Crown Holdings Inc (CCK) 2010 Q1 法說會逐字稿

Good morning and welcome to Crown Holdings' first quarter 2010 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 Laurel and good morning to everybody. Welcome to Crown Holdings' first quarter conference call. With me on the call today is John Conway, our Chairman and Chief Executive Officer, and Tom Kelley, Senior Vice President of Finance at the company.

Before we begin I would like to point out that on this call, as in the 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 2009 and subsequent filings.

A reconciliation of generally accepted accounting principles to non-GAAP earnings can be found in our earnings release. And if you do not already have the earnings release it is available on the company's website at CrownCork.com. You will also find a reconciliation from net income to EBITDA credit ratio computations and supplemental cash flow data on the company's website.

I'll first review the quarter, update our 2010 guidance and then I will hand the call over to John for his comments.

We had a strong start to the year, certainly ahead of our expectations. Comparable [diluted] earnings per share were $0.30 versus $0.28 in last year's first quarter. All operations performed well in the quarter, with strong volume growth and cost reductions offsetting the 2009 inventory repricing gains which did not recur in this year's first quarter.

As we also noted in yesterday's earnings release, our effective tax rate was also higher than planned due to US tax law changes. During our review of operating performance for the quarter we will be making reference to cost reductions across all of our businesses. These cost reductions are result of prior years' restructuring activities and ongoing cost containment initiatives.

Additionally, the reference to 2009 inventory repricing gains will be made against all businesses that use tin plate steel including aerosol, closures, food and specialty packaging as well is our European Beverage businesses. To assist in the performance review of our tin plate products business, we will also make reference to segment income as a percentage of sales comparing 2010 to 2008 so as to remove the distortion created by the 2009 inventory repricing, which we think will give a good picture as to how well the businesses did in Q1.

Net sales in the quarter improved 5.6% over the prior year as global unit volume growth and currency translation more than offset the pass-through of lower raw material costs. While the LME aluminum cash price is still relatively high, many of our customers have benefited from lower average hedge costs in the first quarter of 2010 versus the first quarter of 2009. And reported sales in all of our beverage business -- that is the Americas, Europe and Asia -- reflect the lower cost as we fully pass through material cost increases and decreases.

Americas Beverage revenue increased 17% over the prior year on the back of mid-single digits volume growth which is the result of a North American share gains, stronger beer can sales and increased shipments from our Brazilian operations. The volume growth in Brazil came from the Estancia plant, which began commercial shipments in the first quarter of 2009. Now fully through its learning curve, the plant is running extremely well and demand in the local market has accelerated rapidly.

Revenues in our North American food business were level to the prior year. Segment income at $16 million in the quarter which was just below last year's total of $18 million, a good result considering we had inventory repricing gains in last year's first quarter which we did not have this year.

Importantly, 2010 segment income at 8.1% the net sales was up 220 basis points over the 2008 figure of 5.9% and shows the improvement made in the business without the distortion from the 2009 inventory repricing. This improvement is the result of cost reductions and reflects the quick payback we've been getting from a number of restructuring actions taken over the past two years to realign our North American capacity.

As disclosed in last night's earnings release we have announced the closure of a food can plant in Canada. We believe this action completes our North American food can realignment activities, with the business now well-positioned to continue providing high-quality customer service but from a much lower cost base.

Reported European Beverage sales were down $25 million compared to 2009 due to the pass-through of lower raw material costs. Foreign currency translation added $15 million to net sales which was offset by lower volumes, as strong UK sales were offset by softness in Saudi Arabia.

This segment's income, when adjusted for 2009 inventory repricing gains, actually improved by 3% over 2009 and as a percentage of its net sales was 16.6% in the first quarter compared to 14.1% in the first quarter of 2008. Currency benefits of $2 million were offset by start up costs and Slovakia which began commercial shipments ahead of schedule in March and is running well. All in all a very good result and we look forward to improving volumes throughout the year.

In our European food business, revenues improved by 4%. Segment income as a percentage of net sales in 2010 at 9.9% compares favorably to the 8.2% in the first quarter of 2008, which again reflects the improvement made in the business without the distortion of the 2009 inventory repricing.

While volumes have improved, they're still short of 2008 levels. So the 170 basis point improvement over 2008 basically mainly reflects cost reductions and efficiencies gains since that time. These cost savings, while significant, were not about to overcome the amount of inventory repricing recognized in the first quarter of 2009.

Specialty packaging revenue has increased over the prior year due to improved volumes and foreign currency of $5 million. Segment income benefited from improved volumes and cost reductions, more than offsetting the 2009 repricing gain.

Our non-reportable businesses had a great start to the year as global aerosol volumes were up low double digits, offsetting most of the first quarter 2009 inventory repricing. And Asia-Pacific we're off to a very fast start with beverage, food and aerosol can volumes all up double digits. The Asia-Pacific region is expected to approach $700 million in 2010 sales and that is over these $629 million we reported in 2009.

Interest expense was $14 million lower in the quarter due to net lower net debt outstanding.

As we turn to taxes, the recently enacted US healthcare legislation has eliminated be tax deduction for the portion of retiree prescription drug coverage that is offset by a federal subsidy. As a result, we recorded a one-time deferred tax charge of $7 million in the quarter. In addition to the one-time charge, elimination of the deduction will increase our 2010 tax provision by approximately $2 million compared to 2009.

Also at the end of 2009 a US tax law provision, the so-called Look-Through Rule that allows certain dividends and interest to be paid between affiliated foreign subsidiaries without giving rise to current US tax expired. Legislation is pending to retroactively extend these provisions. However, to date it is not been signed into law and as such we have recorded additional deferred taxes of $2.2 million in the quarter due to the expiration of the provision. So in total there was about $3 million or $0.02 per share of additional tax expense in the quarter due to the tax law changes.

Based on the tax law changes, we now project the effective tax rate from ongoing operations to be 29% for the year.

As we have said, we're off to a good start. So even after considering the increase in our effective tax rate and the stronger US dollar, the company's estimate for full-year 2010 earnings per diluted share remains in the range of $2.10 to $2.30 per share. And for the second quarter of 2010 it's projected to be between $0.60 and $0.70 per share.

As we discussed with you in early February, new accounting guidance was issued related to the balance sheet and cash flow statement reporting of accounts receivable securitization programs. The new guidance requires that the company report accounts receivable securitizations on the balance sheet as secured borrowings. The effect at March 31 was to increase approximately $200 million to both accounts receivable and short-term debt on the balance sheet.

From a cash flow perspective, the impact of adopting this guidance is a reduction of cash from operations and an increase in cash from financing activities; no net impact overall. Prior-year amounts have not been restated, but when adjusting for this reporting change free cash flow used in the quarter was actually an improvement of $132 million compared to the first quarter of 2009. Excluding the change in how we report accounts receivable securitizations, operating cash flow for the year is still projected to be greater than $700 million.

Capital expenditures are now estimated at $300 million. Our free cash flow for the year will be at least $400 million. Our earlier capital spending projection of $205 million has been increased to $300 million and includes the recently announced growth projects, a reflection of the numerous growth opportunities that we have throughout the emerging market businesses.

Demand for beverage cans in the Brazilian market continues to exhibit attractive growth rates and we're well-positioned to grow with it. Just to recap, in September we announced the construction of a new can plant in southern Brazil. Last month we announced that we would add a second line to this project in Ponta Grossa, making it a two line can plant from the start. We announced plans to add a second can line to our Estancia plant as well. In total, were constructing three additional can lines in Brazil, all of which will be operational by the second quarter of 2011.

We've also made two recent capacity announcements for Asia -- a new plant in Hangzhou, China southwest of Shanghai, and the addition of a second can line to the Dong Nai, Vietnam plant which is just North of Ho Chi Minh City. You may recall we purchased the Dong Nai plant in the second half of 2009 and demand is such that we are already adding a second line to the plant.

These greenfield projects will continue to expand our emerging markets platform and are expected to yield returns not only in excess of our cost of capital, but also in excess of returns that we have seen in reviewing numerous acquisition opportunities. John will spend more time on this topic in a moment, but the company has been present in all of these markets for over 30 years. And having dedicated considerable capital to grow these businesses over the last 10 years, Crown is now positioned very well to continue to grow rapidly in each of these markets.

And with that I will turn it over to John.

Thank you and good morning. As Tim has outlined, we are off to a very strong start in the first quarter. Volumes were solid and demand generally improved as the quarter progressed. Price/cost relationships have been well managed. Where we needed to make price adjustments they have been done successfully and appropriately in order to preserve or improve margins.

Our cost reduction activities, which have been substantial for the last several years, continue to bear fruit. Each quarter, each year we've been able to drive cost down through facility realignment, strict spending controls and improved operational efficiencies. Our decision to close a Canadian food can plant was part of this continuing initiative. The benefits were outlined in the news release and we believe that our North American food can capacity is now very well aligned with customer demand and future demand expectations.

Tim has done a good job of providing a lot of information about each of our reported segments. You can see that we're off to a good start in all of them. I will only repeat that improvement in demand versus 2009 is across all product categories and all regions.

As for the new capacity additions which we've announced and implemented both last year and are implementing this year, execution has been outstanding. Our Slovakia beverage can plant which started up in the first quarter 2010 continues to progress well up its learning curve at the same time that demand in Eastern Europe has been improving. The plant is fully sold out with business which has been secured under long-term contracts.

Our new beverage can plant in the north of Brazil, as Tim mentioned, is running extremely well. Demand has outstripped our expectations and dictated the decision to double its capacity. As you know the plant in the South of Brazil which we announced a number of months ago will now have double the capacity originally planned. So we will be starting up a modern, high output, two-line beverage can plant in the South of Brazil during the second quarter of 2011.

I will not discuss again the various Asian investments we have announced and have underway except to say that all of them are on or ahead of schedule, and they're going to make a very good contribution to this company's topline growth and profitability in 2010, 2011 and the years ahead.

We think it would be well to make a general statement regarding our plans and what we see as opportunities in the emerging markets for Crown in the future. Crown has many years of experience in virtually every attractive growing economy where middle-class consumers are being created at a substantial rate, which in turn underpins our success.

We believe this is a unique time for our company. We're committed to growing Crown's presence in the emerging markets where we do business at least as fast as the economies and markets grow and, where possible, growing at rates that will increase our market share.

This of course necessitates more spending more capital than we had originally planned for 2010. This is a high-quality problem. Tim mentioned we will be increasing capital [expenditure] to approximately $300 million in 2010 from the previously announced $205 million.

Other opportunities will become apparent in the months and years ahead. Our ability to grow and move rapidly and decisively in markets as varied as Eastern Europe, North Africa, the Middle East, South America, China and Southeast Asia is unparalleled in our industry and provides the company with a source of profitable growth that is unique to Crown. Having worked so long and so hard to establish ourselves in these markets, we fully intend to grow rapidly by providing our customers with the packaging that they require to meet their own growth objectives now and in the future.

So summarizing the first quarter and our outlook for the quarter and years ahead, our North America and Western European businesses continue to improve as a consequence of many actions including careful price cost management and facilities realignment when necessary. Our emerging markets his businesses are performing exceptionally well and we will fully exploit the many opportunities we see ahead of us.

With that, operator, we can open the call for questions please.

(Operator Instructions) Tim Thein.

Citigroup. Congrats on a good quarter guys. On the nonreportables, that segment continues to grow. I wonder if down the road if you'll split that up in terms of Asia versus aerosols. But specifically on the performance in the first quarter, was it -- again, despite the benefit you guys had last year from the tin plate, you did have the highest EBIT number that you posted I think ever. Was the performance there driven more by aerosol or was it relative to Asia? Or how would you kind of split that up?

I think what we can say is that we don't have -- one of the challenges we have since we're the first reporter we're actually out before CMI data is out for the three [piece] businesses, food and aerosol. So we don't have all the information on food and aerosols other than to say we certainly think we're in line with market.

It looks like the aerosol businesses, not only in the United States but globally, were up low double digits in volumes compared to last year's first quarter, which as you know was a little bit depressed then because of destocking and is recovering nicely now. And then on top of that, volume growth across all the Asian businesses -- beverage, food and aerosol -- up low to mid-double-digits. So I would say it was a combination of both.

Okay. And then within the European Beverage can segment I think you said -- was it total volumes were down, is that correct, in the quarter?

Yes.

Okay, in the Middle East have you seen any impact from -- I think there was some chatter about the bottlers in the Middle East proposing meaningful I think it was 50% plus price increases. One, has that come through? And two, if it has, have you seen any impact from that?

Yes, Tim, John here. Actually the reference to Saudi Arabia is indirectly a reference to that. Most of our soft drink customers in Saudi Arabia have implemented significant price increases on the order of 50%. But it won't average of that when you take into account promotions etc. over the course of the year, but a substantial price increase effective in January.

So we did see a volume decline in Saudi Arabia. The volumes were beginning to come back as we marched through the quarter, but that really accounts for the volume shortfall versus last year that we described.

Al Kabili.

Macquarie. Question on the food can businesses, if you could just give us some color on the volumes in both the US and North America and how you see that progressing throughout the year, given some easy comps.

As I said, our volumes looked like they were firm to the prior year. We don't have yet all the information from the CMI. But it sort of looks like, from what we can tell about our volume, we're tracking in line with the market. And then in Europe we were up slightly over last year's first quarter. So the business continues to recover.

We think generally speaking what we're seeing on both sides of the Atlantic has proved this is coming back, not as rapidly as aerosols and closures. On the other hand (inaudible) it did not die quite as much. But it has strengthened over the course of the quarter. So we feel pretty confident about our performance in food on both sides, Europe, Western Europe and North America.

Okay, and on the Canadian, the additional Canadian closure, when do we start to see the cost savings from that layer in? Does some of that start to hit this year or is most of that next year?

Well, I referenced Q1 2010 margins in the North American food business at 8.1% versus Q1 2008 at 5.9% for two reasons. That allows us to look at how the business has improved over that time without the distortion of last year's inventory repricing. And specifically that improvement is almost entirely related to a better cost base that we been able to continue to serve customers from, the result of the other closures we've had in the North American system which did include some Canadian plants.

So this one here, again, we feel very confident is a quick payback. It's less than a two-year payback. And from a cash perspective it's a one year payback. And we'll start to see that late this year and we expect to get the full amount of the savings next year.

So the strong margins you had in the US food can business, that doesn't even include all of this recent closure.

No, because the plant -- the closure was only announced late in the quarter.

Okay, good. Was there any offsets there in terms of the -- what drove the closure? Any volume loss there or is this just footprint optimization?

This is just trying to optimize our capacity with demand, right size overall capacity, not only can assembly capacity but coating capacity, cutting capacity among the numerous facilities we have in North America.

And just, John, final question for me, it seems to me that your expansion in the emerging market is accelerating here versus kind of what you have been adding capacity. And I wanted to get the thought process. Are you just seeing that much more opportunity out there? And then also you mentioned share gains in some cases. And how do you do that without impacting pricing dynamics? Thank you.

I think you're right. We are accelerating activities in emerging markets exactly because we're seeing more opportunities than we have in the past year. We think there are a number of major markets in the world. And we're not the only ones. Our customers see the same things and they tell us this all the time.

The number of major markets in the world where we have a very strong presence, where the growth has been substantial over the last number of years, we think it's going to continue to be substantial. The kinds of investments that we are making frankly are being matched or more than matched by many of our customers. So that's the reason for the pickup in activity and I think it's going to continue.

As for the second question about how can we grow more rapidly than the markets and still do well? We think fundamentally we can recognize opportunities quicker than a lot of our competitors and we can move more quickly to take advantage of the opportunities. We talked about this in the past.

We have strong organizations, management teams, not just people who run the day-to-day business, but people who can build new factories, start them up, do the recruiting and all of the things that are necessary including the sales/marketing activities to try to sell the plants out in advance where we can.

It all adds up to an ability, we think, to grow more rapidly than the markets in certain cases, not all, but in certain cases, and do it profitably simply because we are quick and we think we're pretty nimble. Very short lines of communication, we're all totally involved in the activities. We all know the emerging markets as a management team. So that all facilitates taking advantage of the growth.

Okay, great. Very good, thank you.

George Staphos.

Bank of America Merrill Lynch. I guess the first question I have for you, if possible, can you provide a little bit more precise volume data for your European businesses? If you've mentioned it before, I missed it. I apologize. But could you give us what Europe was? I know was down, but can you give us some numbers around that same thing for food cans?

I think food cans were up about 0.5%. And European Beverage looks like it's down about -- just over 3%.

I think I heard you say that food in North America was level with last year. Is that correct?

Okay, I appreciate that. As we think about the restructuring, if we compare the European Food business -- and I should say restructuring and margins. If we compare European Food with where it was 10 or 15 years ago, it's a world better.

You mentioned that you've now completed or will be completing your restructuring activities in North America with this next plant. Are there any opportunities to further right size the cost structure in Europe on a more accelerated basis than what you've been doing on a pay as you go basis the last few years?

I think we always look at opportunities to enhance the industrial platform we have in all of the regions. We are extremely focused on quick payback. We're not going to just do projects to try to enhance next quarter or next year's margins or earnings per share. We do need and require a fairly quick cash payback.

So, I don't want to use the term accelerate because we do have a very large footprint in European Food. We're the largest. We're highly respected as a high-quality service provider to the customers. And we always want to maintain that in the business. But we continue to look at it. But it is a payback analysis that we go through.

Another thing is, your question really ties right into [repeating] uses of cash. As you know, our story for the last number of years has been we're going to focus on growth where possible, if the growth is significant and the margins are good and there's strategic rationale behind it. And we will do restructuring and cost reduction activities when the payback, as Tim said, is extremely compelling. We're not changing from that.

We've done a fair number of things in Europe over the years. So I wouldn't say there's huge opportunities for further realignment and restructurings in the food business in Europe. It's in pretty good shape as it is and you can see the margins reflect that. But there's always something that can be done.

But our emphasis is going to continue to be -- we want to grow in the emerging markets where we think we have a brilliant future. And we will pick up the restructuring activities when the returns become very compelling.

Okay. I'll leave it there for now. As we think about all of the projects you have underway, I think you mentioned the southern Brazilian can plant will be operational by the first quarter of 2011 if I heard you right. Given your existing fleet, if you will, of new projects, when will the last one come online and be fully operational would you say?

I think everything we've announced to date is operational by Q2 2011, somewhere ahead of that. Just to clarify the Ponta Grossa plant, the southern Brazil plant, the first line will be operational in Q1 next year. The second line will be operational in Q2.

Two last ones and I will turn it over. First off in looking at the guidance for Q2 versus last year, it is relatively flat. Should we assume that is the residual impact of the inventory holding games? Are there any other things that are, if I'm doing my math correctly, acting as a speed bump? Obviously tax rate is one issue.

And then a question comes up periodically on the calls, are there any potential other uses for the cash by the end of the year aside from investment in emerging market growth? Thanks guys. Good quarter.

You mentioned two items. There's still some residual inventory repricing that carried over into the second quarter of last year depending on the specifications of the metal that we had until that metal was sold. And the other item obviously is the increased tax rate due to law changes and also country mix of profits.

As it relates to other uses of cash I think John outlined very well in response -- in his remarks. And then in response to your question as it relates to restructuring, we always look at competing uses of cash. And we think the opportunities for high return uses of cash currently exist in trying to expand the emerging markets platform and growing our businesses there as our customers grow their own businesses.

Having said that, even after accelerating the capital plans this year and being a bit more aggressive on growing the business in those markets, we're still going to be left with a significant amount of free cash flow. That will allow us to de-lever and certainly get to our leverage goal that we elaborated earlier. And we'll continue to look at other forms of use of cash flow, including those that may distribute some to shareholders. But at this time I don't think we're ready to discuss that.

Okay, thank you guys.

Ghansham Panjabi.

Robert W. Baird. On the steel and tin plate side, it looks like the miners were able to get a substantial increase in iron ore for 2010 and also are starting to push towards a quarterly pricing model versus I think the annual adjusters previously. How do you think this will affect your food can pricing model over time? And also what do you expect steel and tin plate to do regionally in 2010? Thanks.

You're right in how you characterize the success of the mining companies on iron ore pricing. And we don't know yet what the outcome is going to be on steel pricing as it relates to adjustments more often than annually. Some of the steel companies seem determined to want to make a change.

At the same time, I think they understand the tin plate business is a little bit different than a lot of their other businesses, and any changes that are less than annual need to be lined up in such a way that they don't disrupt our customers in terms of what they're trying to accomplish. So we're having a dialogue with them.

I think we're to come out, if we do make a change from annual pricing it won't occur this year. It will occur perhaps next year. And I think it's going to end up being done in such a way that it is fair on both sides. But we're going to have to work our way through that.

In terms of what is going on with steel this year, spot prices are going up. Nonprime is going up. Excess prime is going up. So everybody that is not under a long-term contract, that is to say typically, the major multinational can companies and large regional can companies who typically we buy on a long-term contract basis, we think a lot of our smaller competitors are going to be under some real cost price pressure as the year unfolds.

Just in terms of your European Beverage can business any impact on your volume profile based on what is going on in Greece?

No, not generally. There has not been.

Great, thank you.

Pete Ruschmeier.

Barclays Capital. Congratulations on a strong quarter. I know you've been focusing on the emerging market growth. I wanted to come back on this for a second. Am I close, if I add up all of the can plants you have in Brazil, Vietnam, China, Slovakia, from start to end I think we're looking at something like a 7% increase in your unit capacity ballpark.

That wouldn't be too far off.

And what is your expectation for utilization rates of those new plants say 12 months after start up? Would you expect they would be at 80% plus utilization or what is your general expectation?

All of the ones we have discussed with you we would expect to be fully utilized after 12 months. There may be some seasonality depending on when they finish the learning curve. It's December/January versus May/June that kind of thing. But the way we look at it, and that's why the returns are so attractive among other things, a very rapid sellout capacity.

Okay. I guess related to this, can you help us understand the contribution margin? It seems that most of your startups have new capacity or second or third lines. So would the contribution margin be as high as 30% on incremental units of output, incremental revenues?

I'm going to stay away from describing or revealing what our margins are. You are right to say as we double capacity in a number of these plants the contribution margin will be higher than just a one line plant. I think -- but to say anymore than that I don't think I want to reveal anything. I think we can certainly talk about the phasing of how we think revenues will be impacted by the addition of these lines, but we're going to stay away from margins.

I think generally speaking an important point you're making for us is we're not growing in emerging markets for the purpose of dotting one line can plants all over the world. So, we're focused on those markets where we think economic growth, creation of middle-class consumers the size of the economy, underlying economic policies of the governments and so forth are going to produce significant sustainable growth and allow us to have two and three-line can plants.

That's very helpful. And maybe just a finer point, a question on your general line can business. How much recovery have you seen do you think? I'm trying to understand the cyclical dynamic here. If we saw the cyclical correction from peak to trough, are you -- have you recovered one-third of the volumes, recovered half the volumes to get back to where you were previously in that general line business? In other words, what inning are we in of restoring those general line volumes?

I think that's probably a good question. I think your characterization of recovering is the way to look at it. We're probably 50 to 60% of the way there.

Very good. I'll turn it over guys. Thanks.

Chip Dillon.

Chip Dillon, Credit Suisse. Getting back to the volume issues, I think you alluded to this a little bit. But could you -- when we look at the Middle East, doesn't the second quarter really start to show a lot easier comparisons? And I guess dovetailed with the restoration you talked about, could we see those gain that early? Or would you expect that not to happen until later in the year?

And then you did have these impressive soft drink share gains in the first part of this year. Is that something you think is transitory or could that persist beyond 2010?

Yes, I think as to the Middle East you are right. The comps perhaps have become a little bit easier. But the issue we've talked about in Saudi Arabia needs to work its way through. We're confident the market is going to adjust to higher price points which our customers are attempting to achieve. So we're just going to have to watch that carefully. And there's going to be some bounce back undoubtedly, but there is the issue of shelf price in Saudi Arabia.

As far as North America is concerned, we were the fortunate beneficiaries of having some capacity in places that others felt their high cost capacity wasn't sustainable. So we're not planning to change our footprint in North America. So we think the volumes we're showing in North America are quite sustainable from our perspective and we're planning on keeping those volumes well into the future.

Got you. And then looking at the emerging markets again, particularly Brazil, and we know you're not the only ones adding capacity there. Are you -- have you actually presold those plants as you bring them up? And are you pretty certain in terms of what your pricing will look like as those plants ramp up?

We are very certain. The demand of the customers we think is very solid. Their capital expansion programs and their business plans, if anything, are running ahead of ours. So we're very confident we're going to fill out the capacity we're adding.

And just to be clear, is it fair to say this is all aimed at beer? Or are we seeing some soft drink penetration?

It's both. Beer is exceptionally strong, but soft drink also.

And would that mean you expect the share of cans in packaging soft drinks to actually be gaining in that part of the world at this point because -- is that partly a reflection of why you're building this capacity?

Soft drink mix I'm less sure of; I'm not quite sure how that's going to turn out. But I think beer mix is clearly moving from glass to cans.

One last quick question, just so we have this right, on the receivables change we obviously know you had $232 million at the end of the year. You said around $200 million. Do you have a more precise number as to what that was at the end of the first quarter, just so we can make an apples to apples comparison?

Yes, if you go to the bottom of the cash flow statement there's a footnote there. It is $185 million.

$185 million, got you. Thank you very much.

Alton Stump.

Longbow Research. Thank you. On the European (inaudible) side, I think you had some issues with export volumes being particularly weak over the course of last year. Has that gotten any better? Sorry if I missed any color on that. And are you seeing on top of underlying (inaudible) export volumes also improving?

I'm sorry. I didn't get the second part of your question.

Sure. Just if you are seeing export volumes improve in the food can business in Europe with the issue you had there in the back half of last year.

Yes we have, and we were referencing among other things we have in past calls, we do a lot of fish cans in Europe and a lot of it is exported of course all over Europe, but into Eastern Europe, Africa, etc. The business is bouncing back, demand is improving and of course trade credit is available again. So that's been part of the recovery story in Europe.

Okay, thank you. One quick follow-up on the beverage can side of your business in Europe. How much of a lift do you think the World Cup games could provide this year?

You know, I don't know. Everybody believes that the World Cup is going to be positive. I do too. It's been pointed out that at least the soccer countries of Western Europe, and I guess you could say right into Asia, are either in the time zone or pretty close to the same time zone as South Africa. So I think it's going to be positive but we have not attempted to quantify it.

Okay, great. That's all I had, thanks guys.

Claudia Hueston.

JPMorgan. Tim, I think you said volume in the American beverage segment were up mid-single digits. Your revenues were obviously up very strong at 17%. I was hoping you could give us a little bit more detail on the performance in terms of price and mix and anything else that may have contributed to the strong topline.

Obviously if volumes are up mid-single digits it doesn't mean revenues are going to be up the same percentage. You have to look at the denominator and one can versus one can last year doesn't mean the selling price is the same, depending on the pass through of materials and the types of products we're selling.

For example, North America is still 85% the market and 85% of our business is still 12 ounce cans. Much of the volume we have in Brazil is 16 ounce cans of beer. So we have different price points for the product depending on the end market user and the size of the can.

But volumes were extremely strong not only in North America but even stronger, the growth and even stronger in South America, Brazil and Colombia. We didn't talk about Colombia, but Colombia's also performing quite well right now.

Okay. So the mix was maybe a little bit more favorable than in the past?

I think the Brazilian mix is different and certainly more favorable than the past. (multiple speakers) In the US, 16 ounce can demand is extremely strong in the US as well.

Thanks. And just in general as we look at the Brazilian market, do you have any sense of how it grew in the quarter, just the market as a whole maybe not your position but the market?

I don't have specific numbers. But my guess would be 10 to 15% up.

As you think about sort of long-term growth in Brazil, is that the kind of growth you think you will see over time in Brazil for the market?

I don't know that it's going to be quite that strong. But our view is that if the overall Brazilian economy continues to grow at roughly the same rate, if they continue with the same economic policies, there are a lot of ifs here but you know them all. Then it's unquestionable; consumer credit is now available in Brazil for many things, houses, consumer goods, credit cards, etc. If these trends continue over the next five to ten years this is going to be a very, very good market not just for us but all of our customers.

Okay, thanks. That's helpful. One last question; Tim did you give the FX impact in European Food? If you did, I missed it. Sorry.

For?

Just on the topline.

The top line? I didn't but I can give you that. Tom is saying $20 million (multiple speakers) -- $29 million. I'm sorry.

$29 million, okay, thank you very much.

Mark Wilde.

Deutsche Bank. John, I wondered; you had such a busy period in February and March with all of these new project announcements. Is that going to pretty much tap us out for the year? Or is there the potential that we see significant more announcements as we move through the year and we see the capital spending number move up further?

We continue to study a lot of opportunities through this wide geographic area we described earlier. And it's possible that we'll be announcing some other projects over the course of the year. However, we think the capital will largely almost entirely fall into next year. So even though we might be announcing more projects, we don't think -- we're not going to be adjusting CapEx number very much.

All right. And just as a follow-on, you mentioned the significant volume growth in the release in what you kind of call leading indicator businesses and that included closures and other things. I wondered if you could just put a little more color on that, on why you see those as leading indicator businesses and how much the volume has picked up.

Traditionally for us in metal packaging, aerosols are a wonderful way to dispense products, both food and personal care products for example and other things. It's a wonderful container many, many ways. But it's somewhat expensive. The same thing true for metal vacuum closures, in our case typically (inaudible) glass and a lot of that is condiments --pickles, olives, things of that sort.

Our experience over many years is that in slow economic times, recessionary times, consumers will cut back on expensive, packaged goods and aerosols and certain glass containers with metal vacuum closures in the category. So the drop we saw in the first quarter last year was precipitous, really startling; particularly in aerosols but closures as well. The bounce back which has been going on for some time but very, very noticeable as Tim said in the first quarter we think is a very positive sign in North America and Western Europe.

Very good, thanks.

Chris Manuel.

Good morning gentlemen. KeyBanc Capital Markets and congratulations on a strong 1Q. A couple of questions; one is -- actually if I could follow-up on some of this more cyclical product bounce you're seeing. Do you have a sense as to what end customer demand is like, whether this is more restocking kind of filling shelves back up and that it might level out later? Or are we seeing a real pickup in demand as well? Do you have a sense as you look through to your customers' customers how that is flowing through?

Our customers seem to be very confident. We don't think it is simply restocking. We think it's a combination of demand picking up by the ultimate consumer as well as the restocking process.

Okay, so it's probably sustainable for a bit.

We believe so, yes.

And then a couple of other questions. John, you talked about seeing a lot of opportunities over the next several years. And I know you don't want to lay out all of the things you are looking at globally, but if you could provide us a little more of a flavor. As you look -- you haven't made much in the way of investment the last few years in the Middle East. And demand has been kind of sideways there for a bit, but I would have to guess that from a capacity standpoint you're still pretty well filled.

Can you maybe kind of think through or -- well, I know you have thought through -- but explain to us where you might be looking the next couple of years and having to make investments with more packages going from refillable to one way, things of that nature?

Chris, I mean, without going -- specifically I mentioned five or six regions, fairly large regions, all of them we think are going to present opportunities. Eastern Europe we think is still going to be promising for us, North Africa. The Middle East, you are right, we haven't done a lot in the Middle East. We know where we would like to do some things but we're waiting for politics and security to improve a little bit.

And China, Southeast Asia has been a great region for us. We think it's going to continue to grow. And of course South America -- for us Mexico, Colombia and Brazil. So all of those regions we think are going to present opportunities. I couldn't really predict where the next opportunities are going to come from, but they all look promising.

We have not looked at the Indian subcontinent. We might start looking there a little bit more than we have. We feel sreal good about the growth opportunities ahead of us. I have to say, as we've said repeatedly here, I think any one of our big multinational consumer packaged goods companies would say exactly the same thing that I just said.

Right. And I guess where I kind of come back to this is to think that with a number of these opportunities unfolding, it is it unreasonable to believe that CapEx could end up staying at a 300-ish level for the next few years as you bring some of these nice projects to fruition?

I really don't know Chris. I don't think it is unreasonable to say that, but I think it's a little premature.

Okay. The last question I had was how do you balance? There are certainly some interesting acquisition opportunities globally as well. How do you balance the ability to go into white space where maybe you aren't already or you have the ability to expand a presence versus acquiring?

I think we kind of look at it the same way we describe restructuring versus growth. A lot of the acquisitions in the mature markets are consolidating acquisitions, and they're a lot like restructuring activities. And if the paybacks are not compelling or if you're not accomplishing some of the strategic objectives, it is hard for us to push ourselves into making relatively expensive acquisitions in Western Europe and North America when we feel we can do some things that are a lot better return opportunities in the emerging markets.

So that's going to continue to be our bias. We are looking at acquisition opportunities. We're interested in those that make sense. But they have to make a lot of sense.

Okay, that's helpful. Last -- actually one question I did have was in the press release there was a legal settlement you guys discussed. Could you give us a little bit more color there? Was it related to something on the technology side or customer side or supplier side?

The only thing I will say is we're under a confidentiality to not disclose the other party, but I will tell you it is not with a customer, not with a supplier, and not with a competitor.

Okay, thank you.

Richard Skidmore.

Goldman Sachs. Just a couple of quick questions. First the start up costs in Slovakia. Can you quantify how much that was and when you expect those to roll off?

I think it was at $1.6 million in the quarter. We might have a little bit in Q2, but I think after Q2 we're well on our way.

And Tim how do you think about leverage in the business going forward given that perhaps things have normalized a little bit more in the economy and the credit markets?

Well, listen, we obviously -- we've been quite experienced at running a business with a lot of leverage for the last 10 years and we feel a lot better about our position today than we ever have, at least in recent memory. We're well aware of the fact that credit markets look like they are wide open again, even if lending rates are going to be bit higher from the bank market.

However, having said that, we've learned some very valuable lessons over the last 10 years. And I think that less leverage also means less interest expense, and less interest expense not only means more earnings but it also means more cash flow. As we've detailed previously, our interest expense will be at least $100 million lower this year than it was two years ago, mainly on the back of lower debt but also lower rates.

So, we're are quite comfortable operating the business with leverage but we do like the flexibility and freedom that comes with having less leverage as well as more cash flow. But having said that, I know where your question is going. And as I responded to George's question earlier, even with the additional CapEx we're spending this year, we're going to have significant free cash flow that certainly a large majority will be used to continue to reduce our net debt. And we will continue to review not only at the management level but at the board level other uses of that cash flow, including potential distributions in one form or another to the shareholders.

And then maybe just a bigger picture for John, John can you just maybe elaborate on the emerging market growth? You talked a lot about it, but what makes the experience perhaps in Brazil different than the experience that was happening in Europe? And specifically Eastern Europe a few years ago when capacity was being added and then ultimately projects had to get put on hold. Can you just maybe elaborate on what you're seeing that's different in Brazil?

Well, if you've been to Brazil and we've been active in Brazil for over 50 years, Brazil has had on the order of 16 years now, two successive administrations that have pretty much stayed with the same sensible conservative economic policies that have developed tremendous momentum that is very broad-based. And just a lot of good things have happened for that country.

Not only have their economic policies been sensible, they have had a lot of social cohesion about what they're trying to do. They've gotten a great lift, as you know, from raw materials; not just iron ore and so forth but also agricultural goods. And it's just a very, very broad-based dynamic economy. Their credit situation now is also very positive.

So, it's not like Eastern Europe in the sense they came out of Communism in a spotty way at various rates, and they are not so reliant on Western Europe for demand for a lot of things. They are selling their products all over the world including to the Chinese, and that's a big part of it also. It's just a very broad-based situation.

And the other is the -- what we're seeing by our customers is they are broadly speaking aggressively investing to increase capacity also. And this is not like Eastern Europe where for example Western European brewers were buying breweries, etc., speeding them up a little bit. These are green field facilities; filling plants typically, soft drink, juice, beer and so on, and it's broad-based throughout the country.

So it's just a real -- at the moment a very healthy, sustainable growth. And yet is not excessive. They're growing 4 to 6% a year, a little less than that in 2009 of course. It's just a real solid situation.

Great, thank you.

I will now turn the call over to Mr. Donahue for closing statements.

Thank you very much. That will conclude the call today. We ask you to note that the second quarter 2010 earnings call will be scheduled for Tuesday, July 20 at nine o'clock in the morning. We want to thank all of you for listening and we look forward to speaking with you again in July. Goodbye now.

That does conclude today's conference. Thank you all for participating. You may disconnect at this time.