Crown Holdings Inc (CCK) 2011 Q3 法說會逐字稿

Good morning, and welcome to Crown Holdings third-quarter 2011 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 third-quarter 2011 conference call. With me on the call today are John Conway, our Chairman and Chief Executive Officer and Tom Kelly, Senior Vice President of Finance. Before we begin, I'd 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 titled Management's Discussion and Analysis of Financial Condition and Results of Operations in Form 10-K for 2010 and in subsequent filings. A reconciliation of generally accepted accounting principals to non generally accepted accounting principal 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 guidance, and then pass on to John for his comments.

Comparable diluted earnings per share were up 19% to $1.01 versus $0.85 in last year's third quarter. For the 9 months, comparable diluted EPS was $2.32 compared to $1.81 last year, an increase of 28%. Despite the recent strength in the US dollar, currency translation has had a positive impact in the quarter and if current rates hold, will be positive for the full year. Net sales in the quarter increased 10% over the prior year due to global unit volume growth in beverage, the pass-through of higher raw material costs and $92 million of currency translation offsetting softness in global food can volumes.

In addition to weakening macro factors, adverse weather in both North America and Europe had an impact on volumes in those regions. Additionally, and as an example of how severe regional weather conditions have been, Thailand is currently experiencing its worst flooding in over 50 years. Conditions there are very bad in many areas, and while not disrupting our plant operating activities, certainly have impacted food and beverage can demand there. However, continued strong volume growth across the balance of Asia and also in Brazil resulted in global beverage volumes being up 3% in the quarter while food cans with only little emerging market exposure were down 4% in the quarter.

America's beverage revenue increased 9% in the quarter due mainly to the pass-through of higher aluminum costs and $7 million of currency translation. Segment income was up 4% in the quarter, reflecting positive mix and improvements to ongoing productivity on the 3 new Brazilian lines commercialized in the first half of this year. Volume in the segment was up marginally in the third quarter, reflecting strong gains in Brazil, offset by a 3.5% decline in the much larger North American margin -- market.

Incremental pricing actions by some of our CSD customers and adverse weather both impacted North American volumes in the quarter. Importantly, our new 2 line plant in Ponta Grossa, Brazil and the second line in Estancia, Brazil are running extremely well, and we are looking forward to a strong summer selling season in the southern hemisphere in the fourth-quarter of 2011 and the first quarter next year.

Third-quarter revenues in the North American food business were essentially flat, reflecting the pass-through of higher steel costs which offset a 4.5% decline in unit sales. Poor weather conditions in the Midwest impacted yields across many products, notably corn, this harvest season. However, as has been the case throughout 2011, we continue to benefit from lower costs primarily resulting from the closure of Canadian plants last year and also from the ongoing positive mix effect of increased vacuum closure sales with segment income increasing $7 million over the prior year. Reported European beverage revenues were up $50 million, or 10% due to 3% sales unit volume increase, the pass-through of higher raw material costs and $14 million from currency translation. The segment's income was down $9 million from the prior year and reflects lower production activity than planned as we adjust to weaker consumer demand.

In our European food business, revenue has increased $65 million or 12%, primarily due to $42 million in foreign currency translation and the pass-through of higher steel costs which offset a 4.5% volume decline, a result of the weakening economic conditions and cool and damp weather across much of northern Europe, which depressed yields. Segment income was up 5% as ongoing cost reduction efforts in currency offset the lower volume levels. Excluding the impact of currency translation and the pass-through of higher steel costs, specialty packing had another solid corner with results essentially in line to the prior year. Our nonreportable businesses had another strong quarter. Revenues were up 18% over the prior year as Asian beverage can volumes were up 13%.

As we have discussed throughout the year, demand remains very strong in China and southeast Asia, and we have much-needed capacity starting up next year. We have commercialized 2 new beverage can lines this year, including a new plant in Hangzhou, China in June and a second line in the Phnom Penh, Cambodia plant earlier this month. We expect commercial startups at 3 new Chinese greenfield plants, Putian, Ziyang and Heshan over the first 3 quarters of 2012. Additionally, we have recently announced that we will double the Putian facility to 2 lines by the first quarter of 2013 and build 2 more new plants in Zhengzhou and Changchun, China to be commercial by 2013 also. Interest expense in the quarter was $3 million higher than last year and for the 9 months is up $27 million, reflecting higher debt and lower -- and higher average borrowing rates. However, the capital structure remains very flexible and we have no significant long-term debt maturities until 2016.

As discussed in last night's earnings release, we were required to take a charge for a French tax law change enacted in September and retroactive to January 1 2011, which includes limitations on the use of tax loss carry forwards. The timing in the law change is unfortunate as it limits the NOL benefit we had scheduled to use to offset the exit charge income on the Company's European headquarters moved to Switzerland. Free cash flow for the 9 months is below the same period last year and reflects higher working capital and higher capital spending.

Trade working capital is up $386 million on last year, reflecting higher inventories, the result of the inflation impact on inventories, inventory build ahead of the seasonal demand in Brazil and Asia and softer developed markets' demand in quarter 3 than forecast. We have a lot of work to do over the balance of this year, but as always, we will adjust our production schedules in Q4 to reflect the changes in the business so that we do not carry too much working capital into the following year. We now project free cash flow to be in the range of $350 million to $400 million for the year.

All in all, we have had a strong 9 months with comparable earnings per share up 28% over last year. As we have said before, we are fortunate to be in the business we are in. While we are not immune to global economic conditions and the volatility that surrounds us, our businesses' defenses with an increasing position in growth markets. We expect to continue to grow shareholder value through a combination of an emerging market expansion, a continuing focus on productivity improvements and cost containment, and by returning free cash flow to shareholders. At current exchange rates, we project 2011 comparable earnings per diluted share to be in the range of $2.75 to $2.85.

And with that, I will turn it over to John.

Thank you, Tim, and good morning. As Tim pointed out, we had a solid quarter, particularly given demand issues in certain of our larger developed markets. On a continuing basis, net income was up 19% compared to last year and revenues increased by 10% with global beverage can sales units increasing by 3%. While emerging markets' demand was generally strong, certain of our businesses in North America and Europe experienced demand below prior year and our expectations. We believe that this is explained by 2 principal factors; poor weather in western Europe and North America that negatively affected the various vegetable packs in both continents -- on both continents and somewhat weaker demand that we believe is attributable to continuing economical slowness and relatively high levels of unemployment in North America and Europe.

Our plants around the world continue to run exceptionally well, and we did a very good job controlling costs. On the other hand, because the slowdown in sales versus our expectations occurred largely in the second part of the third quarter, we clearly finished the quarter with higher levels of working capital than needed. We are working diligently now to bring working capital down and finish the year with relatively strong free cash flow.

As you know, we have an extensive and important beverage canning capacity expansion program underway, which is supported by relatively high levels of capital spending. Virtually all of the spending is directed to very promising emerging markets. We have reviewed this program carefully to ensure that current demand projections still support our activities. At this point, they do, and so we intend to carry on with the broad outline of the capital program as we have described to you in the past. However, we will continue to look project by project and market by market and adjust appropriately.

As a consequence of our recent review, we have concluded that we will delay our project in Turkey by several quarters, and -- which was a project to add a new beverage can plant in the southeastern part of the country. Also, we will delay our new plant startup in Belem, Brazil by approximately 1 quarter. Otherwise, we will continue with our capital program. Of course, if circumstances change, we will adjust capital expenditures appropriately.

In summary, everything considered, the Company had an excellent quarter and demonstrated very strong performance subject to the reservations I mentioned above. The increase in sales and income both in the quarter and year-to-date and our expectations for the year, support the proposition that Crown is exceptionally well positioned in the global metal packaging business and our prospects remain very good.

And with that, I think we can answer questions.

Thank you. We will now begin the question and answer session. (Operator Instructions) And our first question comes from Tim Thein with Citigroup. You may ask your question.

Great, thank you, good morning. Tim, just curious if you had any updated thoughts with regards to looking at the pension situation for next year from a funding perspective, as you look -- obviously, it's a moving target here with rates and we'll see how the asset performance does, but can you kind of give us what you're looking at in terms of potential funding in terms of size into the fourth quarter, ahead of next year?

Yes, so this year we are contributing roughly $75 million, and that will be in for non-US plans. And that number should remain very consistent through next year. We had a funding holiday in the United States this year, as we have had for the last several years. That does come to an end. And as we disclosed in the Company's 10-K, for 2010, we did provide an estimate of what we thought total contributions would be in 2012 versus '10 and '11, and that increment was due to the US. That was about -- at the time, the incremental amount was about $70 million, if I recall.

Certainly, conditions have worsened since February or January of 2011, in that the equity markets certainly have not been positive this year, and the discount rate is -- while it has improved, the 10-year bond has certainly improved over the last couple of weeks, it's certainly far lower than we had anticipated back then. So, incrementally next year, I think the number is -- too early to say, but somewhere between $70 million and $100 million. But as you know, we are mark to market for accounting, and the IRS funding rate is a smoothed rate over a 2-year period. It will really depend on where we end the year at.

Okay, got you. And just switching gears to the non-reportable segment. Can you just maybe give a top -- or kind of an overview in terms of what the margin profile in that business looks like as you -- the mix continues to shift more and more away from food and aerosol towards bev cans? It has been one of your highest margin businesses. Can you give thoughts in terms of what that looks like as you ramp up capacity over the next, say, 1 to 2 years?

Yes, well, there is no food in that business. It's the North American and European aerosol business, the machinery operation we have that makes beverage can machinery equipment in the UK, and the Asian operations. That is China and southeast Asia beverage and food cans. It's roughly 60% of the revenues roughly come from Asia, with most of the balance coming from the aerosols business. The margin profile is the margin you see reported there. I'm not going to go into any more detail about the margins underlying the total margin, but the margin is roughly 17% in the quarter, and roughly 17% for the full year.

I think it's important to note, and we have provided at various conferences -- and those presentations are on the Company's website -- the timing of the capacity expansion program we have around the world and specific to Asia. We have only recently begun to add capacity in Asia, so the Hangzhou plant started commercial operations in June, and obviously is still in learning curve. Cambodia, the second line in Phnom Penh only went commercial 2 weeks ago, so that's very early on. Most of the growth relative to the expansion program, and the adjustment of the margin profile that you are looking for, will not happen until 2012 and 2013, and that non-reportable segment across the Asian region.

Okay. Last one -- within Europe, bev cans, can you comment in terms of the volume trends with regards to Europe relative to the Middle East?

Yes, give me a second here. I think we probably have that. Overall, we said we were up 3%. Europe was up a little more than 4%, and the Middle East was about a 0.5% up.

Okay, great. Thanks a lot.

You're welcome.

Thank you. Our next question comes from George Staphos with Merrill Lynch. You may ask your question.

Thanks, hi, guys. Good morning. Thanks for all the details. Maybe segueing, first off, the last question from Tim. If we look at European beverage can margins, we've been down fairly consistently, I think, over the course of the year and every quarter, 200, 300 basis points. I know, obviously, volume has been an issue, but can you comment as to whether there has been any structural changes in the marketplace from what you have seen? And can you give us an update on how the Czech plant has been coming up, both line 1 and line 2?

Yes, George -- John Conway.

Hi, John.

Hi there, George. No, there is nothing fundamental structural that's changed in the market from what we have been describing for Crown's situation. As to the Slovakian plant, it continues to run better, come up the learning curve, so we are really pleased with that. And then as Tim mentioned, we had planned for more activity in the third quarter. We started July pretty well, but then tailed off noticeably in August and September. So, had to reduce production operations, and cost per unit ran up. Nothing more than that in Europe.

John, I know you said it was weather and the economy, and that is fair, but would you say that the effect is really more economically centered from what your customers are saying right now? And here I'm speaking more broadly than just Europe, in your developed markets where you've seen some volume sluggishness. Do you think it's been more that the consumer has been pinched, or do you think it is just been the weather has been terrible? What is your sense?

George, I can't tell which is more. In Europe, clearly, western, northwestern Europe there was clearly an adverse weather effect. And I think perhaps that generally outweighed -- perhaps outweighed economic considerations. But again, this is pure speculation, as you can imagine.

Spain slowed up a little bit in the third quarter, and then it certainly wasn't weather. Greece has been a little weak for us -- small market, but still a little bit weak. It's really hard for me to tell, but I think it's a combination of both factors. And in North America, I think it was more weather than anything else in the food pack. We think it's a little of both, but hard to measure proportions.

Okay. Two questions on sustainability, if you will. On the one hand, the North American food can margins are the highest that I can ever remember. Think from you or perhaps any one of your peers, so congratulations on the one hand, but do you think you can actually maintain this into the future?

And as we think about free cash flow, to get to the free cash flow guidance that you have, you would need a free cash flow generation for the record books in the fourth quarter, given our data. What gives you comfort that that is an achievable goal?

I think first is the food in North America. We think the margins can be maintained. They really reflect, in our case, a dramatically better cost base than we've had in the past, and we've talked about the restructurings and so forth that we've done. Our mix is very, very good, and lines up exceptionally well against our low cost production assets, and the market is stable, and we have no aspirations for market share gain and so on. I think food should hold up well. I agree with you, uncharacteristically high, but we think maybe it's going to be a new enduring characteristic.

And as to the second part of your question, what was it, George?

Just free cash flow. I would figure minus $400 million thus far. You are still guiding at $350 million-plus, so --.

Well, look, no question, as we told you, food volumes around the world often average at 4%, but in some places more than others. I wouldn't say it caught us by surprise, but you know the food pack, and the way it always seems to work. July started pretty well for us, a lot of enthusiasm on our part and our customers, and then August slowed quite a bit. But in the food business, you are always into this thing -- well, okay, did it slip into September and so forth? And we thought it did, so we carried on, and we just built up too much working capital. And to a lesser degree, that was also true in beverage in Europe, and not so much the US.

So, now, as Tim said, and as we said in the release and I said in the remarks, we are going to have to work it down aggressively. We are doing that. And so we think we are going to do fine with free cash when you consider what happened in the quarter. So, time will tell here, but not very much time. We should -- we'll know all this within the next couple of months, but we feel pretty confident about the guidance we've given you. We could do a little better, but we will see.

Okay, thanks. I will turn it over.

Thank you. Our next question comes from Ghansham Panjabi with Robert W. Baird. You may ask your question.

Hi, guys, good morning.

Good morning, Ghansham.

First off, Tim, on the free cash flow guidance, the updated guidance there, what are you assuming for CapEx? I think previously it was at $425 million.

Yes, I think probably right around $400 million. As John mentioned, we probably will delay a couple of the projects by a quarter, or in the case of one of the other projects, maybe a little more, that he talked about. So, $400 million.

Okay. And the working capital, I think last time you said $50 million or so use of cash. What -- how should we model that now?

Well, I think that we are hopeful we can get it to that level. We will see. I guess what I would leave you with is -- it's your model. I don't like to review your models too closely because then I'm a part of your model. But we are going to work as hard as we can, as John just said, to get it back to that $50 million.

Okay, and just given the decline in commodity prices in the last few months, should we anticipate any sort of inventory holding losses or anything like that going forward?

I think it's too soon, George, to say. I think you're referring, basically, to a steel issue, not aluminum so much.

Yes.

And it's -- we honestly -- we are just too far ahead of the end of the year to know where steel is going to go, in our categories.

Okay, all right. And just sort of a broader question, John, if I could. A lot of issues, obviously, during the quarter. Weather, you mentioned that a couple of times. Europe, North America, and maybe even China. Lower production, perhaps some start up issues, some of the Slovakia issues continuing, et cetera. How should we think of this in terms of quantifying it for the third quarter specifically? Because, obviously, CapEx has increased quite a bit '10 to '11, and probably '12 as well. And if you look at operating income, it was only up moderately during the quarter. So, I'm just trying to get a sense as to how you would quantify these other issues. Thank you.

Well, I think fundamentally you need to go back to Tim's remarks about how much capacity was actually added in the third quarter, for example. And as he said, one beverage can line that began operation in roughly June, which is to say very little capacity was adding to sales in the quarter. And the other beverage can line that we talked about in Cambodia began operations first part of October. So, if you go back and you lay out what our CapEx program is, and where we think capacity is going to -- when it's going to come on and when it's going to make a contribution, we are still very, very confident in '12 and '13 we are going to show the kind of growth that we've been discussing with you. A point that you -- I think you remember is -- we have been sold out in Brazil and Asia for a number of years. We've been adding capacity behind the market, not ahead of the market. And so we are very confident in the CapEx program we have underway.

I think the -- what we saw in the third quarter in the food business in North America and Europe, I think it's something that it's a 2011 event, not a sustained situation, and so we think we are going to come back there. We are always driving productivity. Every plant that we have, every new plant that we have constantly comes up the learning curve, gets better and better, and then you can do things to it to add incremental capacity in a very, very cost effective way. So, the whole program, we think, is still very much on track. The story is intact, and we are confident of it.

And the other thing, Ghansham, keep in mind that in the businesses where we had volume declines, as John discussed, were in the northern hemisphere, and typically that's a big Q2 and Q3 business. The businesses where we are growing and where we continue to see volume growth generally are not very large businesses in Q3. Their season is more Q4 and Q1. I think it's just the timing of the year. Some of the profile of our earnings will change over time as the businesses in the southern hemisphere or the Asian businesses that are still in the northern hemisphere which participate around Chinese New Year, continue to grow.

Okay. Thank you.

Thank you.

Thank you. Our next question comes from Alex Ovshey with Goldman Sachs. You may ask your question.

Good morning.

Good morning.

Question on just the growth rate in Brazil. You talked about it being pretty strong. My question is -- how much of that is organic growth in Brazil versus just a shift of production from North America or other markets into Brazil, given Brazil was short canned next year, and there was importing of cans happening into Brazil? Because as you look at the end market consumption of beer in Brazil has been pretty sluggish, and the weather has been pretty poor in Brazil as well for the first half. That's difficult to reconcile how there is actual organic market growth in Brazil right now.

We think -- and talking about the third quarter now, we think that the cans brought into Brazil last year, '10, and carried over into '11 are largely out of the system now. So in -- when we talk about the third quarter, we are talking about cans that were made and sold in Brazil by the various can companies there. Overall market growth in Brazil in the third quarter was a little bit sluggish for weather reasons. It's also the lowest quarter, as you know, because they're going now into, let's call it the summer quarters. Third -- or fourth and first. Also, you've got the holiday season, Christmas season, school holidays and all that. Seasonally, it's a very, very heavily weighted in Brazil towards the fourth and first quarters.

Now, what's going on in Brazil, the growth may overall -- organic may have been somewhat slower, but the soft drink companies were up and beer is up somewhat. But you also have the phenomenon, with us anyway, is continuing package mix change in the beer segment, which continues to be significant. And then finally, we thought, and still do, that the capacity we are adding in Brazil was properly lined up with what we thought would be happening in the marketplace. And some said we were a little ahead of things. We don't think we were. We filled all that capacity very, very nicely. At the moment, we have been fortunate. We are getting the lion's share of the growth that's available. But Tim might want to add to that.

No, other than, I think, as we said earlier, we brought up 3 new high-speed lines this year. One is a very, very high-speed new 2-lined plant in the south, and we doubled the plant in the northeast as well, both high-speed lines. And as John said, we were perhaps ahead of some of the others investing for the growth. So, if they were -- in total, if there were 4 or 5 beverage can lines that were commercialized over the last 12 to 15 months, we've had 3 of them. So, we are getting a larger share of the growth right now, just because of the timing of the investment.

Okay, appreciate the color. And then a question on share buyback. I don't think you bought back much stock during the third quarter. Can you just talk about the appetite you have for share buyback, especially with the stock being at pretty low levels right now.

Well, generally speaking, and as Tim mentioned in his prepared remarks, we continue to subscribe to the proposition that we should return value to our shares, create value for our shareholders appropriately. And so we are looking very hard at it, and always with a view towards deploying our cash in the way that is most effective to drive shareholder value. So, we are very mindful of the opportunity.

Thank you.

Thank you. Our next question comes from Alton Stump with Longbow Research. You may ask your question.

Thank you. Good morning.

Good morning.

I think I will just touch briefly as a follow-up to your capital spending delay comments. Obviously, I'm sure you probably don't want to talk about 2012 in too much detail yet, but can you give us any color as to where CapEx may -- as to where it may come in at next year, assuming it's going to be down substantially --?

Yes, I think it's very premature to talk about 2012 guidance, but I think we are at least comfortable to talk about capital for next year. I think you should think about a number in the $325 million range.

Okay, great. Thanks. And then I was going to follow-up with the food can volume weakness. Any idea how much of the weak vegetable pack both here and in Europe may shift into 4Q versus being lost for the back half as a whole?

Unclear. Frankly, we don't think the fourth quarter in the Americas is going to be great in food. There's been a little bit of a carry over, but not a lot. Europe, we are doing all right in the first several weeks, but I think we are not going to -- clearly, we are not going to fully recover what we lost in the third quarter, and we do not anticipate a strong fourth quarter in food, either in North America or in Europe.

Okay, great. Thank you. That's all I have.

Thank you.

Thank you. Our next question comes from Phil Gresh with JPMC. You may ask your question.

Good morning. I appreciate the color on the inventory side of things. I was wondering how much you think, if we were to separate it out, how much do you think you will need to under-produce in the fourth quarter, in terms of hitting that free cash flow target?

I couldn't quantify that by plant, but it's certainly incorporated in the earnings guidance that Tim gave you. Tim may want to -- ?

Yes, I think we will see it more in European beverage and European food. If you recall, last year in Q4 in North American food, we had lower production to bring our inventories down. I don't think there is an incremental reduction in North American food production levels, but there certainly will be in European food and European beverage. But as John said, it's incorporated in the earnings guidance.

Okay. And then just one other question on the inventory side, I was kind of worrying about. And that is, you've started up a lot of plants this year, and I assume that each of these plants requires some inventory build that is kind of ongoing in terms of safety stock and things like that. Is there an element of this inventory build this year that is kind of just a 1-time factor that's hitting the numbers, or is that not really material?

We did mention that in the prepared remarks, that part of the reason for the increased inventory are the new lines that we have installed this year. You can view that as 1-time, and certainly for those locations. But to the extent we are going to continue to add lines throughout the balance of the capital program we have, we're going to continue to build inventory for each of those lines that we have going forward. And specifically, much of the capacity, as we have discussed, is in either the summer hemisphere, or Asia, where they do have a very strong Q4 and Q1 around the Chinese New Year. So, we are -- the profile is changing, and we've discussed that numerous times over the last couple of years, that the working capital profile is changing.

Having said that, we are extremely disciplined and mindful of that fact, and we are working as hard as we can to continue to trim third-quarter and year-end inventories each year in the northern hemisphere. That is North America, western Europe.

Okay. And then just switching gears back to North American food. I'm just kind of wondering, again, with the margin improvement that you saw there. Is there a way to break out how much of that was the plant closure versus the mix benefit? Just in the event that mix maybe turns the other way at some point. How we can think about that in terms of the impact that's had?

Yes. We probably -- I'm trying to recall. We probably did disclose when we closed the plants last year, what we thought the full-year earnings impact would be. We are several quarters into it now, so we should be getting the lion's share of that. I just don't recall. But it would be -- the cost reductions would have been -- if we were up $7 million in the quarter, it would have been a large piece of that $7 million, which would help to offset the volume decline, and then the balance would be the closures' mix effect.

Okay. And then just on the North American beverage side. Can you give any color around how private label did versus branded? I know private label is generally doing better right now. Do you have any color around that?

Well, I think really just to echo your comments, private label did well through the year. Not uniformly, because some of the merchandisers didn't push soft drinks as hard as others. But generally speaking, private label did well. And then as you have seen, some of the branded -- some of the brands did very well also. Price volume strategy varied clearly by customer. Overall, I think we did quite well in the fact that we've got a very balanced portfolio, I think was helpful to us.

And is it fair to say private label is up in the quarter, year over year?

I haven't looked. I don't know. I don't have that kind of detail here.

Okay. All right. Thanks, guys.

Thank you. Our next question comes from Philip Ng with Jefferies. You may ask your question.

Good morning, guys. You guys have done a fabulous job on improving margins in North America from plant shutdowns. Is there any opportunity for you to replicate that success in Europe? And I do know one of your major competitors out there is taking out some capacity. Just wanted to get some thoughts around that.

Yes, that's one of the things we are looking at closely now. We -- I think we have told you before that we don't just willy-nilly do restructurings as they arise. We like to wait and be absolutely sure that a restructuring is going to produce the kinds of returns that it would appear. And sometimes we stockpiled a little bit and try to do them at times that are most convenient for us. That's what we did in North America. We waited, and then we finally did what we did. We had a very nice pick-up, very quickly. We are looking at similar things in Europe, and we are talking about that. It's one of issues about use of cash here over the next 6 months. Yes, we think there's some good opportunities for us in Europe.

Okay, that's helpful. And just want to get some thoughts on your bev in terms of demand/supply. Certainly, weather didn't help during the quarter, but just want to get a sense of what operating rates were shaking out in Europe in general. Is there any risk for 2012? Just because I know your margins came in a bit this year just because some of those contracts were up for renewal, on your contracts for above-market rates. Is there any concern or risk for that rehappening in 2012?

Yes, I think with margins, we don't anticipate margin erosion going into '12. Generally speaking, capacity utilization in Europe's been quite high, over 90%. And the first 6 months of the year, European volume was up pretty much across for the market generally. The third quarter was a fair bit slower. I think still up a little bit overall. So, we're pretty confident on the market for beverage for next year.

By the way, just a follow-up to an earlier question. For us, private label was up in the third quarter this year versus third quarter last year.

And then just last question. It sounds like at least 3Q you got hit a bit on the weather front. Just want to get a sense -- have trends improved now that weather is less an issue going to Q4?

Yes, I don't -- Tim mentioned Thailand, but it's not a huge market for us, generally speaking. But who knows? But at the moment, I don't think we see anything that is adverse from a weather effect standpoint.

No, other than the, as John mentioned, to use the term, the damage that was done in the food pack in Q3, it's unlikely that all of that, if any, will be recovered in Q4. It's just the timing of the season, and it's, again, unfortunate timing. The situation in Thailand continues right now. But as John said, it is a smaller market for us.

What about Europe bev September and October? Have things improved a bit now that weather is more normalized?

Well, it was really -- as I was saying earlier, we started very well in July in Europe. August and September were weak. And as I said earlier, a combination we think of weather and economic circumstances. So both, we think, hurt us, and we think probably hurt the industry a little bit as well.

Okay, thanks, guys.

Thank you.

Thank you. Our next question comes from Chris Manuel with Wells Fargo. You may ask your question.

Good morning, gentlemen, and congratulations on a solid quarter.

Good morning, Chris. Welcome back.

Thank you. A couple questions for you. First, wanted to follow-up a little bit on some of the delays in capacity that you are undertaking. Appreciating how careful you guys are when you put capital into place, and also appreciating you don't put [speculative] capacity in. It's usually sold out as it comes online. Could you maybe give us a little more color, to the extent you can, about how the process went? I am assuming it was customer lead, that they asked for a little more time bringing that on stream. Are there issues with underlying demand? Are there issues that maybe securing funding for their own filling capacity or what have you behind the delays, and how we should think about potential for more of those going forward. What types of things should we be monitoring?

Yes, why don't we just talk about the 2 in particular. In Turkey, we believe growth in the Turkish beverage can market this year is going to be on the order of 3% to 5%. We had thought higher last year, 2010 was 7%. We took a look at it and took a look at what the market is going to require over the next 9 months, let's say, in Turkey, and feel that we can satisfy the market out of our existing plant. Therefore, we can push back Turkey a little bit, continue to monitor the situation. It's as simple as that.

Brazil was somewhat similar. Somebody mentioned that demand was a little bit muted in the third quarter in Brazil this year compared to previous quarters. And again, we felt that we can slide our Belem, Brazil project by 3 months or so, and keep our other plants absolutely fully loaded. Customer hasn't been any part of this. That is to say, the specific customer that supports the Belem plant will start supplying that customer, big brewer in Belem, January 2, but it will be from our northern Brazil, big northern Brazil plant, and then we will pick up supply a little bit later in the year. We are looking at every one of these projects plant by plant, market by market. We can move them in any direction, depending on what arises. What we are not doing is just blindly carrying on with the CapEx program because 2 years ago we thought it was a good idea.

Sure, that's helpful. The second question I had was, again, appreciating some of your earlier commentary about how you were very careful with restructurings and such. When we look at the North American market, I think you said it was down 3%, 3.5% or so for you in the quarter. But that's been a general trend for the last several years. How do you think about reallocating capacity in North America or the potential for some restructuring, also given that you typically do get a little bit of productivity and expanded out of what you have already?

To Tim's point earlier, we just did a, for us, pretty major restructuring within the last 15 months.

He's talking beverage.

You're talking about beverage?

I apologize, I'm talking about beverage.

I'm sorry. We will monitor the situation. If the market continues to slide as it has, then we will be taking out capacity. We are not going to keep excess fixed costs in North America. We don't need it, and we've got a lot of use for this equipment in other parts of the world. We will shut plants and move capacity if we need to.

And Chris, this is actually the first quarter, I think, in many quarters where we've -- I think the market was down about 3.5% in the quarter, as we were. But this is the first quarter we have had in a few years where we have had declining volumes. As John mentioned, the portfolio is well balanced, and we have been outperforming the market for several years on the back of that well balanced portfolio. But as John said, we continue to look at that, and we are all about keeping the plants as fully loaded and as low cost as possible.

Okay. That's helpful. Thank you. Good luck.

Thank you.

Thank you. Our next question comes from Chip Dillon with Vertical Research Partners. You may ask your question.

Yes, good morning, John and Tim.

Good morning, Chip.

First question, and I know it's a little early. But with the elevated CapEx the last couple of years, can you give us an early look as to how, order of magnitude, how much you think depreciation could be higher in 2012? And of course, since most of the expansion is in the lower tax jurisdictions, could we see a point or 2 taken off the tax rate next year?

The -- as I said, it's a bit premature to start talking about expectations or forecasts for next year. It clearly is the case though that as we bring these projects out of the construction phase into the completion phase, we will capitalize the equipment from in-progress and begin depreciation, and depreciation will go up. I know -- I think depreciation was up here in the third quarter of 2011 versus last year. Certainly, a slice of that is currency, and some of that will be the new capital that has been capitalized, offsetting the fully depreciated assets that roll off. But I just don't have an exact number for you.

As to the taxes, we spend a fair amount of time, as most multinational companies do, ensuring that we are paying the appropriate tax rates in all the jurisdictions. As you know, the US has a global tax system. Included in our tax rate as well is the repatriation of cash from those areas back to the United States, and there is a tax upcharge often times between the local rate and the US rate. But we are always mindful to keep the rate as low as possible. However, we will repatriate cash when, and as, necessary. But I think it's a little early to say. I don't want to say that having brought the rate down several points over the last couple of years, it's just too early, or to be that heroic to say we are going to bring it down again next year.

Got you. And then I guess thinking strategically, you all have very successful joint ventures around the world -- Middle East and in other regions. Is there any possibility of thought that you might acquire more of those investments in coming years as your free cash flow rises with the CapEx coming down? Or should we really focus on that free cash flow almost certainly going entirely into buybacks?

Yes, I think we have been doing that to a degree, and we've talked about it and made announcements about it over the past several years. I think when you think about our current portfolio of businesses, the right way to think about it would be this -- we largely own all of the Asian activities now. There are a few exceptions, but as a general proposition, we own them all. We've got a couple of things underway, but that's the way you should think of Asia.

The Middle East, we are looking at that. There is some opportunities for us, and we may make some changes there. Brazil, however, we have a very good partner. They love the business. I can understand why. I don't think you are going to see a change there. We have been doing what you are describing, but at this point, it isn't going to be a lot of money as we clean up a few little situations.

Got you. And then just a last quick one here, on the 2 plants that you pushed out a bit, it sounds to me like the Belem plant is just on a different timetable, and that that's, I would imagine, largely completed. So, you can confirm that. But is it fair to say that the Turkey line is really -- you haven't really done much work on that one at this point?

No, actually not. We will have completed the building in Turkey by the end of December, and we have some equipment in place already. And so we're just going to stretch that out a little bit, as I said, start operations probably in the third quarter, and time it more effectively, we think, to the market growth that we see in Turkey.

Sounds great. Thanks, guys.

Thank you.

Thank you. And our final question comes from George Staphos with Merrill Lynch. You may ask your question.

Some last quickies. You mention what your shipments were globally in beverage, and also in food. I think somebody else asked a somewhat similar question earlier in the call. Do you have a sense for what the production was in either beverage or food that to some degree will then have to work off in the fourth quarter?

I don't have it in front of me now, George. Without making a guess, which I don't want to do, I just don't have it.

We do, George, but we don't have it here.

Understood. Second question, there's been some discussion about in Europe for 2012, the potential for some portion of the cost structure, specifically the conversion premium on top of ingot to be not necessarily entirely passed through to customers in pricing of beverage cans. Can you comment as to whether this will be an issue for you or not as we think about 2012? At least preliminarily.

We don't think so, George. As we look at our situation and so forth, we don't think that will have an adverse effect on our margins for the year.

Okay. And the last question, to the degree to which you continue to optimize your production stance in North America and other developed markets, something Crown has done for years and years, obviously, is you take the equipment and move it to other markets that are growing. Are there any markets where you can't use -- any emerging markets, I mean, where you can't use your existing standard capacity and production lines, either in North America or Europe, or do you have a pretty good amount of freedom to do that? Thanks, guys, and good luck in the quarter.

None that I'm aware of, George. You may have electrical issues and so forth, but those can be -- those lines can be converted and so forth. You may be referring to the bad old days of 20, 30 years ago. Some countries had very significant and draconian restrictions on the use of imported used equipment, but that's virtually never the case anymore. So no, we don't see any restrictions on that.

Just to be clear here, John, we are talking about perspective in the future should we develop or create excess capacity in the developed markets. But all of the capital we've invested in the programs you see that have been laid out for the last 18 months, all of those installations, almost without exception, is brand new equipment.

The other thing, just to add to that a little bit, one of the things that has helped us quite a bit, and we are really pleased that we decided to do what we did, is we've got a very, very effective equipment division that is focused pretty much entirely on beverage. We think that they're technology leaders in the segment, and we also think it gives us an ability to move very, very quickly when we spot a new project and can coordinate exceptionally well between our operating people and the equipment people.

And in addition, I think something that some of you don't pay too much attention to, but we pay a lot of attention to, but we've got a global capital projects group which handles all of our projects globally of any technology. Three piece, 2 piece, food, aerosol, beverage. And so we've got an in-house capability, really, to do all of these projects, and we do them all in-house. And we think it not only produces economies in terms of efficiencies with regard to CapEx, but also speed to move. And I think you can see a lot of that in our projects. It gives us an ability to flex exceptionally well. We are not negotiating with contractors about what they are supposed to be doing. We simply are directing our own people to flex their activities.

Thanks for the comments. Good luck.

Thank you, George. Shirley, was that the last call?

That was the last question.

Okay, thank you very much, Shirley. That concludes the call today. We do ask you to note that the fourth quarter and year-end 2011 conference call will be scheduled for Thursday, February 2, 2012, at 9.00 Eastern time. We want to thank all of you for listening, and we look forward to speaking with you again in February. Bye now.

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