Crown Holdings Inc (CCK) 2002 Q1 法說會逐字稿

Good morning and welcome to the Crown Cork & Seal first quarter end 2002 results conference call. Your lines will be on a listen only mode until today's question and answer session. Please be advised that the conference is being recorded. I would now like to turn to introduce your first speaker Mr. Alan Rutherford, Vice Chairman, Executive Vice President and Chief Financial Officer. Sir you may begin.

Thank you. Good morning everybody. This is Alan Rutherford and I am Executive Vice President And Chief Financial Officer of Crown Cork & Seal. With me on the call are John Conway, Chairman and Chief Executive Officer and Tim Donald who is Senior Vice President, Finance. Let me point out that on this call as in the news release we will be making a number of forward looking statements. Actual results could vary materially from such statements. Additional information concerning factors that could cause actual results to vary is contained in our SEC filings, including comments in the section called managements discussion and analysis of financial condition and result of operations in our Form 10K for 2001 and in subsequent filings. I will briefly comment on some issues, then John Conway will make some comments and then we will open up the cal for questions. We trust that the additional break out of certain numbers that we gave enabled everyone to better understand the first quarter results. In summary, these items were the sale of assets and boot tax on the gain, offset by a goodwill write off. The small previously announced restructuring charge, in fact we announced this in February of this year, the impact of the devaluation in Argentina and we also highlighted the noncash income expense, which is the result of our actual rates calculations. This impacts the results by 19 million in the first quarter compared to last year and was previously included in cost of sales. Finally, we note the change in accounting relating to goodwill amortization. Our efforts to generate cash are evident in the dead numbers at the end of March, this primarily due to our continuing actions to reduce working capital and to assist sale proceeds. In the quarter, net cash used in operating activities was 92 million compared to 315 million in the same quarter of last year. The change in the Pennsylvania merges statute was signed into law on December 17th, last year and the company has taken the appropriate steps to integrate this into it's defense strategy. The first quarter is obviously too early to discern any impact. In terms of payment, the company paid 27 million in the quarter which compared to approximately 32 million in the same period last year. The company is continuing to actively pursue it's asset divestiture program. In the first quarter, deals closed and funds were received relating to the sale of pumps, asset divestitures and the minority holding in South Africa. In the same quarter, the company believes the agreement to divest certain African holdings will also close . The company is evaluating offers made for an additional two groups of plastic assets and is hopeful of concluding a deal during the current year. We concluded the joint venture in Colombia in December 2001 and are considering others in various geographic regions. Actions such as this help to reduce our investment needs and maximize returns to both parties. As required, the company is assessing with the assistance of an appraisal firm, any impairment loss on goodwill under the provisions of FAS 142. As we stated on the last call, we believe this year will be a year of change with possible divestitures occurring during the period. On the last call we said that we believe net income from continuing operations, would be in the range of 40 to 50 cents for the year after the pump divestiture, but before any other divestiture impacts. Following the sale of the pharmaceutical business and the two African investments, we now believe that the midpoint of the range is more likely for the year. I will now pass the call over to John Conway for his comments

Thank you Alan. Obviously, we are very pleased with company's performance for the first quarter of the year. Sales were solid and our operating performance was much improved versus the first quarter of 2001. Our world class performance system, which as many of you know, is a continuous improvement process that drives our operations globally that continues to deliver excellent results. The underlying operating performance of our factories continues to improve and the key indicators of efficiency, spoilage, on time and full delivery to our customers and customers response to our performance continue to show improvement. Our price initiatives have been successful and all of you can see this in the numbers. We were particularly pleased by the good results we have had with regard to improved use of working capital that is to say running our business, with significantly less working capital then we have in the past. Again this is only possible as a consequences of good underlying operations and focused attention by our managers and employees throughout the world. We feel that there is more to come and have no doubt that the world class performance system will drive us even better as a asset utilization in the future. Capital spending is under control and in line with our plan again excellent focus and understanding of what we are trying to achieve as a company has enabled us to execute well in this area. I wanted to comment on several projects which we have mentioned in the past and let you know what their is status is, as you will recall this is the first full year of operation of our new plant in Weston near Toronto in Canada, by that you will remember that we had a four line beverage can plant there which has now been converted into a plant with two beverages lines and one high speed food can line capable of being converted into two lines if warranted in the future. We are sold out, the results are good and they are contributing to the numbers that you have seen. Our new beverage can plan in , Spain is on schedule and will begin commercial production in July of this year. Our European management and the entire team did an excellent job on this project and we are bringing it in on a very tight time line and well within budgeted expenditures. The Spanish market, as many of you know, is a growing market and represents an outstanding opportunity for our company. A new project which we have not mentioned to you before is the doubling in size of our plant in Libertyville, outside Chicago, for the production of plastic closures. This project has now begun and continues our commitment to our rapidly growing plastic closures business. I want to simply touch on several good developments we believe in our labor relations area. In North America we successfully concluded negotiations with two of our largest labor organizations, first with the United Steel Workers in Canada, who represents six of our manufacturing plants there and then more recently with the International Association of Machinists here in the United State. This also covers six manufacturing plants. Both agreements addressed Crown's goals of cost containment and cash flow improvement while the meeting the needs of the unions as evidenced by the overwhelming acceptance by their members by a margin of more than four to one. We've had similar good success in the area of organized labor negotiations in France and the United Kingdom and anticipate that the balance of Europe will fall into line beneficially as well . In general we have been very pleased with the response of all our employees organized or not, to the company's situation and what needs to be done to continue to improve our performance. I would not want to conclude my remarks without mentioning a number of our new product introductions. SuperEnd our new improved beverage continues to win increasingly widespread acceptance. By the end of this year, we will have introduced an excess of eight billion SuperEnd's in the United States and Canada alone. We have now converted 32 customer filling locations to SuperEnd use. This, of course, is in addition to the international licensing program which has been very successful as well. And our yields will pull up. continues to win acceptance in the United States. You will recall that it has been for many years the leading food canning technology in Europe. And we intend to replicate the success of our European organization here in the North American market. (Inaudible) our PET packaging business is very successfully commercializing our hot spot oxygen barrier technology in North America, and we've just been awarded new business in Europe with a major customer. On a different subject, S&A costs are down quarter to quarter and our interest expense is down almost 20 percent reflecting both lower levels of debt and lower interests rates. We do continue to be concerned about the energy cost situation but so far have seen little negative impact as a result of recent oil price increases. We are concerned with increased insurance premiums which have adversely impacted our costs this year and will reduce and which will reduce income by an estimated six cents per share over the course of the year. We view this as a cost of doing business which is unavoidable and as a consequence it will have to be reflected in price, future price increase initiatives in the market place. A plan that we set in place a year ago to improve margins through intelligent price and market strategy, improve operations and reduce costs on all respects, very carefully monitor and reduce capital expenditure to critical items only and to maximize free cash flow in paydown debt is working for us and I think you can see it in our numbers. We'll now open the call to questions.

At this time if you do have a question please press star one on your touch-tone phone. You'll be announced prior to asking a question. Again if you do have a question, please press star one. Our first question comes from . Sir, please tell your company name.

Hi, Deutsche Bank, good morning, guys

Hi Dan.

Good morning, Dan.

Nice to see some improvement in the margins there

Yeah.

Alan, can you explain in a little bit more detail the evaluation allowance of $12 million at nine cents a share. Well, what is that exactly and how does that impact the numbers?

Yeah, Tim is going to respond to that Dan.

Dan, as you know we recorded a allowance in the fourth quarter to fully provide for - we are all set to the benefit prior US tax losses that we had made in the past. Having done that we no longer can take a tax benefit, our loss is going forward until we eat through all of those previous net operating losses which are now provided for. The increase in evaluation allowance in the first quarter of $12 million simply reflects the US tax losses taxed at the statutory rate equalling $12 million and coming to nine cents a share. So, our comment was simply to give you a reflection of a year over year comparison that how do we accounted for taxes this year as we had in the past that we would have taken a benefit of $12 million this year.

And Tim, that have an impact on the - on the obviously a lot more profitable second and third quarter tax rate?

Yeah, as we start making profits in the second and third quarter, obviously we won't have any tax charge in profit quarters.

OK, good. Alan I know you said it was a bit too early to comment on, you know, kind of but it looks likes the cash payment out the door to settle claims were down in the first quarter. How about the claims coming in, in the first quarter, what's trendline look like?

Well, yes you are right, that the cash out the door was down slightly, in fact we obviously do have numbers on the trend line as you put it, and they are favorable. I am a bit cautious about giving out the numbers because you can't really read a lot into one quarters numbers.

Right.

But the trend, from the face of it looks like it is declining somewhat.

Last question if I could, you said I believe it was John said that you are evaluating offers on two separate groups of plastic businesses. Is the remaining portion of the (Inaudible) business one of those groups?

No, part of it, we have an interest in part of that business in one part of the world ...

Right.

We are talking about it at the moment and then of course the other one is the one in the United States that you know about.

The PET business?

Yes.

OK, great and so you are you are evaluating offers there and I guess you will have something forth coming either way shortly.

Yes, because I think that, you know, obviously a number of the people who we are talking in that regard are obviously, I think at this time looking for certain other assets that are out in the market place in the similar business line.

OK, great, thank you, Al.

Right, next question, please.

(Inaudible) you may ask your question and please state your company name.

Hi, Good morning this is actually work with .

All right, good morning.

Understanding that North American beverage and food can volumes were weak but given the strong growth in the plastics business and selling price increases in metal can, why were core sales in North America down at two percent. Shouldn't we have expected more meaningful growth?

Well, I think we explained to a degree in the press release, sales in North America were topline were adversely affected by decrease in Aluminium prices quarter to quarter which as you know, reflect themselves in the selling prices of beverage cans and the same thing is true with PET, quarter to quarter, the comparison was down quarter to quarter. So, I think that really is essentially the explanation, but I think what you just said is correct, I mean, fundamentally sales were solid in all the product lines up in PET in terms of units of course and prices improved across - across the range.

OK, and are you seeing any sort of upward bias in PET resin prices?

It is true that most recently PET appears to be moving upward.

OK, and finally what is your capax guidance for the year?

Well like ...

Yeah approximately 100 million.

OK, great, thank you so much.

You are very welcome. Next call please.

, your line is open, you may ask your question and please state your company name.

Hi, thanks, I want to know if you can give a little more detail on your accounts receivable levels and inventory levels?

(Inaudible) what I can tell you is that compared to March of last year, just as I am going to , but last year this time our receivables were one billion 350 and this year are one billion 160. And our inventories at this time last year, were one billion 367 and at this moment are 957 million.

957 million? OK.

Yes, compared to 1367.

Right, and you said you had strong PET growth, can you talk about what kind of growth, what kind of percentage growth that was?

I don't have the percentage growth handy here , but I can tell you the soft drink, single drink is up, water is up significantly and we have been very very successful with what we call our custom business, which is to say, heat-set and barrier containers for these so called , flavored alcoholic beverages, and juice drinks and so on. And you've seen some of this and some of the releases we've been putting out about new products and customer introductions.

OK, great and then final question. I am just following-up upon on the last question. As far as the volumes go, the volumes in cans, you are saying that a lot of the difference in revenues was the pricing Aluminium, can you talk on a unit basis in that case, was there, was it flat or slightly down per can?

Well the units for us and you will recall in the release, we note units were down for us about 2.2 to 2.3 percent in North America and that's essentially in line with what we think was the industry trend for the quarter. We're not to really at all concerned at this point of the consequence of that, we think that the quarter was unusually light for a variety of reasons. One, our customers and our competitors customers were facing a significant price increase effective January 1 2002, it was clearly a , at the other end there is an April 1 Aluminium , you may be familiar with that as part of the pricing formulas for beverage cans and that was a decrease, so customers tended to defer purchases into April. And, then I think in general everybody as we are is trying to run their business in a linear fashion with less working capital and we have seen some customers simply trying to trim back filled goods inventory. So we think all of those three things converged and we still see the trend for the year as to be essentially, a flat to slightly up in the North American market in beverage cans.

Thanks.

Next question please.

George , you may ask your question and please state your company name.

(Inaudible), good morning guys.

Good morning George.

Hey, John just on a follow-up to question, do you have what the Aluminium pass through was year on year in the quarter, rough numbers?

It was - it was and I can't recall precisely, George but it was in the range of $1.75 to $1.77 or $1.78.

Per 1000?

Yeah.

OK. Fair enough, now the adjusted growth you know backing up the pension income from last year and the expense this year about 12 percent, which is a good number, should we except that to be representative with the range for the course of the year?

You mean the growth rate George?

Yeah.

Well I, obviously the adjustments that you've just referred to will tend to be the same in each quarter but the growth rate, I don't know I would think it may as we get into stronger quarters, I would expect it to, perhaps be a little better.

You mean you will get the effect of operating leverage?

Yes.

OK. Now, John on PET, do you have any kind of feel for the custom number within PET and if you don't that's fine. May be if you don't have the precise number do you have it up double digits, up five, you know, a rough range.

(Inaudible) customers, Tim has got ...

30 percent.

Yes 30 OK.

30 percent?

Yes.

And I think single was in the single digits.

OK.

The growth rate was high single digits.

Then as a follow on, how are you - how are you set up for capacity and capability and do you have enough, basically to take on all of the business you can get right now?

Yes we do and we have capacity additions planned now, for I think fourth quarter of this year to anticipate further growth for next year.

OK, good enough.

George, just back one second please.

Yeah sure.

I think that Alan will agree with you that we get into the bigger quarter, the second and third we had increased operating leverage. That is true, keep in mind that the adjustments for pension and goodwill are equal each quarter.

Right.

So they have a bigger effect and small - those adjustments have a bigger effect in smaller quarters than large quarters, but it is true that we get the benefit of the increased leverage in the bigger quarters.

OK, now that's great - at that down. In terms of may be something's that well, year gone, can you talk about margins there, I mean, obviously volumes are up a little bit, pricing is up a little bit, margins and were down little bit. Can you give us a little bit of flavor what's going on there?

Yes, in terms of plan we're on or actually slightly ahead of plan and we still feel for the year, Europe is going to be up year on year, not a lot, but it will be up year on year 2002 versus 2001. European price increase initiatives tended to drag into the quarter, more so than in North America, it wasn't as clean a move in Europe as it was here, but it has been I think on balance, quite successful. In some of the markets we deferred a little bit in terms of the increased initiatives kind of in line with customary pricing practices, we're not at all alarmed by the little apparent year on year discrepancy and we still feel pretty good about the full year.

So, having realizing that the dynamics of change over the last three years, do you still have some of the effect you had it from a few years ago, or you have the local competitors who are kind of the market shares of the bigger guys, is there a characterization of what's happening?

I would say that as a threat it has diminished frankly as ...

Really.

As pricing has moved to where it is and as we've cut our costs very aggressively, I think that any cost advantage has basically been eliminated and I think the appetite on some - by some of these smaller competitors to attempt to grow market shares through price initiates has declined markedly.

So why do you defer on the price side, if the situation gotten better there?

Just the way they tend to - the way they tend to negotiate, George, I mean, you know, not negotiations were quite tend to grip into the first quarter and they are not done as cleanly as January 1.

OK. Last question and then I will turn over to other guy, just more of a ticky-tack one. The tax benefit on the US laws from last year in the press release it was 21 cents but if I look at it on the table it says 18 cents, am I missing something?

Yeah because there is a we don't want to double count on you George, there is a two cents of tax on the pension line and there is one cent on tax on the restructuring line for prior year, so it adds up to 21.

OK.

So we were trying not to double count.

OK, thanks Tim, thanks guys.

OK, next question please.

Sandy you may ask your question, please state your company name?

Hi, with Deutsche Bank.

Hi, how are you?

Good. Two questions, the first one is, wondering if you can talk about a little bit about the US aerosol business, how volume and pricing has been there and then the second question is if you could provide to us what the availability was either at the end of the quarter or may be even updated to where you are currently as well as where the cash balance may be today.

Okay, yes, in terms of aerosol volumes, year on year we were down and may be Tim can recall the, hold on here, I think we've got it handy

Down three percent I think.

In the American

(Inaudible)

Yes we were down about eight or nine percent versus 2001 for the quarter and which we think was essentially in line with the industry, again as you probably know aerosols are pretty sensitive to employment rates, general economic conditions but we are not, we are in line with the market, so we are not concerned about that. As far as -as far as price increase initiatives, I think they went through very very successfully, margins are significantly improved, quarter to quarter and we are feeling pretty good about the aerosol business actually as the economy starts coming back a little bit we are already seeing signs the second quarter is going to be picking up in that area and Alan, you were going to, or Tim, Tim is going to comment on the ...

(Inaudible) on the , I think at the end of March we had a couple of 100 million available under the , there was some obviously still some funds available under . I do not have the, in the cash balance you can see that really, I don't have any updated figures as of today, in front of me.

OK. I would like to ask you one last business question, if I can. In terms of the beverage can business with some of those, with the price increases successfully pass through, do you have additional volumes, where you will be able to pass through those increases either because the contracts come up during the summer or towards business if you will have another opportunity to raise prices?

Yes, we do.

Yes, we do.

By the way, one thing is I not to confuse you that -- that -- that the comparison that I was giving you for aerosols was the entire America's division for us North and South America, if you want to check with us later, we can give you something for North America only.

Okay, great that is all folks. Thank you.

Next question please.

(Inaudible) Peterson you may ask your question and please state your company name.

Brothers, good morning guys

Morning

First question I have, do you have the balance of accounts payable and include liabilities at the end of the quarter?

For the Corporation, yes we do I am not sure .

A billion 491, put that in your .

Thank you very much. The other thing I had was the non-cash pension income, could you refresh my memory as the what your expectation is for that, for fiscal '02.

Yes. For '02, I think I am not sure if we mentioned it on the last call but I think pre tax pension this year will be an expense of about $32 million.

32 million expense. OK. And then the only other thing I had was in regard to the two groups of assets that are, that you are hoping to close by the end of the year. Could you give us a to what you expect possible proceeds? Could you ballpark that for us?.

No frankly. I mean just like it was before with the other divestitures, it is the sort of thing that, it's difficult to talk about before you have concluded them, obviously.

You know I it is just a reaction is, we think we've done pretty well with our results so far and we are pretty confident we are going to continue to do well. So, but beyond that I don't think it will be appropriate for us to comment.

OK. OK, that's all I have. Thank you.

Thank you. Next question please.

Once again, at this time if you do have a question please press star one on your touch tone phone. Our next question comes from Chris . You may ask your question and please state your company name.

(Inaudible), just a few simple question, just looking for the capax during the quarter and a few other ends, it looks to me as though the working capital usage was about 170 million, wonder if you could clarify that and then just to see if the guidance for the years, still in the same range, as well as the estimate.

Capax in the quarter was $31 million compared to 47 in the first quarter of last year. I don't have the working capital for you but as Alan mentioned in his introduction, the cash used in operating activities this year was 92 million in the first quarter as compared to 350 million used in the first quarter of last year. Most of that coming obviously from improved working capital performance.

Our (Inaudible) we still estimate as we did before that, it's likely to be above the 110 million in the total year, and as I mentioned earlier we have about 27 million in the first quarter.

Great and as far for the year is it still something under a billion.

Yes.

Thank you.

Next question please.

: you may ask your question please state your company name.

Hi, a follow-up, I'm calling from Merrill Lynch again.

Uh-huh.

As far as the pricing goes you mentioned that with some of the increased insurance cost you are going to be looking to pass that through, are you looking for another increase in pricing then next year on top of - on top of what you are getting.

Yes we are. I mean, I think we view the supply demand situation, and most of our product lines in our major markets, is being healthy from our perspective, and we certainly believe that it would be appropriate and will be appropriate to examine further price increases for 2003.

OK, and can you quantify that a little?

It's a little too soon (Jackie) for us to do that. But we are confident that the positive trend that we've seen in 2001-2 will continue into 2003, but it's too soon for us now to begin to quantify it.

OK. Thanks. On the , you also talked about the fact that the laws passed and while its early days, can you just talk a little bit more about - if your strategy progressed any as far as what your what you, what your plans had to do with the, to how to work with this law.

Well, the law as you know was passed by large majorities in the House of Representatives here in Pennsylvania and by the Senate and signed by the Governor and as we've said we've integrated it into our defensive strategy, a logical first place to employ the law which we feel very good about and think is going to help us, as here in Pennsylvania. And we're in the process of doing that. We anticipate that the courts here are going to - we hope are going to confirm the law in all respects and then we move on from there. So, we think we've got something that is good for all Pennsylvanian corporations in circumstances similar to ours, clearly the legislature and the Governor of Pennsylvania have made a significant public policy decision that effects us very beneficially and we would point out that we are somewhat unique not other Pennsylvanian corporations are in similar circumstances, but we have something that is quite valuable in this ongoing story.

Is there a time line where you expect this to be this to be tried within the courts?

No, we don't - we don't have a time line but let me assure you that we are moving along expeditiously.

Thank you.

donald We'll take one more question operator.

Our the final question comes from George . Sir you may ask your question.

Thanks operator. John, before you gave some numbers for SuperEnd in terms of it's introduction and the number of units you sold. Did you have a comparative number for a year ago in time so we could do the gross rate off of that?

Yeah, hang on George I think I've got something here, let me just look around see where it is.

(Inaudible) depreciation to that we assume 90 million going forward for rest of the year per quarter?

Yes, it'll be around the same number, George.

OK.

George I can't seem to put my hands on it, as I recall, we sold something like two to three billion last year, we're going to be up towards eight billion this year and but I will tell you what I can get you all those numbers, I mean what is - what is occurring is, you know, what we anticipated, it is a better end, seems better it's easier to open, uses less metal, stronger and we're having great success with it.

Has that given you leverage as you've been raising pricing?

No I don't, may be it has in the sense that customers recognized that we are producing a lot of good new products in many areas but no I wouldn't say that is the case.

OK, thanks a lot guys.

Thank you and thank you all for being on the call today, that concludes our first quarter conference call.

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