Crown Holdings Inc (CCK) 2012 Q1 法說會逐字稿

Good morning and welcome to the Crown Holdings' first quarter and full year 2012 earnings conference call. Your lines have been placed on listen-only mode until the question-and-answer session. Please be advised that this conference is being recorded.

I would now like to turn the call over to Mr. Timothy Donahue, Executive Vice President and Chief Financial Officer. Mr. Donahue, you may begin.

Thank you, Shirley, and good morning to everybody. Welcome to Crown Holdings' first quarter 2012 conference call. With me on the call today are John Conway, our Chairman and Chief Executive Officer; and Tom Kelly, Senior Vice President - Finance.

Before we begin come 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 titled, Management's Discussion and Analysis of Financial Condition and Results of Operations in Form 10-K for 2011 and in 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 also find 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 2012 guidance, and then hand the call over to John for his comments. Diluted earnings per share were $0.46, versus comparable earnings of $0.48 in last year's first quarter. On a currency comparable basis, net sales increased 5.4% over the prior year, on the back of strong unit volume sales in North American food and beverage cans globally. Demand in our European three-piece steel packaging businesses, that is food can and closures, specialty packaging, and aerosol cans, was soft in the first quarter. And, while reflecting overall economic conditions in Europe, we caution that the first quarter is a very small quarter overall in Europe; and, with respect to our food business, most a seasonal crops have not yet been planted. Inventory repricing not recurring this year impact segment income globally in our food, aerosols, and specialty packaging businesses.

In Americas Beverage, revenue increased 4.3% over the prior year, with overall volume in the division up more than 5%. Volume in North America was flat to the prior year, while Brazil was again up strong double-digits. Our volume growth in Brazil continues to come from strong demand in those regions where we added considerable capacity last year. That is in the south at our new Ponta Grossa plant and in the northeast with the second line in our Estancia plant. Sales unit volumes were up more than 5% in North American food, due to an early pack for some products and customers pulling shipments ahead. Segment income at $32 million in the quarter was up $4 million over last year's total of $28 million, reflecting contribution from additional sales unit volumes and strong operational performance, which more than offset the 2011 inventory repricing. Increased demand in Saudi Arabia and the United Kingdom contributed to an overall 8% increase in European beverage sales unit volumes. Segment income down $3 million in the first quarter compared to the prior year reflects carryover of prior year price compression.

On a currency comparable basis, sales in European food were level to the prior year, as 5% lower sales volumes offset the impact of higher template costs. Segment income at 10% to net sales compared to 12.3% in the first quarter of 2011 reflects the lower volume levels and the impact of 2011 inventory repricing, which did not recur in 2012 and currency translation. Specialty packaging revenues were down $10 million to the prior year, due to lower promotional sales and $3 million of currency. Segment income reflects lower sales and the inventory repricing last year. In Asia, we are off to another strong start this year with beverage and food can volumes up more than 12% and 9%, respectively. Global aerosol can volumes were down 8%, reflecting softer economic condition and lower demand for this premium dispensing packaging. Compared to the prior year, income was lower as our aerosol business did not benefit from the inventory repricing as in the prior year.

Supply remains tight in Asia, with demand picking up in March post the Chinese New Year inventory rebalancing. Commissioned last year, both the new plant in Zhengzhou, China and the second line in Cambodia are performing well and progressing up their respective learning curves. Our newest plant in Putian, China successfully began commercial operation at the end of March and will go to a full three-shift operation this month. In Guangdong Province we have a large new plant Heshan, which over the next 30 days will begin production of a beverage ends. The can line in Heshan is expected to ship its first commercial cans in August. For the West and China, we expect to begin commercial shipments from another new plant in Ziyang in about six weeks.

So a lot of activity, as has been the case over the past two years, but the construction and startup teams continue to execute multiple projects very well, which will allow the Company to meet future expected demand. The effective tax rate from ongoing operations was a bit over 26% in the first quarter and for the full year is still projected to be between 28% and 28.5%. It is early in the year, but we are on plan. And, at this time we still estimate full year 2012 earnings per diluted share from ongoing operations to be in the range of $2.90 to $3.10 per share, and the first half of 2012 to be comparable to the prior year. Free cash flow after net capital expenditures of $325 million is projected to be at least $325 million.

With that, I will turn it over to John.

Thank you, Tim and good morning.

As usual, Tim has carefully summarized for you the highlights of our 2012 first quarter performance. We are right on our plan for the year, and business is unfolding essentially as we thought that it would. Beverage can demand continues to be strong, particularly so in Europe and the emerging markets. In Europe, the demand for food, aerosol, and specialty packaging has been adversely affected by the overall economic condition; however, we planned for this and developments have been in line with our expectations. As Tim mentioned, this is a seasonally, very small first quarter, so we do not read it too much into it.

The many major capital projects underway to increase capacity principally for beverage cans are on budget and on schedule. We continue to believe that the countries and specific factory locations that we have selected, together with the customer relationships that support of these investments, are well-chosen and that resulting sales and profit growth will be substantial and in line with our plans. In sum, we expect another year very solid growth and improving profits.

With that, Operator, we are prepared to take questions.

Thank you. At this time we are ready to begin the question-and-answer session.

(Operator Instructions)

Alex Ovshey, Goldman Sachs.

On the inventory holding gains not recurring can you just provide more clarity of what the actual headwind was for you in the quarter and how it was allocated across the steel tinplate businesses.

I think in each of North American food and European food, about $5 million to $6 million. In specialty packaging, $2 million to $3 million. Aerosols, Europe and the US, I think we would say in each, about $3 million. So, overall about $15 million, $16 million.

And, is there any incremental headwind that you expect to see in the second quarter?

No.

Then second question, it seems like all the projects in China are on track, or at least the ones that are scheduled for 2012 startup. Can you just comment on what percentage of the business in China is contracted at this point?

The -- are you referring to the new plants or all of the plants?

The new plants.

Yes, all of the new plants for the year are essentially fully-loaded with contracted business. So, we're talking about -- I think Tim just mentioned Putian in the first quarter, Ziyang in the second, and Heshan in the third.

Last question on pricing in European beverage cans. How should we be thinking about the headwind from the carryover and the pricing compression in Europe this year? Is it going to be a headwind for the entire year, or at some point that headwind starts to abate.

No, I think it is going to significantly diminish in the second quarter. We began referring to margin compression in Europe in the second quarter of last year. We think we are largely through it; however, you did see a small impact or a continuing impact in the first quarter, but it is going to diminish to virtually nothing over the balance of the year.

Philip Ng, Jefferies.

It seems like you are seeing a divarication of trends in beverage and food in Europe. Just want to get a sense what's driving that?

I think the first thing to remember about food is, it is a seasonally very small quarter. It is not unusual for the European customers to move filling volumes around from quarter to quarter. It is not unusual for them to pull from Crown in a quarter to the disadvantage of the competitor and the reverse in the next quarter. So, we are not too alarmed about the food situation, as Tim said. But, we acknowledge the European economies are generally weak, and we've got to take that into account, and we did. We are not overly concerned about food or any of the steel packaging products in Europe.

Turning to beverage, all of the things that we have talked about in the past regarding beverage continue to be true. That is to say what they call off-premises consumption in Europe, take home, continues to grow at the expense of the so-called on-trade, bars and restaurants, particularly so because of the economic conditions, but in addition because of drinking and driving laws, because of smoking, etc. So, that continues. The brewers continue to move pack mix more to cans, away from glass; we think that is going to continue as well.

And, of course, in the Middle East, as we referenced and Tim referenced, we had quite a strong quarter as well. I'd just say that all of those factors put together, but there is nothing really new here, these are continuations of trends that we have talked about in the past.

Phil, just one thing on food cans Europe, we had a look back and last year in the first quarter it was a unusually strong volume quarter. I think our volumes in last year's first quarter in European food were up 3% to 4%.

As we look at profitability, our 2012 profitability in the quarter is right on top of the 2010 profitability, as you level out the volume issue and the repricing. As John said, it is early in the year, and we don't get too excited at this point.

You guys referenced that you're seeing good strength in the Middle East. Is that why you are pulling for that plant in Turkey?

The Turkey plant's been under, as you know, has been planned for quite some time. But, yes, Turkey is needed by us to support various places, including even Southeast Asia, so that's one of the reasons.

One last final question. I believe RG Steel is idling a mill on tinplate, is that going to impact your costs by any much this year and just supply overall for tinplate?

No, it will not. Our deals for tinplate are all said and done.

George Staphos, Bank of America.

I had a question regarding the press release. You mentioned towards the end of your comments that you're going to closely monitor demand trends in all of your markets, and you're committed to conserving deployment of capital. That is always true, and looking back historically, the Company has done a very, very good job of that.

Is there any other takeaway that we should have from that, other than the obvious, are there signs perhaps, despite what you said this morning thus far, that maybe you're concerned about supply demand or the outlook, say two, three years from now in any of the emerging markets?

No, George, it doesn't. But, it just makes reference to the fact that the various projects we have announced and listed for you in the past, we have a significant number, I am sitting here looking, eight fairly significant projects that are coming on and going to be commercial in 2013. So, those, and the first and second quarters we're pretty confident about. We are confident about all of them, but those projects that are further out into the future we'll adjust depending on how the markets unfold.

We still believe that all the growth and opportunities that we have identified in the emerging markets are going to come good. We continue to be encouraged by the fact that our customers, the soft drink guys, the brewers, the Asian drinks, the retorted juices, et cetera, are all continuing to add capacity, and all continue to be very bullish in these markets and so are we. But, we just felt it was worthwhile to put in there. We'll adjust our plans as they adjust theirs.

When we move to the non-reportable segment and the decline in EBIT year-on-year, I think you mentioned earlier in talking about the inventory repricing or lack of that gain this year that it was about $3 million in aerosols, globally, if I heard you correctly. A -- could you --?

Yes, $3 million each in aerosols, North America and Europe, so call it $5 million to $6 million.

Was that the primary reason then for the segment --?

(Multiple speakers) Aerosol volumes were down 8% globally as well.

So, then could we confirm that your Asian can profits, even though you don't disclose them, were actually up year-on-year? And, could you put a percentage around what the gain might have been in EBIT year-on-year in --?

In percentage terms, I would say the profitability in Asia was up at least 10%. And, that's after, for us, fairly significant start up costs that we're absorbing for multiple projects that are either in construction or just completed.

Okay, that's very good. Two last ones, and I will turn it over. At this juncture, what are the growing indications for Europe across your various regions? Any color that you could share that is relevant from your customers in terms of what they think they might be planting and what customers' ability to buy might be?

Then, in terms of the beverage business globally -- frankly, more so in North America, any early read on 2013 in terms of contracts and how good you feel about your volumes?

Thanks guys, good luck in the quarter.

As to food, we're not seeing anything abnormal, and we feel that the plantings and so forth are going to be reasonably normal and pretty good. Now, mix of crops always varies, and I won't get into that, but overall we think what we're hearing from our customers is promising.

Moving onto the beverage question, I imagine it is directed to a degree at the North American beverage situation. We're not going to into individual contracts, but I will say this, we think we have excellent relationships today with all of our beverage can customers in the United States and Canada. We monitor very closely our quality service innovation, sustainability, et cetera, performance.

We ask our customers, and they do, to rank us versus of the industry with every customer today that we have we are either at the top or tied for the top, so we feel very, very confident about demand outlook over 2012 and 2013, even into 2014. We can sit here today and tell you don't be worried about Crown Cork and Seal over the next several years in beverage in North America.

Chris Manuel, Wells Fargo Securities.

A couple of questions for you.

I want to go back to an earlier question regarding, I believe some of the capacity you are adding in Asia is not all the way sold out yet. I think particularly stuff comes online in '13, and you answered for us, I believe, what you've already added is running at full capacity, what you have got slated to come on, either just coming on or coming on in the near term, is sold out. Can you talk a little bit about where you are at in speculate capacity and maybe what portion is sold, or how that's progressed over the last 3, 4, 5, 6 months?

Yes, I am looking at our list 2000 project as we speak, George -- I'm sorry, Chris. 2013 projects and I would say we are 60% to 70% pre-sold on the '13 projects.

If my memory serves, I think last quarter you were, I believe, less than half. So, you're making good progress there, is that fair?

Yes, it's true.

Second question I had was with regard to South America. I believe you are still moving forward, you're adding your plant in Belem. Could you just give us an update there? Is that all sold out as that comes online as well?

Yes, that plant if you will recall is supported by a large customer whose very larger brewery is just several miles from our new plant. We still plan to begin commercial production in the first quarter of 2013, and that's one of the ones that I included in capacity that has firm contractual commitments supporting it.

Okay, that's very helpful.

Last question I have is in North America you mentioned that the food business had some pull-ahead. Could you maybe give us a little more color there? That is something that is a bit abnormal usually customers try to delay as long as they can for working capital reasons or what have you. Maybe a little more color as to why you think customers are pulling ahead so much, or is it something you think that, last year was a substandard year as far as crops go and think maybe could volumes end up being a little better this year than what you are anticipating?

No, I wouldn't, George, don't read too much into it, first -- or rather, Chris, I'm sorry, don't read too much into it. The volumes, as Tim mentioned, are seasonally low in the first quarter anyway, and if you think about soups and prepared bills, pet food, dry beans, you would be surprised. The customers do have some -- it is possible for them to move, feeling around a little bit.

Also, we have a number of shared accounts. At times, we can do a little better in the quarter and a competitor will do a little better in the next quarter. We don't read too much, we are really delighted that we did so well in food in the first quarter, but we recognize that this will balance out over the course of the year. As Tim mentioned, we're still plan for the year and that is what we are providing for.

Thank you very much; good luck, guys.

Ghansham Panjabi, Robert Baird.

Just given all the macro headlines recently, China apparently slowing and Brazil having slowed over the last few quarters. John could you give us a regional outlook for the rest of the year for your global beverage can business, and maybe overlay what industry supply demand looks like for some of the emerging markets?

I think our estimates of beverage can growth around the world are not too different from what you have been hearing from can sheet suppliers and bits and pieces of what we've heard from other people in our industry. We still think our European beverage business will be up 5% to 7% units for the year, we think Brazil's going to be up 5% to 8%, these are markets now, some are going to do better or worse, but usually better. We still think Asia is 10% to 15% growth, depending on the market, China and Southeast Asia combined.

Now, we acknowledge that the Chinese economy is slowing somewhat, and yet at the same time as you know and we see it because we are there, and we've been there, and we are all over the country, the Chinese government has got a tremendous push on to try to increase consumption, increase disposable income. We understand they are going to try to increase interest rates paid on savings to try to encourage consumers to spend a little more money, so that is a big push, and they have been pretty successful in everything else they've done for the last 25 years, but at least they're responding to the situation.

Europe, I talked about beverage why we are doing so well in the face of the soft economy. I think that's going to continue, the Middle East appears to be strong. Brazil slowed, but we have been very, very fortunate because we installed capacity in regions of Brazil that needed a lot of capacity. We felt that we identified some geographic areas that were tremendously under-served, had great growth prospects; we were right. So, we hope we're going to take advantage of that going ahead. We are pretty bullish about the whole beverage scene globally.

Okay. On your last comments on Brazil, the sequential margin decline in the Americas 4Q versus 1Q, how should we think about that?

In Americas beverage?

Americas beverage, right.

It would just be volume, right. The fourth quarter is a -- while the first quarter is a strong quarter for Brazil, the fourth quarter is much stronger quarter for Brazil, ahead of Carnival.

Finally, just an update on the rationalization efforts in Europe on aerosol food and specialty.

We are right on track. Everything is unfolding as we had expected it to, so there's nothing really new to report. But, we are right on the plan that we laid out for the year for the restructuring program.

Mark Wilde, Deutsche Bank.

Wondered, John, in Asia, both China and non-China, if you could give us a little bit of color on what you're seeing over there in terms of margins?

The margins are holding up well, and that's true in China and throughout Southeast Asia. The, in spite of the capacity that has been added, what we're seeing is our customers are adding capacity at least as fast or faster than the industry. I think things are unfolding well. We are very pleased with what we are seeing.

How would those margins compare to what you see in other markets?

Well, you really have to go country-by-country, and frankly, region-by-region in China, and it's just purely reflection of relative supply demand characteristics in each. But, I'd say the margins are healthy and as we would expect them to be in these countries.

John, if you look at China, it seems to be the most fragmented market you compete in globally in the beverage can business. Any thoughts on potential consolidation or rationalization in that market?

Well, we think it will come, and I think you are right the way you're characterizing it, but it's going to take a little bit of time. At the moment, the market is growing, everyone is very ambitious. So, you've got 6, 7 companies with relative strength and all of us want to grow. But, I do think there will be consolidation and our customers are consolidating but there's still plenty of them for all of us, but it is going to take some time.

The last question I had, we got past this government decision on BPA. I'm just curious about what you're seeing your customers do in terms of BPA use right now? Are they moving to other types of coatings or is that penetration still pretty low?

The question has been reviewed once again in Europe by several different bodies and found that BPA poses no threat, and the same now, frankly, is really what's happened in the US and Canada. I think our customers are much calmer, so now you need to go customer-by-customer take a look at the products that are being packed and each of them is reacting somewhat differently. I would say, generally speaking, everyone is quite calm in the extent that for marketing reasons they want to consider moving to BPA. It's all being done in a very orderly fashion.

Okay, that's helpful; thanks a lot. Have a good second quarter.

Chip Dillon, Vertical Research Partners.

Looking at the Belem plant in Brazil, I know that that had originally been 1 billion cans for the first quarter '12. John you mentioned it's now first quarter '13, and I believe it is still $700 million, could you just confirm that? Do you think, is this something that is still sort of a touch and go decision in terms of the timing, or do you feel a lot more firm now about the current first quarter '13 timing?

No, we are very confident about the timing. Capacity is still about $700 million, $750 million. It lines up very well against the big customer that we have contracted with and some additional volume in the region, so we are still right on plan. We are very confident of it.

One more on the future. I know, I think was back in the fourth quarter, so you all postponed indefinitely the Phnom Penh, Cambodia second line. Is that still something we should just keep out of the forecast for the foreseeable future?

We -- the second line of Phnom Penh went in in November. The second line you're referring to was the second line in Hanoi. For the time being, you should consider that one just postponed.

Hanoi, you're exactly right. You can see my notes through the phone lines, thank you.

Another question I had, if you could help us with. If you look at the cash flow and the balance sheet statements, it looks like the cash flow showed cash going down by $92 million but the balance sheet was $159 million, which is a pretty big spread. I would assume that's not just foreign exchange, it might be. Just on the same token, the net debt in the cash flow statement went down $440 -- or actually went up $443 million, but if you just do the balance sheet calculations it's $601 [million]. Is that just foreign exchange or are there other things going on there?

Yes, the difference between the balance sheet and the cash flow will be foreign exchange. I don't think there's anything other than that. There is very little below the line free cash flow activity so it's mainly --

It's because the balance sheet is March to March --

March to March --

and the cash flow is --

December to March, yes.

Okay, got you.

Lastly, last couple of years you've been able to buy increasing amounts of the non-controlling interests, and I just was wondering if you think you'll be able to do more of those and what areas would they likely be in?

I think we will have opportunity to do that over time. The only areas where we have significant minority are Brazil and the Middle East. As we've said in the past, we have a very long-standing, healthy, supportive, wonderful partner in Brazil who chooses to remain our partner. In the Middle East, we could have opportunity from time to time to acquire some of the interests from the partner there.

Lastly, I know at some point you guys were looking for about a 54 billion can year this year globally. Are you still comfortable with that sort of number in terms of a volume overall?

Yes.

Al Kabili, Credit Suisse.

John, on the Chinese contracts, could you clarify for us in terms of contract length, are the newer contracts similar to what you historically seen in terms of contract lengths?

Yes, they are. I would say generally speaking the Chinese market is characterized by somewhat shorter-term contracts, but we're still talking 2 to 4 years in duration. Not too different, frankly, what we see in other markets.

Also, on the aerosol volume performance this quarter, was that all market driven or were there any shifts in business market share that's also been going on with the new year?

No, there were no shifts of any significance, so it is basically just the markets in Europe and North America.

Final question, nitpicking a little bit here on North America bev, which I think you mentioned was flat. A little bit below the industry bev can growth that was positive. I imagine it's customer mix, but any color you can give us on the relative difference there?

No, it was just that. Industry growth was a little bit, 1.5, 2, something like that (multiple speakers) 1.5, so in a quarter I wouldn't read anything into it. It's just mix and we don't expect anything -- we don't think it is significant at all.

Okay, terrific. Good luck for the rest of the year.

Phil Gresh, JPMorgan.

On Brazil, could you tell us what your operating rates are looking like down there? I'm thinking that with the ramp up of the plants from last year, you should really start to see some productivity from some of those lines this year, so could you tell us where you stand?

Yes, if taking into account the learning curve because we're still on a learning curve in the second line in the north and pretty much through in the south. But, take that into account, we are well over 90% utilized, and in one of the factories, 100%. So, full utilization when you take into account learning curve.

Should we be seeing some nice sequential improvement there then from a margin standpoint?

Yes, if everything else stays the same, we keep coming up the learning curve and spreading the costs more effectively, but that is going to take some time.

Yes, Phil, I think you've started to it already. Certainly Q4 and even Q1 here, volumes in the segment were up 5% and operating profits were up 10%, so I think you're starting to see that.

On the projects that have been announced for 2013, I assume some of the CapEx spend would be this year, some would be next year. Is there a way you can calibrate for us? If you go forward with all of those projects where the growth CapEx would stand for next year at this point?

I think if we didn't, if we completed everything we have announced today, and we left it at that, I think total CapEx for next year we could easily see in the $225 [million] to $250 [million] range.

As we've always said to you, we have selected locations and markets and try to align ourselves with customers where we believe there is going to be continued growth, so we would hope that we continue to have more opportunities, but based on where we're at now, total CapEx next year would be $225 million to $250 million. I wouldn't get yourself to that low a number yet because we would hope to still have more opportunity.

Just the last question on the working capital front, it was a little heavier this first quarter than last year's first quarter, just kind of wondering what drove that? Is there -- your volumes have obviously been strong in the first quarter, so is there any expectation that some of this is just a build for a stronger summer or how are you thinking about that right now?

Actually, it is all going to be in payables. Inventories and receivables as a use of cash are lower this year, payables as use of cash are much higher. We are taking a big effort to try to keep average working capital down from the start of the year versus last year; and for that reason, we don't have the payable outstanding at the end of March that we had last year. We're trying to bring less material in and adjust our working capital.

As I said earlier, we had a very strong first quarter last year in European food. We built inventory early in the year on the back of that for what we thought we might see for the balance of the year and certainly the second half of year last year didn't turn out to be as strong as the first half. We are a bit more careful bringing in material and then you don't have the payable at the end of the quarter.

Okay, very helpful; thanks a lot.

Adam Josephson, KeyBanc.

This question relates mainly to China and Brazil. Generally speaking, to what extent do think beer consumption growth is linked to GDP growth? In Brazil last year, GDP growth slowed fairly dramatically and so did the beer market, but I realize there were other factors involved, such as bad weather, the largest brewer raising prices, higher taxes, et cetera. Can you go into some detail about that issue? The link that's between GDP --?

Yes, I am no expert on the beer industry and its correlation to GDP growth. I'm a little more provincial and focused on cans in relation to the beer industry and to a degree, GDP growth.

If you think about China, it is the biggest beer market in the world now by 20%, 30%, I believe. It's been growing 5%, 6% a year, year-on-year for 10 years, faster often. And, we think that's going to continue. Even if GDP growth in China were to slow from 9% to 6%, and nobody thinks it's going to be 6% this year, let's say it's 7.5%, we still think that growth's going to be significant. But then, you need to keep in mind, I know you do, the package mix phenomenon that's under way. Without, almost without exception, the big multi-nationals and now the big local brewers in China and in Brazil prefer cans over returnable glass, for sure, and frankly, cans over one-way glass. All of that we think is good news for the can.

We think the same thing is true in Brazil. Even if overall beer growth were to slow, somewhat as a consequence of the reduction in GDP growth in Brazil, we still think the can is going to do relatively well.

Now, your point is well taken. Disposable income is extremely important, and we have had countries, particularly in the emerging markets a decade ago, we saw a lot of GDP growth, but not a lot of disposable income growth for a variety of reasons. Of course, that's changed in Brazil, it changed in China, it has to do with the availability of consumer credit, it has to do with savings, and all of those other factors. Put it all together, we think for us anyway, our beer can business, if you will, in China and Brazil look real healthy this year and on into the next numbers of years.

One other one that you talked about earlier, the CMI beverage can data was significantly improved in 1Q, relative to last year. How much of that improvement would you attribute to the abnormally warm weather this winter and how much would you attribute to other factors?

I really don't know. You need to keep in mind it is a seasonally small quarter in the beverage industry, first quarter. I am really happy about 2% positive, not 2% negative or 1.5% positive, whatever it was. That is good, but we are not too caught up in what it all means yet.

Scott Gaffner, Barclays Capital.

On the last quarter's call, you mentioned that Europe was in a pretty good balance. I think you said most manufacturers were above 90% capacity utilization rates. Can you talk about the European market now for bev cans, and if you are seeing any ordering ahead of the Olympics there?

We are not seeing ordering ahead of the Olympics, but our customers are talking about wanting to be sure that we have plenty of capacity to service them over the next 6 months, so I think that's very positive. As we said earlier, we do think the industry's in pretty good supply demand balance in Europe.

I don't know of anyone who is adding any significant capacity. I think the entire industry is focused on trying to run more efficiently and effectively, and of course, for our industry that is a great way to improve earnings by dropping incremental cash flow to the bottom line and contribution to the bottom line. So, that's -- we continue to see that and no change.

Has pricing in Europe, has that firmed up at all?

It is been quite firm through the fall and into the first quarter, as I said earlier.

Just moving over to tax rate, obviously the first quarter was a little bit lower than we were expecting and you slightly expanded the range for the tax rate for the full year. One -- is the tax rate for the full year, do you think there's still room for that to come down. Secondly, longer term, on the tax rate, do think there is a structural change there were it might come down over time as more earnings come from outside the US?

I think the first, the answer on the first quarter is, as you've heard us say more than once today, the first quarter is small. Small movements in country mix, and we did mention that Saudi Arabia was stronger in the quarter, and we continue to do well in the many of the emerging markets. You only need to move the number by about $1 million or $1.5 million to get the rate down a couple percents because it's such a small quarter. So, I wouldn't read too much, again, into the first quarter tax rate, it's country mix.

I will say that, like most multi-nationals, we do a fair amount of tax planning and we try to be as efficient as possible. There's always room for improvement, but at the same time the US Federal Rate is 35% and we're on about 28% to 28.5%. Right now Tom and I are sitting here, it's kind of hard for us to see where we could be more efficient overall, especially as the US operations continue to generate more profit at a full 35%.

We have time for one a final question.

Todd Wenning, Morningstar.

On the food can side, over the past quarter or so, some of the big CPG companies have come out and said that they are seeking alternatives to the tin can for tinplate cost reasons. Are you guys seeing that in the ground and how should we be thinking about that in the coming future?

No, we are not. Tinplate price movement for the quarter versus prior year was very, very muted; and so we are not, our customers are not taking that position with us, and we don't anticipate loss of volume as a consequence of higher cost for tinplate cans.

How are you thinking about debt reduction versus buybacks going into the rest of the year?

I think we are confident in the cash flow generation ability as well as a companies ability to continue to generate more EBITDA, so as opposed to looking at absolute levels of debt, we look at leverage as a multiple of EBITDA. We would err on the side of more share repurchase, less debt reduction, but I think will be a combination of a both.

Great, thanks guys. Good luck.

Thank you. I will now turn the call over to the speakers for closing remarks.

Shirley, thanks very much. Everybody, thank you. It concludes our call today. We do note for you that the second quarter 2012 conference call will be scheduled for Thursday, July 19, at 9 o'clock in the morning, Eastern Time. Again, we thank all of you for listening and look forward to speaking with you again in July.

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