Ball Corp (BALL) 2012 Q2 法說會逐字稿

Ladies and gentlemen, thank you for standing by.

Welcome to the Ball Corporation second-quarter 2012 earnings 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 26, 2012.

I would now like to turn the conference over to John Hayes, CEO.

Please go ahead, sir.

Thank you, Jennifer, and good morning, everyone.

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

The information provided during this call will contain forward-looking statements and 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 are in the Company's latest 10-Q and in other Company SEC filings as well as Company news releases.

If you do not already have our earnings release it is available on our website at ball.com.

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

Now joining me on the call today are Scott Morrison, our Senior Vice President and Chief Financial Officer; and Ray Seabrook, Executive Vice President and Chief Operating Officer, Global Packaging.

In a moment Scott will discuss our financial results for the quarter, Ray will follow up with details about our packaging operating performance, and I'll close with comments on aerospace and the outlook for the second half of 2012.

Today Ball reported second-quarter 2012 results slightly ahead of last year's results.

Recall that we had mentioned in April that our first-half results would be relatively flat as compared to the first-half 2011, and to date we performed slightly better than expected.

Our Drive for 10 levers include maximizing the value of our existing businesses, 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 competitive advantage.

During the quarter we made progress in all of these, and several highlights include new battle -- beverage container plants in Tsingtao China, Alagoinhas, Brazil, and Ho Chi Minh City, Vietnam, all began production in the second quarter, further broadening our geographic reach.

The Alumi-Tek reclosable bottle continued to add to its customer portfolio, as we expanded this product of the new end markets including craft beer and CSD.

In fact, year to date our total specialty camp portfolio through in North America grew approximately 24%.

Ball Aerospace is leveraging its technological expertise.

The B612 Foundation recently announced that Ball Aerospace will build a space telescope named Sentinel, which will scan the solar system for asteroids poising a threat to earth.

This will be the first privately funded deep space mission, and in addition to this we won additional work that will soon be included in our backlog, highlighting the growth of this business despite an uncertain funding environment.

We continue to make good progress on all 5 of our Drive for 10 strategic levers.

And while we wish our end markets were just a little bit more robust, 2012 is progressing just as we expected.

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

I'll return with comments on our aerospace business and the outlook for 2012 are Scott?

Thanks John.

Ball's comparable diluted earnings per share from continued operations for the second quarter of 2012 were $0.89 versus last year's $0.85.

The following factors contributed favorably to the second-quarter results.

Higher volumes in Brazil and China as well as continued growth in specialty can volumes, solid program performance in our aerospace business, a lower effective tax rate, and a lower share count.

FX transition negatively impacted the second quarter by $0.04.

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

Recapping key financial metrics for 2012, interest expense will remain the same at approximately $175 million, taking into account certain tax benefits achieved in the first half of the year, the full-year 2012 effective tax rate is projected to be around 29%.

So the tax rate in the remaining two quarters for 2012 will run closer to 32%.

Given recent global growth trends, full-year 2012 CapEx is now anticipated to be in the range of $350 million.

With the changing CapEx, and some improvements in working capital, we now expect 2012 free cash flow to be at least $0.5 billion, with most of the cash flow been returned to shareholders through share repurchases.

Year to date we have repurchased approximately $275 million of our stock.

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

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

Thanks, Scott.

Comparable second-quarter operating earnings in the metal beverage Americas and Asia segment were up 8%, and through the first half are up over last year's level.

Remember, first-quarter sales volumes in Brazil were slow due customer geographic supply relocation, but as Scott mentioned, have picked up in the second quarter and are up 10% through the first half.

We expect this trend to continue in the second half and still expect mid-teens growth in Brazil for the full year.

Sales volumes in North America were relatively flat for the first half with custom cans continued grow -- to show nice growth.

Second-quarter operating earnings in the Americas were up on the strength of tighter cost controls and better sales mix in North America, partially offset by higher cost inventory from Brazil production curtailments, primarily late in the first quarter and second quarter, and start up costs at our new Alagoinhas plants which came on line in the second quarter.

For the balance of the year, we foresee the North American favorable sales mix continuing, and expect that the Brazilian startup costs are behind us.

In Asia, the new can plants in Vietnam and Tsingtao, China, are performing well, and from an operating standpoint we are coming out of startup by the end of the second quarter.

Sales volumes in China through the first half are up low double digits, with operating results a little ahead of last year's level in the quarter and for the -- through the first six months.

Comparable European operating results in the quarter we were lower than a year ago, primarily due to a lower euro exchange rate, and to a lesser extent some price cost squeeze in beverage cans.

Beverage can volumes in Europe were up low single digits in the quarter and through the first six months in spite of poor early summer weather.

Despite an appreciably lower in euro exchange rate, we expect third quarter segment earnings to be comparable to or slightly better than a year ago due to some relatively easy comps.

Second-quarter and first-half earnings in the US metal, food, and household products segment were on plan, but below last year, due to inventory gains made in 2011 that were not realized this year.

Food can volumes through the first half were mid-single digits below last year's level, and this trend will probably continue in the second half due to the dry weather conditions been experienced in most of the US Despite this difficult weather situation, we still foresee quarterly earnings -- segment earnings returning to a more typical seasonal pattern this year which was reversed in 2011.

With that said, we look forward to higher segment earnings in the second half than we earned in the first half.

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

Great thanks Ray.

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

Backlog ended the quarter at $780 million, which is holding in nicely, and as I mentioned earlier, is poised to grow as we move forward due to some recent wins.

Previously awarded fixed-price programs continue to ramp up and the program performance in that business is excellent.

As is evident with the Sentinel win, our aerospace team is executing on their Drive for 10 game plan.

Our best cost/best value positioning provides Ball Aerospace a firm foundation heading into the election cycle.

Now looking out beyond 2012, late in the second quarter the Company was notified of a shift in CSD customer requirements for our North American metal beverage packaging business beginning January 1, 2013.

While we have lost some volume due to this shift we have also gained some business from new and existing customers.

And keeping with the Drive for 10 strategic lever of maximizing the value in our existing business, Ball will react appropriately in the -- to the resulting changes in supply and demand across our manufacturing footprint.

And we are currently finalizing our plans, which are expected to include both permanent and temporary capacity realignment to address the situation.

More information will be forthcoming in the near future regarding these activities.

We believe that the net impact of this customer shift is not material to Ball's 2013 results, and does not impede our ability to execute our Drive for 10 operational and financial goals.

In summary, we are slightly better than what we had planned halfway through the year, and as we always do, we are responding to the market environment from a cost and capital perspective that should generate higher free cash flow this year.

We will continue our long-standing, disciplined capital deployment strategy to return value to our shareholders and grow our company.

With a slightly improved first half behind us, we are positive about the rest of this year and beyond.

Profitability in the back half of 2012 will ramp up as new emerging market plans and the food and household business and through their seasonally strong -- stronger quarters, and we remain on track to achieve our 10% to 15% diluted per earnings share growth goal.

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

So with that, Jennifer, we are ready for questions

Thank you.

(Operator Instructions)

George Staphos, Bank of America Merrill Lynch.

Hi guys, good morning.

The first question I had, you said you would let us know about your plans for capacity and production within North America at some point in the future.

Will that happen before the third quarter earnings call?

Or when do you expect that you might be able to talk a little more about that?

Yes George, this is Ray.

Some details on that plan probably will be announced before the third quarter call, I would suspect.

So let me see if I can lay this out for you.

Late in 2011, we extended a long-term customer contract, and as part of that extension, as John mentioned in his comments, we picked up some fairly substantial volume which would start in 2013.

So that has been done and I would say in - probably three or four weeks ago, we were notified by a customer that we have lost some volume in 2013, we've lost more than we've picked up.

So we have together a tentative plan, that, as John mentioned, rationalizing some surplus capacity.

We have been doing a lot of shipping of our specialty cans across the country so we are going to use this situation to improve our specialty can footprint.

So we are going to do some of that.

And then, the capacity that we rationalize, we are going to move it to growing markets.

So, what you'll find is, when we move this capacity, it costs us about half as much to install capacity that has been recondition as opposed to buying new.

So that is the initial plan.

We have two or three -- we have several near-term opportunities that probably will flesh themselves out in the next 60 days, and once we see what those look like, and those opportunities primarily are not in 12-ounce cans, they're in specialty cans and other things.

So once we flesh those out, we'll finalize our plans and move forward.

So as John said, the initial look at this is that it is not that significant to us as we look at 2013.

Ray, I appreciate the color.

One additional follow on to that and maybe a couple other quick ones and I'll turn it over.

Would it be fair to say that when you lost is two times what you gained going into this year?

And does this affect at all the Columbus lines that I know that you haven't been running this year?

George, this is John.

I think it's premature to talk about any of that right now.

I think the key highlight is we've got a game plan, we have a variety of stakeholders that we need to deal with, and at the appropriate time we'll let people know what that is.

Sure, this has been a long time coming so it's probably not a total surprise to you.

Can you comment at all in terms of how the new plants are coming up the learning curve?

Have you gotten to the point where they are at least break even from a margin standpoint -- from an earnings standpoint, or are they still dilutive at this juncture on the curve?

They're -- as we sit here today they might be out of it.

But for the second quarter they were all in start up so they were dilutive, so they weren't adding anything.

They've all come up differently.

So the plant in Vietnam, it's come up little slower because the workforce is totally new and it just takes time to learn how to do this thing.

So Vietnam is fine but it's come up little slower.

Qingdao, which is the one in China, is come up quicker, but remember that we have relocated a lot of employees from an old plant that we shuttered to the new plant.

So we have much more expertise in Qingdao, so it's come up better.

And as a matter of fact, we're even converting into a different size right now, as we speak.

And the one in Brazil, as I mentioned in the first quarter, we had some customer relocation situations with it, so it really wasn't much -- it really wasn't a situation with the plant not coming up, it was to get the customer situations sorted out and that has been done.

They're all a little bit different but they are all running now to speed and we expect, as I said, a better third quarter.

So Alagoinhas is where you wanted it in the second quarter?

Alagoinhas, yes, it's now where we wanted it, but it took a while to get there because remember we've got a new customer location there, and so it just took a little longer than we had first anticipated.

Understood.

The last one for John.

John, what does Sentinel add to the backlog and do you have a view on project awards that have been funded that maybe didn't get to your June 30 backlog, what that increment might look like?

Thanks, guys, I'll turn it over.

Sentinel is not funded and it's not in the backlog as well.

The non-for-profit, the 501(c)(3) needs to go through a fundraising exercise, they have announced that we will be the prime in building that.

So it is a bit uncertain when they will do that fundraising.

We have in the very -- past couple weeks have won a couple of other things in the classified world that, for obvious reasons, we cannot talk about but we believe will add materially to our backlog in the second half of the year, and most likely in the third quarter.

Okay I'll turn it over.

Ghansham Panjabi, Robert W. Baird.

Hi guys, good morning.

John, just some more color on the CapEx reduction, which regions does this adjustment, which region is it specific to?

And also is this a function of you not winning some business that you thought you might have had at the beginning of the year, or was just market condition based?

No, it's exclusively market condition based.

What I would say is things are moving out to the right.

The overall growth of the global economy has slowed down, so I hope people are not surprised by this, we are being prudent about it.

As you know, the vast majority of our growth capital is allocated more towards Asia, generally speaking, so I think the vast majority of what's being pushed to the right is probably in that same area.

Okay.

And maybe I misheard this, but the custom cans, were they up 24% year-over-year in North America?

Is that right?

That's correct

And what were standard cans down for the quarter in North America?

I don't have that.

But they were the difference.

Obviously.

Okay.

So we were flat, so you can do the math.

Okay.

I can try and do that.

And the volume trajectory in Europe on the beverage can side, did that change intra-quarter month-to-month?

It was in the second quarter, it was a little bit slower than the first quarter.

I think the big reasons for that were largely weather.

We talk last year, this time last year, about Europe having a terrible summer for weather.

Well, it's equal to or worse this year than it was last year.

Offsetting that, we had some of the World Cup and some of the other things going through, so we have been holding our own, but it was up low single digits.

Okay.

Thank you.

Phil Gresh, JPMorgan.

Hello, good morning.

A couple questions, on Americas/Asia.

The cost-mix benefit in North America, can you calibrate, roughly, how much is cost and mix there?

Yes, it's more mix than cost.

I don't know the exact numbers but I would say it's 70%-30%, mix being 70% of the improvement and 30% being cost.

Got it, okay.

With respect to the specialty cans and the mix benefit there.

Would you say you're fully ramped on that benefit in the second quarter, in terms of how we think about the run rate of that towards -- through the second half?

Well, when you say fully ramped, I'm not quite sure.

We expect continued growth in the specialty can side of the business.

We've -- for external market reasons, and we've been doing a lot of marketing and push from that overall product line.

Whether it's the Alumi-Tek bottles, smaller sizes, larger sizes, punch top ends, things like that, it's a whole variety of different things.

Yes, I guess I was referring to -- meaning, you brought on some new capacity, and I was just wondering if you're essentially running full, getting the full profit benefit today?

We're certainly running very strong.

We are, to a point, as I said before, our footprint isn't quite the way we'd like it, so we're spending a lot of money in freight shipping stuff in places we'd rather make it closer to where our customer is, so we're going to fix that.

Got it, okay.

And with the CapEx reduction for this year, how should we think about preliminary thoughts around CapEx for next year?

Perhaps, Scott, you could kind of talk about maintenance and whatever carryover there might be from any existing projects that would be the starting point for next year?

Sure.

Well, it's a little early to talk about CapEx for next year, but think about -- we just started up three new plants, so just to keep up with incremental growth, you don't need to spend as much capital.

So I would expect CapEx to trend down, but it's really more of a question of how strong global growth will be or not be.

And I think we'll make more money next year, and so I think free cash flow probably goes up again next year, it's just a question of how much.

Got it, okay.

Final question is, just on the comment about moving some of the can lines from North America to emerging markets, and the cost saves from doing that.

As you look at the emerging markets today, which markets do you think actually need new capacity?

If you think about China and Brazil, it feels like they don't.

Yes, I said -- I purposely didn't -- I said growing.

So, you could even see some of this stuff -- we're fundamentally sold out in Europe as we speak, so it's been growing 5% the last, since ever.

So, I'm not saying -- it costs about half to redeploy, to get a line in that's been refurbished versus buy new.

So I don't know exactly as we sit here now where this is going, but it -- we definitely have growth markets for beverage cans, and this equipment that we rationalized as part of this exercise is going to end up somewhere where we need it.

Got it.

Okay thanks a lot, appreciate it.

Philip Ng, Jefferies.

Good morning guys.

When I look at your Euro bev business, if I heard you correctly, volumes were up low single digits, but your EBIT on a year to year basis was down considerably.

So I want to know if there were any other factors other than the FX weighing on the quarter?

Yes, the primary effect, now remember in the European numbers is also our extruded aerosol business, Aerocan, and the volume's been down just a little bit in that business so it's not all beverage cans.

Most of it is FX, but there is about EUR6 million that probably is what I would classify as price cost.

We haven't been able to pass on all our cost increases to our customers as part of our pricing.

And that's also on the bev-can side, is that direct?

Those are on the bev-can side, yes.

Okay.

And demand picking up, at least holding up decently in Europe on the bev-can side, how do you feel about pricing next year?

Because as you mentioned earlier supply sounds to be pretty tight at this point.

Well, as you recall earlier this year on a conference call we talked about in 2012 we had plans to put some capacity in.

But we shelved those plans because we said, you know what, there is price cost going on in the marketplace and we need to get our pricing right.

So as we sit here today, Ray just mentioned that we continue to see some growth, but in terms of prioritization, our first priority is to get our pricing right and then we'll start to look at growth.

So as we go into the balance of 2012 and into 2013, that's our strategy and go to moves relative to the what we're trying to do.

Okay.

And one last final question for Ray.

Demand for Brazil and China did pick up in Q2.

Is the back half still pretty robust?

Because one of your competitors talked about how both demand in China and Brazil is slowing, there is an excise tax in the back half.

So I want to get a little clarity on what's giving you the confidence that demand is still going to be pretty solid?

Yes, that is all true and we actually had lower demand in the first quarter.

And I think were up 30% in the second net net through year to date in Brazil were up 10%.

I said in my comments that we expect full year to be up 17%, so that means that we've got have a pretty good back half.

In our particular -- and the thing about the beer is correct.

The new beer tax is causing slow down, there's no question about it.

But we really have our contracts in place and our customers' positions in place where we're highly confident what I said is going to happen.

Okay.

Thanks guys good luck in the quarter.

Adam Josephson, KeyBanc.

Thanks, and good morning everyone.

Regarding demand in Brazil, to what extent are you experiencing a slowdown of the conversion from returnable bottles to metal cans there?

One of your competitors talked about that earlier this morning.

Well, this is John.

When you look at the aluminum can market growth in Brazil in the second quarter, it was reasonably healthy, both double digits in CSD and beer.

I can tell you that on the beer side we continue to see an uptick in can penetration.

If you look year-over-year, and again you have to look month to month, but it's up about a point, and we're not quite at 40%, but we're within a stone's throw of that, and so we continue to see improvement there.

Thanks for that, John.

And with regard to the free cash flow guidance, how much of an additional benefit do expect to get from better working capital versus lower CapEx?

There is a chunk of working capital too.

We've got a number plans across all the businesses, really, a variety of different things that we are doing from an operation standpoint, a treasury standpoint, a sourcing standpoint, that are all benefiting us.

We still expect -- part of the improvement in free cash flow for this year is coming from benefits that we're going to get on the working capital side.

It is not all the CapEx.

Thank you Scott.

Scott Gaffner, Barclays.

Morning.

Just following up on the beer penetration question.

Moving to Asia though, in particular China, it sounded as if penetration there has slowed somewhat.

I realize you are adding capacity slower than the market over there.

What are you seeing overall with can penetration in Asia, and how do you feel about your capacity additions versus market growth right now?

Why don't I talk about can penetration, and Ray can talk about our capacity.

I think in the second quarter, overall beer market in China was up 5.5% or so, and cans were up double digits.

So that says cans continue to have further penetration.

Recall it's only in the beer segment, for example, it's only about 6% penetration so there is a lot of room for improvement there.

But as I said it is growing, the cans are growing at a rate faster than the end beverage markets which obviously means better can penetration.

Yes, and as far as a capacity goes, our original plan in China this year, we were importing, I think, 300 million or 400 million cans, and I think that has gone down.

And as you said the market has slowed a little bit, but fundamentally we are sold out, every can we can make we are selling.

And as we look to next year, we are putting in a little capacity this year.

Some of that's slowed, we've had some issues getting some land in the South that we thought we had, so we will be sold out again next year.

So, everything we can make we can sell.

Okay.

And then overall for the metal beverage Americas/Asia business, it looks like operating profit was essentially flat in the first half of the year.

You had said before that you thought you could get operating earnings up somewhere in the 10% to 15% range for this segment for the year.

How are you feeling about that right now?

And do you think you can get there with improvement in the second half?

We will definitely in the second half there is no question about it.

Whether I can get to 10% to 15% is more difficult now because we were a little slower than we thought.

But we will come close to the bottom part of that range, let's put it that way.

And how much do you think currency is impacting that though?

Well, we've had a little negative currency in China, actually.

And the Brazil currency tends to devalue, which really doesn't have an impact -- such a big impact last week -- but we have lost, actually, a little currency in our China business.

Okay.

And lastly on this shift in business in North America.

It sounds as if maybe it's more of a price issue rather than you not having the capacity to serve the customer.

Is that your sense of the shift in volumes at this point?

Yes, these things happen from time to time.

I think someone did a sheet for me since 1990 on who's gained, who's lost volume, and actually I think we're net net.

I think after this we're like $500 million with where we started with.

So these things come and go a little bit, usually if you lose volume, it's price.

We don't do things for practice here, and we are not going to do things for practice.

So we've got a plan to deal with this situation, so we are going to deal with it and try to make the most amount of money we can.

Appreciate it.

Mark Wilde, Deutsche Bank.

Good morning.

Couple questions.

Scott, I wondered -- it looked like you made some changes recently in depreciation assumptions.

Can you give us a little background on that?

Yes, we looked at all of our -- if you look at our 10-K, there was a fairly detailed explanation of what we did, what we looked at.

As we standardize accounting practices around the world, you look at the different lives that we were using in different places and so we standardized that, and with that came a change in depreciation.

What also happened was a change in how we expense some things, too.

So net on a full year basis, there really wasn't much of a difference but that's the imp -- that was the change.

Okay.

That is helpful.

And now over in food and beverage, can you talk about the fallout, if any, from the drought?

And can you also talk about how much that slug business may be adding to EBIT right now?

Yes, this is Ray.

The slug business, it's fairly small, it's up year over year.

In our food can business you've heard a lot of commenting on corn, we've had a lot of comment on the radio book, corn.

Corn is not that big of an impact for us, we are much more heavily weighted towards, let's say, green beans or tomatoes.

The drought certainly has an impact.

But it hasn't impacted those crops quite as bad as it has corn.

The yield, even on corn, is something like 50%.

So our guys -- it's going hurt us, no doubt, in the second half from otherwise what it would have done, but I don't think it's a huge impact for us.

It will be lower, but not that significant.

If you tried to put that in just volume terms Ray, what would be a ball park as you see right now?

I've got it more in EBIT terms, but in volume terms, it's probably 2% or 3% lower than otherwise for us it would be -- it would've been.

And in EBIT?

(Laughter) (Multiple speakers) I've got it but I'm not sure I'm sharing it.

Okay.

And John, probably -- can you just talk about the acquisition landscape and whether you think given this slowing in emerging markets whether that may present some more opportunities for you if you're patient over the next year or two?

Yes, I think you've hit the nail on the head.

I do think when you look at where Ball has been successful about acquisitions, it's usually not in times of rosy economic environments, but in more challenging ones.

And I'm thinking back into the 2009 when we acquired Metal Container, I'm thinking about the 2006 timeframe when we acquired US Can, and then even going as far back as 2002 into the headwinds of a credit issue and in Germany we did quite well with Schmalbach.

The environment today feels a bit like that and I think sellers' expectations are coming down.

You guys know we are very disciplined in what we do and so sometimes we are quite competitive in an acquisition sense and sometimes we are not, because credit is flowing freely and we have to compete with sponsors, et cetera.

But it does feel a little bit better today and as we go forward, not only in developed markets, but also, as you said, in developing markets, that expectations are becoming a little bit more rational

Okay, very good, good luck in the third quarter.

Alton Stump, Longbow Research.

Yes, good morning.

It's actually Phil Terpolilli calling in for Alton.

Two quick questions, a lot of ours have been answered.

You mentioned weak volume conditions still in standard cans in North America.

Any signs of the major CSD players picking up promotions so far in the summer?

That has been one of the issues, that there has not been a lot a promotion CSD.

I think there's been pockets, but generally speaking, most of our customers have been sticking to their [dinigan], they've been going for price and not volume.

And I said there's been pockets of it but there's been probably more promotion in beer than there has been in soft drinks.

Okay.

That is helpful.

And can you quantify that impact of currency to European beverage at all?

For 2Q?

From a translations standpoint?

I'm sorry, on the EBIT side, you said?

Yes.

The translations was $10 million of EBIT in the quarter, from a currency standpoint.

The rest was the price cost mix that Ray talked about.

Okay.

Perfect, thank you.

Al Kabili, Credit Suisse.

Hi, thanks, good morning.

On Euro bev, you guys, from the sounds of it, outperformed the overall industry a little bit in the second quarter.

I was wondering if you gained any share this year or if that's just a geographic mix difference?

I think maybe a tad, but not much.

I think we did outperform the market just a little bit.

And I think we did gain, but it is not a lot.

The shares are still fairly comparable, but I think we did gain a little bit of share.

Okay.

And can you just help us with -- if you saw any noticeable differences but -- by region across Europe, how that's trending recently?

Across Europe, generally speaking, I think in the west -- in the western part of Europe it has actually held up okay.

For example, in the Benelux Region which is a big exporter for -- many of the multinational beer companies there, that's been reasonably healthy.

You've clearly seen some softness in the UK because of the weather.

I don't know who watched the British Open but you could see how wet it was there.

And then as you go into the East it's -- it varies so much, you have some strength in certain areas and some weaknesses in other areas.

So I don't think there's big deviations between regions in what I just said, however.

Okay thanks that's helpful.

On the aerospace side, you had a great second quarter there.

And I was wondering if that is a sustainable EBIT that you see, or if there was any kind of benefit from one time project closeout, benefits or how we should be thinking about the run rate for aerospace with the backlog you've got?

Yes, the short answer, there was no big material one time items that impacted the second quarter.

Our guys are performing very well.

As we've talked about in the past, we have a bit more -- fixed cost business is a percentage of the total business which usually is helpful from a margin perspective.

And that combined with our strong execution, we feel pretty good about that business.

Okay, great.

And along those lines you indicated some potential new business that you're looking at or bidding on there if I caught earlier comments right, and I was wondering if you could help us with potential size of that is, relative to backlog, what's in the pipeline there, or what are you seeing for potential new business?

I think maybe you hopped on late, we did talk about that we've won some new business that hasn't been booked but we expect in the third quarter for it to book, and we expect it to be material.

Remember, it wasn't, what, 18 months ago that we were close to $1 billion of backlog, we weren't quite there.

We can see a line of sight of certain things happen that within the next short period of time, probably not in the third quarter, but certainly over the next few quarters, that we could be at or even above that level where we were just 18 months ago.

Wait was that aerospace or packaging, that question?

It was aerospace.

Okay.

Okay great, that's helpful.

And then the last question is housekeeping on the corporate line.

It was lower than at least I expected this quarter and I was wondering what we should be thinking about for corporate expense?

It should be similar to what it was last year for full year.

There were some things that occurred in the quarter that were a little bit favorable but we don't expect those to continue.

So full year numbers should be very comparable to last year.

Okay.

Thank you.

Alex Ovshey, Goldman Sachs.

Good morning, guys.

We go around the world and focus on your beverage can business in the key regions.

Can you provide a guesstimate, or actually have the data of what the market was up in the second quarter and the first half for beverage can demand?

Let me give you the US.

So let's start with the US So the quarter was down a little bit, you had soft drinks down and you had beer up, but net net the quarter was down about 2%, a little of it less.

And then year to date is kind of flat.

In Europe you have got the quarter down about 1%, flattish or down 1% and you've got year to date about 3% -- up 3% In Brazil you have got about 8% -- 8% market growth in the quarter year to date and I think that was about the same for the second quarter.

And in China, it's somewhere between 9% and 12% year to date.

And Scott, did you guys buy back any stock in July thus far?

Yes, the comment I made in the prepared comments is through year to date, through right now, we've repurchased about $275 million net of shares.

Okay that's year to date, I thought I was for the second half.

Okay.

And then, it's been really impressive to see how much stock you've bought back over the last couple years, evident in the share price performance.

Looking forward, can you just remind us how you think about buying back stock versus potentially special dividend versus potentially a more incremental sustainable dividend?

Yes, look at the dividend level all the time.

We've raised it quite a bit in the last couple of years, but we continue to orient most of our returning value to shareholders through share buyback.

And we'll continue to do that but we do always evaluate what level of dividend we are paying and where we want to be.

One of the positives, at least as we sit here today is, tell us what the government's policy is going to be six or nine months from now, and we probably have a firmer answer.

But with the elections coming up I think there's a lot things on the table our government needs to deal with.

Fair enough, thanks John.

Chris Manuel, Wells Fargo Securities.

Good morning.

Just a couple -- help me clarify a few items.

When I look -- you said that the total impact was $10 million of currency translation in the Euro bev piece, I believe.

If I look at the $19 million differential, that leaves nine other that -- parts price per volumes were up as well, so can you help me, if you don't mind, parse what the differential is?

How that -- the price cost, how that continues through the rest of the year, and then really what I'm trying to drive at and I think this goes along with an earlier question is, do you feel that in 2013 you can recover a chunk of that?

I'll give you -- I'd talk a little bit about the quarter, then I'll maybe let Ray chime in.

In the quarter, $10 million was currency, remember we said Aerocan was a little bit softer, so that was a couple.

And then the rest was on the beverage side price cost mix.

With volume offsetting some of the price cost but not all of it.

So going forward, as John mentioned in his comments, one of the things that we need to do is to improve the price cost situation in Europe.

And I think we are going to be real focused on that as we move into 2013.

And is that event you can do in 2013, you believe?

Carve back even half of that?

The short answer is that it's too early to tell, but that's what going to be our objective.

Okay.

And then if you can help me clarify earlier comments where you talked about, and tried to provide us some color around, at least some thoughts around preliminary, what the contract movements, and then what your own actions on the specialty can and realignment oriented things could do for 2013 versus changes.

I think you said it would not be material to the enterprise.

So should I basically interpret that as 2013 EBIT out of your metal beverage Americas/Asia could be at worst case flat.

It'll be lower than otherwise it would have been without the loss of business, no question about that.

With the growth in China and Brazil, I would say that's a reasonable assumption.

It is too early to predict 2013, but based on things that we know, we would tell you that 2013 will be flat -- flatter than it otherwise would be, and we don't think that it will be flattish.

Having said that, our guys in North America have done a very good job of planning and while we haven't announced anything, they are well on their way to recouping most, if not all, of the impact there.

So work continues on that, as Ray said -- Ray articulately outlined some of the things we're thinking of, so stay tuned.

And the thing is I wanted to stress is we do have several near term opportunities in specialty cans and even in some other things working on.

So that's one of the reasons we haven't finalized our plans yet, we need to see how these things turn out.

And they're not twelve ounce opportunities, they're specialty can and end situations.

So stay tuned.

This is a question we'll follow up with again after your next quarter, as you get a better sense of what you're doing and where things are moving around and what you might win, but that's very helpful.

Last question I had was with regards to change in can size and of the things going on in China.

That's a new line that you just put in, I think there had been some conversions from T that were taking place from 3 to 2. Can you talk a little bit more about what you are seeing in China?

Why a new line you're putting in place, you're already making a conversion to what you're seeing?

Yes, we're seeing the same phenomena -- we didn't talk about Europe but even in our specialty, what we call non-12 ounce business in Europe, it's up 8% year to date.

So, we're seeing, generally, a trend from our customers, as they look at their markets, and business is tough out there, they look at new products and new opportunities to expand their markets and they want different sizes, different shapes, different types of things.

And even in China with -- where the can is in its infancy, they're still looking at different types of situations for cans and we want to make sure we give our customers what they need.

So in China we've already got our brand new Qingdao line, we're converting to a different size for a while, we're going to be on that size for a while, and then we'll convert back to 12 ounce.

We put enough flexibility when we built that plant that we had the ability to convert it

Thank you.

Todd Wenning, Morningstar.

Thanks and good morning everyone.

With the recent fire at your plant in North Wales, do you know yet how that might affect your UK supply going into the back half of the year?

Yes, this is John.

The short answer is it's not material.

We had a small fire on July 22, there was no injuries.

It was just contained in a portion of the facilities, the warehouses wasn't impacted.

We expect, and this happened on Sunday, we expect two of the four lines to be up and running by the end of this week, and a third line running in the very near future.

And then the fourth line, it's too early to tell but probably a couple weeks out beyond that.

So not a material impact.

Okay.

That's good news.

Could you give us an update on your volume expectations for the punch top cans going to the back half?

Yes, for those who don't know, the punch top cans I think you're referring to is one of our beer customers and they've had a lot of good success with that.

It's always tough to tell the incremental growth because you don't know what it would have been without it.

But what we've been hearing from our customer is that's been actually helping the overall brand for them, and they have seen a lift in cans with that package relative to their glass containers.

So that's probably all I should say right now.

But it's a good example of how innovation can add growth into a category that historically has not been as strong.

Okay.

Finally, how much of the North America specialty can volume gains came from craft beer versus other beverage types?

Difficult to tell, I don't have it in front of me --.

We've still got energy drinks rolling quite strongly, you've got 16 ounce energy drinks, 24 ounce energy drinks.

So I don't have that number either but it's -- all the same, all those specialty can segments are -- continue to show a lot of promise.

Yes, and it is not isolated into one size, either.

We had good growth in the smaller sizes, good growth in the larger sizes, good growth in Alumi-Tek.

So it really is spread across the board.

Thanks, good luck in the quarter.

Chip Dillon, Vertical Research Partners.

Hi, good morning, thank you.

John, you mentioned that one of your key near-term priorities in the beverage can market is to get pricing a little bit stronger relative to costs.

And can you give us a little more color on the geographies where that needs to be done more than others where doesn't need to be as much of a focus?

Well I think my comments were related more to Europe than anywhere else.

We have been talking about a little price cost compression.

It isn't wholesale, but it's not where we want to be.

So, what we're focused on is, we can add capacity.

Typically when we do that it is on the tail end of a customer contract, you all know how we do that.

But we're more focused, in a relative sense, of getting pricing to where we think it ought to be and getting back to where it was as opposed to adding capacity into a market that has been over served and has been a bit soft.

So that's, particularly to Europe -- I think generally speaking the overall economy is putting pricing pressure on many different industries and our industries are not any different.

We've been able to weather much of that because we focus on what we do best which is getting more for less and being very efficient with not only our capital but our labor and things like that.

We continue to have a lot of initiatives over in Asia, here in North America, down in South America, and over in Europe to make sure we're focused on that, and we are seeing a lot of good opportunities that our folks in the plants do a great job at making sure that we're doing that day in and day out.

So we're going to continue to focus on that, but with particular emphasis on the European side.

Got it.

And I know Ray was talking about using some equipment that you might not no longer need in North America overseas.

Two tangents to that.

One, I would assume that you cannot effectively use some of the older standard can equipment in making specialty, and that's why you would do that.

And secondly can you give us an idea of the timing?

It would seem like this could be stretched out, really, more into 2014 or 2015 as opposed to 2013, when we could actually see equipment moving.

Is that a fair assumption?

Yes, as I said in the next, probably, 60 days we'll finalize these plans once we see how these other near term opportunities sort out.

So we will sort that out, we will -- not all of the equipment is usable as you just mentioned, but a lot of it is.

And we've got a pretty good idea of where it goes now, but we will fine tune that and by the end of the year we'll know where it is going.

It may not be all bolted down and installed right away, but we know, basically, probably what markets and what we're going to be doing with it.

And as Ray -- to follow up on that as well, there's two binary things here.

It's one about the capacity curtailment, permanent curtailment, but then the other thing is about where to put that, and that's dependent upon on market growth, and so we're not just going to automatically put it in somewhere just to say we have it in there.

I think Ray's point is, from a capital avoidance as we go forward, as new projects come on stream, we have that used equipment at our disposal, which should help drive down some of our CapEx as we go forward.

Got it, and you might have answered this, but just to be clear, you gave us a breakdown between the US volume changes, specialty versus standards, and I'm guessing that standard was down around 5% so you might clarify that.

What was the breakdown in Europe?

Overall you said it was up mid single digits, how would you break that down between specialty and the standard cans?

Ray I think mentioned that specialty was up 8% and we were up just low single digits, so that would imply that the standard was down just a little bit.

Okay.

(Operator Instructions)

George Staphos, Bank of America, Merrill Lynch.

Thanks, hi.

I just want come back first to a comment that was made on the outlook.

Now, from your press release I think you said that the second half you hope to be able to do as well as in the first half, if I remember correctly.

That was for food can?

What segment?

I think that was in total in earnings per share.

So, I was just trying to basically take the conclusion one would draw from that, Ray, with your comment that you would hope to be at the -- maybe at the low end of your earnings growth target that you have annually, which is 10% to 15%, because taking a second-half that is a little bit better than your first half if I'm not mistaken would get you into your range.

Yes, the 10% comment I made is I think I was just talking about the Asia/North America segment.

Someone had asked me, I think earlier we said we still think we could potentially grow that 10% to 15%.

I think that's going to be difficult.

I think we've got a shot a the bottom end of that range but we're going to get close to it, close to the bottom end of that range.

And I think George, what it implied -- we expect to sit here today to do a little bit better in the second half than we did in the first half.

Okay.

We will keep that in mind as well.

Secondly, same vein of question.

When you are talking about the business shifting within the Americas beverage can business, you ultimately mentioned that you didn't think of a significant, and that it would ultimately not be, I forget what your phrasing was, but I'll say significant again, wouldn't be significant relative to your overall Drive for 10 goals, which again includes a 10% to 15% EPS growth.

At this juncture, given what you know, and I realize some things can change, and you don't control the economy or the weather, is it your view that next year you would not able to hit your 10% to 15% range, or do you think you shall be able to do that, even with this dent on the volume front?

Well, how I describe it is number one, we haven't changed our view short-term or long-term, point one.

Point two, it is too early to tell because there's many things outside of our control, but we have good plans in place, not only in our North American metal beverage business, but in all of our businesses over the next 18 months and beyond.

And number three, based upon all of that, as we get into 2013 we expect to do as well as we possibly can and we are not changing what our long term goals are.

I appreciate that John.

There are no further question on the phone lines at this time.

Okay, terrific.

Well, thanks everyone, for participating.

As a heads-up, our third quarter earnings conference call will be held on October 25, and it's going to be a little bit earlier, it's going to be at 9.30 AM Eastern time.

And, so, everyone have a good rest of the summer, have a good third quarter, and I'll look forward to talking to you then.

Thank you.

Ladies and gentlemen that does conclude the conference call for today.

We thank you for your participation and ask that you please disconnect your line.