Ball Corp (BALL) 2014 Q1 法說會逐字稿

Ladies and gentlemen, thank you for standing by and welcome to the first-quarter 2014 earnings conference call.

(Operator Instructions) As a reminder, this conference is being recorded Thursday, May 1, 2014.

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

Please go ahead, sir.

Thank you, Jasmine, and good morning, everyone.

This is Ball Corporation's conference call regarding the Company's first-quarter 2014 results.

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

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

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

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

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

Now before I begin my formal comments today I would like to thank everyone on the call and many others for their support, caring, and understanding during the loss of both of our friends and colleagues, Gerrit Heske and Ray Seabrook.

Many of you know them and words cannot describe the outpouring of support from our family here at Ball, our customers, our suppliers, shareholders, and competitors.

Thank you.

We will move forward as they would want us to and build upon the legacy of excellence that they have helped create and perpetuate.

Now joining me on the call today is Scott Morrison, Senior Vice President and Chief Financial Officer.

Like many here at Ball, Scott has also stepped up and is acting as Interim Chief Operating Officer for our Global Beverage Can business.

I will provide a brief overview of our 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 the remainder of 2014.

Our first-quarter results can in nicely ahead of expectations.

The momentum we carried into the year continued across all of our businesses throughout the quarter, truly a testament to all of the hard work put in by our people here at Ball.

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

During the first quarter we experienced much more constructive beverage can volume throughout most regions of the world that we had seen in the first part of last year.

We further improved operating costs in our European segment and we saw continued growth for beverage cans in the region.

We are proud of the work our European beverage team has accomplished at both the plant level as well as the support functions.

We continue to experience strong demand in Brazil, which contributed favorably to the results as preparation for the 2014 World Cup and Carnival extended the summer selling season.

North America tinplate container volumes were lower than expected in the seasonally slow quarter and operationally we got off to a slower start than we would have liked.

Scott will go into that in more detail in a minute.

And aerospace for the second year in a row was awarded Boeing's avionics Supplier of the Year award.

Out of the total of 14,000-plus suppliers that service Boeing, this is yet another example of our close store customers focus as part of who we are.

As we entered the year we believed that 2014 was shaping up to be a better year than 2013 and the first quarter helped to reinforce this.

We are experiencing good global beverage can volumes versus this time last year.

Our focused efforts to identify pockets of growth and manage our cost structure are bearing fruit.

Both will drive EPS growth, EVA dollar generation, and strong and consistent cash flow in 2014 and beyond.

And with that I will turn it over to Scott for a review of our first-quarter numbers.

Thanks, John.

Ball's comparable diluted earnings per share were $0.81 versus last year's $0.58.

In addition to John's comments around better year-over-year global beverage can volumes and cost out progress, a lower share count contributed to our improved results.

During the quarter, we acquired a net $194 million of stock and returned another $19 million to shareholders in the form of dividends.

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

For the full year, no big changes to our previous financial metrics.

Free cash flow is still expected to be in the range of $550 million.

Share buybacks around $500 million.

CapEx around $375 million with it being more backend loaded.

Interest expense of about $163 million.

Effective tax rate is expected to be in the range of 29%, and full-year corporate undistributed is now expected to be closer to $80 million.

Net balance sheet debt at the end of the quarter was approximately $3.6 billion.

Credit quality and liquidity of the Company remains solid with comparable EBIT to interest coverage at 5.2 times, a net debt to comparable EBITDA of 2.9 times.

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

For a complete summary of first-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 up roughly $20 million in the first quarter.

Year-over-year benefits from cost-out programs, excellent operating performance at the plant level, and continued specialty can growth in the Americas all contributed to better segment results.

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

However, cans for beer were up and Brazil volumes were up strong double digits.

Our China volumes were off slightly due to capacity constraints and some regional supply/demand issues, though excellent plant performance and efficiencies ensure that our China business continues to generate positive EVA dollars.

European segment profit was up roughly $25 million in the first quarter due to mid-single-digit volume growth and the benefits of reduced costs.

Food and household comparable segment earnings were up slightly in the quarter as mid-single-digit volume declines for tinplate containers in North America were offset by mid-single-digit volume increases in Europe for extruded aluminum containers.

More recently, we have seen some modest price cost compression in the US food and household segment which will impact us as we move to the balance of 2014.

We also were impacted by incremental manufacturing efficiencies due to weather, inventory adjustments, and plant performance.

In summary, our beverage operating team is doing an excellent job meeting outsized demand in Brazil and favorable demand in Europe, while at the same time we are preparing for continued manufacturing projects in North America and Europe to further improve our packaging businesses.

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

Great.

Thanks, Scott.

Our aerospace business performed very well in the quarter.

Solid execution and higher award fees on existing programs, successful deliveries and launches, and recognitions of our aerospace teams' performance not only with Boeing, but with other customers, were some of the highlights.

Contracted backlog at the end of the quarter was $868 million and, as I mentioned in our January call, we are pursuing several large programs that are expected to be awarded by year-end.

During the quarter the Ball-built GMI instrument was successfully launched from Japan and began collecting science data on the Earth's rain and snowfall.

Also the Ball-built Kepler satellite, NASA's first mission to find Earth-sized planets in the habitable zone, marked its fifth-year anniversary of planet hunting and so far it has identified 715 new planets, quite an accomplishment in its own right.

Now looking out across our business today, we are not without our challenges.

The pricing environment in China has yet to improve, our North American tinplate business has a bit more headwinds that we have had in the past, and volume comps will likely normalize as we head into the back half of the year as the World Cup concludes and we lap a strong second half of 2013.

However, and most of all, our business has stepped up and delivered.

This quarter was one filled with personal loss and numerous business accomplishments.

The term resilience comes to mind and we are moving forward as a team.

I am proud to be a Ball employee.

Given the strong start to the year, we remain confident in our ability to achieve our long-term diluted EPS growth goal of 10% to 15% in 2014 and beyond, while growing our EVA dollars.

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

(Operator Instructions) Ghansham Panjabi, Baird.

Good morning and, again, condolences on the loss of both Gerrit and Ray.

I'm sure it's hard in your organization.

Thanks.

First off on Brazil, what do you estimate market growth was during the quarter?

How much do you think was the World Cup and on an underlying basis what do you see occurring in the region?

It seems like there is another beer tax being implemented.

I guess what are your customers saying in terms of demand expectations for the year?

Market in the first quarter was really strong.

It was up high teens.

We were up more than that because if you remember we put in that new line in the fourth quarter of last year, so we grew a little more than 10 points higher than the market in the first quarter.

We are seeing very strong volumes and good growth in specialty cans.

I am a little nervous as to what happens after the World Cup.

There seems to be a lot of momentum going into the World Cup, but we will have to wait and see.

And we have tougher comps in the second half because of that line.

Then also, Ghansham, I might just add, I think it was even yesterday, the Brazil finance ministry raised taxes on beer and soft drink effective June 1. It's our understanding that it will increase the price at the retail about 4% or 5%.

And while this could have an impact on volumes in the second half, obviously how much it's too early to tell at this point in time, but we are a bit cautious about that in the second half.

Okay, makes sense.

Then on Europe, I know you had an easier comparison from a year ago, but was there anything unusual from an EBIT standpoint if you kind of think about the year-over-year variance.

And if you can isolate for us the cost savings impact year over year that would be helpful.

Thanks.

It's really a combination.

If you look at last year and the first quarter, volumes were down a fair amount.

This year first quarter our volumes were up nicely.

That combined with the cost outflow ramps, the combination of those two things -- specialty can growth, stronger growth in Eastern Europe -- all those things helped the first quarter, so it was a very strong quarter.

I might just add that in a fixed cost business -- I think we talked about this before -- it's always difficult to separate the cost out from the volume impact.

But what we are on track relative to our cost-out programs that we have laid out in prior conference calls, and with the added benefit of some more constructive volume I think that's what you saw.

Okay, thanks so much, guys.

Philip Ng, Jefferies.

Good morning, guys.

Europe was off to a very strong start with the margins in that 12% ballpark already.

I know it's a seasonally smaller quarter, but are you guys on track to hit that 12% margin target already for 2014 or could you see some margin pressure with the metal premiums kicking in?

Well, we do have some headwinds in the back half of the year from the metal premium that I talked about before to the tune of around EUR6 million if it stays where it is right now.

I think we said is we expect to be kind of in that 11% to 12% range this year.

We are still working -- the cost-out programs, as John mentioned, are on track and continue to progress and proceed, but we won't get the full benefits of that until we get into next year, frankly.

Okay, that's helpful.

Then non-controlling line was up more than 50%.

I assume that's mostly Brazil, but can you comment on that?

Were there any -- were customers building inventory for the World Cup a little sooner than normal?

That's a good -- yes, the answer to the increase in that line is mostly Brazil building to the advance of the World Cup.

Remember that they had a very good summer, so weather was very warm throughout their summer time.

Carnival was late, which kind of extended the summer, so we've gotten a couple benefits plus then as we start to get into the World Cup.

So I think the combination of all of those plus having an additional line that we didn't have last year at this time, all of those helped drive the results.

Okay, and just one last final one.

Beer demand in North America was quite strong, particularly for bev cans.

Are you seeing that momentum spillover in 2Q?

And just wanted to get a little more color on that front, because beer I don't think was that strong overall for the category.

So are you outpacing the market from share gains or are you seeing a pack mix shift?

No, I think it's mostly a pack mix shift.

The overall beer market actually was strong in the first quarter despite some of the weather.

And I'm not talking just cans, but cans also continued to grow its share of the package mix within the beer category.

Just a little statistic; we've talked about the craft beer industry and how the growth of cans has been helpful there.

The can as a share of the package mix is now in double-digit percent where just five, six years ago we weren't selling any cans into that.

So there's various trends going on like that which have been very constructive in the beer category.

Okay, thanks.

Good luck in the quarter.

Anthony Pettinari, Citi.

Good morning.

You referenced some price compression in food and household and some pressure in North American tinplate.

I'm wondering if you could quantify the pressure you saw in the first quarter and what you might expect for the remainder of the year and maybe give a little color on what's driving that.

Well, what's driving it is, as most people know, I think to a degree and we had anticipated this, that there is some new capacity coming on stream in North America.

I think as a -- certainly in the second half of the first quarter as a result of some of this competitive activity we've been nicked a bit going forward.

We're going to be standing firm with respect to maintaining our customer base, but we have had to respond to some of the pricing extensions that others have done.

But more importantly, I think assets related to what we've already announced have been moving around and that has been creating some disruption in our manufacturing footprint right now.

And so as we look forward I think we have some challenges, not only on the pricing side, but also on the manufacturing side that we need to get right.

Then, as you rightly pointed out, it's seasonally slow and as we go into the pack -- we had a pretty good pack last year so it's unknown what the pack is going to look like this year.

Those are the issues that weigh on our mind when we think about that segment.

Okay, that's helpful.

Then to switching to Americas Bev, you referenced I think stable beverage volumes in North America.

If I go back to last year I think you had referenced double-digit volume declines in 12 ounce cans.

So I was just wondering; if you look at your 12 ounce volumes, were they flat or up or down versus last year's comps?

And generally how did you feel about the demand for standard cans that you saw in the US in 1Q, given kind of an easier company but difficult weather?

How do you [feel about] that?

It's a good question.

Recall that last year we had some higher declines than the industry due to a loss of some business a couple years ago and obviously we don't have that now.

I think the overall tone for standard cans in North America is a bit better today.

Not wholesale better, but a bit better than it was this time last year.

We did have some tough weather in the first quarter this year.

But having said that, the overall category was roughly flat.

I would describe it as specialty being up and the standard cans, which make up the majority of it, being down slightly, but certainly not down the 4% to 6% as an industry that we had been seeing last year.

Okay, that's helpful.

I will turn it over.

Scott Gaffner, Barclays.

Good morning.

Condolences to you and to everyone at Ball.

I know it has been a rough period, but very strong results through all of that.

My question was really on first the follow-up on the North American metal food business.

Just want to make sure, in conjunction with the price compression, have you been able to lengthen the contracts and lock those customers in for longer periods of time?

Second on that, when we talked last you didn't think you were going to see this type of compression just given where your customers are located.

Can you talk about maybe something that changed that led to this decision?

I think, as we said in the first quarter, that we had no -- we have a variety of contracts, number one.

What we saw as we went through the quarter is that some other customers and with some other competitors that were looking to lock up volume a little bit more longer term.

As a result of that our discussions with our customers shifted a little bit and so we had to respond to a couple certain situations.

Obviously when you're in discussions like that you want to get something if you have to give something, and so that's what -- whether it's contract length or other things like that, and so that's what we certainly have been focused on.

And so as I said, I wouldn't read into it wholesale.

It's hurt a little bit, but not -- certainly for our corporation it's not material, but we did see a little bit more activity than we had expected.

We had expected it later on this year, but it just happened a little bit sooner I think.

Okay.

Then we look to the underlying demand trends in North America with CSD falling and it sounds like you're picking up incremental wins maybe with small craft beers and what not in the beer category.

When you look at your overall footprint in North America, are there some changes that would need to be made going forward as that mix continues to shift, meaning beer outperforms CSD?

Or can you serve the existing customers off your existing footprint?

I think it's the current trends that we saw the first quarter and recall it's only a quarter, so a trend doesn't make that.

But if we -- if those types of trends continue, as we said in January, we feel pretty good about where our footprint is.

We over the last few years have taken out a fair amount of capacity and we've converted existing 12 ounce capacity to specialty.

Some of the growth in beer is not only on 12 ounce, but it is also on specialty containers.

But I do think, just overall when you take a step back relative to a year ago, the overall tone of the soft drink is a little bit better.

The tone of beer -- we have beer growth right now and can share penetration growth in the beer segment, so that's good.

And then specialty off a bigger base continues to grow nicely.

So I just think overall as an industry the tone feels a touch better, but again we are also very cognizant that it was a seasonally slow first quarter.

Okay.

Then just one last one on the North American carbonated soft drink market.

Have you seen any signs of promotional activity from your customers, or are we still sort of in this period of where they are trying to improve their margins and maybe not promoting as much?

Have you heard anything?

I think actually in the first quarter you saw a little bit more promotional activity than you would've seen in a first quarter in a prior year.

And I do think, as we have talked in the past, that the CSD customers are trying to optimize this value versus volume equation.

They also recognize that, given the elasticity of CSD and some of the health and wellness issues, that you just can't keep pushing price and expect volumes not to decline.

So we have seen a little bit more promotional activity, but it's way premature to talk about what type of promotional activity we will see in the summertime.

George Staphos, Bank of America Merrill Lynch.

Normally I don't say great quarter, because that's for the market to decide, but this is in my view a really good quarter considering everything you had to manage, so congratulations.

I want to pick up on the promotional activity.

We have heard from some of the case producers that there is, in fact, a bit more promotion in the soft drink side of the --.

Do you think that that can continue given what looks to have been a little bit more success and a little bit more volume through retail channel for soft drinks?

Again, yes, is the short answer to your question.

We think there can be some more promotional activity.

A lot of it has to do with weather and is more regional.

I think what you are seeing -- we used to talk in years past about promotional activity and it sounded like it was a national opportunity.

You're seeing much more promotional activity done at the very local level and it's much more on the execution side of that.

We have seen more of that certainly in the first quarter and I think we would expect to see a bit more of that as we go into the summer, but time will tell.

Okay.

Next question, from my take on your commentary regarding North American and food, correct me if I'm wrong, but it sounded like you were somewhat disappointed in terms of your execution of your plans thus far this year were perhaps being surprised by the activity being a little bit more frontloaded.

Is that a fair assessment or is that off the mark?

And realizing you can't comment too much on a forum like this, what could you tell us qualitatively about what you are doing to adjust going forward, both from a cost and from a contractual standpoint?

First, with respect to some of the headwinds we are facing, we talked a little bit about the pricing side but we are -- as I mentioned, we do have a fair amount of assets related to a couple of plant closures: Elgin, Danville we've announced in the past year.

And, candidly, getting the increment installed and getting it running up to our specifications and expectations has gone a bit slower.

Our manufacturing people are working extremely diligent to get that right, but that's just a fact as we sit here today so that has created some disruption.

I think as we go in a bit longer term, we expect that come late summer -- and we had mentioned on earlier calls that we expected to know what we would have to do from a capacity point of view by late spring or early summer.

And that has probably been pushed out a month or two relative to our capacity adjustments in the second half of this year as a result of the loss of some customer business.

But we full well know what we need to do and it's really just a timing issue of when we begin to execute on that.

The competitor is racing to put capacity in by the end of the year.

I think we want to make sure that our customer is being well served and we want to do it in the right way in this transition, and so we will probably have a much better view towards mid to late summer.

Okay, thanks for that.

John, one other on beverage and thinking back on one of the prior questions.

Obviously first quarter wasn't so bad in light of other quarters from an aggregate standpoint for the industry.

Beer nearly bailed out soft drinks, so to speak.

But considering that traditionally there have been differences in end sizes between the two, do you -- if this trend continues do you have to at least recapitalize on the end-making side of your modules?

Or you don't think that that will be an issue that you can contend with or you have the flexibility on your end-making equipment to change end sizes?

The short answer is I don't think we -- that is an issue we need to contend with and we have enough flexibility that that is not a thing that keeps us awake at night.

Okay, last one and I will turn it over.

The backlog on aerospace did decline.

You had called out this year that you would be hoping to get some project wins.

Obviously that's coming later in the year.

If you win your rightful share, and I realize that's difficult to project, where do you see your backlog by the end of the year?

What should we be marking to market in terms of good progress or not so good progress for Ball by the end of the year?

It's tough to say because as I said, George, some of these contract wins are going to be in the end of the year.

We don't know if it's going to be December or January, so don't hold me to a number as of December 31.

But if we win our fair share through this cycle of new wins, we should be up relative to where we had been 18 months ago.

George, the booking of that into backlog, we can win something but then it takes time to get everything back where it would roll into our backlog, so that's what John is talking about.

We may know we win it this year but it may not show up in the backlog yet.

(multiple speakers)

Would that be over $1 billion if you can get back to where you were 18 months ago?

Yes, if we win our fair share -- we are at, as I said, about $870 million right now -- it would be back over $1 billion.

Thank you.

Chris Manuel, Wells Fargo.

Good morning and congratulations on a strong quarter.

Again, apologies as well and condolences as well.

If I could follow up from right where George was at talking about the aerospace business a little bit.

Appreciating that for us dumb packaging guys we don't always understand the aerospace business as well as we should and also appreciating that it can be a little more complicated understanding when payments come in for performance things that you can't always talk about, you are off to a fabulous start for the year.

You are winning some new business that sounds like it takes a while.

Could this look more like a -- from an EBIT perspective you are off to a good enough start?

Can it look like a 2013 year or does it a look more like a 2012 year as you kind of look at or think about how this year is shaping up?

Well, just a couple observations before I try and hit that head on.

Our folks performed tremendously well.

We had a very strong quarter and a lot of it had to do with award fees, because we are performing.

As you move along in the lifecycle of any contract, and as you know we have hundreds of them, you derisk the program but you also get award fees because of your performance.

And that is exactly what happened.

It's also the reason why there has been a slow burn in terms of our backlog because, as we either complete or move towards the completion of many of those bigger projects, that's where a lot of those award wins would likely occur.

To answer your question does it look more like 2012 or 2013, it's probably a little bit closer to 2013 than it is to 2012.

The reason why I say that is we've had some great success on the award fees.

That can't happen every quarter and so -- given that we have the new programs that we are bidding on, we won't hear on many of these until later on this year.

I think we are going to see, quote, a more normalized three quarters of the year this year and then, depending on how those wins look, 2014 we will have to recalibrate at that point in time.

2015 we will recalibrate, I'm sorry.

That's helpful.

If I could switch gears a second and talk about the Bev business over in Asia.

Just remind us the sizing of your business, what you have in China versus some of the other regions, Southeast Asia; I think you have some capacity in Vietnam, etc.

And the pricing and the return characteristics are they markedly different?

I'm guessing yes between what you're seeing in China and what you are in other pieces.

Has there been any pressures in the other piece of the business as well or how do you --?

How should we think about potential for improvement within China?

Why don't I start and then I will turn it over to John?

But in terms of where we are at, remember our Vietnam is a joint venture so it doesn't flow -- those volume numbers don't flow through our numbers.

We are still seeing nice growth in the market, but there is a lot of capacity and so pricing is not getting any better.

And so what we are doing is doing things that we control on our cost side to take costs out of our business and our guys are doing a great job of doing that.

So our returns look decent.

It's just not as good as it used to be; not quite as much fun as it used to be, but it's still good.

I think we see that we just don't see the pricing environment improving materially for this year definitely.

But we are doing the things that we control and the market continues to grow so that's a good thing as well.

As Scott said in his prepared remarks that we are generating positive EVA dollars, so that must be mean we are generating returns in excess of 9%, as you all know.

The other thing, as Scott said, the volume, industry volume has been growing quite strong.

And we've talked about this in the past.

With all the overcapacity, how long will it take for the growth to chew into that and create a more balanced supply/demand?

The positive is on the demand side the volumes have been growing strongly as an industry.

I do still believe that there's some of the smaller competitors that are putting some incremental capacity in.

Not nearly as great as it was a couple years ago, but there is still a bit incremental.

But I do think that overall excess capacity is slowly getting smaller and it's a function of how long it will take to get there.

It would be premature to speculate.

I just know it's slowly getting better, but we haven't yet seen it in the pricing.

Last question along those lines and I will turn it over.

Is there a market difference between margin levels, profitability levels, what have you, between what is in China and what is outside of China as you look across Southeast Asia?

Not material -- again for us.

As Scott mentioned, we have a joint venture in Vietnam and then we have a small equity interest in Thailand, and so we have, to a degree, a limited purview.

But, no, is the short answer; we don't see any wholesale changes in the profile that each of the businesses are.

We have the advantage in China of having scale.

That probably helps us more so than a place like Vietnam, but that would be the biggest difference.

Okay, that's helpful.

Thank you and good luck.

Al Kabili, Macquarie.

Thanks.

First question is with the better-than-expected first quarter and maintaining the guidance for the full year, how much of a factor was the announced beer tax in Brazil factoring in in your decision to maintain the outlook despite the very strong 1Q?

Well, we had always said that we -- in the second half of the year down in Brazil that we expected it to be more muted just because of the two summer seasons we have talked about -- the extended Carnival, the World Cup.

And so the announced beer tax obviously has incremental headwinds on it, but I don't think it necessarily fundamentally changed our view as a corporation on what our 2014 would look like.

Okay, thank you.

I appreciate that.

I think -- I believe the headquarters in Germany recently closed.

Scott, I was wondering if perhaps you could help us maybe size up what the incremental cost savings in Europe beverage might be this year from that recent event.

I know there was an indication that the full savings probably doesn't occur until next year, but I imagine you are probably going to get something incremental this year from that.

Just to be clear, the headquarters didn't close.

The headquarters moved to Zurich a couple years ago.

We consolidated a couple of office locations that we had in Germany into one and so with that there is a reduction in the number of people that we will have.

We've never quantified the dollar amount.

What we have talked about is margins getting back to that historical level that we had a few years ago in that business.

We are on track with that and we are on track with all those plants, so as we move through the year we will continue to get the cost-out benefits.

Again, in the first quarter you see the leverage of cost-out but also volume growth.

Volume is a wonderful thing in this business when it grows.

We expect to have a solid year in Europe and it will continue to be decent as we move through the year in terms of achieving those cost-out programs.

I guess maybe if I can ask it another way.

From -- is there incremental cost savings that has occurred with some of those office closures that -- is there some incremental cost savings that will have occurred this year that hadn't yet been seen in the first quarter?

Yes, we expect our cost structure at the end of this year to be lower than it is at the beginning of this year.

I think to Scott's point, just part of it is the consolidation of these German administrative offices.

As you know, we have a couple other projects going on and so as we moved through the second half of last year and as we moved through all of this year we are taking the necessary plans.

Just one of them happened to be in the first quarter; late first quarter is when the two German facilities consolidated.

Okay.

Thank you, that's helpful.

Then my final question is just on carbonated soft drinks in the US.

It looks as if the overall volume trend of carbonated soft drinks is declining a little bit less than the cans are.

I was wondering how you were thinking about the can share within carbonated soft drinks, if there's any additional share -- if there's any appreciable share shift that you are seeing within that as well.

The short answer is I don't think we see any appreciable share difference.

I do know that two-liter PET was promoted a decent amount in the first quarter.

But, again, the first quarter is the most seasonally slow and so that question is better debated come the fall when you actually can see a full year of the summer months related to cans as a share of the package mix.

But we don't expect any appreciable changes in the can mix.

Okay, thanks.

Good luck the rest of the year.

Tyler Langton, JPMorgan.

Good morning, thanks.

Just had a question on the CapEx side.

I think last quarter you talked about $175 million being directed to growth.

I just didn't know if you had any details at this point of where it might be spent, whether you would spend the entire amount.

Just any color there would be great.

Sure, we do still expect to spend around that $375 million.

I can tell you a little bit more; we've got a couple big projects.

One is a new specialty addition to our portfolio of a new shape and size that will happen here in North America and that will be spent really ramped up in the back half of this year to be producing next year.

Then we are also adding -- due to the growth in Europe, we are going to add a specialty line in The Netherlands to keep up with the growing demand.

So that will get spent a decent amount again in the second half of this year to be able to be operating by the busy summer season next year.

So those are -- we've got some other smaller things, but those are two larger ones that we can talk about now.

Okay, that's helpful.

Then in terms of -- just switching back to China quickly in terms of the cost-out.

Is there much more room for improvement with those programs or is it largely in the numbers at this point?

I think they continue to take -- they are making progress and I think they will continue to make progress through this year and even into next year.

We've got some longer-term plans about the way the business is operated that I think will make it leaner and more cost-effective going forward.

They have done a lot of work already and they will continue to work through this year and into next year, frankly.

I think our -- we are not hoping or waiting for the pricing environment to get better.

As John mentioned, we are still making good EVA dollar returns there.

We are going to continue to focus on our cost side so that we are just participate in the growth in that market and continue to be profitable and get good returns.

Just sorry, in terms of that capacity that you are adding, can you share any details on sort of how much incremental capacity those lines in US and Europe would be?

Well, they are specialty lines and so it's a little bit different talking about capacity, but not at this point we're not going to share that.

Okay, thanks a lot.

Chip Dillon, Vertical Research Partners.

Yes, good morning.

First question just quickly on the aerospace business.

I know you were talking about there's some contract potential later this year, but it looks like in the last two quarters you've had some pretty darn good margins there.

Is that a function of the type of work you're doing and could we see sort of this elevated level of margins continue?

No, I think it's a function of, as we get closer to the completion of some of these big programs, that's when you really get to recognize your deep risk to the project and you are getting your award fees.

Obviously you don't get award fees at the beginning of a contract; you get it when you are completing it.

And I think over the last couple of quarters that's why you've seen margins do what they do and that's why you've seen our backlog come off a little bit as well.

Got you.

Then changing gears a little bit, you all mentioned 2.5 years ago when we were out visiting some market data that suggested about 53% of US beer cans were -- beer was shipped -- was packaged in cans.

I think in Brazil it was like 39% and China was down around 10% or 15%.

Could you update us on where you see those regions in terms of the beer share in cans?

You have a good memory.

In North America it was about 53% and I don't have the data in front of me, but it's in the mid to upper 50%s.

It has actually moved up.

I would say 55%, 56%, 57%, in that range.

Down in Brazil it was in the upper 30%s.

It's now in the lower 40%s on the beer segment.

And in China really back a few years ago it was really more like 4% or 5% -- excuse me, 5% or 6% and that has moved up consistent with the other regions of the world so it's probably in the 7%, 8%, 9%.

Got you, okay.

When you look at -- just one more question on the soft drink side.

There is, for whatever reason, sort of a presumption that I sense from you and your competitors that there's no real reason or hope to see a material change -- and maybe this is my perception -- in the share of -- in the CSD segment in places where returnable bottles continue to be the lion's share and plastic as well.

Anything changing there, whether it be in China or in Brazil, in terms of the share of CSDs in cans?

No, I don't believe that we see any material changes in the regions you mentioned relative to package share mix.

As you know, cans don't play a big part in CSD in those regions you talked about and so we don't see any big change.

Got you.

All right, thank you.

(Operator Instructions) George Staphos, Bank of America Merrill Lynch.

Thanks.

A few questions maybe to clean up from our side.

Can you comment at all about within North American beer whether any of your larger customers are planning intensified new product introductions or promotional activities?

Some of your customers the last few years have had some difficulty in the marketplace, so to the extent that you can offer any color to that it would be helpful.

I think as a general comment, George, every beer company out there, big or small, is looking at the proliferation of tastes and proliferation of new products and it's not just limited to the big guys.

And so I think you're seeing a lot of line extensions, a lot of new products.

Cider is new, for example, here in North America and so I could go on and on.

But as a general rule I think you are seeing a fragmentation of tastes and, therefore, a fragmentation and a differentiation of the products that our customers are making to respond to that.

Which in turn is one of the reasons that you're seeing the proliferation in alternative can formats?

Bingo, you got it.

Within Brazil, back to the beer tax; I don't know if you have any color on this but in the past where there have been instances of these sorts of taxes, what has been the prior volume drop off?

And with earnings season I haven't had a chance to really study what the government announced yesterday, but would there be any differential or favoritism applied to beer in one pack form versus another, or would it be across the board a comparable tax?

Yes, I believe -- it's our understanding it's an across-the-board tax, both beer and soft drink.

I think in many places, not just Brazil, when you see this sometimes you see a short-term blip as the supply chain adjusts and price increases are ultimately passed through to the consumer.

And so, without going into grave detail, we expect this to be no different and so there might be a short-term blip.

But again this is not a wholesale change.

Tax in Brazil is part of the everyday life and so they did it as of June 1, which is kind of surprising, just a couple weeks before the start of World Cup.

Who knows, maybe all the foreigners coming into Brazil will be paying for it.

Maybe that was a way to sneak it in with a better demand environment so it was less noticeable to whichever consumer, domestic or tourist.

Question on sweeteners.

Do you have any color from your marketing folks in terms of your customers' views on the new sweeteners for diet soft drinks and whether they should be particularly helpful or not really this year in terms of volume?

The only thing I can say, George, is what our customers have said publicly.

They said they have been experimenting and trying and they would expect in 2014 to be rolling out some trials on various sweetener alternatives.

And so that's really all we can say at this time.

I understand.

My last one and I will turn it over.

Scott, you were saying before that in China, while it's not necessarily as much fun as it used to be, and we understand, you're still making relatively good margin.

You're making positive EVA dollars.

Do you think your peers are making positive EVA dollars?

The question behind the question is, if they still are, then how do you ultimately call where we sit an end to the capacity cycle if the industry broadly is still earning above cost of capital, even at these relatively depressed prices?

Thanks, guys, and good luck in the quarter.

I don't think many people in the industry are earning above their cost of capital is my guess.

We've seen some of those companies as they have filed public documents to go public that weren't achieving their cost of capital.

So I think, given our scale and our cost structure, we are able to still be able to do that even in these tougher pricing environments.

But I don't think a lot of people -- my guess is that they are not earning their cost of capital.

I think it's our -- George, it's our view that, particularly with some of the smaller ones there, liquidity has been so free and available with respect to debt financing in China that has created this.

They are all -- at some point in time credit always gets a little bit tighter, and as a result of that, when it does occur we believe that there will be some level of shakeout.

Understood.

What it looks like is premature to say, but that's how we think about it.

Thank you for all the thoughts, guys.

Chris Manuel, Wells Fargo.

Good morning.

I just had one kind of quick one more along the lines of capital allocation.

You mentioned within the press release something that jumped out at me was looking in extruded aluminum with new products -- I don't know if it said new capacity, but new customers and new things.

Could you maybe talk to us there about recycled?

I know you've made virgin slugs here, but it sounds like you're doing some recycled elements with those.

What's the outlook or thoughts with respect to also making some containers here maybe in North America?

Could you -- and maybe give us a little color on that product?

Yes, a couple of things that you raise there.

Number one, I think in terms of the new products not only -- that category we're always coming out with new shapes, new sizes with our customers.

But we are also, to your point on the slug side, this year we have actually commercialized and it's in the market over in Europe with our ReAl slugs which is a much higher recycled content, which provides more rigidity to the container at a lighter weight container.

We think it's a pretty neat innovation that our folks came up with, and so that is, as I said, now commercial in the European marketplace.

And as we look to expand and role that we will continue to do so.

We also, as you know, have a facility down in Mexico and that has been doing reasonably nicely.

The volumes have been growing.

We always wish they could grow a little bit faster, but it's going okay.

But it has also provided a dialogue with our customers, an incremental dialogue with our customers about what else we can be doing.

I wouldn't be completely shocked if you at some point in time saw us making those containers somewhere in a facility in North America, but that's probably all I can say at this time.

Okay.

That's very helpful actually.

Second element with capital allocation.

I know you guys historically have done a great job of balancing three different ways that you have gone back and redistributed more through capital, whether it's dividend repurchase, whether it's investing in your own businesses, whether it's acquisitions.

As you kind of look today, in the acquisition market there's still a lot of activity.

How would you, in a way that you are able to address it, sort of talk about the environment as it sits today?

Are you more active, less active; seeing better things coming to market, worse things coming to market?

Again, appreciating that it's sometimes a difficult topic to broach.

No, I appreciate that.

As you know, we are always looking at opportunities, and to be honest, we are pretty disciplined when it comes to capital allocation so you never know when it will pop.

We've talked about this in the past where the LVO world, the sponsor world, private equity world with the rates and availability of capital being where they are, it's always incrementally more challenging for us to find the right return type projects.

But we continue to look at those and, as I said before, you just don't know when they are going to pop.

Our pipeline not only now, but in the past has been reasonably robust.

It's just a function of is it the right opportunity and the right time.

Okay, thank you.

I appreciate the color.

There appears to be no further questions over the phone lines at this time.

Mr. Hayes, I will now turn the call back over to you for any closing remarks.

Okay, thank you very much, Jasmine, and we appreciate all of your support.

We look forward to speaking to you in several months.

Take care.

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.