors was perhaps adding some capacity.

Do you not view that as a competitive threat down the road in terms of specialty cans and specialty aluminum packaging?

Thank you guys.

Yes.

George.

This is John.

As you know, it's difficult to answer your question but I'll try the best I can.

At any given time, we have over 300 bids from very big to very small, and it varies by business.

Some of the bigger ones that we have outstanding, we really can't talk about because they're in the classified world.

But they do fit in the sweet spot of the progress we've been making over the past number of years.

We have a variety of other things that have been candidly slipping to the right a little bit because of these funding issues.

They're usually more on the smaller more, more on the tactical side.

Whether it's antennas for the joint strike fighter, or other things as ramp up of that new program of that doesn't go as quickly because of funding and because of other issues.

But I think overall as I was mentioning before, the overall amount of bids we see stronger today than has been in the past.

And the only question mark in our mind is how quickly can the US government and how quickly does the US government need to move on some of these things when you have a bifurcated Congress.

You have an election of not only the Senate, the Congress as well as the Presidency.

And it's just I don't want to predict when people will make decisions in an uncertain environment like that.

Okay.

Thanks for the color.

And on beer cans, beer bottles.

Yes.

George, the person that's putting in that capacity does not have access to our technology, so you know it's a self-make proposition for them.

So I'm not really worried about it.

And you feel fairly comfortable that Alumi-Tek cost position versus other technologies at this juncture, and if so why?

Because we've been doing it for a while, and it's not easy to do, and we've learned a lot of stuff.

We've been doing it for two or three years.

You'd be surprised what you can in two or three years.

We've learned a lot of things, George.

And we make it at a lot lower cost now than we did when we first started making it.

We've improved the technology.

I said before we've got some stuff in our R&D pipeline that looks really, really encouraging to us.

So we just have a big lead.

Eventually, they'll figure it out probably.

It's taken us a while.

Do you feel Alumi-Tek taking share from mainstream glass in beer markets?

Or really is the price gap such that it's still going to be more of an event or a specialty package?

I think it's a combination of both.

What you're seeing, you certainly see it in the event venues.

So that is quite a positive.

But you're also seeing an awful lot in the convenience stores.

And that is quite honestly targeted toward some of the more premium in there which really is glass.

And you're able to buy it in 9 packs now, and some other things like that.

Our customer who's using it is promoting it an awful lot via not only marketing but also advertisement, television advertisement, radio advertisement, billboard.

And so they're quite bullish on it and we're here to support them.

Okay.

Thank you.

Good luck in the quarter.

All right.

Thanks, George.

Mr.

Hayes?

I'll return the call back to you.

Sir, there are no further questions at this time.

Okay.

We appreciate the participation of you all, and let's look forward to a good second quarter and the balance of the year.

And we'll talk to you in July.

So thanks everyone.

Ladies and gentlemen, this does conclude the conference call for today.

We thank you for your participation.

Have a great day everyone.