Ball Corp (BALL) 2013 Q4 法說會逐字稿

Ladies and gentlemen, thank you for standing by.

Welcome to the Ball Corporation fourth-quarter and full-year 2013 earnings conference call.

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

Afterwards we will conduct a question and answer session.

(Operator Instructions).

As a reminder, this conference is being recorded Thursday, January 30, 2014.

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

Please go ahead, sir.

Thank you, Renaldo, and good morning, everyone.

This is Ball Corporation's conference call regarding the Company's fourth-quarter and full-year 2013 results.

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

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

Some factors that could cause 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 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 is Scott Morrison, our Senior Vice President and Chief Financial Officer.

I will provide a brief overview of the Company's performance, Scott will discuss financial and global packaging metrics, and then I will finish up with comments on our aerospace business and the outlook for 2014.

Our fourth-quarter results came in ahead of expectations.

Full-year cash flow was right on track.

As we mentioned in our third-quarter conference call, we see momentum in our business from a financial perspective, and as we move into 2014, we are well-positioned from a capacity utilization and product mix perspective, and we remain excited about our prospects.

Excellent cost management across our global packaging businesses, volume growth in Europe, Brazil and our specialty can portfolio in North America, key aerospace program deliveries and our disciplined returns-oriented capital allocation strategy all drove results.

2013 was truly a tale of two halves.

The first half was stronger than anticipated market and economic headwinds, and the second half filled with additional cost optimization project rollouts, line startups and a return to more normalized demand for our food and beverage containers all helped contribute to this improved performance.

Now, during the fourth quarter, we continued to see double-digit growth for specialty cans in the Americas.

We further improved our operating costs in our European segment with the administrative office relocation on track for completion at the end of the first quarter of 2014.

We started up the second line in our Alagoinhas, Brazil beverage can manufacturing plant, which contributed favorably to results and is ready to meet our customers' needs for specialty cans in the 2014 World Cup.

We've ramped up production at our existing Foshan, China plant after the relocation of our Shenzhen equipment.

We continued down the path of further optimizing our steel, food and household manufacturing footprint in North America.

And lastly in the quarter, we announced the redemption of our 2019 senior notes that will lower interest expense in 2014, which Scott will discuss shortly.

Our focused efforts to identify pockets of growth and manage our cost structure are bearing fruit and will drive EVA dollar and cash flow generation in 2014 and beyond.

And with that, I will turn it over to Scott for a review of our full-year and fourth-quarter numbers.

Scott?

Thanks, John.

Ball's comparable diluted earnings per share for 2013 were $3.28 versus last year $3.06.

In the fourth quarter, comparable diluted earnings per share were $0.86 versus last year's $0.64, a 34% increase.

For the full year, the following factors contributed to improved results -- excellent cost management across the businesses, a full-year contribution from line one at the Alagoinhas, Brazil plant and the Mexican extruded aluminum facility acquisition, a lower effective tax rate and a lower share count.

Also, FX translation related to European operations positively impacted the full-year 2013 EPS by $0.03.

Turning to free cash flow, Ball generated $461 million in 2013.

Again, we returned every free cash flow dollar and more to the shareholders via a net share buyback of approximately $400 million and dividends of more than $75 million.

Net balance sheet debt at the end of the year was approximately $3.2 billion.

Credit quality and liquidity of the Company remains solid with a 2013 comparable EBIT to interest coverage of 4.8 times and net debt to comparable EBITDA at 2.7 times.

Cash was higher than usual at year end due to the planned redemption of the 2019 senior notes, which was completed on January 10, 2014.

Committed credit and available liquidity at year end was in excess of $1 billion.

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

Moving to operations, our metal beverage Americas and Asia segment comparable earnings were down roughly $11 million for the full year and up $9 million in the fourth quarter.

Year-over-year benefit from the 12-ounce can and plant rationalizations, cost containment programs, excellent operating performance at the plant level and continued double-digit specialty can growth in the Americas all contributed to better segment results.

In the quarter, North America volumes continue to be sluggish for standard cans in the carbonated soft drink category.

However, Brazil volumes were up double digits, and our China volumes were flat as we continued to run at very high utilization rates, and we continued to make disciplined decisions to not add capacity in an oversupplied market.

European segment profit was flat for the full year and increased almost $10 million in the fourth quarter due to mid-single digit volume growth and initial benefits of reduced labor costs, which will continue to flow through the segment in 2014 and into 2015.

Food and household comparable segment earnings were flat in the quarter due to mid-single digit volume declines for steel food cans in North America.

For the full year, earnings improved roughly $10 million due to the contribution from last year's December's Mexico extruded aluminum plant acquisition and excellent operating performance at our remaining global manufacturing locations.

As John mentioned earlier, our global manufacturing operations are starting to be rewarded for their incredible efforts to improve their cost structure and cash flow.

Moving on to the financial metrics for the full year 2014, interest expense will be in the range of $163 million.

Full-year effective tax rate on comparable earnings is expected to be approximately 27% to 28%.

And for modeling purposes, remember that the first quarter of 2013 benefited from two R&D tax credits.

We expect full-year corporate expense to be approximately $73 million.

CapEx should be in the range of $375 million, and free cash flow will be in the range of $550 million.

And the majority of our free cash flow is expected to be returned to shareholders via share repurchases and dividends.

Yesterday the Board increased the share repurchase authorization by 20 million shares, so we have plenty of room and expect to buy around $500 million net for shares in 2014.

With that, I will turn it back to you, John.

Thanks, Scott.

Our aerospace business performed very well in the quarter and full year against a difficult comp.

Solid execution on existing programs and some early deliveries drove performance, quite an accomplishment given the disruptive US government circumstances in the first and second half of 2013.

Contracted backlog ended the year at $938 million versus $942 million a quarter earlier and approximately $1 billion at the end of 2012.

During the quarter, the STPSat-3 satellite for the US Air Force was successfully launched from NASA's Wallops Flight center.

The final three mirror segments for the James Webb Space Telescope arrived at Goddard Space Flight Center, and the Ball-built GMI instrument arrived in Japan for the upcoming launch onboard NASA's Global Precipitation Measurement Satellite.

The GPN satellite and GMI instruments are part of an international satellite constellation that will capture next-generation observations of rain and snow worldwide every three hours, as well as 3-D views of hurricanes and snowstorms, aiding weather prediction.

With the recent two-year budget agreement, we are starting to see things in Washington have a bit more visibility than we have had in the past several years.

Our aerospace team is awaiting decisions later in 2014 on several key program awards so that they can move forward with what they do best: providing affordable solutions for scientific discovery and national security.

Now looking out across our Company today, we will generate positive returns in 2014 on the growth capital invested in 2013.

In Europe beverage, operating margins are improving as volume has recovered, and our ongoing cost optimization programs will provide further upside.

In our global food and household products packaging business, we are laser focused on maximizing returns across our steel product lines and positioning our extruded aluminum manufacturing capabilities to serve our global customers' filling locations.

And most of all, we are proud of our employees and their resolve to execute on projects and programs to improve our Company's performance.

Truly exceptional.

Given our operational momentum, excellent working capital management and reduced capital expenditures, as Scott mentioned, we expect 2014 free cash flow generation to be in the range of $550 million.

In summary, we believe at this time we are on track to grow our EVA dollars and achieve our long-term diluted EPS growth goal of 10% to 15% in 2014 and beyond.

And with that, Renaldo, we are ready for questions.

(Operator Instructions).

Adam Josephson, KeyBank.

John, can you talk about what is driving the strength in European beverage volume?

I know you said it was mid-single digits.

It was up, I think, 7% last quarter.

I know you are levered to beer in that segment, and SAB Miller recently talked about sluggish trend.

So just trying to understand what is happening in your business that might be different from what some of your customers might be experiencing.

Well, I think a couple things.

I do think the can is improving its share of the overall package mix, not only with beer but even on the soft drink side.

So that's one big factor.

I think the other one is geography.

And, as you all know, we are a bit more weighted to Western Europe.

We have, obviously, some presence in Eastern Europe.

But where we don't have presence, really, in much of southern Europe.

And when you look as an industry where the growth has been coming from, it has really been coming from France, from Germany, from the UK and from those places that I talked about in the third quarter.

The first half of the year, recall the weather was very terrible, and so volume is actually down in those regions.

But in the second half of the year, it rebounded, and it proved to be quite nice for us.

That's helpful.

Thanks.

In terms of EBIT this year, John, do you expect European beverage to be up more than Americas and Asia beverage, and can you quantify the potential benefit from the cost savings in Europe that you have discussed in 2014 and going into 2015?

Yes, well, we have talked in prior conference calls about our -- we expect to get back to the 2010-2011 margin profile that we had in the European business.

We actually had a very good second half of the year, but we still have opportunities, as Scott had mentioned, on the cost-out program.

So, as we go into 2014, I think with normalized volume and obviously we are sitting here in January, so that's always a question mark.

But with normalized volume, we continue to see progression in the EBIT growth of that business, largely through the cost out programs and just maintaining our share of the European beverage can market.

And then just one last one.

Just on the LME aluminum premium situation in Europe, can you just discuss your exposure to that issue?

Yes.

And the way we contract our business here, we don't really have any exposure in North America.

And in Europe, I think I mentioned on the third-quarter call, it had been a headwind for a while in Europe through 2013.

And if it stays elevated at these levels, we probably have some exposure to the tune of maybe EUR5 million, but more on the back half of the year if it stayed at these levels for all year.

George Staphos, Bank of America.

The first question I had is regarding China.

Now, obviously your operating rates are quite high because of what you have been doing with capacity relative to demand.

Is it possible from where you sit right now to discuss when you think the industry will be in a better state of balance, say, above 90%?

I think, George, let's start with the demand side, and then we will go to the supply side.

On the demand side, overall industry volume growth continues to grow strongly, mid-single digits.

We did not participate this year because we were pretty tight.

Remember, we had -- in the second half of the year, we were moving some of our capacity from Shenzgen to Foshan.

So we were a bit short relative to that, and so we will be able to capture our fair share of the growth this year.

On the supply side, that's really the question mark, and I think over the -- there continues to be some of the smaller players adding capacity in.

I think from a cost perspective, we feel like we are in pretty good shape to ride out this wave.

But to give you an exact time or date on when the industry may get to 90%, I honestly think it's premature, and I would be speculating on it.

I think we continue to expect the market to be growing mid-double-digits -- I'm sorry, I might have said mid-single digits in China growth.

I meant mid-double-digits.

And so the volume side, demand-side is growing quite strong.

It's just when people take a pause in terms of the capital growth, so the supply can catch up with demand or demand can catch up with supply.

Okay.

But that in itself is saying something because the market is still growing mid-double-digits, and you are not sure when you get back to 90% -- not blaming you guys here.

Nonetheless, it tells you that there's still a fairly large amount of excess capacity to be absorbed.

You would agree with that; correct?

I would agree.

This time last year, George, we thought that there is arguably 25% over capacity.

And despite the midteens growth in 2013, I don't think that changed materially, which, by definition, means some of the people kept adding capacity.

Okay.

Same question.

In Europe where would you say operating rights are for you or for the industry to the extent that you can comment?

And then I had a follow-on, on North America, and I will turn it over after that question.

I think, for us, we are sold out.

We are full.

And I think, for the industry, it's pretty full as well.

Obviously, on the regional side, you have pockets here and there.

And, of course, even we may have very small pockets, depending on what the regional geographies are.

But overall I think the industry is reasonably tight, and we certainly are tight.

The last question, John -- in North America, is there a volume decline in standard cans in the next couple of years that would either, on the one hand, create diseconomies for you in terms of managing the remaining 12-ounce demand in the market from your existing network of plants?

Or one of the things you have been, obviously, doing is converting your 12-ounce to custom cans, and that seems to be working well that to absorb whatever level of decline might happen in 12-ounce would then risk saturating the custom can market from capacity standpoint.

I know there is perhaps a single number, but how would you have us think about what the rates of decline might need to be to get to that point?

I think the answer to your question largely hinges on what happens with soft drink.

CSD has really been the softness in terms of not only the canned business, but I think the overall liquid consumption business.

And we expect to have continued declines in the CSD side.

I think 2014 is going to be real important to help answer that question because you're going to see natural sweeteners start to come out.

And the question is, can the soft drink industry really strive to arrest these declines they have been having?

To answer your question specifically, I think it's much more complicated than just having the number saying at what decline rate due to the oversaturation.

I think we have been pretty disciplined over the last few years, and we have been doing it in our own economic best interests.

Just looking at the past 12 years, we closed Columbus, we closed the Gainesville end plant, and then we closed Milwaukee.

That was in part, but at same time, we also took some existing 12-ounce and converted.

So I think that model -- you can't do that forever, obviously, and we are very cognizant of that.

But we are also cognizant of maintaining tight supply demand, at least in our system.

Ghansham Panjabi, Robert W. Baird.

It's actually Nick Juhle sitting in for Ghansham.

In European bev cans, just wondering if you could parse out dimensions in Western Europe versus Eastern Europe during the quarter?

We typically don't go into that level of granularity.

But what I will tell you is Western Europe -- the growth in Western Europe, the overall industry was up low- to mid-single digits, and there's a little bit more on Western Europe and a little bit in Eastern Europe.

Great.

Thank you.

And I'm just curious as to any progress on the BPA free coatings for the food can market.

Can you just update us as to what your customers are thinking there?

Yes.

I think it has been relatively quiet on that.

From a technical perspective, we have solutions is the most important thing to say.

There is a cost implication to that, and I don't believe our customers have felt the need to convert and look at the relative costs of that without any real either legislative reason or economic business reason.

And so right now it's more in a holding pattern.

And then just one last one -- was there any benefit from the World Cup in 4Q for you guys?

And if so, could you quantify, then, that?

Well, other than America being qualified, I don't think we had any benefit.

But I do expect that certainly in the second quarter that's when we would expect, late second quarter and third quarter, expect to see the benefit.

Philip Ng, Jefferies.

Your EBIT margin for Americas and Asia was up pretty dramatically.

Can you parse out how much of that was Brazil, China, or just better mix in North America?

And going forward, is that sustainable?

I do understand there's some seasonality in the business.

We are coming off relatively easier comps from last year's fourth quarter, yet modeled down year over year, which will help margin percentage.

You had volume growth in Brazil, and you had volume in China and great cost controls in North America and China and specialty growth in North America.

All those things played into why the margins were where they are at.

And that's about as specific as I'm going to get.

The only other thing that is -- in North America, we had a decline of 12-ounce, which is a low-margin product.

True.

Okay.

That's helpful.

And then can you give us some color on North America food, on pricing for this year?

I understand one of your customers is in bankruptcy.

That could actually get sold off to the [south] manufacturer.

There's some noise in the marketplace with new capacity coming on in 2015.

Well, let me address the customer bankruptcy issue because we took a charge in the third quarter for a portion of the receivable that we had owing from that customer.

There's going to be an auction for that Company that we will occur next week, and we will see the outcome of that and what the outcome of that auction is and if we have to make any changes to we have already taken from a reserve standpoint.

And if we have to change anything, we will either do that in the 10-K or sooner.

And in terms of the pricing environment overall, I'd say it's relatively stable.

Really, there's no appreciable change in pricing in our customer base.

And largely, we often look at the metal side of the business, and there's really no significant change we are talking about on the metal side.

So we don't see any big changes one way or the other right now.

Okay.

And then just lastly, on Europe bev, from what I understand, some of your competitors saw a modest lift, at least, on pricing last year.

And the market appears to be still pretty tight.

Is that going to be a positive element in 2014, or is it going to be pretty flat as well?

I think, reasonably flat.

The reality is Europe is -- the economic declines experienced over the past few years in Europe have flattened out, but the economy is not strong.

I do think that the whole supply chain of virtually every industry has continued to be under cost pressure and trying to take costs out of the system.

And so I would not expect any appreciable change relative to the pricing environment.

Scott Gaffner, Barclays.

I wanted to talk a little bit about capital allocation.

If I look at your early-on comments of $461 million of cash flow from 2013, almost all of it returned to shareholders.

And it looks like, if I heard the commentary correctly, that the plan for 2014 is very similar.

And so I'm wondering, is that a comment indirectly on the outlook for the M&A environment and the ability for you to grow via acquisition?

Not necessarily.

What I would say is we are always spending a fair amount of time on acquisition.

And you often aren't given credit for the things either you pass on, but that doesn't mean there isn't a lot of activity going on.

As you know, we are a very disciplined company when it comes to capital allocation.

And when interest rates are very low, we buy things for the long-term.

And when interest rates are low, you have to compete with private equity and other firms like that.

And so we haven't found anything, at least in the recent past, that has met our return requirements.

And absent finding good return projects, we are going to return our value back to our shareholders, either through share repurchase and/or dividends.

And that is one reason why our Board authorized the 20 million share repurchase authorization yesterday.

Scott, anything to add?

No, I think that's right.

The cash machine has grown to a point where we can do a lot of things at the same time.

So we are able to still invest.

We still have some growth capital in the 2014 budget, and John talked about some of the growth capital that we spent in 2013 but we will start getting the returns on in 2014.

And we are still able to buy back a lot of stock, and so we will still be able to do both of those things.

And hopefully, acquisitions will come along that have good value where we can get the kind of returns we want, but we don't need to be stretching for anything.

And so we will continue to be disciplined.

Okay.

And the competitive environment within the acquisition market specifically versus private equity, I guess I've heard some commentary that in this environment they are not able to lever up as much as they used to on some acquisitions, and therefore, strategics are not as disadvantaged when it comes to acquisitions.

Is that something you have been running into as well?

I guess, on the margin, but in this environment capital is still quite available, and interest rates remain quite low.

And so I think it's just you have a much broader set of competition.

But I don't think there's any significant change over the last call in six months or so, no.

Okay.

And just last question on the CapEx -- $375 million, and it looks like maybe you underspent a little bit versus plan in 2013.

Is that just a rollover, or is there something in that $375 million, which is about $50 million more than what we forecast -- not you but our forecast.

Is there something in there that we are not aware of?

There are some things in there that you are probably not aware of, but we are not ready to talk about them in total yet.

And part of it is carrying capital from last year because we underspent what we thought we would spend.

So a little bit shifted to the right.

But there are still some growth projects that we are going after that we are just not ready to talk about at this point.

Okay.

And those are growth projects meant to fill the gap in 2015, and that is that how we should think about that?

Those are growth projects that have good long-term returns to them.

It has nothing to do with what year they are in.

It's just the opportunity is coming.

It's getting to maturity, and we think we have good contracts to support the capital that we would spend.

Chip Dillon, Vertical Research Partners.

I noticed -- and I don't know if you addressed this, John -- the aerospace margins were the highest I had ever seen or at least in a very long time.

Was that a one-time wonder, getting the 12%-ish type of margins that I think you made close to $25 million last quarter?

Yes.

Don't think that's sustainable.

I do think we had some early deliveries and some other things, including some execution on existing programs that made it really more of a one-time bump in the margin.

I think, as we look out into 2014, margins for the full year of 2014 should be comparable to the full year of 2013.

Got you.

And then I don't know if, Scott, you have specifically mentioned it, but what is the change in the cash pension contribution rate in 2014 versus 2013?

So what were those numbers, and how does that compare to the book expense for both years?

Well, the expense from 2013 to 2014 will be down $15 million to $20 million because of interest rates and a variety of things.

The cash funding will be down considerably because we did fund up.

In the fourth quarter, we did fund up our pension more.

So it will be down considerably.

Like $50 million?

More than $50 million.

Okay, got you.

And then last question.

I don't think this was asked or maybe I missed it.

But you mentioned that the specialty can volumes were sluggish in 12-ounce in North America.

I don't know if you gave a more specific number and/or if you could tell us what specialty can volumes did in North America in the fourth quarter year over year?

The 12-ounce was sluggish.

And I think as -- I don't have the numbers in front of me, but they were certainly down as an industry mid-single digits, if not a little touch more than that.

Specialty volumes for us, we have set for the full year.

I think the fourth quarter and the full year were about the same, which was midteens.

Up midteens?

Got you.

Yes.

Chris Manuel, Wells Fargo.

Congratulations on a strong finish to the year and what looks like it's going to be a fabulous 2014.

A couple questions for you here.

First, when we look at -- one of the businesses that you didn't particularly highlight in here was the extruded aluminum.

Can you talk about maybe what you're seeing there with respect to opportunities?

I know that in the past this has been area you have targeted for some growth and, in particular, potentially some more lines.

Can you maybe give us an update as to how that business is progressing?

Yes, Chris.

That's a good question.

We have over the past few years really put some focus on that in terms of growing that business both organically and inorganically via acquisition.

I think our European business continues to grow well.

Volume has slowed down a little bit in Europe over the past few years because the economy -- we were up slightly, and I think the folks over there are doing a great job.

As you all know, in December, 13 months ago we acquired the Mexican plant, and that facility has -- the volumes are still growing double digits, low to midteens.

We wish they were growing a little bit higher, to be quite frank.

But I think that's going well.

And from an acquisition as well as a greenfield perspective, we still have opportunities to expand our footprint.

And we have been looking at serving our customers, whether it's here in North America or whether it's in Europe or other parts of the world.

We continue to be focused on that, and I think there's going to be some opportunities as we move forward into 2014 and beyond.

That's helpful.

And that is the good segue to when I think about the $175 million this year of growth capital that you have got chartered in there, and I also appreciate you don't want to get too granular at this juncture on what you are doing -- I anticipate you will probably give us more color as the year progresses.

But when I think about the -- I said growth capital.

I meant return-oriented capital.

Give us maybe a sense of what the balance is between growth-oriented projects and what might be more cost takeout or other efficiency projects as we think about those?

Yes.

So let's break this down.

Of the $375 million of capital that Scott mentioned, our maintenance capital, if you will, is in the range of $175 million to $200 million.

And within that maintenance, there's always a level of cost out, whether it's getting more efficient on the energy side or other things like that.

But the additional, call it, $175 million of what we call growth capital, not too much of that is in terms of just pure cost out.

It really is growth.

I just mentioned impact extruded.

There are some opportunities in there of broadening our geographic reach on the impact extruded side from a greenfield perspective.

On the beverage can, there's opportunities in there.

I don't think on the aerospace side -- a couple of years ago we significantly expanded our ability to manufacture satellites in our older facility, so there's not a lot in there.

So it really is beverage cans and impact extruded.

And I would focus on broadening our geographic reach and in terms of new products and new capabilities.

Okay.

That's very helpful.

The last quick one I had was in the past we've talked about -- you given some color about what is happening in China with respect to the growth and that you anticipate being able to capitalize a little better on it this year.

Could you give us some color as what the pricing environment has been like in relation to the capacity that is still there?

Has it stabilized, been more constructive, continue to be more challenging?

How would you maybe give us some thoughts there?

There hasn't -- I think I said on the third quarter that China remains difficult.

It's not going down appreciably, but there have been pockets of continued softness on the pricing side, which is challenging.

And it gets to the question I think George asked earlier about supply/demand dynamics.

Until the supply dynamics become more in favor, I just -- we are not anticipating upside in pricing.

So we are focused a lot on the cost side, and our guys are doing a great job on the cost side, which is helping the business.

But prices are not getting any better right now.

Anthony Pettinari, Citi.

You referenced can demand improving in Europe or rather can's share of the overall package market in Europe improving in both beer and CSD.

And I'm wondering if it's possible to quantify that.

Is it something that's happening more at the margin?

And then what is driving that from your perspective?

Is it economic pressures, consumer preference?

Is it something your customers are driving?

Well, I think the answer is yes to all of that.

Just a little context -- I think for the full year, the market grew 3%, 3.5% over in Europe.

And, again, Europe is a big place with many different geographies, so I will generalize here.

But Europe grew low to mid-single digits.

I know that liquid consumption did not grow that much.

And so by definition, the can took a little bit of share.

Reasons why cans took a little bit of share?

I think there are changing consumer preferences for one-way packaging over returnable bottles, and we've talked about that in the past.

I do think that in some of the more mature economies people are staying home a bit more, and the can is more of a home package.

So I think that has been helping.

I think those are the two things that are probably driving this can share mix the most.

It's not seismic.

It's over time and gradual.

And recall that relative to at least the United States, for example, the can of the share of the package mix is much smaller in Europe, writ large, than it is in the US.

The US on the beer side it's over 40% of beer is consumed out of cans in North America.

In Europe, writ large, it's in the low to mid-20%s.

Sure, sure.

Just as a follow-up, you are coming up on a very easy comp for Europe in the first quarter where I think January demand last year was reasonably strong, and then things really melted down in March on -- I think there were some weather issues, and you had some other cost issues as well.

But I'm just wondering, did the experience of first-quarter 2013 in any way change the way that you forecast the full year?

Did it make you more cautious, or was that really just sort of a freak event from your perspective?

Well, I don't know if weather is a freak event.

But demand, as we said this in the past, we had two quarters, the first and second last year, that were down year over year.

And that hasn't happened too often in the decade we have been operating in Europe.

In fact, the two out of three times it happened last year, it was both in the first half.

I do think it was soft demand.

Recall also, we talked about in mid to late 2012, we actually had moved our European headquarters from Germany into Switzerland, and we knew we had some redundant costs.

And we were -- 2013 was an act to try and get after those costs.

I think the lessons learned from the first half of last year was you can't rely on volume all the time, so you ought to be proactive and aggressive at all times about the cost side of the business, and I think our folks have responded very well.

And that's why, as we go into 2014, our cost programs are really executing well, while at the same time, if the volume is normalized, it provides a little bit of upside.

And that's why I said earlier on it is only January.

If we could get through the first half of the year and volumes are normalized, we feel pretty good.

But it's just too early to predict what the weather is going to do.

David Jones, Deutsche Bank.

I realize you guys don't have a crystal ball for Brazil.

But what inside policy will we be assuming for the next year?

If you could give some sort of range?

I believe the expectation is for one-way containers to outpace returnable glass next year.

But looking out beyond that, do you think that a shift in the pack in storage cans is still sustainable?

Well, it's a good question, Debbie, and I think we are going to -- we expect 2014, because of the, quote, two-summer effect we have talked about, it to be positive.

And with the World Cup being there, the can is a great one-way package.

The can as a share of the package mix is approaching, at least on the beer side, 40%.

And I mentioned a couple minutes ago in the US, it's over 50%.

So there's probably some marginal improvement on that but not wholesale improvement.

And so, as we go past 2014, we expect overall volumes to more closely reflect the overall beer growth.

But in 2014, we do expect some nice growth.

Okay.

And then has your customer mix shifted materially over the last six months in Brazil at all with your new capacity?

No.

And then just a final question -- what is your outlook for can demand in North America, and are you happy with your standard in specialty can footprint?

Well, on the standard 12-ounce containers, we expect continued declines on the soft drink side.

We expect flat to slight declines on the beer side, and we expect to continue the growth that we have seen on the specialty side.

From a footprint perspective as we sit here now, we feel good about our footprint.

And we wish that 12-ounce was a bit stronger, but that is as much reliant upon consumer demands.

And as we have shown over the years, we will do what is necessary and in our economic best interests to make sure we are maximizing the value of what we do.

Al Kabili, Macquarie.

I just wanted to dig into Europe on your market share.

Has there been any change throughout the year in 2013?

And so far, what's the outlook for 2014 in that regard?

No is the short answer.

For the full year in 2013, as I said, the market was up 3% to 4%.

We were up slightly less than that.

A lot of it had to do with just timing and geography.

As I mentioned, the first half was softer.

The second half was a bit stronger.

But there has been no appreciable change in that.

In any given year, different things are happening with different customers.

But no, there hasn't been any meaningful change.

Okay.

Thank you.

And then on -- I just wanted to clarify on China as well.

With the cost savings optimization you are doing there, how are you -- but yet pricing is still under some pressure.

How are you thinking about overall profits in China in 2014 versus 2013?

I think that will get a little bit better.

It's not going to be wholesale, but we are -- we took a big price at last year.

And I think we will do a little bit better in 2014, both from a volume standpoint and a cost-out standpoint.

Okay.

Got it.

And from a pricing perspective in the market, how would you characterize 2014 versus 2013?

Is the magnitudes of the declines lessening there or similar?

I know we are not fully ramped up there yet, but in terms of contract renewals, but so far how is the tenor there?

We are not seeing anywhere near the price declines that we saw from 2012 to 2013, going into 2014, but the environment is still soft.

It's still weak, and there's isolated things going on in different places.

But, as John talked about, there is still way too much capacity.

And so we are doing what is in our control in terms of costs out, and we are growing a little bit with the market.

And all those things should help us.

But the pricing environment is not getting better yet.

Okay.

Thank you for the color there, John.

And then on the food can side, we heard from one of your peers yesterday, and they had talked about extending some contract lengths.

And I was wondering if you could update us on how you are doing on the food can side and any changes to your contract length structures, et cetera?

The short answer is nothing out of the ordinary.

We have a variety of different customers and a variety of different customer contracts, and nothing really has changed appreciably in that.

We are focused on, as everyone knows, at the end of 2014, we expect to lose some business from a customer, and we have talked about that for the last six months.

I think 2014 we have plans in place, and the timing of the execution will occur throughout 2014 as we move towards that date.

We have a hole to fill.

We recognize that, but I will bet our people against anyone else, anytime.

Okay.

Appreciate it.

Final question is just a clarification on pension tailwind of $15 million to $20 million.

Can you help us just with where that flows through in the segments?

I imagine most of that is going to be in the US.

And could we assume, say, 75% of that in US bev and maybe 25% or so in food can, or help us parse out where that will flow through?

It does hit the US, but remember, we got a big aerospace business, too.

So you look at where the percentage of employees are, food has a bigger impact on what you think -- the size of the business, but it's an older business.

Let me get you the detail.

I don't want to tell you off the top of my head, but I do have that detail.

But it kind of runs across the businesses.

Okay.

We will follow up later.

Thanks, again.

George Staphos, Bank of America.

A couple things.

One, so if we look through 2014 and can see your expectations for European profitability, would we see more of the profit growth that you expect coming from a pickup in volume, or would it come more from the cost out?

If you mentioned it earlier, I apologize.

I missed it.

Well, as you know, George, it's difficult to parse it out because it's a fixed cost business.

When you get a little bit more volume, is that because of volume or because of cost?

I will tell you this.

All things being equal, our folks are doing a very good job on the cost side of the business.

And so we are going to continue to put our shoulder into that throughout 2014.

And, as I mentioned, we are closing our German regional headquarters, and that should happen late first quarter, and we have a bunch of other cost-out opportunities that we have been executing on.

And so that's a big focus on that.

Okay.

Related question and segue a little bit on, I guess, Al's last question -- again, one of your peers yesterday was talking about some of the other things that they are working on to, one, make the food can more viable and, from our vantage point, too, secure their position with their customers and in their market.

Along with planned realignment and looking at new markets, are you doing any kind of co-investing with your customers on a longer-term basis, moreso now than perhaps had been the case?

Can you share any more details on the plan that you are executing in 2014?

No appreciable difference in terms of what you described as co-investing with our customers relative to what we've done in the past.

Okay.

Thanks for that.

And the last question, and I will turn it over -- there has been some discussion in the trade that maybe not right now but over time there's going to be more and more usage of aluminum sheet in auto manufacturing.

And if that, in fact, does occur, how do you think that might affect the availability of can sheet in the market?

Obviously something that is very important to you, and what have your suppliers told you about that and the likelihood of supply shortages -- again, not now but maybe down the road?

I'm not sure I would worry about supply shortages.

I think that beverage can has been pretty steady, so it's a nice steady business.

But the automotive business historically has a little bit more volatility toward it, and I think there's a question of how much auto converts to aluminum.

Is that a stepping stone to another type of material, some kind of composite material?

So I think all this is going to take some time to play out, so we will see.

And the only other thing, George, I would add to that is it really is -- what you are talking about is more of a North American phenomenon than anything else.

And because of the pass-through nature of the business, it's not a huge impact.

And I guess, for that matter, too, to the extent you would rather it be other, the reverse would be true to the extent that can demand isn't growing by leaps and bounds, that makes more availability of can sheet as well.

But it sounds like your customers, your suppliers aren't telling you to worry about this anytime soon?

Well, I think to be honest they are excited about the automotive opportunity.

But Scott raised an excellent point.

They are doing it because of ETA guidelines in terms of miles per gallon for cars.

It is a lighter weight material than steel, but it is much more difficult to handle relative to steel in terms of welding and other things like that.

The question is, is it a conversion to aluminum, or is aluminum a migration to another form of composites or other things like that.

Fair point.

Thank you, guys.

Appreciate all the thoughts.

Good luck in the quarter.

Adam Josephson, KeyBank.

John and Scott, how do you factor the recent fluctuations in emerging markets into your CapEx plan?

I know your strategy is to follow your customers, but are you any less inclined to expand in emerging markets than perhaps you were a year or two ago?

Not really.

It's all dependent on the right opportunity.

These things come and go.

I don't get too caught up in where currencies trade in a particular day.

When we put assets in the ground, we are going to be there for a long time.

And so if there is a long-term economic value proposition in there, we would still do it.

Thanks for that, Scott.

In Brazil, how do you characterize the capacity situation at the moment?

And based on your industry growth expectations, do you think more capacity will be necessary for the next couple of years?

It will be interesting to see.

I think it's reasonably tight for 2014 because of the World Cup.

I think after that, the biggest question is, given the economic situation, given the political situation and given the growth of the middle class in Brazil, what happens after 2014 in terms of liquid consumption in terms of can growth in terms of the overall economic profile?

And so we are looking at that very closely, but first and foremost, we are saying, let's put our head down and get through 2014, and then we will evaluate it a little bit more.

And just one last one, Scott.

Forgive me if you mentioned this earlier.

But interest expense, how much of a benefit do you expect it to be this year?

I said that we expect full-year interest expense in 2014 to be around $163 million.

So the bonds that we issued last year, the reduction of the notes in January, the mix of that will help interest by quite a bit.

And we have no more questions at this time.

Okay.

Great.

Thank you very much for participating, and we look forward to what we think could be a strong 2014, and we will speak to you in April.

Thanks, everyone.

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

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