Crown Holdings Inc (CCK) 2003 Q1 法說會逐字稿

Welcome to the Crown Holdings 2003 Earnings Conference Call. Your lines have been placed in a listen-only mode until the question and answer session. Please be advised that this conference is being recorded. I would now like to turn this call over to Mr. Alan Rutherford, Executive Vice President and Chief Financial Officer. And thank you, sir, you may begin.

Thank you very much, Kathy, and good morning. This is Alan Rutherford, and I'm Executive Vice President and Chief Financial Officers of Crown Holdings. With me on this call today are John Conway, Chairman and Chief Executive Officer; and Tim Donahue, who is Senior Vice President of 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 from such statements. Additional information concerning factors that could cause the actual results to vary is contained in our SEC filings including comments in the section called "Management's Discussion and Analysis of Financial Conditions" and "Results of Operations" in our Form 10-K for 2002 and in subsequent filings. In view of new regulation adopted by the SEC, we do not intend to provide non-GAAP financial measures of performance on the liquidity beyond those already contained in the company's earnings release. I will briefly comment on some issues, and then John Conway will make some additional comments, and then we will then open the call up to questions. During the quarter, in the first quarter of this year, the company successfully restructured its debt resulting in a stable financial structure with no near-term maturities. This restructuring was a result of approximately 18 months of action to improve the business fundamentals, divest assets, reduce working capital and consequently substantially reduced the company's leverage. All of this was achieved during a period of some economic and political turmoil. In the current economic environment, our policy will be to continue delivering the company. We currently expect to have funds available to reduce debt by at least $200m in 2003. Furthermore, our current view is that segment income for the year 2003 compared to 2002 with 2002 adjusted for divestitures of 45 million and using euro of 1.07 to the dollar, which is our first quarter average will be flat. However, this includes 67 million of additional pension expense in 2003. Well, this year, at least, we do not intend to give any other guidance on this, not this time. With regard to asbestos, we are still awaiting a decision of the Pennsylvania Supreme Court and remain hopeful at meaningful legislation being enacted in Washington in the near future. And with that, I'll turn the call over to John Conway.

Thank you, Al. First, I'd simply like to say that we're very pleased to have successfully completed the refinancing plan that Alan just described to you. This was a critical element of our overall plan for the company. Clearly, the reception by the financial markets was very positive; and the result of the exercise is a more stable capital structure, which allows the company to focus on the fundamentals of improving the business and growing shareholder value. Generally speaking, during the fourth quarter of the company's operating divisions performed well. As you can see from our new release, the Americas division was a little bit soft during the first quarter; but you need to keep in mind that the quarter-to-quarter comparison 2002 to 2003 reflects largely some business that we walked away from at the end of the first quarter of 2002 because of low prices in the beverage and food areas and the affects of difficult weather in January and February of this year. Having said that, March bounced back well for us. The other thing to keep in mind is that last year the Easter week fell in the first quarter of the year; and as you all know, it's rolling in the second quarter of this year, and that has an affect on comparisons. The European division had an excellent start to the year. Pricing is firm; and as we look ahead, the things look good. The Asia Pacific division reported strong performance for the quarter. All in all, it was a reasonably good start to the year for the company as a whole. As we've said in the past, our very significant international business is a source of great strength for the company. This is true in virtually all times, but especially this year given the performance of the dollar. That is its relative weakening to most other currencies, particularly the European currencies and even South American currencies recently. Those of you, who follow our company, know however that the second and third quarters really do tell the story of the year for this company. And as we enter the second quarter, we are pleased with what we're seeing so far. And with that, we'll go to questions.

So, Kathy, if you can ask for the first question please? Kathy, are you there?

Yes, sir. And at this time, if you would like to ask a question, then please press "" and then "1" on your touchtone phone; and we will take your questions. At this time, please press "" and then "1" on your touchtone phones. Please stand by for the first question. Thank you. And Dan Khoshaba, your line is now open.

Hi. Good morning, guys.

Good morning Dan.

John I know that you don't comment on specific volumes, but it seems to me that volumes were probably down in the mid-single digit range in the quarter, that relatively accurate -- I was talking in the American Beverage and Food?

That is relatively accurate for the United States more so for beverage than food and as I said in the comments, everyone will recall that we laid some reasonably significant [indiscernible] in the at the end of '01 for '02 and in that process decided that some business that was basically price below forecast recently couldn't keep and walk the way from it, naturally the volume that we lost first quarter '02 versus first quarter '03

Okay so this is the comparison them John get more apples to apples in the second quarter?

Exactly right, second, third, fourth, I think its been compared very well.

Okay, that's the first quarter issue for the most part

Yes it is.

Okay, if, and I know its real early, but can you comment just, you know, kind of briefly on what you're saying in April so far in volumes, expectations might be?

Volumes look pretty good, I mean, with the, and the reports from the number of our customers look very good, if you think about the United States, we are particularly strong on the east coast and in Texas in beverage for example and the effects of significantly better weather seasonally obviously volumes look pretty good for us in April and we're anticipating the second quarter should be quite good.

All right. I don’t know if you can actually quantify, but it keeps to me just intuitively that Easter falling in the second quarter versus the first quarter would have a relatively big impact on volumes.

I think, it will, I mean one of our major customers said they do about 6% of their annual business in the Easter week

Yes.

So, I think there should be a pretty big impact just from that alone.

Okay, and then now, can you comment briefly on inventory level, what do you inventories look like right now given the fact that volumes were little weak in the US.

The inventories are under great control. The swing that resulted obviously from the business that we walked away from last year we'd taken out into account from a planning perspective and I don't have the numbers handy globally, –Dan, we are kind of struggling as we speak here. Why don't we come back to that we can find?

I'll get on to that, John. That in fact the inventories are lower at the end of this quarter then they were last year, at this quarter. And bearing in mind, they also additionally - there's a foreign exchange impact.

Right.

It's a negative to that statement. So we are doing much better.

Excellent. Are you going to release any information on asbestos claims or trends in the first quarter? Alan.

Well, I'm prepared to comment that, in the first quarter our incoming claims were flat compared to last year. As you remember last year we were down substantially.

Right.

And without the rider, which I always do that - you know, one quarter, what it is one quarter?

Right.

But we see no reason to make any changes in the expected payments that we have for the year that we already told those people.

Fine, you're still expecting what 70 to...

Count down number yes.

Okay. I will come back to you. Thanks guys.

Thanks. Next question please.

Thank you. Our next question comes from Ghansham Panjabi. Your line is open please state your company.

Yes. Hi, good morning. Lehman Brothers.

Good morning.

Can you talk about how pricing and volumes are shaping up in the European food cans business?

We anticipate -- volumes are fine that is to say up slightly year on year. It continues to be our expectation.

Okay.

We were essentially flat in the first quarter. But the first quarter is a light quarter as you know in the food cans business. Pricing is firm which is to say we are essentially getting the prices increases that we had anticipated getting. And the deal, I think we've talked before that price aspiration in the industry will only order 5% for the year. And we are largely getting that.

Okay. That's good. And for the US food cans business, I mean, were volumes, if I heard you correctly were they down in the mid single digit, is that right?

Food was about that and again, there was some business that we lost we feel essentially on price in the first quarter last year. In terms of pricing for the food cans business not withstanding I guess one of our competitors announcing a 5% to 6% price increase for 2003. It looks to us like pricing is settling out in the area of 2%.

And what about the Aerosol business?

Aerosol were doing a little better on price, I assume, you're saying.

Yes exactly.

We are doing a little better on price and I can recover. But I think we're probably on the 3% to 5% in Aerosols.

Okay. So as you look across the portfolio I mean are there any specific areas in which the price isn't positive?

No I can't think of any areas where we not getting price increases, obviously the food price increases in the United States are little bit disappointing but nothing as significance.

And if I'd guess volumes in US beverage cans down 2% for the year, is that in the ball park?

If you, yes for all it's that a little more than that because of that comparison at least for the full-year.

Right.

For the full year we think we're going to be essentially flat, may be up a little under 1%. If you -if we were to take out this business and we walked away from first quarter last year.

Okay.

We're not losing any market share in fact, we think we're going to gain a little bit customers that we're most closely aligned with, seem to be doing very, very well from the volume standpoint.

Okay. And one final question on the free cash flow what you're your guidance, I am sorry?

What I said was.

Yes.

at least $200m.

We will now be able to reduce debt by at least $200m.

And how does that reconcile in terms of working capital or CAPEX guidance instead?

I guess that in line with all the guidance that we gave.

Yes.

Regarding CAPEX and regarding working capital and other items.

We're essentially on plan in our view.

Yes.

Okay, great. Thanks a lot and good luck in quarter.

Thank you.

Thank you. Next question please.

Thank you, just a remainder at this time, if you would like to ask a question do please press "" and then "1" on your touch-tone phone. Thank you. Once again, please press "" "1" on your touch-tone phone. Thank you, and your next question comes from Bruce Cline your line is open; please state your company name.

Hi guys.

Hi.

CSFB. Just on the - I think you recovered most of your businesses but may be just you can touch on the European beverage? What you're seeing in terms of price? How that comparative profits were for pricing in '03 as well as volumes and I guess just to touch on the food comment on pricing may be got 2% I know, tin price there was a hike announcement as well I'm wondering if the full 4.8% got through or was it something less than that?

The - the first on European beverage, there was some from price improvement on Europe side, I think European beverage but very little. I think we talked about this for a while. I think, there is an opportunity for price improvement at the end of this year for '04 and I think the industry certainly needs it in Europe. It has been quite sometime there's been any price movement there of any significant at all. In terms of volumes in Europe were about flat for that quarter which is above we expected, and for the full year I think, volumes for us looked pretty good. That is to say, we've said we'll up from the order 3 to 5%, the only thing that we've said consistently is that there is an issue in Germany with its new packaging law regarding returnable reusable packaging and although we have very little direct exposure to the German market we only sell about 350 million cans a year, into the German market from France. We're aware although not going effect from Germany but we don't think it's going to be much for us. But we don't think it's going to be much for us, but we're aware of it. In terms of the US situation, I think its fair to say that the US deal initiatives is not going to get 4.8%, but they are determined to get price increases and with the duty barriers they've erected, I think, they have an ability to do that. So, we don't see a decline in margins in the food business in the United States year-on-year. But we don't see the kind of improvement as a consequence of improving food cans prices that we hoped for.

Okay. And let us see - just on the asbestos, I guess, for you're saying - I guess you're so far, you're tracking with regards to the claim, any other trends or percent of meager cases that might give get settled this year that might, excuse me, I mean that you're launching and what else there are you looking at that?

No. I mean we don't see any of the trends that are adverse to the position that we've already given.

Okay. Thanks, guys.

Yes. You're welcome.

Next question please.

Thank you. Our next question comes from Chuck Peterson. Your line is open. Please state your company name.

Lehman Brothers. Good morning.

Hi. How are you? Good morning.

Good. Thanks. I actually - most of my questions have been answered. I just wanted to talk about the working capital for a second.

Yes.

Do you have the specific components of working capital as of the end of the first quarter available?

No. We do not.

No. And I'm sorry, can you refresh my memory, I may have missed this earlier. What are your expectations for the year in terms of cash use or cash source from on the working capital line?

I believe the number we indicated was an improvement of about $45m.

Okay.

Yes.

Thank you.

Thank you. Next question please.

Thank you. And just a reminder again, at this time, if you'd like to ask a question then please press "" "1" at this time on your touchtone phone. Please press "" "1". Our next question comes from Dan Khoshaba. Your line is open.

Hi guys. Can you talk a little bit about how the super end [ph] is going? Are signing up -are you running any business as a result of it? Has it lowered your cost? Will you see the benefit of this perhaps more in the seasonally strong quarters and just a general update on how that's progressing?

It's best. It's going -- it's going great; really better than we could have hoped. As on the end of the first quarter we've now sold 10 billion super ends in the North American market. And everything's going really flawlessly. The conversions are seamless and quick for our customers, seaming properties are tremendous. It's a stronger, better, double team. We're seeing essentially no score failures, stretch corrosion failure with super end which is a big thing with our customers and of course we have a cost advantage and our customers have a cost advantage, but with effects, we're sharing a portion of the material savings with them. So, its been a -- just a huge winner force, and we just couldn't be happier.

John, other than Amcor and help me out with this have you licensed this to anybody else?

We've licensed Amcor for Australia, New Zealand. We've licensed Namtec [ph] for Sub Saharan Africa. We're in negotiations with several can companies in Japan.

Okay. So this should really take off, do you need to -- this needs to be licensed [inaudible]. How is this thing going to play itself out?

Yes. I -- we don't think so. You know, I think, we've talked about this before, Dan; but the outside of this process is about two and half years ago. Recognizing what's involved in taking an industry that fills cans from 500 cans a minute to 2000 cans a minute to a new end, we had anticipated it to be helpful to license the competition just to ease the process of conversion.

All right.

Now, though, we're two and half years into it in the North American market having sold 10 billion; in fact, we can't keep up with our customers' request to convert them as rapidly as possible. We don't think so any more. We've learned how to do these conversions very, very rapidly. So we're not getting any pushback from customers saying that they want to be able to instantaneously move to a competitors' end at any locations that we serve. So we don't think we need to license. We know we don't need license to make it a commercial success; it already is a commercial success.

John, I know that technology tests, I think, move kind of slowly some times in the packaging world and ridged container world in terms of truly new innovation. But is there anything that you guys are working on that could have a very significant impact on the company's financial performance or revolutionary type product that we might see in the market over the next year? What kinds of things are you spending your time working on?

We think, Dan -- generally speaking, we think, we know a lot about closing things, closing glass containers, closing plastic containers, closing metal cans. So we're spending a lot of time and effort in what you might call closing systems to close more effectively efficiently out of lower cost. But I don't want to say more than that at this time; but the kind of thing that we did with SuperEnd for beverage, we're looking our for other containers as well.

All right. Thanks guys. Congratulations.

Thank you. Next question, please.

Thank you. Our next question comes from Carl Ginsburg. Your line is open. Please state your company name.

Hi, it's Carl Ginsburg with Bank Of America.

Hi, how are you?

How are you?

A quick question. Any commentary on capacity and capacity utilization across product lines?

No, I mean, capacity utilization in beverage, cans and virtually all the markets is still very, very strong.

Okay.

And we've commented in the past on food and aerosols. There has been no real change there, which is to say food is pretty well utilized every place who can't produce from the DRI process more excess capacity in three piece welded. But the capacity utilization, I think, is in pretty good shape.

Okay. And as far the guidance go, you said that you are giving guidance on the segment income for the year. Is there some indication on asbestos? What are the issues that you are unclear about to the great extent I'm looking forward?

No, I'm not sure. We're not unclear. It's just as you appreciate. We just came off a rather large refinancing and also attended for some bonds as you are well aware of, and we are working on making sure that we maximize the benefits of that and this is only pretty close about a month ago. So, we're sticking just segment income guidance which is what I give on the call at the moment.

Fair Enough. Okay. Now, what's the timeframe do you think you'll have a better handle?

We're going to see, as we go through this year where we'll get to. And as I said we'll get through, as John said, the second and third quarter of obviously our strongest; and as we go through that, we will see where we come out and then we'll think about it.

Okay. Thank you.

Welcome. Next question, please.

Thank you and once again at this time if you would like to ask a question then please press "" and then "1" on your touchtone phone. Thank you. Dan Khoshaba, your line is open.

Alan?

Yeah, John?

Could you give us what you believe is a lot of moving parts obviously, but what do you believe the tax rate will be in 2003? I know you're not paying any taxes in the US.

In a way Dan it's what I've just been speaking of, I think. You know, as you know we have two different situations. We have a certain tax position in the US, due to our NOLs.

Right.

And we have our quote normal tax position in Europe. So this is a very difficult area to quantify in, and that's one of the -- one of the reasons as I just indicated the previous question that we're working on and it's difficult to say.

But what if you -- what if you -- I mean it sounds to me like it will be significantly lower than statutory tax rates?

Well, I mean in most countries Dan it should be the statutory tax rates. I mean the only thing that would change if there's any permanent differences down. Our problem is that we have quote [ph] normal statutory taxes in Europe and around the world and we have the position I've just said here.

Right.

So, you know, I'm not trying avoid the issue. It's one of the things that we obviously have to work on in the coming months.

Could one of the ways we get a ballpark figure in terms of our own analysis is simply just taxing the European profits and the profits that come out of Asia -- is that not [indiscernible]?

If you were to change [ph] those in 30 - 35% you're probably going to be reasonably close for that part of the business.

Okay thanks, Alan.

You’re welcome. Well, thank you very much everyone for being on the call. That concludes the call for the first quarter results. Thank you.

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