Crown Holdings Inc (CCK) 2009 Q1 法說會逐字稿

Good morning and welcome to the Crown Holdings first quarter 2009 earnings conference call. Your lines have been placed on 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 the call over to Mr. Timothy Donahue, Executive Vice President and Chief Financial Officer. Mr. Donahue, you may begin.

Thank you, Shirley, and good morning to everybody. Welcome to Crown Holdings' first quarter 2009 conference call. With me on the call today is John Conway, our Chairman and Chief Executive Officer.

Before we begin, I would like to point out that on this call, as in yesterday evening's earnings 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 the press release and in our SEC filings, including comments in the section entitled Management's Discussion and Analysis of Financial Condition and Results of Operations in Form 10-K for 2008 and in subsequent filings.

I will first review the quarter and then hand the call over to John for his comments.

Earnings per diluted share were $0.25 in the quarter compared to $0.17 in the first quarter of 2008, an increase of 47%. On a comparable basis, diluted earnings per share were $0.28, which is up 55% over the $0.18 in last year's first quarter. All operations performed well in the quarter, which offset higher pension expense and currency translation.

As you can't see in the press release, currency translation has an impact throughout almost every line item in our financial statements. However, our underlying performance was quite good, so we'll do our best to help you with ex-currency comparisons.

Net sales in the quarter excluding currency translation were up slightly over the prior year as global beverage can volume growth and the pass-through of higher tin plate costs offset the pass-through of lower aluminum cost and lower food can volumes. Global beverage can volumes were up more than 3% in the quarter as we continued to see strong demand in North America, the Mediterranean, Middle East and Southeast Asia. Food can volumes were down from the prior year's first quarter due to de-stocking throughout the entire supply chain and the impact of fourth-quarter 2008 buy-aheads.

Americas Beverage revenues were level to prior year excluding currency, as overall volume increases offset the pass-through of lower aluminum costs. North American volumes increased by more than 4%, which compares to a 1% industry decline in the quarter. Our volume gains were noted equally among the alcoholic and non-alcoholic segments of the business, and our volume outperformance versus the industry reflects our strong position among the private-label soft drink fillers and their continuing gains.

Segment income when adjusted for currency and startup costs in our new Brazilian can plant improved by $1 million over 2008.

Revenues in our North American Food business increased 12% excluding currency year-on-year as the pass-through of higher tin plate prices offset softer volumes, the result of de-stocking and some pre-buying by customers in the fourth quarter of 2008. Segment income improved $7 million, primarily due to a lower Canadian cost structure and improvements to plant manufacturing performance.

As noted in the fourth quarter last year, we closed our Food can plant in Montreal and have since integrated that production into lower-cost US facilities. Additionally, a weakening Canadian dollar has reduced our local Canadian operating costs against selling prices, which are US-dollar-denominated throughout the entire North American business. This is the reverse of what we have explained to you last year, when the Canadian dollar was strengthening against the US dollar.

On a currency-comparable basis, European Beverage sales were up 10% over 2008, primarily due to volume improvements of 5% and product mix. The improvement in segment income reflects the benefits of additional volume and better manufacturing performance.

Food Europe revenues declined 4% excluding currency, reflecting softer volumes in the quarter, the result of de-stocking and a fourth-quarter 2008 buy-ahead. Segment income was up over the prior year, the result of current and prior cost containment initiatives, improved manufacturing performance and new product introductions.

Specialty packaging revenues excluding foreign exchange were down about $9 million in the quarter while segment income was flat in what is a seasonally small quarter for this segment.

Interest expense was $16 million lower in the quarter due to lower rates, lower net debt and $5 million of foreign exchange. For the full year interest expense should be $40 million lower. We still expect the tax rate at 25% for the year. Our net debt at the end of March was $3.1 billion, which is more than $400 million lower than the March 31, 2008 amount. Net leverage based on the last 12 months' EBITDA was three times compared to 3.9 times at the end of March '08, so almost a full turn reduction in one year.

Our free cash flow is still projected to be at least $400 million after capital expenditures of $150 million, the majority of which will be applied to reduced leverage. We still project segment income to increase approximately 3% over 2008, and as we have stated previously, this is after the year-over-year increase in pension expense and the impact on foreign currency translation from a stronger US dollar.

And with that, I'll turn it over to John.

Thank you, Tim, and good morning. As Tim reviewed with you, we have started the year well. The demand for our products was strong in all of our markets, and I will come back to this to provide more color and detail for you with respect to what we are seeing regarding underlying demand. Our price increase initiatives went well, and we were able to appropriately cover increasing costs. Our plants continued to run very efficiently and showed sequential improvement. This has been the case for the past several years, and it is a tremendous credit to our manufacturing management and all of the fine men and women who work in our plants around the world.

The new capacity which we have added over the past several years continues to make greater contributions. In particular, the two significant projects of 2008, which were completed at the end of 2008 or the first part of this year -- and I am referring to the major new capacity addition for beverage cans in Spain and our new beverage can plant in the northeast part of Brazil -- both began production on schedule and will make substantial contributions to our continued growth in sales and income in 2009.

Finally, as Crown always does, spending was very tightly controlled in all aspects. With regard to CapEx, we will adhere to our CapEx target for the year of $150 million and use it largely for significant capacity additions.

I wanted to provide some more background on underlying demand for our products. First, our developed, mature markets in North America and Western Europe held up quite well from a demand perspective. Beverage can sales were up for Crown in North America, going against a market trend of a slight downward move for the industry as a whole. As Tim mentioned, this was a result of the very good and diverse customer mix that we have achieved because of our efforts to move away from excessive reliance on a particular sector of the beverage market or a particular customer in the beverage market. We think these decisions have served us well, and you can see the results of it in our beverage numbers for the Americas.

In Europe the overall beverage markets were down somewhat year on year in the quarter, and we were in line with those markets. We saw some improvement in March in beverage can demand, and we believe that we are still on track for a successful year in beverage can sales and earnings in Europe. The emerging markets continued to perform well. In almost every market there is growth which is supported by underlying GDP growth. The story so far is emerging market growth at reduced rates but growth nonetheless, not the GDP contraction that is being experienced in North America and Western Europe.

It would be well to spend some time discussing the situation in food cans. As Tim mentioned to you, unit volumes in food cans in Western Europe and North America were down somewhat quarter to quarter for several reasons. He touched on the inevitable pre-buy in November-December 2008 in anticipation of relatively substantial price increases necessitated by steel tin plate price increases that were imposed on the can industry by the steel industry in January. In addition, he mentioned the process of de-stocking, which we can clearly see in the food can supply chain.

The food can supply chain is relatively long and relatively complex, certainly compared to the beverage industry. There are many participants in it, the distribution system is much more fragmented and complex due to the many different products, labels, sizes and so forth. Many of our customers for food cans have substantial export businesses that cross national boundaries. For example, fish cans filled in the Iberian Peninsula are distributed throughout Europe, into Eastern Europe and Russia, and throughout Africa. Filled olive cans in Spain or Portugal and Italy are shipped not only throughout Western Europe but throughout the world, and so on, including vegetables, like fruit, tomatoes, tomato paste and others.

Also affecting food sales units in the quarter was a disruption of international trade credit. Either suppliers were less willing to extend terms or buyers were less able to obtain trade credit with their banks in their own countries. This, we believe, was an additional contributor to the decline in food can sales in the quarter. As we go into April, this situation is reversing. March was quite a bit better than February, for example. And therefore, we believe that our food can business will have a very successful year.

In summary, for Crown as a whole, the first quarter was strong and strength was broadly based. Further, we look forward to the balance of 2009 with a great deal of confidence, knowing that we are exceptionally well-positioned to perform well in these challenging times.

And with that, operator, we are ready to accept questions.

(Operator instructions) Tim Thein, Citigroup.

Two questions if I may. First, just to make sure I heard this right, Tim, did you say that on the Europe Bev Can side, you guys -- for the region as a whole, volumes were up?

About 5%; that's right.

Okay, so the Middle East [side], I take it, was up huge, then,? Didn't you say Europe, Western Europe, was down? Is that right?

Well, the industry was down in Western Europe. And, specifically, for us, the Mediterranean, which would be Spain, Italy, Greece, Turkey -- we were up slightly over last year. And in the Middle East we were up. And then Northwest Europe, France and the UK were down. But, up 5% throughout our operations.

Okay, gotcha. And on the capacity it sounds like, I guess, the Slovakian plant starts up in a week or so. Is that -- any indications in terms of what you're seeing there? There has certainly been some -- from the headlines, at least, from an economic standpoint, some pretty dicey situations in that region. What can you -- at this point, what can you see from the start-up of that new plan?

Tim, I think you're thinking of discussions we had over a year ago. We decided to slide the commencement of operations in that plant by a year. So what we are thinking of now, in fact what we are going to do now is we're talking about a start-up of that plant first quarter, late first quarter 2010.

So our view is that we'll be coming up a learning curve in 2010. We'll hit full production capability in 2011. And also, this plant is sold out for the first many years with firm volume commitments. So we're pretty confident about it, but in response directly to your question, we are not adding any capacity that's going to come onstream this year in this market in Europe.

Okay. And lastly real quick, on the food can side, another major player in Europe just recently had said that they saw, similar to you guys, evidence of a pre-buy, most pronounced in January and February and, to a much lesser extent, March. Is that kind of consistent with what you are saying?

We are, but we are not sure -- we never felt the pre-buy was that large. We knew there were some of it, but we didn't think it was that large because there wasn't that much steel available and there weren't that many cans available because the steel companies were doing such a good job of managing their own price increases.

What has surprised us a little bit, we think the de-stocking was much more widespread and the supply chain had an ability to take a lot more units out than we had anticipated. But March came back very, very well; and first reports into April were strong as well. So we are quite confident for the year. But it was, we think, quite a major de-stocking event.

Alton Stump, Longbow Research.

I was just trying to get an idea -- in your European Food can business you mentioned that sales were down 4% after currency and that volumes were down. I guess I'm trying to figure out the disconnect with pricing. Obviously, assuming that there were hefty pass-throughs in Europe, as there was in North America, of tin plate, as to why organic sales were still down 4%.

Well, it had to do with underlying units and we're still collecting the data and we don't have industry data yet, either. But our units for the quarter as a whole were down mid- to high-single digits and almost entirely January-February. So I think that would -- Tim might want to add to that.

Obviously, there was a price increase because of higher tin plate costs, although the tin plate increase that we experienced in Europe was less than the tin plate increase we experienced in North America. But when you take out the base cans, when the units come out, it does offset more than the tin plate increase.

Is there a timing with the hike that went through at the first of the year? Is there a timing just with the shipments that you are booking that maybe the entire quarter didn't benefit from that actual price increase? Is there any of that going on, in that regard, that we might see a more fuller impact with that rate increase in 2Q?

We don't think so. We think that our price increases were effective January 1.

Peter Ruschmeier, Barclays Capital.

I was curious if you could comment or elaborate on your priorities for free cash flow. You mentioned largely paying down debt. What thought have you given, if any, to eventually paying a dividend?

Well, I think in this credit environment we are not going to commence a dividend in 2009. The large majority, if not all of the free cash flow, will be used to de-lever.

And curious on your bev can plants in Spain and Brazil, how much did they contribute to revenues and income in the first quarter? And maybe on a scale of 1 to 10, where are they in their ramp-up?

Not a lot in the first quarter because they are both in learning curves. Spain started up, I think, about December of last year. And the Brazilian plant began commercial production late -- mid-February. So not a lot in the quarter, and in fact from an earnings standpoint the new plant in Brazil was a little bit negative just because of the start-up situation.

So it will come on over the balance of the year as we go further into the year.

And in terms of a typical ramp-up, would you expect full contribution within two or three quarters, or does it take longer?

It will take two quarters. We should be getting the full contribution in the fourth quarter, about a six months' learning curve.

Some housekeeping items -- the D&A and the SG&A was lower than I expected. I'm curious if you could elaborate on any thoughts as we look at those numbers going forward.

Well, Pete, it's all currency; right? So as I said in the prepared remarks, currency has an impact across every line item. And just as you see a currency impact at the revenue line or at gross profit or segment income, there's going to be a currency impact at depreciation and S&A. I think, in the release, we gave you the currency impact on S&A, which was -- almost the entire reduction in S&A was due to currency. The other $2 million or $3 million reduction we had was due to, as John said, very tightly controlled costs. We, like many companies, are reviewing and controlling costs very tightly in this environment.

And then, on the D&A side, I would say that currency probably reduced D&A by $5 million to $6 million in the quarter. It's got to be right around 10% to 12% of the prior-year amount, would be the reduction from currency.

That's very helpful. I'll turn it over --.

I think one way for you to look at that, if you go to our balance sheet -- and it's very easy to do this. If you looked at property, plant and equipment on the balance sheet March '08 to March '09, it's down $200 million. CapEx is roughly equal to depreciation for the first quarter of this year and last year -- I'm sorry, for the first quarter. So the entire difference is currency, 12% to 13%.

That's great, thanks very much.

Chris Manuel, KeyBanc Capital Markets.

Good morning, gentlemen, and congratulations on a terrific start to the year. A couple of questions for you. First, John, you mentioned new products in food cans in Europe. Can you elaborate a little there?

Well, yes. The biggest things for us have been new opening features, and one of the things that has been very popular in Europe, increasingly popular -- Peel Seam flexible ends, easy open ends on steel and, to some degree, aluminum, but steel food cans. We think we've made a lot of advances in those areas, both with regard to ease-of-use for our customers through the [retort] process and ease of removal, and at the same time protecting against inadvertent opening during transportation. So has been a big item for us, and we continue to push that.

And then the other, of course, is we have a significantly improved full pull-out steel end, which we call Easylift, which is patented. And one of the reasons that it is so much easier to open is tab access is dramatically improved. Those two things are doing very, very well for us and proving to be, particularly in the European context, very, very popular. We are bringing both of those technologies to North America and introducing them as we speak.

Second question I had, Tim, was, I know it's early in the year to start thinking this way, but as we look at the guidance that you have given us in what is normally your seasonally smallest quarter, that would be most disproportionately hurt by the higher pension that would normally be straight line across the year, the fact that you're able to improve segment income 4% year-over-year or better than what your full-year expectation is -- does this not make your full-year anticipation of up 3% seem somewhat conservative? Or, are there some other factors maybe we are missing?

No, I think your thesis that we are spreading pension equally across the quarters is correct; that's how we do it. It's straight line. But as you said, Chris, it is early in the year. It is only April. There is a long way to go. And we only gave you guidance two months ago, at the beginning of February. So we'll have another chance to talk to you in July, and we'll revisit that at that point.

I think we do take your point, and we do believe we're off to a good start this year. But it is early.

Is there anything that's maybe a volume -- industry volume is down a little in North America, although you guys are doing better. Are there any spots that maybe are coming in a little below expectation from where you would have thought things were earlier in the year?

Actually, we are not. We are pretty much right on plan. But as Tim said, we are being cautious. It is early in the year, and a very globally dynamic economic environment.

Last question I had was with respect to steel and pre-buys and things of that nature. I know it's something that's very tough to control with customers that sometimes take a little here or there. Were you able to pick up a little extra steel early? Were there any LIFO gains or any potential gains that you had in this quarter that may not be repeatable as the year progresses?

Well, we were not -- and we've talked about this earlier -- we were not able to add substantially to finished goods or raw material inventories at the end of the quarter. Inevitably, there was some carryover. But we weren't able to add a lot, even though we might have wished to, simply because, as we've told you earlier, the steel industry was quite disciplined about watching shipments very, very carefully. And they were not prepared to ship at lower prices in December. So we had some, inevitably, Chris, but we were not able to add a great deal of tin plate inventory.

Mark Wilde, Deutsche Bank.

John, I think you mentioned that most of that CapEx for this year, the $150 million, was going to capacity additions. I wonder, just as a reminder, if you can walk us through where those additions are all taking place beyond Spain and Brazil.

Yes. One, of course, is the Slovakian plant. We'll be spending relatively heavily on that this year. We have a project in Asia, and we're not at a point where we can discuss it with you yet, but it looks very promising. And that would be another. And then the third principal area will be these new end -- food can end systems that I discussed earlier on both sides of the Atlantic.

Any trade credit issues popping up for you guys?

Not -- you're talking about receivables with our customers?

Yes.

Nothing of significance. Unquestionably, in certain parts of the world some of the smaller customers are under a little bit of stress -- Eastern Europe, for example -- but nothing of what I would call real significance yet. We are watching it very, very carefully.

Thanks, John, and good start to the year.

Claudia Hueston, J.P. Morgan.

You talked about the US bev can trends, which were very strong. But could you also just talk a little bit more broadly about what you saw in Latin America and Canada? And then if you could just provide a little bit more color on what you are seeing in Asia bev can volumes, that would be helpful, as well.

Canada and Latin America held up well also. Brazil continues to do quite well. We are very confident about our new plant in the northeastern part of the country because, as we've told you earlier, we cited it in a part of the country that was relatively underserved and we think we are going to do well with it.

In addition, we will be making so-called specialty cans at our new plant, non-12-ounce sizes. And there's a strong demand for those, so we feel pretty confident there.

Asia -- I would say Chinese volume in the first quarter is about flat, but we expect it's going to come back as we go into the balance of the year. We think it has more to do with customer package mix selection than underlying can demand, a little more PET than cans, but we're pretty confident that's going to come back.

Southeast Asia continues to be quite strong.

Just on working capital, last quarter you had the issue of sort of the big move in receivables. Has that unwound itself yet? And how are you feeling about working capital for the year?

I think, if you look at the cash flow, you would see that in Q1 this year we've consumed almost $100 million less in cash from operations than we did last year. And unquestionably, much of that is the collection of the receivables that existed from the strong Q4 sales. We still do project working capital at current tin plate prices to be a use of cash this year. It will be very difficult for us to offset such substantial tin plate price increases with reduced units. It's just -- I don't think it's possible. I don't like to say -- never say never. But certainly, my view is that we will have a -- working capital will be a use of cash, and that is in our projection.

George Staphos, Banc of America.

I guess to start, could you give us a little bit more flavor in terms of the trajectory that you saw in food cans volumes from February to March to April in terms of where we might have been down year on year, say, in February, and what kind of pickup you have seen over the last couple of months?

January was down a little bit, somewhat, which we had anticipated. We thought to the extent there might be pre-buy, we would be hit there. We were surprised that February -- February was down quite a bit, more than we had anticipated, and then March bounced back strongly. And, as we go into April, the reports are quite good. But as I said earlier in the call, I think the extent of the de-stocking phenomenon was stronger than we had anticipated.

Now, as we got into this and started polling various customers -- fish can customers, tomatoes, olives, light fruit and so on -- it became apparent why. And there's just a lot more sponge in that system and a lot more ability for people to wring working capital out of it.

But as I told you, back to March demand was quite good, and going into April we think so. And anecdotally from our customers about what they're seeing on their demand side and then, in turn, what we are generally seeing, to the extent that we can, at the retail level -- and that data, as you know, tends to lag quite a bit. But it looks like the underlying demand, we think, for food cans globally is going to be quite strong.

So are you now up year-on-year versus last April? And, was March up versus last March?

I honestly don't know for April. We're up a little bit in March, but I don't know for April yet.

Fair enough. Was food can US down at similar levels volume-wise, as was Europe, which you had provided some color on earlier, I think, to Chris's question?

No. For us and I believe for the market -- but we don't have the data, the European market data, yet -- but the Western European beverage can market was, year-on-year, somewhat weaker than North America.

John, I'm sorry -- food can US -- was it down in the first quarter? Could you give us a rough flavor?

Oh, I'm sorry; I thought you were on beverage. Food cans was also down a little bit less than Europe, quarter-to-quarter.

Now, as we have reviewed some of the data that has been coming out, realizing it's fairly early in the year, it would appear that the processor indications are quite good, as far as acreage and the like. Are there any -- realizing you cover a number of geographies and markets -- are there any hot spots developing in terms of early-season weather -- there's too much rain in France or what have you -- or do conditions thus far early in the year look to be pretty favorable?

No, we've heard of nothing adverse.

Okay. I guess the last question I had for you, the Company has done -- and it's a credit to you all -- a very, very good job of improving return on capital over the last number of years. That's the good news. The bad news is, potentially, anyway, what do you do from here?

As we think about Crown over the next two or three years, where do you think the next improvement or return on invested capital is going to come from? Or do you think you've pretty much hit a plateau? Would it come perhaps from some structural capacity moves that you still have to work on other growing and emerging markets, or perhaps retrenching in developed markets? Anything in terms of maybe easy open ends? Again, you were mentioning earlier that could really move the needle on return. Help us understand what the trajectory could look like going forward. Thanks, guys.

Well, I think one thing not to be underestimated is the growth opportunities that we have in so many good emerging market economies. And the fact is that we have pursued, over the past number of years, less than the number of good opportunities that have been presenting themselves. And in almost every case, our initial returns on new investments in the emerging markets tend to be better than the returns that we get in North America and Western Europe.

And then incremental investments in those emerging markets are better still because we have an asset base that we can build out more cost-effectively than we were earlier. So I think that shouldn't be underestimated. And then, throw on top of that the natural volume growth.

As to the mature markets, George, you know that we've felt for quite some time that there was more to be gained from the effects of consolidation than had been gained by the industry generally. And when you only have two or three, sometimes four suppliers of beverage cans, food cans, aerosol cans, metal vacuum closures, it seemed to us that it would become increasingly apparent to all the participants in the industry that there were further opportunities.

And I think you've seen that over the past several years. There have been some laggards in certain of our product categories on one side of the Atlantic or the other. But in general, we think there's more to comment.

In terms of restructuring, we are running pretty full pretty much every place. And we'll have some opportunities at the margin to reduce costs in food, for example, as we did with the closure of a fairly large food can plant in the province of Quebec. But that's not how we see things happening. We think there's an opportunity for better price performance and continued improvements and efficiencies, drive down spoilage. And that's how we think the mature market businesses are going to improve, aside from any further consolidating opportunities, and there are going to be some.

We've talked about European Food. We have nothing planned. We don't have anybody in the crosshairs, but we know there are still too many food can companies in Europe, no question. And we think they are going to start falling by the wayside. Some of the little food can guys already are, with the credit effects. So we see a lot of upside around the world, because, largely because of the very large dynamic emerging market business we have.

You mentioned Europe. Are there opportunities in the United States as well, do you think, John?

Well, I don't see anything on the food side, and everyone talks about the potential beverage opportunity, and they are all aware of it and everybody is looking at it.

Joseph Naya, UBS.

I was wondering if you might be able to offer any additional color? I'm always going on with margin. It seems, though, your food can business and your European Beverage can business saw some pretty significant year-over-year improvement in margin. Just wondering if you could offer anything with regard to that?

Well, certainly on beverage cans you can see the benefit of additional throughput, and volume was up 5%. We have some very large plants in Europe, and additional volume and volume growth helps performance immensely in that regard.

Additional, I would say that I did mention that we had better manufacturing performance in our beverage plants, and I don't think we can underscore that enough. The team did a really good job year-over-year, performance-wise, in beverage.

And on the food can side, John elaborated on the new product introductions we've had, as well as we have been extremely frugal this year on cost. So not only have we had prior cost containment initiatives, but currently this year we took a look late last year and again early this year at everything from travel to new hires to replacements. And we are being extremely frugal. It's amazing how much money can come out of the system, especially in a big system like our European Food business, when you put your mind to it.

So there is the opportunity, perhaps, to see some of that improvement carry forward, then? It wasn't necessarily any one-time type of events?

I think we feel very good about the balance of the year, as John said.

One other question we just wanted to ask you about the absorption of new capacity coming online. It sounds as though, Brazil, you are kind of expecting that to kind of stay in Brazil. I think, with the Spanish plant you were talking about previously, that you expected that to probably service North Africa, for the time being. Is that still the expectation there?

It is. Initially, as we come up the learning curve in Spain, that capacity will stay in Spain because, you may recall, in the past number of years we have been shipping some cans into Spain. We had less capacity than we needed for the market. But over time, our plan is that the Seville capacity addition will cover southern Spain, but also northern Africa, supplement the capacity that we already have in Tunisia.

So at this point, you are not concerned about that additional volume being absorbed?

No, not at all.

Richard Skidmore, Goldman Sachs.

Just to follow up on the previous question about margin, Tim, can you just elaborate a little bit on the carryover benefits on the inventory and price cost in tin plate and what that may have been? And then, as you think about margins, do you see margins coming down a little bit as you just better match price versus cost as you move through the year in food can?

As John said, I'm not sure we had any extra carryover into the year. We obviously have inventory in the system at the end of every quarter, and certainly we do at the end of the year. But as you know, we always look to drive inventories in working capital as low as possible at the end of the year. So we would not have had any more working capital, and we probably had a lot less than we had in previous year ends, just due to the fact that the steel companies wouldn't extend any more metal to us at prior-year prices.

But as John said, inevitably you have metal that comes into the new year at lower prices. But just remember, we are running a fairly large business. There is a certain amount of risk in our business when we start to order medal at the beginning of the year with some uncertainty regarding volumes throughout the year. And we do have the working capital element that we are having to pay for.

So as I mentioned in an answer to Claudia's question earlier, it is our belief that, despite whatever actions we take on the working capital side, working capital will be a use of cash because of the significant increase in price of raw material, particularly steel. We have to compensate ourselves for that in some manner areas. So, certainly, we had a little bit of carryover, but I don't think we had anything that was that large.

Just shifting topics back to maybe the Spain and the Middle East volume. In prior conversations you have seen significant volume growth in the Middle East, but I'd imagine you're starting to really fill up that plant. When do you expect that you'd cycle through those significant year-over-year growth in the Middle East and that you start to have volumes kind of normalize to the general trend in Europe?

We don't know. We had quite a strong first quarter in the Middle East, and the honest answer is, we just don't know. The whole region economically has been so much stronger in terms of consumption and consumer spending that we just do not know the answer.

So on that, John, do you think that you can -- if the growth continues in the Middle East, that you can continue to speed up the facility or de-bottleneck so that you can keep up with that growth?

Yes, we can, and we have been. The big issue for us over the next year or two is, as we see the need for more capacity, where should we put it? And that's our -- we have about a 75% market share in the region, the greater Gulf region. And so the real issue becomes, where should the capacity go? But in the meantime, all the lines are being sped up. They are all running better. They are all running more efficiently, and we need the capacity.

Tim mentioned use of free cash flow primarily for debt reduction. But, John, you mentioned some of the smaller competitors in Europe Food are perhaps starting to go away. Does that give you any opportunity to maybe use some free cash flow to acquire some competitors in food cans in Europe?

It may, in due course, but we don't have any plans to do that this year. Our approach for the time being is, we are going to continue to operate in expectations that some smaller competitors who are really very, very credit constrained are simply going to have to shut down operations. We've seen some of that last year. We think we are going to see more this year.

Al Kabili, Macquarie Research Equities.

Drilling down a little bit in the Americas Beverage, could you talk a little bit about the drag that the Brazil start-up costs had on the quarter, maybe quantify that for us and maybe rank order for us to some of the drags that hit EBIT during the quarter and when those might abate?

Well, listen, we had a fairly good quarter in the Americas Beverage group. I think we were within a couple million of last year's quarter. I can tell you that currency was about $2 million to $3 million in the quarter, and the Brazilian start-up was about $1 million in the quarter.

Okay, got it. And then, at what point does Brazil become fully additive? Is it still a little bit of a drag in the second quarter, or when does that -- ?

It may be -- it will making be making a full contribution by the fourth quarter. It may continue to be a little drag in the second. We are just not sure yet.

Okay. And then, if we could switch gears into mix, was there any impact on mix in the quarter? How is the specialty can business doing?

I can tell you that -- because I was just looking at the figures -- our specialty cans as a percentage of our overall cans were 12% in the first quarter of '08, and they are just below 15% in the first quarter of '09.

Okay, thank you. And then, finally, looking at the other non-reported segment, if you could talk a little bit about major trends going on, particularly aerosol, what that business is looking like for you right now?

Well, aerosol experienced some of the same issues as food from a pre-buy de-stocking standpoint. So we saw a decline in aerosol units quarter-to-quarter also. An additional factor regarding aerosols is that, to the extent that aerosols is personal care, it's a relatively expensive dispensing system. And to the extent that the aerosols are used for industrial household, paints, etc., it's impacted by residential commercial activity. So I would say, it was very much the food story, but a little bit more, because of the nature of the product, which we had anticipated. This was in our planning for the year. This did not come as a surprise to us.

But, Al, just to make sure we understand what happened in the non-reportable line, the tin plate price increases or the selling price increase necessary to cover the cost for tin plate more or less offset the aerosol volume decline. The revenue decline that you see in that line is primarily due to foreign exchange and lower aluminum costs being passed through to customers in the Asia division.

Okay, that's helpful, thanks. And, finally, did you see a little bit of volume recovery in aerosol in March, similar to food, with the pre-buy maybe anticipating a bit?

Yes, we did. We saw exactly the same thing.

Chip Dillon, Credit Suisse.

First question is on the whole food -- North America Food can business, where I think you suggested that volumes were down mid-ish single digits, you've had good years the last two years there. Do you expect that to turn into a positive number for the year? On one hand, you saw the pre-buy in the fourth quarter. But then that makes the second half kind of a hard comparison.

We think it will. Talking to customers, we have a number of customers who said they've had one of the best first quarters they've ever had in their history from sales unit volume in North America. So we think so, but we'll have to wait and see.

When you look at your continuing above-market growth in the beverage side in the US, you mentioned both having a balanced customer mix. Are you seeing relative strength, as time goes on, more on the beer side or on the soft drink side?

In our case, actually, we saw good performance by all of our customers. Beer was up, so the beer customers did quite well. And you know, as well as I, why -- trade down, less imports, etc., more at-home consumption and so on.

And on the soft drink side we felt branded products, our customer branded products, anyway, improving over the course of the quarter, which we are very happy to see. And then, as Tim mentioned, private label -- and we've got a wide range of private label customers -- did exceptionally well, and specialty was helpful too. So really all of our customers did well in a relative sense, and most of them did well in terms of just absolute unit volumes up.

You mentioned, I heard to an earlier question, a 70% share number in the Middle East. That was for food; is that right?

No, that's beverage.

That's beverage? Got you. All right, thank you.

Tim Burns, Cranial Capital.

My first question I've got to get it out of the way, is how you two are coping with the loss of Alan. He was so kind and comforting on the calls, and I know we analysts really enjoyed it.

Well, we miss him, of course, in particular his wonderful English accent. Otherwise, we are doing just fine. We understand from an American audience's perception, the average IQ has declined here because that accent is no longer on the call. But otherwise, we're doing fine.

John, you are spending $150 on CapEx, you are talking about projects overseas and new technologies. Are you holding back on some of the new projects just because of the economic environment and the desire to stay liquid? I guess what I'm wondering is, how long is the pipeline?

No; I wouldn't say we were holding back. We've made what we think are some prudent adjustments. We talked earlier about Slovakia. We could have gone ahead earlier with it. We slipped it back. We thought that was the right thing to do. But we've learned over the years, particularly in a lot of the emerging markets that are a little bit harder to really understand at times, that it's better to really prune your opportunities and pick the ones that look like they are just shooting fish in a barrel.

And so we have been doing that. So I don't think that's going to change. And we are not missing anything that we think is tremendously good as a consequence of our self-imposed capital constraints.

And we talk international growth. Is it fair to say that, I don't know, 80%, 75% of this is beverage?

It's fair to say 75% to 80% of our growth is beverage. But we are well aware -- processed food is growing in Eastern Europe, Russia, China, Southeast Asia. It's just that we had made a number of years ago our beachheads. Our initial investments tended to be beverage, for a lot of different reasons. And we just have such an advantage there now; that's what we are pursuing.

Having said that, we are well aware of the food can industry and processed food industry, and we are looking at it closely and we have a high degree of interest in it. You may know, we have quite a large food can business in Thailand, for example, that has done very, very well. So it's an area that we are interested in exploring, but we have a greater comparative advantage in beverage at the moment, and that's why we are pushing that harder.

Well, the two families, I guess, the one in Asia who tends to fly planes and then the one in the Gulf Coast, are extraordinary allies, aren't they?

Yes, we have been lucky. We've had good partners for a long time, and so it has helped us a lot.

The food can business -- back to the old story of, pull it out of the pantry. But as I see it, the US is kind of in the dog food economy versus the Club 21, all those rich bankers. The EU, their percentage of food can consumption is much higher than ours, is it not?

Yes. Generally speaking, that's true. But I think the eat-at-home phenomenon is equally strong in Europe as it is here. I mean, a tremendous shift out of restaurants and so on and back to at-home consumption.

And then the rest of the world, I guess we are kind of in the initiation and growth track, where some of these people have not consumed a lot of food out of cans, maybe with the exception of fish. But do you ever think they would begin to consume at the same rates as the US? Or, is their palate and diet just too different?

Tim, I don't know, but the extent to which they are prepared to move to processed food, it's unclear to me. However, there's going to be a continuing big shift, I mean just for all the same convenience reasons that has happened in Western Europe and North America.

John, thank you, and I had one question for Tim. Tim, the pension expense is running at about how much per quarter?

It will be about 33, 34 total for each quarter.

Joe Stivaletti, Goldman Sachs.

On the pension, so are you still -- are the numbers for 140 the year for expense and 75 for your cash contribution -- is that still what we should be thinking?

75 for cash, and I think the expense is 133 that you should be using.

I was just wondering, what is your -- underlying the guidance you have given, what are your assumptions for your trends this year in your tin plate costs?

Well, our assumptions are that we don't know what's going to happen with regard to tin plate costs over the course of the year, but that whatever happens we plan to maintain margins, whether costs go up or down. So our strategy is just like it is with beverage. We are passing through costs, up or down.

[Mike Sheridan], Cobalt.

Nice risk management in a tough environment. I was surprised by your volumes in bev cans globally. Could you talk about -- you had mentioned that you guys were losing some volume to PET in Asia. Could you talk about share shifts from other packaging mediums, especially glass? Are you guys seeing that?

I really can't, in detail, and I just mentioned that one because it was one that was reported to us to explain what was going on in Chinese beverage cans, in the first quarter. But beyond that, we are reasonably certain that our major beer customers are changing mix. They were changing mix last year. We think they have accelerated a little bit. But I couldn't give you any details on exactly what their plans are, nor do I know exactly what happened with glass unit volumes.

So, could you give me any idea what kind of conversations you have with them? What is driving their mindset as far as you know?

On the beer side I think it's a variety of things. First of all, for a long time, aluminum or steel beer cans are the lowest cost form of packaging for the brewer. They can fill at the highest speeds, they have the least spoilage. Freight shipping, cube efficiency are the best. So they would have always -- we think the larger brewers, in particular, with stronger marketing strength would have always preferred to be in cans. And now, with the relative change in the economies and the wish for consumers to trade down a little bit and go to a less expensive package and the lessening of imports all tied to this, we can see our customers moving to it.

And then, of course, most of the beer cans around the world -- there are a few exceptions -- are aluminum. With aluminum prices coming down, the cans become relatively even cheaper. So it's a very positive trend, we think, globally for beer cans.

And you don't see any drag similarly from the fact that transport costs are generally coming down pretty quickly? You don't see a delta in the way that people think about the efficiency of transport by can, rather than by a heavy or a different medium of packaging?

No. We think the relative advantage of cans is being maintained.

And at this time, I'll turn the call back over to the speakers.

Thanks very much, Shirley. That concludes our call today. I just want to thank all of you for joining us, and we look forward to speaking with you again in July, after the conclusion of our second quarter. Bye, now.

This does conclude today's conference. We thank you for your participation. At this time, you may disconnect your lines.