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Operator
Ladies and gentlemen, thank you for standing by and welcome to the Ball Corporation fourth-quarter earnings conference call.
(Operator Instructions) As a reminder, this conference is being recorded Thursday, February 2, 2017.
I would now like to turn the conference over to John Hayes.
Please go ahead, sir.
John Hayes - Chairman, President & CEO
Good morning, everyone.
This is Ball Corporation's conference call regarding the Company's fourth-quarter and full-year 2016 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 fourth-quarter earnings release, it is available on our website at Ball.com.
Information regarding descriptions of our new segment reporting and the use of non-GAAP financial measures may also be found in the notes section of today's earnings release, which includes a simplified table format summarizing business consolidation and other activities, as well as a reconciliation of comparable operating earnings and diluted earnings per share calculations.
Now joining me on the call today is Scott Morrison, Senior Vice President and our Chief Financial Officer.
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 2017 and beyond.
We are pleased with our fourth-quarter and full-year 2016 results.
The momentum that we expected to accelerate in late 2016 and into 2017 is on track and our financial goals for 2017 and beyond remain intact.
As we reiterated at our December investor day, we will continue to strive for perfection in all aspects of our work to ensure that the metal containers we produce are the most sustainable packages in their respective supply chains from a cost, quality, innovation, and recycling point of view; and that our aerospace products and systems we deliver go beyond our customers' expectations to support our nation's defense, cyber, and scientific discovery needs.
Now on behalf of Scott, myself, and the rest of the senior management team, we want to extend our thanks to the thousands of employees who have devoted long hours to executing the complex beverage acquisition, integration, and separation work; improving our food and aerosol business; growing our aerospace backlog; and simply holding down the fort.
Our team has navigated 2016 with a work ethic and ownership culture that I would stack up against anyone at any time.
This teams' humble can-do spirit will ensure our ability to capture the cost savings and pursue new growth opportunities to further grow earnings, cash flow, and EVA dollars in our beverage, food and aerosol, and aerospace businesses.
In addition to all the integration work that we have been doing in the acquired business, in the fourth quarter we officially closed the former Rexam Millbank headquarters and we have no employees remaining at this facility.
We completed an expansion of our Velim, Czech Republic, extruded aluminum aerosol manufacturing facility.
We completed the complex IT and support systems integration and separation work in Europe.
We began the start up of our Canton, Ohio, food and aerosol cutting and coating operation.
We completed the start up of the second line of our Monterrey, Mexico, beverage facility.
And our aerospace business won additional contracts and concluded 2016 with $1.4 billion of contracted backlog.
Truly a solid quarter and a transformative year.
As we move into 2017, we are focused on executing our ongoing integration and transformation plans, promoting the beverage can as the package of choice, optimizing our costs in all aspects of our business, and meeting the expectations of all of our stakeholders.
Several qualitative updates on our synergy capture efforts.
From a G&A perspective, we are on track with the elimination of shorter-term redundancies already announced and/or occurred.
Over the next several years we will now work to standardize and optimize our G&A processes to ensure we are world-class in all of our business support functions.
Our sourcing negotiations are largely concluded and we will expect to see meaningfully improved quarter-over-quarter comparisons as we move through the 2017 and into 2018.
Given the way our inventory build works, we expect to see these synergies flow through our P&L beginning late first quarter.
Work continues on our footprint optimization efforts and we continue to look at areas where we can actively manage and right-size our fixed cost base to serve our customers.
And our best practice sharing efforts have identified a number of areas, from line efficiency gains to leveraging our plant floor systems, to metal spec productions, and other similar items that we have begun executing upon.
We are six months into our newly-combined business, and while much work is ahead of us, I like where we are at.
Our roadmap of a multi-year value capture runway remains intact and we expect to see sequential quarter-on-quarter improvements as we move through the year.
With that I will turn it over to Scott.
Scott?
Scott Morrison - SVP & CFO
Thanks, John.
Ball's comparable diluted earnings per share for the fourth quarter 2016 were $0.87 versus last year's $0.80 and full-year 2016 comparable results were $3.49 versus last year's $3.48.
Fourth-quarter comparable diluted earnings per share reflect year-over-year improvement, largely due to the beverage can acquisition and solid operational performance in nearly all of our businesses that was partially offset by softer demand in Brazil, higher interest expense, a higher tax rate, and a notably higher share count.
The fourth-quarter effective tax rate was lower than we expected back in the third quarter, largely due to favorable 2016 fourth-quarter one-time items.
Also with regard to taxes, a significant portion of the cash taxes related to the transaction-related divestments have been settled as of the year-end 2016.
Our GAAP results for 2016 were impacted by transaction-related costs, hedging, purchase accounting, and other customary closing adjustments associated with the sale of the divested business.
Details are provided in Note 2 of today's earnings release and additional information will also be provided in our 10-K expected to be filed by March 1, 2017.
Our beverage packaging North and Central America segment comparable operating earnings for the fourth quarter 2016 were up year over year, due to the contribution of the recently-acquired plants in the US and Mexico, plant efficiencies, and continued specialty can growth.
Industry demand across North America grew 0.6% in the fourth quarter and 1.2% for the full-year 2016.
Relative to CMI industry data, meaning excluding Mexico, Ball was in line with the industry during the quarter and year.
Every month our new Monterrey, Mexico, facility continues to make production improvements and our key customer continues to execute its business development plans in the region with continuing solid US demand for their products.
As a reminder, the acquired JVs in Guatemala, Panama, and South Korea, as well as our legacy Rocky Mountain Metal Container JV, are not consolidated and are reflected in the equity earnings of affiliates, along with our other equity investment, Vietnam.
As you can see, these operations performed well in the quarter, largely due to strong demand in these regions.
Our beverage packaging South America segment faced volume pressure in the fourth quarter as poor weather early in the quarter affected beverage demand and beer demand softened in Brazil due to further contraction in GDP.
Brazilian industry can demand in the quarter was down 7.5%, full-year 2016 industry volumes were down 4%, and our full-year pro forma volume was off roughly low double-digits.
Both Brazil and Argentina continue to be impacted by the tough inflationary environment.
The team in South America is actively assessing supply/demand conditions and cost structure in the region.
Even with recent demand trends, the South America team sees a path to improved results in 2017.
Results for the beverage packaging Europe segment were impacted in the quarter by more pronounced seasonality versus our legacy European operations and selected curtailments in the fourth quarter to manage inventories.
While the business largely performed in line with our expectations, our European beverage segment has work to do on the overall profitability and multi-year plans have been initiated to tackle this situation from a revenue and cost management perspective.
And our team is well motivated and incentivized to succeed.
Industry supply/demand remains tight in nearly all European countries where we operate and specialty demand remains favorable with a bias towards a continued shift into sleek and small-size specialty.
As we discussed last quarter, Ball is constructing a new plant near Madrid, Spain.
Earth is being moved and equipment is on order.
This investment is supported by a long-term customer contract and the Iberian Peninsula continues to see high single-digit growth in 2016.
As we disclosed in the third quarter, our other segment includes Ball's legacy Asia-Pacific business, the acquired EMEA business, including the 51% owned and consolidated Saudi JV, and corporate undistributed costs.
Note two references: approximately $32 million of corporate undistributed costs in the quarter and $110 million for the full-year 2016.
The markets for the operations represented in the other segment are dynamic, like in Egypt.
Details of the impact of the fourth-quarter devaluation of the Egyptian pound are covered in the notes to today's earnings release.
Food and aerosol comparable segment earnings were up year over year, due to continued growth in global aerosol offset by lower food can demand.
Initiatives to further improve production efficiencies are on track and starting in the second quarter will benefit 2017 performance, which coincides with the scheduled closure of the West Virginia facility and the continued ramp up of the new equipment in Canton, Ohio.
In addition, the additional capacity in our newly-expanded Velim, Czech Republic, plant will further serve growth for aluminum aerosol personal care products.
In summary, our global packaging businesses posted results that were consistent with our expectations and everyone is extremely focused on achieving our financial goals and driving EVA dollars from the acquisition, as well as recent capital and efficiency projects.
Thank you again to all our team members with an extra shout out to our global financial reporting and IT teams.
Teamwork, professionalism and a fair amount of brute force got us to where we are today; really amazing work.
You will notice that our fourth-quarter net debt came in just under our $7 billion year-end target.
As we think about 2017, we stand by our prior goals for key financial metrics.
We expect full-year 2017 comparable operating earnings to be in the range of $1.3 billion to $1.4 billion, excluding the amortization associated with the acquired customer intangibles.
After spending in the range of $500 million of CapEx, 2017 free cash flow is expected to be in the range of $750 million to $850 million.
The full-year weighted average diluted shares outstanding for 2017 will be roughly 178 million shares, absent the impact and timing of any share repurchases.
Full-year 2017 interest expense will be in the range of $280 million.
Full-year effective tax rate for 2017 on comparable earnings is expected to be around 28%.
Corporate undistributed is now estimated to be in the range of $115 million for full-year 2017, due to some higher IT and certain costs formerly allocated to the segments, like European pensions.
At current FX rates we continue to expect year-end net debt to be in the range of $6.2 billion to $6.3 billion.
As you begin to think about the progression of improvement year over year on a quarterly comparable diluted earnings per share basis, you need to phase in some of the actions we have discussed, like the closure of Charlotte midyear, and other announced facilities in food and aerosol and North American beverage, as well as the phase-in of synergies as we move into the year.
We expect to build momentum in 2017 with each successive quarter.
With that I will turn it back to you, John.
John Hayes - Chairman, President & CEO
Great.
Thanks, Scott.
Our aerospace business reported improved fourth-quarter results, driven by solid contract performance in the initial ramp up related to our growing backlog.
Congratulations, again, to the entire aerospace team.
Our contracted backlog closed the year at $1.4 billion and we've won even more work in the month of January.
Given the growth in this segment, we will be expanding our Westminster, Colorado, aerospace manufacturing center and investing in additional test equipment.
As we mentioned in the release and at our December investor day, our aerospace business will see a nice step up in sales and operating earnings in 2017, the pace of which will increase quarter on quarter as we roll in the new contracts and move through the year.
Now across the company as we look forward we continue to gain even more visibility into our customers' plans for promoting our containers in 2017 and beyond.
The opportunities before us in packaging and aerospace are numerous and we have the team in place to execute.
While we are proud of what we have accomplished so far, there is much work to be done and our team is focused on achieving the financial benefits from the transaction, adding flexibility to our manufacturing network to proactively serve our customers, managing our cost base with a sense of urgency, and managing the growth and investment in our aerospace business.
As I mentioned in my introduction, our financial goal and aspirations for 2017 and beyond remain the same.
Scott mentioned our 2017 goals and by 2019 we continue to drive towards generating $2 billion of comparable EBITDA and in excess of $1 billion of comparable free cash flow.
And when we have a greater line of sight to our leverage getting to 3.5 times, we will accelerate the return of value to our fellow shareholders.
With that, we are ready for questions.
Operator
(Operator Instructions) Scott Gaffner, Barclays.
Scott Gaffner - Analyst
Thanks.
Good morning, John.
Good morning, Scott.
Can you talk a little bit about the margins within the European beverage packaging segment?
I mean they came in about 300 basis points lower than our estimate; sounds like maybe there is some seasonality in that business that we didn't anticipate.
But how did it compare relative to your expectations?
And can you talk about sequentially how we should think about that as we move into the first quarter 2017?
Scott Morrison - SVP & CFO
Sure, Scott; this is Scott.
I think it is important to know that what we bought is exactly as we expected.
If you are comparing year over year, it is a bit of an apple and an orange.
Remember the business that we bought is much more seasonal than what we had and the fourth quarter is traditionally pretty slow.
We got a bigger concentration of business in Russia and the Nordics, which really slows down in the fourth quarter.
And then if you are comparing back to before, it is a bit of apples and oranges.
In 2015 we were building inventory because of things that were going to happen in early 2016 which helped margins.
In the fourth quarter of this year we were managing inventory levels and took some down time, which hurts margins, so it is really not a fair comparison.
As we said before we have a big opportunity over the next few years to get the margins to a more acceptable level.
We have plans in place and we are looking at everything from revenue to mix to all of our costs to improve the business.
But you have got to be a little patient here; that takes a little bit of time.
It doesn't happen overnight.
I think we will see nice progress in 2017 and even more in 2018 and beyond, but I think it is important to know that the business isn't different than our expectations.
Scott Gaffner - Analyst
And sequentially into the first quarter does that business normally improve sequentially or how should we think about that?
Scott Morrison - SVP & CFO
I think what you will start to see -- a lot of our synergies -- we will get some of the benefit of the synergies in the first quarter, but it will start to ramp up as you move through the year.
And we are still getting our arms around, in total, what seasonality is going to look like as to how strong it will be, but I think we will build momentum as we move through the year.
John Hayes - Chairman, President & CEO
Scott, this is John.
I do think it is fair to say, given what Scott said about Russia and the Nordics, the fourth and first quarter are -- it is more seasonal than what you used to see in the old Ball European business.
Scott Gaffner - Analyst
Okay, last question for me.
Just if I look at the comparable EBIT in 2016, I know it came in in your range but it came in near the low end of the range.
So does that make the 2017 targets a little bit more of a stretch from here, or could you just sort of frame that out a little bit for us?
John Hayes - Chairman, President & CEO
No, no.
Remember I think, Scott, at the end of third quarter we said it is going to be in the range of $1 billion, but it could be a little light depending on the volumes.
We said the volumes were a bit softer in Brazil and a little bit softer in Europe, and as a result of that we were within spitting distance of that.
But it does not change what we see in 2017 at all.
Scott Gaffner - Analyst
Thanks, guys.
Operator
George Staphos, Bank of America Merrill Lynch.
George Staphos - Analyst
Thanks, everyone.
Good morning.
Appreciate all the details.
If you could provide a little bit more detail on the performance improvement plans that you have directed at Europe for this year and what would be involved in those.
And then I know it is difficult to talk about volumes given the whole complexion of the business has changed over time, but is there a way to talk about how European volumes, either from an industry standpoint or relative to your initial numbers going into the quarter, progressed and where they stood relative to your expectations?
Thanks.
Then I had a follow-on after that.
Scott Morrison - SVP & CFO
Let me start, George, and then John can chime in.
This is not dissimilar than what we needed to do in Europe a few years ago.
We know how to do this; we have done this before.
And it is really looking at everything from revenue to mix -- customer mix, size mix, everything -- all of your costs from things that are variable to things that are fixed.
And so it is really going through every line item on your P&L and on your balance sheet, frankly, to manage it in a tighter way.
So we have got a number of different action items that we need to execute on over the next few years and then on top of that the synergy realization.
We are well on our way to seeing a good progress on that front, so it is really every different aspect.
John Hayes - Chairman, President & CEO
(multiple speakers) Just a little bit more granular detail as to what exactly Scott was talking about customer mix and size mix.
If you recall, the former Ball business was a little bit more weighted towards beer; the business we acquired is a little bit more weighted to soft drink.
As we all know, beer is less seasonal than soft drink, particularly in Europe with the Christmas season.
And so as we look forward and we are trying to rebalance a variety of different things, you should be thinking about that.
George Staphos - Analyst
Fair enough.
What I was going to ask -- so, the performance improvement plan would be on top of whatever synergy target you had for Europe for 2017?
Would that be fair or is it inclusive --?
Scott Morrison - SVP & CFO
No, that is fair.
Everything counts, so the synergy, the things we want to get out of the supply chain, things we want to do better from that perspective are part of it, but that is not the whole of it.
It is every aspect of it.
John Hayes - Chairman, President & CEO
It is also important to note that recall the former Ball business back in the 2014-2015 timeframe, we actually went through a big cost optimization program to get the business in line.
And we have the same management team that is executing on this.
George Staphos - Analyst
Is there a way to size what the opportunity is in 2017?
Should we look at 2014 to 2015 as the goalposts to look at for what it could look like in 2017 and 2018?
John Hayes - Chairman, President & CEO
Let's put it in context, I think -- when you think about what our business did historically in that -- and I never like to talk about margins, because you have to worry about the metal pass-through.
But metal has been relatively stable.
Typically, depending on where metal is, it is in the 11% to 13%.
I think 2015 we ended at about 11.5% in our old business.
The business we acquired, as we've said at the investor meeting in December and I think even on the third quarter, it is lower than that.
So if you use as a marker what are we trying to drive for, should we be able to get to where the old Ball business was?
Yes.
But as Scott said, it is not going to happen overnight and I think it is a couple-year plan so through the end of 2018 we ought to be able to get there.
George Staphos - Analyst
Okay, appreciate that.
Last one for me and I will turn it over.
Brazil, can you talk a little bit about the volume trends?
You said some of it was beer, some of it was GDP.
What are your customers talking about in terms of growth outlook for 2017 and how are you optimizing capacity around that?
Thank you, guys.
John Hayes - Chairman, President & CEO
Good question, George.
The macro environment down in Brazil is tough.
Volumes are softer in 2016 due to the economy.
The GDP is down approximately 3% to 4%.
From an overall consumption, just to give you context, the beer -- these are Nielsen numbers -- beer was down 4.5% for the year and down 10% in the fourth quarter.
CSD was down a little over 8% for the year and 16% in the fourth quarter.
So what you are seeing is our softness in there is just a direct reflection of what is going on.
What we are hearing and what we are seeing is when you really start to peel away and look at the economy, real wages have been declining there for about 36 months or so.
People expect that to be bottoming out and people expect in the second half of 2017 to have consumption expected to improve because real wages are flattening and perhaps will even reverse from that.
That remains to be seen, but I think the general consensus of Brazil is that it has reached its worst point right now.
Now the question is how quickly will it start to rebound and that is the question of the day.
What we are seeing in our business, as we said in the fourth quarter, the weather played a big part in the first half of the fourth quarter -- and recall this is their summer -- but it really did pick up nicely.
I do know that Carnival is a little bit later this year -- it is at the end of February versus the beginning of February -- and what impact that will have.
It is still within the quarter so it is unclear, but more importantly, what is going to happen after Carnival.
But those are the things that is going through.
What we are hearing from our customers?
Candidly, it is a mix.
There has been some questions about is the can continuing to grow relative to other substrates.
And what I would tell you is looking at facts and looking at data, you look and we have not seen any change in mix over the past year.
Cans are still solidly in the upper 40% of penetration, depending on what statistics you look at, [Scobey] or Nielsen.
I do think that right now the consumer is hurting and that is what is really driving overall beverage consumption down in Brazil.
George Staphos - Analyst
Thank you.
Operator
Tyler Langton, JPMorgan.
Tyler Langton - Analyst
Good morning.
Thank you.
Just I guess with South America, as you mentioned the volume declined, but your margins held up pretty well despite that.
Can you talk a little bit about what drove that?
And then if volumes are more normal this year, is there room -- I know you don't like to talk about margins too much, but could margins expand further?
Just any color there would be helpful.
John Hayes - Chairman, President & CEO
I think, as we said in the third quarter, we have a good business down there.
We have got scale down there; we have got a great management team down there and so margins were relatively flat.
I think our folks have been managing this volatility down in Brazil quite well.
We have been -- when I say managing it, managing the supply/demand quite well to make sure we are not building inventories too quickly and we are not just sitting on idle capacity.
So if we have to shut our lines to manage that in the off-season, we certainly have and will plan on doing that.
As we look forward in terms of the margin of the business, we have a certain level of synergies, expectations down in South America, but it is not nearly as large as some of the other places.
In part because it is a well-run business and there wasn't a lot of overlap between what we acquired and what remained from our business going forward.
So I wouldn't expect significantly big changes in the margin profile going forward on that, but as Scott said, in 2016 on a I will call it pro forma year over year we expect improvement in that business.
Tyler Langton - Analyst
Okay, that is helpful.
Then just switching to the US.
Now that you have owned the Rexam assets for a little bit, could you just talk a little bit about how much you think you can improve the assets that you acquired?
Is there significant potential there?
John Hayes - Chairman, President & CEO
Yes, there is.
I talked about best practice sharing in my earlier statements, everything from line efficiencies to plant floor system.
We had talked in the past that some of these plants were a little undercapitalized relative to what we would describe as state of the art and so we have been focused on that.
As I mentioned, we continue to look at optimizing our footprint to make sure we have the right facilities in the right place to service our customers.
Obviously we announced Reidsville, which was last quarter I believe, and we haven't done anything else, but we continue to look at opportunities like that.
Tyler Langton - Analyst
And then just final question just in the other line.
I guess it was $23 million with corporate -- $32 million.
Can you just talk a little about what you are seeing -- I guess the other pieces are really China and EMEA -- just what is happening there?
Scott Morrison - SVP & CFO
Yes, China is actually stabilizing.
We think it is flatter in 2017 and it will still probably be a little bit of a loss at the operating profit line.
EMEA is a pretty challenging market.
It is pretty volatile.
Egypt has been pretty volatile, but the business in total is nicely profitable.
John Hayes - Chairman, President & CEO
Again, overall can demand generally in that region, whether it is India, whether it is Turkey, whether it is Egypt, whether it is Saudi Arabia, it is still -- as Scott said, it is volatile, but it is still strong.
I point to India and think about India and the growth that has happened there.
We have been waiting for two decades for the can to really take off there.
Whether it is at that point don't know, but we are seeing double-digit improvements in volumes in that part of the world.
So it is a strong growth area.
Tyler Langton - Analyst
Great.
Thanks so much.
Operator
Anthony Pettinari, Citi.
Anthony Pettinari - Analyst
Good morning.
Regarding the Egyptian pound issue, as you think about the rest of the acquired assets from Rexam in the Middle East and maybe some other regions that Ball hadn't participated in.
Are there other businesses where you think you have that kind of FX exposure, maybe FX risk that you may need to address in one way or the other?
Or are you confident that it was just Egypt?
Scott Morrison - SVP & CFO
The Egypt situation was something we inherited and something we've subsequently stopped adding to the exposure.
In general, we have less -- we used to say $1 -- or if the euro moved a penny, it would move our earnings a penny.
That doesn't happen anymore.
We are pretty well balanced from a euro/dollar standpoint.
We will probably be affected more on a translation basis as it relates to the ruble; as the ruble strengthens, it will help us.
But we don't have any big exposures from a currency standpoint.
John Hayes - Chairman, President & CEO
And again, remember, it was because the pound was frozen.
The only other place in the world in which we operate that that has happened in the last decade I think was Argentina, and even that was just a very short-term time.
We had operations in Argentina that didn't affect us.
So as Scott said, we just inherited a situation that we have been able to put a cap on, put it that way.
Anthony Pettinari - Analyst
Great, great.
Then just on metal we have seen a little bit of inflation and European premium has ticked up a little bit.
Obviously not nearly as much as a couple of years ago.
But when you think about the impact of European premium, is there any headwind to you and do you have the ability to hedge that exposure, again relative to two, three years ago?
Scott Morrison - SVP & CFO
Yes, we do have the ability to hedge that and we have put our practices in place as to how we take care of that, so we take that risk off the table.
You shouldn't see an impact from European premiums.
Anthony Pettinari - Analyst
Okay, that is helpful.
I will turn it over.
Operator
Ghansham Panjabi, Baird.
Ghansham Panjabi - Analyst
Good morning.
I guess first off going back to John, the value capture commentary from your last call.
Is there any update you can share on that as it relates to 2017?
I guess I'm asking because of the context of inflation, which seems to have picked up, whether it is steel tinplate, energy, or maybe even labor costs.
How are you thinking about that particular risk as it relates to Ball in 2017?
John Hayes - Chairman, President & CEO
I think in terms of the value capture I think you are referring to we said, and we reaffirmed today, that we expect to generate in excess of $150 million of synergy related to that.
When you talk about some of the things you talk about, there is inflation.
I just think about steel and steel has been going -- is up upper single-digits.
You talked about energy; we do a pretty good job of managing that.
One of the things that actually could be over the next couple of years, there is always a lagger on that but could be net benefit to that is we have various mechanisms that we have to pass through the inflation or, candidly, deflation as well.
And over the past couple years we have actually had to pass through deflation.
So in an inflationary environment we should be able to recapture any cost and through the efficiencies that our folks continue to work on, we think there is -- net-net-net it is certainly not a negative.
And if we do this correctly and take the costs out appropriately, it could be a positive.
Ghansham Panjabi - Analyst
Okay.
Then just in terms of the $150 million in synergies for 2017, what run rate did you exit out of 2016 into 2017?
And maybe, Scott, how should we think about that phasing in of the progression on a quarterly basis for 2017?
Scott Morrison - SVP & CFO
There is not a heck of a lot that we got in 2016.
We closed Millbank right at the end of the year and so there were costs that were running off end of fourth quarter, but not a heck of a lot.
As we go into 2017, we will get a little bit in the first quarter and then things will start ramping up as we get to Q2 and Q3.
John Hayes - Chairman, President & CEO
When you think about what we have said here, net -- in 2016, the net synergies were more or less a wash because we had costs to achieve Millbank and other things like that.
We will get a full year's results in Millbank.
We will only get a half-year results of Charlotte.
I said, because of the way the inventory builds work, we will get three-quarters of a benefit of the sourcing side of it.
And then as you look at some of the other best practicings, I think those gain momentum as time goes on.
And as you are really running full out, which you know is more of a second- and third-quarter phenomenon than it is a first quarter, that is when we will really start to see some of those benefits.
Then as we go into 2018, and as we said through 2018 and 2019 we expect to get another $150 million, we still see a line of sight to that.
Ghansham Panjabi - Analyst
Okay.
Just one final one on food.
You mentioned aligning the cost structure with the supply/demand situation in the US in your press release.
Does that include capacity cuts in metal food cans in year-end?
Thanks so much.
John Hayes - Chairman, President & CEO
As you know, we have been embarking on that.
That is what the investment in Canton, Ohio, and the closure in West Virginia is.
We have talked up out this before; in the food side of the business the volume has been soft, but you also have to realize there is so many different types of SKUs.
It is not like the beverage can business when you are running 24/7.
There are certain lines that are only running 30% to 50% of the time and so we are actively looking at that all the time.
We are going to make sure that we are focused to ensure our costs are as optimized as possible relative to our revenue base.
Ghansham Panjabi - Analyst
Perfect, thank you.
Operator
Mark Wilde, BMO Capital Markets.
Mark Wilde - Analyst
Good morning, Scott.
Good morning, John.
I wondered, John, is it too early to talk about any kind of impact you are seeing from this talk about border taxes with Mexico, just in terms of beer exports into the US?
John Hayes - Chairman, President & CEO
Yes, I think it is premature.
I will let Scott talk to it because he is right in the middle of it.
Scott Morrison - SVP & CFO
I think we are a long way from actual legislation.
We have talked to senior officials, both in the administration and the House, regarding some of the tax policy items and there is a whole slew of things that are being talked about.
I believe the net effect of all the proposals is probably a net positive to us.
As it relates to the border tax specifically, the target is not -- and I get this from both the administration and the people in the House -- the target is not traditional Mexican products, but ones that have been made in the US that are now made in Mexico.
It would strike me that nothing is more traditional than Mexican beer.
And remember the size of this.
We are importing about 1.5% of our global volume.
The plant we acquired from Rexam in Mexico produces about 2 billion units, most of that stays in Mexico or goes further south.
So I think people are overreacting to that a bit.
Mark Wilde - Analyst
Scott, is it also possible to get some sense of what you are seeing in terms of just the mix for the beer -- for the brewers down in Mexico?
Because it seems like if you have to ship this stuff a long way, the can has an advantage in terms of weight and cubing out.
John Hayes - Chairman, President & CEO
You are absolutely right and that is why we have seen great growth in the can with our customer, and that is why you see can as a share of the package mix in there increasing, particularly on the beer side.
On the CSD side, it is relatively flat.
But certainly on the beer side, for exactly you said, it is the most efficient package from a distribution point of view.
It is the most sustainable package and the overall economics of it makes a tremendous amount of sense for them.
Mark Wilde - Analyst
Okay.
Then last question.
John, you have mentioned that you had some new wins in aerospace in January.
Can you quantify that for us?
John Hayes - Chairman, President & CEO
Every month you end up having new wins, but we did win an exciting program, it is a longer-term program with NASA.
As you all know, we haven't really been doing a lot with NASA over the past few years because the NASA budgets have been flat to declining.
And so I think that was a nice sign going forward.
We continue to have great opportunities in the classified world serving the various Department of Defense and intelligence communities.
And so, as we go forward, we still think there is a lot of great opportunity there.
But we are very excited where we are and we are very excited about where we are going on that business.
Mark Wilde - Analyst
Okay, I will turn it over.
Thanks.
Operator
Adam Josephson, KeyBanc Capital Markets
Adam Josephson - Analyst
Good morning.
Thanks, John, Scott.
Hope you are doing well.
Just back to Europe for a second.
I think, Scott, you mentioned volume was a touch lighter than you were expecting.
You have obviously talked about these restructuring actions that you are taking or contemplating taking.
Can you just help me better understand exactly what is going on there?
I think you said nothing is different than what you anticipated when you acquired the business, but something seems to be happening.
So can you just help me understand what, if anything, is happening differently than you might have thought six months ago?
Scott Morrison - SVP & CFO
I think the only thing that's different; I think we run our business a little bit differently than the way it was run before.
So we will take downtime and manage inventories to do the right thing for our business; we are not trying to run things for one quarter or for the next quarter.
And so I think it is just how we manage the assets might be a little bit different and probably will be a little more aggressive going forward, especially as it relates to the balance sheet.
John, you want to say something?
John Hayes - Chairman, President & CEO
No, that is exactly it.
Again, don't underestimate -- Ball, in the past, had no exposure to the northern markets, meaning Nordics and Russia, and now we do.
And as you know, because of weather, those are much more seasonal.
Then the other thing is don't underestimate what Scott just mentioned about taking downtime on our manufacturing to make sure that -- we are an EVA company and that is the right EVA decision to do.
And so taking downtime because the inventories were getting a little large was the right thing to do to position ourselves for 2017.
Adam Josephson - Analyst
Just one follow-up on that.
What happened demand-wise such that the inventories got out of whack?
John Hayes - Chairman, President & CEO
The way I look at it is I think the business was in the first six months of the year that was under different ownership was just running, running, running.
And when we got a hold of it -- just to give you a sense, the overall demand in Europe was up 1%, 1.5% for the full year.
It has typically been 2% to 3%, so that is running a little bit soft.
The fourth quarter is about a 1% increase, so not bad, but not the 2% to 3%.
And when you have such a large business, it matters.
And when I say it matters is then when you are managing inventories and you are taking downtime that is effectively what was going on and it wasn't a surprise to us.
Candidly, maybe we could have articulated the seasonality a little bit better to you all, but hopefully this clarifies it.
Scott Morrison - SVP & CFO
I wouldn't overread any of this.
There is not a fundamental change in our business from what we expected.
Adam Josephson - Analyst
Right, okay.
And then you mentioned Brazil.
It seems like Brazil is weaker than you would have expected six months ago, 12 months ago, whatever the timeframe.
Why would that not -- the additional weakness in Brazil not affect your ability to hit your 2017 targets?
John Hayes - Chairman, President & CEO
Well, I think the biggest -- it was really the fourth quarter.
Third quarter wasn't weaker, but fourth quarter, when you have beer off 10%-plus in terms of consumption.
I'm not talking about cans; I'm talking about consumption of beer, and CSD off even more than that that points directly to the issues I was talking about the weather.
I was down in Rio in December and I remember it being in Celsius 15 degrees and raining.
It ought to be 25, 30 degrees and sunny there.
That was a profound difference.
You combine that with the overall economy and the weakness of it, I think that is what it is.
Our business held up well despite that.
And I think as you go into 2017 our folks down there have done a very good job of managing supply/demand.
Making sure inventories aren't getting out of line, but at the same time, ensuring we have the right packages at the right time for our customers.
And as we go through that is exactly what we see in 2017.
Adam Josephson - Analyst
Just one last one just on Brazil again.
Hazard a guess as to what industry volumes will be, beer or cans, in 2017 in Brazil, just based on whatever it is you know today?
John Hayes - Chairman, President & CEO
I think -- based on what we know today, I would expect it to be a little softer in the first half and a little stronger in the second half, all things being equal.
And that is largely driven by the expectations of what is going on with the economy.
I think that the consumer is still eating and drinking and I do think, assuming weather is normalized, I would expect overall can demand to be relatively flat.
We are not probably gaining share as a percent of the penetration, package penetration, but we are not losing share as well.
And so I would expect overall flat volumes for the year, but it might be a little softer in the first half and a little stronger in the second half.
Adam Josephson - Analyst
Thanks a lot, John.
Operator
Chip Dillon, Vertical Research Partners.
Chip Dillon - Analyst
Good morning.
Most of my questions have been answered, but I did want to ask you all it seems to me that I don't believe beyond the Madrid, Spain, plant -- I might have missed something -- that you have a lot going on on the capital side, which obviously is understanding as you assimilate Rexam.
But as you go into 2018, and I know it is early days, do you think you will need to do more footprint addition or do you think that can hold off for longer?
I guess what I am really asking is, directionally, do you think that $500 million CapEx number moves upwards or stays where it is next year?
Scott Morrison - SVP & CFO
Well, we actually spent a little heavier last year than what we had forecasted.
We spent about $600 million last year, which was actually a good thing, because that means -- John ran through a bunch of those projects that came online in the quarter, so that means we start to get the benefit of that sooner.
We really -- every project stands on its own, on its own merits and its own returns, so we will see what kind of opportunities.
We are still seeing a lot of opportunities.
That is why I have said $500 million of CapEx for 2017, because that still has some growth capital in it besides Spain.
But we will update you as we go through the year on what the opportunities are.
And as we are ready to talk about them publicly, we will tell you on these calls.
John Hayes - Chairman, President & CEO
One of the things that Scott just mentioned that is important, we spent a little bit more than we had thought we would in terms of CapEx and, despite that, our net debt was below where we had targeted.
It was at $6.9 billion versus $7 billion, despite the $600 million of CapEx.
So it just shows the cash flow capability we have here.
Chip Dillon - Analyst
Okay.
And then, John, you mentioned you were expanding the aerospace capability out in Colorado.
Is this because of a change in the focus of some of the, I guess, governments and other customers away from other folks that do similar things?
Is it different programs or is it just a general increase in activity?
John Hayes - Chairman, President & CEO
I think it is a combination of all that.
When you look back over the -- and we are investing.
It is not huge dollars, number one -- I want to make sure that is clear -- but it is a capacity issue.
We don't have enough manufacturing space to execute on all the wins that we have gotten.
Those wins have come from a combination of, number one, the government hasn't spent a lot of money in some of these strategic, I would call it these higher strategic classified programs, and we are gaining more than our fair share in it.
Number two, I think there is a lot of new technologies out there.
And you just think in the commercial world what has been going on and you translate that into using technologies to do some of the things for the government in a different way.
That is another part of it.
Then I just think overall growth and I think about our tactical products part of the business that makes the sensors; makes the antennas for the Joint Strike Fighter, for example.
That is ramping up in a meaningful way.
We have only made probably less than 100 planes as an organization -- as a country in that and they have plans for making hundreds upon hundreds of those.
So as that ramps up, we, too, have to ramp up our capabilities to supply the sensor suites and the antennas we are due for that.
So that is just one example of what we are talking about.
Chip Dillon - Analyst
Okay, that is helpful.
Thank you.
Operator
Philip Ng, Jefferies.
Philip Ng - Analyst
What is driving just marginally weaker volumes out of Europe?
I know there has been some supply constraints.
Is that part of that?
And as we look out to 2017, should we expect volumes to track closer to 2% to 3% this year?
Just wanted to get some puts and takes.
Then just lastly, that market has been pretty tight.
Can we see some commercial improvements this year?
John Hayes - Chairman, President & CEO
I think to answer your question, no, it hasn't been supply constrained.
It is a tight market, but I don't believe it has been supply constrained.
I just think it's -- remember, the economies in Europe continue to be weak.
They continue to be weak and real wage growth is nonexistent there.
The population is getting a little bit older and so until you see some economic activity there I think that is part of it.
I also think the weather has been part of it.
The weather throughout Europe, when you look over the balance of the whole year, it was on par; a little bit colder, a little bit wetter than what traditionally are used to.
The benefit the can has, we continue to win share as a percent of the package mix.
And I still think those are -- you are seeing continued improvements in those categories, whether it is in the north, south, east, or west.
So what does that mean as we look into 2017?
It is too early to predict because you can't predict weather, but we see nothing fundamental, nothing structural that would change that 2% to 3% growth rate over the next number of years.
Scott Morrison - SVP & CFO
Our business is just a little more seasonal than it was before, so that is part of it.
Philip Ng - Analyst
I guess maybe a question for you, Scott.
Maybe this is a dumb question, but for Europe you called out margins were impacted a bit by step up in the fixed assets and due to just a bigger mix in the assets you acquired.
But I would have thought the operating earnings adjustment would kind of strip out any step up from D&A.
Can you just quantify the impact and explain it a little bit more?
Scott Morrison - SVP & CFO
You have to step up the depreciation on the asset so there's going to be about $4 million a quarter in additional depreciation on those assets, what we exclude as the amortization of the customer intangibles.
But the asset write up will flow through the PML.
Philip Ng - Analyst
Okay, that is helpful.
And then switching gears a little bit, tin plate prices I would expect is going up.
Are you expecting any short-term mismatch from a price-cost standpoint on the positive side or negative side?
I know in the past there has been some noise around that when you see moves on tin plate prices.
John Hayes - Chairman, President & CEO
As I mentioned earlier, tin plate pricing is going up, probably upper single-digits.
But I think (technical difficulty) talk about any noise, I don't think there is any appreciable noise.
You obviously have inventory built up and other things like that, but it is also how you pass through these things to the customer, so I wouldn't read into it too much.
Operator
Debbie Jones, Deutsche Bank.
Debbie Jones - Analyst
Good morning.
I have two questions, one broader on North America and then one about your guidance.
I think this was the first year since 2010, if you include Canada, where North America saw volumes increase for the beverage can.
And I was wondering, it's kind of interesting to me; do you think that that is a trend that is sustainable?
We talked a lot about things that are helping, such as specialty cans and beer growth, specifically craft beer, but that hasn't seemed to offset the weakness in years prior.
What are you expecting for the next two or three years?
John Hayes - Chairman, President & CEO
Debbie, it is a great question and it is -- 2016 was the first year in many years that the overall can market was up.
Beer for the last number of years has actually been doing well.
What was most exciting, the nonalcoholic side for the year was actually in positive territory and that's a -- we have talked this 3% to 4% declines since 2008, 2009.
And so what you are seeing -- you saw a positive.
Really there is many things that are driving that.
I think the shift to smaller sizes is driving that, which is part of it.
When people are drinking less soft drink in total literage, but they still want their servings and so the smaller sizes are helping.
I just think the overall repositioning of the sparkling side of the world, whether -- and I say sparkling because it is not CSD, but it is also sparkling waters.
Then, as you mentioned, on the beer side things have been going well.
It has been a little bit challenging, I describe it mainstream brands, in terms of some of the other things craft that you mentioned and some other places; and the proliferation of different sizes has been a net benefit.
So is it a secular thing?
Time will tell.
But certainly the tone and tenor, and the discussions with our customers as we sit here today is a lot more constructive than it has been over the last three, four, five years in terms of their use of metal packaging in their overall mix profile.
Debbie Jones - Analyst
Okay, thanks.
Then my second question on the guidance commentary.
Scott, you said comparable operating guidance you confirmed of $1.3 billion to $1.4 billion in 2017.
When I run that through my model, you exceed the 20% EPS growth that you targeted or highlighted earlier.
Maybe I need to do this offline, but I am just wondering if that is a fair statement.
And then kind of what D&A are you expecting in 2017 as well with the step up?
Scott Morrison - SVP & CFO
Well, we said 20% to 30% and we have, I think it is about $430 million, $440 million of depreciation and amortization.
And that excludes the amortization of the customer intangible, which will run about $130 million to $140 million.
John Hayes - Chairman, President & CEO
But, Debbie, to answer your question, you are right; we stand by the $1.3 billion to $1.4 billion.
We said $280 million of interest expense.
We said tax would be at 28% and interest count would be around $178 million, absent any share repurchase.
So when you do that math you are absolutely right and that is why we've said 20% to 30%.
Nothing has changed by that and that is what we stand by.
Debbie Jones - Analyst
Okay, thanks.
I will turn it over.
Operator
Chris Manuel, Wells Fargo.
Chris Manuel - Analyst
Good morning, gentlemen.
Scott, I wondered if you could -- I know you don't have the full cash flow statement filed yet, but maybe give us a couple or a read around a couple of the components.
What was the working capital component you had embedded into 2016?
And then how are you thinking that looks in 2017?
Scott Morrison - SVP & CFO
Well, in 2017 I think we have a source of capital, about $100 million of working capital, that will benefit us in 2017 that we also -- in that free cash flow guidance we've got pension will be a little bit of a negative from a cash flow standpoint year over year in 2017 versus 2016.
I don't have all the components of working capital.
All I know is the net debt, despite us spending $40 million, $50 million more -- actually about $60 million more in capital, the debt came in lower than what we were expecting.
It came in below $7 billion, so we did a heck of a job on working capital but I don't have those components yet.
Chris Manuel - Analyst
Then, when we think about you had targeted some share repurchase in 2017 I think in earlier presentations and slide decks and things that there could be some towards the end of year.
But is there anything -- if you are feeling pretty confident and have the line of sight that you talked about into this being a $750 million to $850 million year and still the different cash and EBITDA targets down in the future, is there anything that prohibits you from buying shares earlier in 2017 as opposed to later?
Scott Morrison - SVP & CFO
No, we don't have any prohibition.
In fact, we bought some shares in the fourth quarter when the stock got particularly soft.
But our orientation is to get -- as we progress through the year and our numbers firm up and we feel better about them and feel there is a decent line of sight to that 3.5 times, then we will be more active.
But we are sitting here; it is February 5 or something, right?
It's kind of early.
Second; I'm ahead.
I'm always ahead of the game.
Operator
George Staphos, Bank of America Merrill Lynch.
George Staphos - Analyst
Thanks, guys.
I will try to make it quick, because I know we are late in the call.
Some of the work that we have done we have seen cans continue to take share within custom and within the beer market overall.
And from our vantage point one of the things that has helped that has been the proliferation of craft beer, as you have called it out.
Now having said that we have also seen craft slowdown in recent quarters.
What are your customers telling you, if anything, about whether that is a sustained trend or whether you should expect continued growth in craft?
And with it, if you buy the premise, good growth for the can?
That is question one.
Question two would be back on border tax and deductibility.
Some of your customers have talked about sourcing their COGS in North America if, in fact, the water flows under the bridge and you do have some sort of border deductibility issue.
Recognizing it is early; it would seem to us cans would have a little bit more again ability to help in that regard, relative to some of the other packaging substrates.
But could you comment at all in that regard?
Thanks guys and good luck in the quarter.
John Hayes - Chairman, President & CEO
George, this is John; I will try and take it.
Yes, overall, craft beer consumption has slowed down.
The can, however, continues to take share in that.
And just to give you a sense, in our portfolio, for the 2016, craft cans were up about 28% or so, close to 30%.
What is interesting when you peel that away, and we have talked about this before, the bigger brands are growing a little bit more slowly than the smaller brands.
Our top five customers grew at about 10%, 15%, while the rest of them grew at about 40%.
And so what you are seeing is this long tail where many of these smaller brewers that were only in bottles, now they are moving to cans.
And I think some of the larger brands have already moved into cans.
But overall I will still take 10% to 15% growth on the big ones and 40% on the little ones.
That is what we are seeing in the craft beer industry.
As it relates to what you were saying about Mexico, the only thing I will point out is we source all of our aluminum from American facilities.
And so when you think about these various issues that actually is another thing that helps out, all things being equal, relative to what you were just talking about.
I do think if we say anything more than that we are just prematurely speculating.
As Scott said, we are going to have to see what all shakes out here, but I do think that that is a net plus for the metal beverage can.
George Staphos - Analyst
Okay, appreciate it.
That is what we thought.
We will turn it over.
Operator
And I'm showing no further questions at this time, sir.
John Hayes - Chairman, President & CEO
Thank you for your help and thanks, everyone, for participating.
We look forward to a very exciting, strong, and healthy 2017, and we look forward to seeing you all soon.
Thank you.
Operator
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.