Crown Holdings Inc (CCK) 2013 Q1 法說會逐字稿

Good morning, and welcome to the Crown Holdings first-quarter 2013 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. John Conway, Chairman of the Board and Chief Executive Officer. Sir, you may begin.

Thanks, Shirley. Good morning, everyone.

With me on the call are Tim Donahue, President and Chief Operating Officer, and Tom Kelly, Senior Vice President and Chief Financial Officer. I will make some brief introductory comments regarding the Company's performance in the first quarter, and then turn it over to Tom Kelly, who will take you through the numbers and give you some additional detail. Tim Donahue will review carefully the performance of the various businesses in the quarter and discuss briefly our views about the balance of the year.

Let me remind you 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 & Analysis, the financial condition, and results of operations in Form 10-K for 2011, and in subsequent filings.

Crown had a strong performance in the first quarter. Volumes were up nicely across most of our businesses. Earnings per share from continuous operations, at $0.50, were well above prior year's $0.46.

All of the businesses performed essentially as we had expected. Our Global Beverage businesses got off to a very strong start; in fact, somewhat better than we had anticipated. Our other businesses were generally in line with our expectations.

Our European Food business was slightly weaker than we had expected, principally as a consequence of a very cold first quarter in Europe and due to the delay of early shipment of seasonal cans, which will now occur later in the year. Tim Donahue will speak more about this.

So all in all, we had a promising beginning to 2013, and we have a lot of confidence about our performance as we look into the months and quarters ahead. And with that, I will turn it over to Tom.

Thank you, John, and good morning. Diluted earnings per share for the first quarter of 2013 were $0.28, compared to $0.46 in 2012. On a comparable basis, diluted earnings per share were $0.50 in 2013 versus $0.46 last year.

Net sales for the quarter were slightly ahead of 2012 as higher global beverage can volumes offset somewhat lower volumes in our European Food can operations and the passthrough of lower material costs. Global Beverage can volumes increased 6% in the quarter and Food can volumes were down about 2%.

Overall segment income, at $195 million, improved $14 million from the prior year due to the increased beverage can volumes and lower depreciation expense, partially offset by lower profits in European Food. Our adjusted tax rate for the quarter of 26% was in line with our previous guidance of 26% to 27% for the year.

In January, we successfully completed the issuance of $1 billion of 10-year unsecured notes at 4.5%. With this issuance, we were able to extend our debt maturity profile and lock in historically low rates. We ended the quarter with almost $1.1 billion of cash and availability under our revolving credit facilities.

At this time, we are reiterating our previous guidance for full-year 2013 comparable earnings per share to be in a range of $3.20 to $3.40 per diluted share. Second-quarter 2013 comparable earnings are currently projected to be in the range of $0.88 to $0.98 per share. We are also reiterating our free cash flow guidance of $500 million for the year.

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

Thank you, Tom, and good morning to everybody.

As Tom described, we had a solid quarter and are off to a good start this year. Demand continues to be strong, particularly in beverage cans, which we expect will continue. Operationally, our plants continue to run very well, with productivity and efficiency improving.

In Americas Beverage, we had a solid performance with volume up more than 3%, compared to the prior year, on the back of strong double-digit increases in Brazil and Mexico, offsetting a 1% decline in North America. As we look back on our own strong performance and the overall market performance during the past six months in Brazil -- that is the Brazilian summer selling season, we remain encouraged by the first future growth prospects in this important market.

As we noted in last night's release, we began construction on a new beverage can plant in northern Brazil to meet continued growing demand. The plant, located in Teresina, approximately 500 miles east-southeast of Belem, is scheduled for commercial production in the first quarter of 2014.

Unit volume sales in European Beverage were up 4% in the first quarter and, coupled with improved manufacturing performance throughout our operations, drove the improvement in segment income. Our new plant in Turkey is progressing well and is on its learning curve. All in all, a nice start to what we believe is going to be a very good year.

Beverage can unit sales in Asia-Pacific were up 18% in the first quarter, compared to 2012. As you know, we have expanded capacity through numerous major projects over the last three years. Including projects to be completed this year, we will have added 9 billion units of annualized beverage can capacity since 2011 in Asia-Pacific.

We are currently upgrading and integrating two acquisitions made in the fourth quarter of 2012. In the first quarter of this year, we completed the construction of second beverage can lines in our plants in Putian, China, and in Malaysia. And next week, we expect to begin customer shipments from our new plant in Danang, Vietnam.

During the first quarter, we collected the final tranche of the Thai flood insurance settlement, and our new plant near Bangkok will be completed next month. And lastly, in July we expect to begin shipping from our new plant in Sihanoukville, Cambodia.

So as we have said, a lot of activity, but the large construction phase is coming to a close. Our team in Asia-Pacific, assisted by the engineers in our equipment manufacturing business and our in-house project management teams, have handled it well, with plants coming up the learning curve on plan. As we have previously discussed, Asia-Pacific revenues are expected to increase more than 30% this year, and we have built an industrial platform from which we will continue to generate further growth and opportunities across the region.

We have five plants in learning curve currently, with three more to be added shortly. So in total, we will have eight plants across various stages of learning curve. Demand remains strong, and as we continue to move up learning curve, we expect improving segment income over each quarter of this year.

As Tom noted, food can unit sales were off 2% both in the Americas and Europe to the prior year. But in absolute terms, this is not a significant number of cans in a very small seasonal quarter.

Our North American food can factories continue to perform very well, with high productivity and asset utilization. In Europe, the first quarter was essentially on plan, but compared to prior year it was impacted by the carryover impact of price compression which occurred in the back half of 2012 and the phasing of preseason shipments to Quarter 2. With more normal spring and summer European weather patterns, we would anticipate improving results over the balance of the year.

Aerosols performed well in the quarter, with volume growth in North America and cost reductions from recent restructurings in Europe contributing to the improved performance, offsetting lower timing-related shipments in our equipment business.

So in summary, while Q1 is a small quarter, we are off to a good start. It is early, but demand remains firm, and as Tom mentioned, we expect growth in comparable earnings and cash flow this year.

And with that, I will hand it back over to John.

Thanks, Tim. And Shirley, we are ready to open it up for questions, please.

(Operator Instructions). Philip Ng, Jeffries.

Good morning, guys. Your European Beverage business performed quite well there in Q1. Can you parse out the trends that you are seeing in Europe versus the Middle East? It seems like you are outperforming your competitor. And did you see any pricing during the quarter -- improvement?

Tim and I will both take a crack at it. Actually, demand was reasonably strong for us across the entire region, which, as you just mentioned, is Europe, the Mediterranean, and the Middle East. And so, that part was very good.

Pricing was firmed up. There was no further problem with pricing. Productivity improvements were good. So -- but Tim, you might want to add to that.

Yes. As you recall, Phil, not only did we open a plant in Turkey mid last year, but over the last several years we have built a very large two-piece can plant in Slovakia, and manufacturing improvements made there, as well as the increased volume across the region, contributed to the income improvement.

Okay, that's helpful. And on the food can side, can you give us an early read-through on the -- what you are expecting from a vegetable pack [hand port] in North America and Europe? I know Europe was a little weaker, but it seems like it was more a one-time issue. Can you give us some color on that front?

Well, I think it's kind of early to talk about what we expect from a vegetable pack, although we expect a firm pack. The plantings are up, and obviously weather was a challenge last year, both in North America and Europe. We expect weather to be better this year and we are expecting a pretty firm year.

Okay. And just one last question. Any thoughts on the timing of the buybacks for 2013?

Phil, we said we would do buybacks this year. We have not done any yet, as you can see in the results, but we will do some later in the year.

All right. Thanks, guys. Good luck.

Ghansham Panjabi, Robert W. Baird.

On European Food, can you give us a sense as to what the production level was during the first quarter of this year? And how does that compare to a year ago? Because you obviously called out some weakness on the volume side as well.

I actually know that number. Production was about 4% lower in Q1 this year than in Q1 last year.

Okay. And how do you feel about inventories as you kind of head towards Q2?

I think we're in pretty good shape.

Okay. All right.

You know Q1 is a very small quarter for food, but we are in very good shape as it relates our inventory and our manufacturing plant is well prepared, and we feel pretty good. And as I said, we expect better weather this year.

Okay. And so, just sort of a bigger-picture question, right? So since 2010, CapEx has been ramped up quite a bit. Your EBITDA has grown, but has been offset by weakness elsewhere, and obviously European Food comes to mind. As you think about, I don't know, the next three to five years or so, is most of the growth for Crown still going to come from new capacity additions via CapEx? Or should we expect a meaningful contribution from your non-beverage can business also? And more importantly, how should we think about the parameters of that contribution on an EBITDA basis?

Oh, I think you know the answer, Ghansham. We expect most of the growth to come from beverage. That is where we have been putting our emphasis; that is where we are seeing really strong demand in all of the markets that we selected a decade ago. So we feel pretty good about the decisions we made and where we have decided to go and the results that we have had.

The beverage business is stable in North America and Europe, typically. I mean, true, we have had a -- we backslid a little bit in Europe over the last couple of years for various reasons, but demand tends to be stable. It is an important business for us. But you shouldn't expect a lot of growth in it. The growth is fundamentally going to be in beverage.

Well, I guess I was referring to the fact that the growth has come from beverage, obviously, from the emerging markets, but it has been offset by the food and aerosol businesses, etc. So I guess the question is over the next three to five years, do you expect -- based on what you see right now, is that going to be kind of stable? Like flattish EBITDA improvement? Or is it going to be a source of improvement as you obviously haven't taken the restructuring actions to (multiple speakers)

Yes, okay. I am sorry. Aerosol will rebound this year, and as Tim said, demand has been -- was up in the States, flattish in Europe, but we are getting the benefit of the restructuring. So we think aerosol from an EBITDA perspective is going to make an increasing contribution this year.

Same thing with food in Europe. We still expect food will bounce back for the year, and for all the reasons Tim said. We are running better. We have done a lot of restructuring. We are taking costs out, and at the same time, we expect a more normal demand -- and not just demand, but patterns. As you know, we had mix issues last year, largely because of the weather, and we expect that to correct itself this year.

Okay, that's helpful. Thank you.

George Staphos, Bank of America Merrill Lynch.

My first question is on European Food cans. And yes, I know it's early in the year. Would it be fair to say, given your negotiations and conclusions with customer discussions, that for now you don't expect any further price compression versus what you were seeing in the second half of 2012?

That's correct.

Okay. And secondly, when we look at Brazil, you know, in light of what was on-again/off-again growth over the last two years, realizing that that is typical in growing markets, emerging markets, why the decision to add Teresina? What amount of the volume associated with Teresina, if you can provide that as well, is already contracted?

Well, I think the first thing I would say is when you describe Brazil as on-again/off-again, I think as we look at the high season, that is September through March over the last several years, there's been nothing short of tremendous demand.

Certainly the low season -- and we have talked about this before -- is a low season, in their winter months, our summer months. But as we look at the needs during the high season, it's very clear that the market needs more cans. We need more cans to supply our customers, and specifically in the north where the market is growing.

As relates contracted out for this plant, 65%, 70% already, and my sense is we are going to be oversold by the plant -- by the time the plant comes up online next year.

George, you need to keep in mind that the northern part of the country has had a supply deficit for the last five years, and that didn't change as a consequence of one line going up in the north, in Belem, that's been talked about so much.

We have been supporting the north from our plant in Sao Paulo, but we have increasing demand in Sao Paulo. We can't continue to do that anymore. So this was something we felt was prudent and cautious and required, and not at all something that we have done without a great deal of thought in terms of adding the capacity in the north.

Understand. Is there a way to discuss how long the contracts that are initially going into the facility will be?

Well, they are multiple-year deals.

Okay. Would it be three, on average, John? I realize if you don't want to get into it in this dialogue, I understand that, but just --

(Multiple speakers) get into that kind of detail.

Understand. Understand. I guess the last comment and question I have got, and I will turn it over, and it is somewhat related to what I guess Ghansham was also getting at. If I look at -- and I raised this on the last conference call, certainly you've seen lots of growth in capacity and that sets you up well for the future. We are seeing capital spending now beginning to decline.

Your return on capital, when I look at it based on, say, the last two, three years, it is reaching a level that hopefully we are at a trough at. What do you expect will be the biggest drivers of improvement on return on capital the next, you know, three to five years, let's use that as a framework. Will it be basically coming up the learning curve with your existing facilities in beverage? Will it be other sources? And in light of the improvement in return on capital, when should your investors expect to see a dividend? Thanks, guys.

Well, let's talk about the opportunities for improvements in return on capital or income, all tied together. I think it comes from a number of sources.

The first will be as the new operations come through learning curve and are seasoned and those markets continued to grow, we are certainly going to be more efficient within our own operations. We will produce more cans, sell more cans. So clearly, the first lever will be the growth markets that we are in that we have had a very good experience.

The second will be ongoing cost reductions that we expect to continue to realize across aerosol and food in Europe, as well as an improvement in those businesses over the next several years. We are committed to food cans. We believe it's a very good long-term market, and the business is going to bounce back. We have a number of opportunities to improve our cost position going forward.

As it relates to dividend, I'll leave that for John.

Yes, George. The dividend is something we look at constantly, and we are thinking about carefully. We like the flexibility that we now have to deploy cash very, very effectively, either through share buybacks, as we plan to do quite a bit of this year, as you know, or grabbing opportunities where they arise.

We are in a unique position in the packaging industry, we think. We are in, we believe, the most attractive growth markets in the world principally for beverage. The result is we have more and more opportunities. It's not going to cause us to stray much from our CapEx free cash flow discipline, but we really do have opportunities that keep arising.

I think when Tim went through the list of plants that we are bringing on, I think even some of you might've been surprised at some of the locations. There are other places that we are looking at, other markets that we are considering, all in the regions that we are in. So for the time being, we continue to look at it, but we like the flexibility that we have.

Okay, gentlemen. I'll turn it over. Thank you.

Phil Gresh, JPMC.

First question is just on the restructuring saves. In the 10-K recently, you talked about $46 million of saves through 2014. I was just wondering how much of that you expect to realize in 2013, and perhaps, if you have it, Tim or Tom, kind of where you are from a run rate standpoint here?

The savings we expect are already in the 2013 number. I would say everything is in there, except some spillover into 2014 of maybe $10 million. So generally, it's all in our guidance already, and the numbers we gave in the Q we do expect to realize in the K.

Okay. And this is from a run rate standpoint today?

I would say that we would expect the savings to accelerate in the back half of this year. Just I'll recap briefly what we've done over the last two years.

We closed a food can plant in France and a very large aerosol can plant in Belgium mid last year. So we are realizing the full benefits of those closures currently.

In our Q4 2012 report, you saw another restructuring charge. That was a large specialty packaging can plant that we've identified in Belgium and a food can plant in the UK. Both are still continuing to operate. We would expect them to operate through Q2, and as we bring the plants down and qualify the new plants post Q2, we will begin to realize the savings there.

Got it. Okay. And then, just on European Food, one more question. You talked about stable pricing. I am just kind of curious. As you think about the opportunity to kind of claw back some of these price declines that you've had, do you feel that you need improved demand to get that? Or do you feel that the restructuring actions you're taking alone might actually be an opportunity as you look ahead to 2014?

Well, for the moment our assumptions are pricing remains about where it is. We are not assuming that pricing is going to get a lot better, so we are working on the assumption the way we need to improve food performance in Europe and aerosols and so on and spec back to a degree, as well, is reduce our costs. And that's what we are doing aggressively.

We've talked about this over the years. We have pointed out we have a number of opportunities to reduce costs in Europe, but we wanted to do things in a very measured way. We wanted to spend cash there in a measured way, and we are always comparing cost-reduction opportunities in European Food and so forth with growth opportunities in beverage all over the world.

But I'd say at the moment, Phil, our focus is take cost out.

Okay. And then, last question, just on China. Obviously, you are doing the line two at Putian. Any thoughts as to, given the market dynamics, when you would consider adding capacity again? Obviously, this is a strong growth market, and you talked on your last call about your confidence in that market longer term. But would you say that you are kind of in a holding pattern for 12 months at this point? Just any kind of way you could frame that for us. Thank you.

I think that's fair. I mean, the China market continues to grow nicely. It is a big, big market. All the indications, I think, are very positive in terms of our customers and their desire to move towards aluminum beverage cans. So that's all very, very positive.

We've put a lot of new capacity in, as Tim has outlined for you, and we have outlined over the last number calls. But at the moment, we think we are well positioned. Our geographic footprint is good. As you know, a huge country, but we have improved our geographic coverage dramatically over the past two years.

So we are going to run what we have and watch the market and respond accordingly, but I would -- we are not planning anything new in China over the next 12 months, that is for sure. Tim, you might want to add to that.

No, I don't think there is anything to add.

Okay. And congrats, Tim and Tom, on your new roles.

Chris Manuel, Wells Fargo Securities.

Congratulations on the strong start to the year so far.

Thank you, Chris. Good morning.

A couple questions for you. First, normally we don't talk about this much, or we don't get into this detail. But I'm hoping you could give us a little more color around this. Some of your -- one of your large competitors specifically cited demand through the quarter being much different January/February than what it was in March, i.e., seeing an appreciable slowing in not only Brazil, but in parts of Europe, in March.

Could you, John, maybe give us a little color as to what you saw through the quarter and what you might be thinking over the balance of the year? Did you see any difference, and if you did, does it make you feel any differently over the balance of the year?

On the European comment, I don't know who you're talking about, but on the European comment, a little bit surprised. We have had a very firm performance in the first quarter each month in Europe. So I don't think that I can react to a slowing March, because we didn't see it.

Now in Brazil, as I mentioned earlier, we start leaving the high season and you start going into the slow season. So that's normal. But the high season was exceptionally strong this year in Brazil.

Okay. That's helpful, to an extent. Now the second element I wanted to touch on there was your plant you're adding in Brazil. Can you give us a little color on that? You talked about it being maybe 65%, 70% allocated today. How big is the plant? How many lines is it? Specialty can, etc.?

It will initially be a one-line plant. Opportunity to -- in one size, if we were to make one size only, upwards of 900 million to 1 billion cans per year, but it will be a multi-size plant.

Okay. So it will have some kind of a swing line on it. Okay, that's helpful.

Last question I had was I think earlier when you talked about some opportunities and elements for cash flow, you cited not only your own cost-reduction activities and further expansion, but I think you hinted that there may be some other non-organic opportunities.

Can you comment on -- and I know you've done a few over in Asia in the last six months or so -- can you comment on how you would view M&A as a lever to continue growing the Company? Are there specific targets that you would be looking for? Are you still specifically looking within metal packaging, etc.?

Chris, the first, acquisitions, M&A is not top of mind for us because organic growth opportunities have proven to be so good. The returns are good and we are good at it.

So we think we allocate capital efficiently. We move quickly, and we know how much money to spend for the opportunities and how to expand subsequently. So that is our strength, and we intend to continue to focus on it.

But yes, obviously our emphasis is metal packaging. We have no interest in anything else at this point. And we think there are a lot of metal packaging opportunities out there. We have talked, of course, about there is going to be a consolidation in China over time, but we don't expect anything imminent as it applies to us.

It is possible some of the Chinese state-owned companies might decide that they need to consolidate in line with a lot of other things that the Chinese government and companies are doing in that regard. So there are some consolidation opportunities in Asia that we are aware of, and there are some bolt-on acquisition opportunities in Asia. We have taken a number of them over the last couple of years, two last year. So that is in our figuring.

The European steel can business, if you want to call it that, non-beverage -- whether it is food, aerosols, general line -- needs further consolidation. There will be further consolidation. There could be some opportunities there, and we look at that periodically. But our focus is on organic growth. As Tim said, with what we have done and we are going to do, we really feel positive about it. It is a source of growth and improved earnings for our Company for the next five years, at least, and so we feel really good about that.

That's all I have. Thank you.

Adam Josephson, KeyBanc.

Just a couple questions. One, D&A and CapEx assumptions for 2013, obviously in light of the Brazilian plant expansion, what are your updated assumptions?

The CapEx, we previously gave guidance of $230 million. We may be a bit higher than that, but generally in that range. D&A, I think we said $160 million. I think we may come in a little bit lower than that.

Okay. Thanks, Tom. And in Brazil, to what extent do you expect long-term growth in that market to be tied to GDP growth? I ask because GDP growth there has slowed pretty dramatically over the past few quarters, yet the beverage can market has held up pretty well.

I think there are some things other than GDP growth that we need to think about when we think about Brazil. First of all, population growth, and they are growing 2% to 4%. I could be low. So population growth is important.

The next thing that is important -- we have talked about it, and all of our competitors have as well, and they should -- package mix change. The brewers continue to favor cans. They like cans and increasingly -- for a lot of different reasons. Their customers love cans, the take-home package, all the rest. Recycling, highly effective. 100% recycling rate in Brazil. So ecologically, it's a great package.

The other thing to keep in mind, and I know you are aware of this, but it is a factor. Consumer credit and consumer spending habits and disposable income keeps going up, and disposable income appears to us as going up a little faster than GDP, for various reasons. Unemployment, I think, is right around 4% or 5%. I think it's the lowest in --

At least 10 years.

-- a decade. So I understand what you're saying. We are a little concerned, too. GDP growth slows. Today, they were talking about putting up interest rates a little bit because they are concerned about inflation creeping over 7%.

But nonetheless, you put all of the things together, and we still think Brazil -- it's not going to grow like Asia has been growing, but we are thinking 5% to 10% a year over the next number of years is very achievable, and it is off a bigger and bigger base.

Thanks for that, John. And just one last one on China. Obviously, you've seen significant growth there recently. Do you expect pricing to firm as the year progresses in light of this growth? Is there anything that concerns you on that front?

Well, we don't think pricing is going to get any worse, and it could firm as we get into the year because we had the impression last year that some of the pricing that took place was by some companies that were adding capacity and they had grown too fearful of their ability to sell their new capacity.

And what we think in fact may well happen is that some of the companies, particularly some of the state-owned companies and the independents, are not going to be able to produce cans at the rate they had been assuming. So I think that, combined with market growth, it's very likely that there's going to be real tightness in China in beverage cans in the second and third quarters. So there could be an opportunity for some price improvement.

At the moment, though, our plans are we are going to try to take advantage of the opportunity for even more unit volume than we had planned. If we can put some price on top of that, that would be great. But that is not our primary objective for the year.

Scott Gaffner, Barclays.

I just wanted to go back to the facility in Brazil, the Teresina facility. You didn't announce the plant until you had actually begun construction on the plant. I just wonder if we are entering into sort of a new phase of expansion plans where we are not going to hear about them until you have actually begun construction. Is that the case? Is there a new strategy in place (multiple speakers)

I don't think you should read anything into that. We will see how it comes as we -- as opportunities develop and just the timing of when we release it, but I don't think you need to read anything into that.

Okay. So, I mean, you canceled or indefinitely postponed the Belem line. Was that just because of the competitor bringing capacity into that market, so you felt that Belem was overcapacitized and there was still room to add capacity in Teresina? Can you just kind of talk -- because when you -- if I recall correctly, you postponed Belem only about six months ago. Now here we are starting construction on Teresina. So you probably already thought about Teresina at the time you were postponing Belem.

Yes. What we thought, and as I said earlier on the call, what we know is the northern part of the country needs more cans. Our customers are building new breweries, they are expanding their can lines, and so are the soft drink guys, Coke and so on. So what we know is the region in general is -- has been underserved.

Belem, an interesting story. We have a long-term contract with a major brewer who has a big brewery right in the middle of Belem, and we are continuing to supply that. So we thought Belem might be a good place for us to go. It wasn't the only place. There were alternate sites in the north that we considered, but we thought, okay. Since we've got the long-term contract with the brewer, why not Belem?

And then, of course, one of our competitors decided that they were in love with Belem and wanted to build a can plant. And so, we thought, well, okay. Let's look at some of the other sites that we'd consider. We are still going to have the supply with the customer in Belem, so that's there under a long-term contract. Let's go to a place that seems even better from the standpoint of supply in the region, and that's why we picked Teresina.

So as you said, yes, we have been thinking about the north, and we have been thinking about alternate sites in the north for a couple of years now. So this one just worked out, and I think it's going to, frankly, work out even better.

Great. And then --

We like to be flexible.

Absolutely. We like to see it when you are flexible, both with announcing capacity and reducing it when market conditions don't materialize.

Sure.

If I look at the North American market, I think you said your volumes were up. North American beverage, you said they were up 1%, if I recall?

We were down 1%, Scott.

Down 1%. But the total market looks like it was down something closer to 3%. Can you just kind of talk about -- I mean, are you taking share? Is there growth in specialty? What caused the variance there?

I don't think share has a lot to do with it. I think it has to do with mix, customer mix and how our mix is compared, perhaps, to the market in total.

Yes. There is nothing real magic there. You could argue we got a little lucky. Our customers did a little better in the first quarter than some other people's customers.

Okay. And then, just lastly, you mentioned the learning curve on the new facilities. I think you said you had eight facilities at different levels of learning curve. Can you walk us just through the learning curve again? When you start production in a facility, what are the major hurdle points? When does that facility then become at full Company margin or region-specific margin levels?

We typically target a 12-month learning curve process that gets us to about 85%, 90% efficiency. And then, we consider ourselves off of learning curve when we are there. But realize that post that 12-month period, we are still making productivity gains and income improvement.

We do begin contributing to income much earlier than that, obviously. We don't need to be at 85% or 90% to make a positive contribution, and that generally can happen in months five, six, or seven, depending on how the line comes up and how complicated the line is, how experienced the crew is.

But as I said, we have five plants currently in learning curve, considering the plants that we opened last year and early this year. We are beginning next week, obviously Danang comes up, and next month Bangkok comes up. So we will have eight in learning curve through the second quarter.

But obviously, it's a process, and we think we are doing pretty well. The team is well supported in Asia by the other members of the corporate engineering group and project group, and things are going to improve. We feel very good about that.

And how much shorter is the learning curve on a second line versus an initial plant?

It could be four months shorter. It could be four months shorter. A key element in all this, not a surprise, is it's not really that easy to make aluminum beverage cans at high speeds, low spoilage. It's just not, at high efficiencies. So it takes a while for a new workforce from top to bottom to learn it as well as they need to.

Now the good news is -- southeast Asia is an example -- we have had quite a large installed base in southeast Asia for quite some time. So the new plants in these countries, we're able to move good can makers from existing plants into new plants, and that has helped us. In China, a little bit different. We hadn't done anything in China for a decade. So the new plants in China have been a little bit more difficult because we have more inexperienced people as a proportion of the workforce.

But having said all that, as Tim said, 85% is where we expect to be after a year. That is not what we expect the best plants in Crown or the good plants in Crown to run. We expect to be well over 90% efficiency as we measure it, but it takes about a year to get to the point where you think you've got a reasonably good plant, but not as good as it's going to be. A lot of productivity gains, cost reductions come after that.

Al Kabili, Macquarie Research.

Just a question on Europe Beverage. You know, with the volume growth 4% this quarter, which was great, given the macro, but -- and also the weather conditions were also not that favorable in some parts, so is it reasonable to assume you could even see better year-over-year volume growth than what you put up in the first quarter, given that backdrop?

Keep in mind, Al, it's -- again, it's a small quarter. As you mentioned, the weather was not great, but the weather is sometimes never great in northern Europe in the winter months. So it's a small quarter, so the growth is off a small base.

But I think we are -- we remain very positive on the growth prospects in Europe. It is not a -- as it relates to beverage cans, it is not a mature market. It is still a growing market, and I think we are all experiencing that. So we would expect to continue to do well. But it is a small quarter.

Okay. All right. Fair enough. On the food can business in Europe, with the capacity rationalizations you've done, plus some of the expected improvement in volumes this year, can you comment on kind of how you see your utilization rates later on this year versus, say, where they were a few years ago?

Better. A little hard to say. I mean, there is -- obviously, it all depends on how we are accrued versus how the equipment is installed, but we generally have tried to bring the manning down to only run the lines when we need them. It is better, but as John said, we have a lot of opportunity to continue to improve in that regard.

Okay. Okay, good, because I guess what I'm getting at is with others taking action there and with utilization rates improving, at some point you would think you could recapture some of this pricing you lost there in the last few years.

You know, we think so, too, but the point I was trying to make earlier is that's not in our plans over the next 12 to 15 months. We think there is an opportunity there, but our focus is going to be get costs out and get (multiple speakers) quickly and significantly.

Okay, understood, understood. And are you -- is there additional opportunity that you see, or are you for now feeling you have kind of taken the actions you need to take and you will see how the market goes from here?

There is always opportunity, and we certainly see more opportunity. As John said before, we have seen a number of these opportunities for a number of years, but we were trying to be very responsible with respect to the amount of capital we were willing to allocate to certain items, be it restructuring and/or growth projects around the world.

Obviously, the opportunities now have manifested themselves to the point where the payback is very quick, so we do see more opportunity now.

Yes, but Al, to Tim's point, we have this discussion on a weekly, daily almost, basis, and over the past number of years when we have talked about it, we saw these what we thought were really good growth opportunities, great returns over time in the beverage side of the business in the emerging markets that we had selected.

And we thought that the returns there and the growth opportunities were really superior, and we compared them to cash into cost-reduction activities in Europe, and we just on balance said, let's deploy the cash in these emerging markets. If you don't take the opportunity now, it may never come back. If you don't get a network of plants with good coverage, both product and geographic, in some of these countries, you are going to be too late. So let's get ourselves focused on our priorities and then stick with it, and that's what we have done.

So there is more to be done in Europe, but we are going to be careful and deliberate about it. But we are focused on it.

Okay, good. Okay, great. That sounds encouraging. The last question I had relates to the start-up you alluded to earlier. I think, Tim, it may be you that mentioned that there was about $12 million to $13 million of start-up costs last year. Any sense for how this year would compare to that? Is it equal? Is it less, so we should see tailwinds, still understanding you have got start-ups, but maybe less than last year?

I think -- that's right. That number, I think we probably gave on the last call as it related to 2012. For 2013, I would say the number is going to be a bit smaller than that, and it will recede as we move through the year. So the back half of the year will not be as heavy as the back half of last year, nor the front part of this year.

Okay. Very good. All right, thanks a lot.

Alex Ovshey, Goldman Sachs.

You talked about delays in shipment of equipment, this as well as aerosol and food cans in Europe, I think. Would you be able to quantify what the impact was of the delays in the shipments for those products?

I think Tom could give you a rough estimate. Just keep in mind, we are referring to the equipment business we have in the UK, which is really an integral part of our strategy for beverage can growth around the world. And like any equipment business, the shipments are a little bit lumpy. And literally what happened, some shipments than we had expected in March have slipped over into the third quarter.

Second.

In the second quarter. Segment income wise, a couple (multiple speakers)

About $3 million.

$3 million, yes.

Okay. That's helpful. The capital to build the beverage can plant in Teresina, is most of that going to be spent in 2013?

It will be a combination. Some in 2013 and some will stretch into 2014.

Half and half.

Can you tell us what you expect the capital outlay will be?

Similar to the last several plants we have built in Brazil, $60 million to $65 million.

Thanks, Tim. And just last question, would you be able to tell us what you expect your minority interest expense and interest expense number to be for 2013?

Probably a little north of $100 million, Alex. We don't have it in front of us.

Okay. On the minority. And then on the interest expense?

A touch above last year.

Yes, a touch above. It looks like $225 million.

Great. Thanks very much, guys.

Anthony Pettinari, Citigroup.

Just to follow up on Asia, you are growing faster than the industry in the region, and you discussed China in great detail on the call, but I was wondering if you could talk a little bit about southeast Asia and maybe sort of the relative attractiveness of southeast Asia versus China as you look at opportunities over the next three to five years in terms of potential new capacity or potential acquisitions?

And then maybe also in the near term, you talked about China maybe price improvement in the year. Can you talk about what trends you are seeing in southeast Asia?

In terms of growth opportunities, let's say, over a five-year perspective, I think they are quite similar, China and southeast Asia. So we are bullish on the entire region.

I think we have spoken in calls in the past that it's not unusual for us to be helping out in China with volume -- with capacity from southeast Asia and the reverse. So it is an integrated region, the way we look at it. We think southeast Asia is going to do fine.

We are not planning on much by way of price going into the year in southeast Asia. We are set, and I think we're in good shape. So I would say the whole region to us looks good, the Asia-Pacific region, east Asia and southeast Asia. And we plan to maintain a focus on it.

And with China, obviously we have seen some competitor capacity additions.

Anthony, we can't hear you.

Can you hear me now?

No.

In China, we have seen some capacity additions that have been a bit disruptive to the market. In southeast Asia, are you seeing any material capacity additions on the horizon?

For whatever reason, you're not coming through. We can't hear you.

Okay. I'll come off.

Mark Wilde, Deutsche Bank.

Can you hear me?

No, we can't.

Okay, excellent. I just wondered, if we look at margins in Asia-Pacific, they are down about 180 bps year over year. Can you just help us parse how much of that would be pricing and how much of that would be just the start-up costs?

I'm sorry. We couldn't hear except for the last couple of words. Would you mind repeating your question?

Yes. John, I am curious, in Asia-Pacific, if we look at the 180 bps decline year over year and the margins there, how much of that might've been the result of Chinese pricing versus just the incremental start-up costs?

Yes, we have an answer for you. Tim?

I would say the large majority is going to be incremental start-up costs and the integration of the two acquisitions that we made in Q4, which are not up to overall Company standards Crown-wide. So think about at least 75% to 80% being related to that and 20% or less being related to pricing as it compressed margins in China.

Okay. And Tim, will there be incrementally even more start-up drag in the second quarter before that starts to fall away? Or should we actually see some improvement in the second quarter?

No, we are going to see some improvement in the second quarter. I think certainly segment income is going to be higher, and obviously you would expect that as we move into the summer selling season in China.

The delta over the prior year may be similar or a touch better than it was in the first quarter. And then, as we get into the third quarter, some of the start-ups that we had in 2012 start to fall away as the plant is seasoned beyond one year.

Okay. And then, John, I wondered, could you just talk briefly about other opportunities that may exist in Latin America? I know Brazil is the 800-pound gorilla there, but you've got some other good-sized economies that are growing pretty rapidly in Latin America. Will we start to see Crown do more things outside of Brazil?

Well, we are in two other countries, you know, in a significant way, Colombia and Mexico. We have a joint venture with Domingo [racea] in Venezuela, where we are a minority partner, and of course, the Company struggles when the country struggles.

We had a good first quarter in Mexico. We didn't talk too much about it on this call, but all of our food cans, aerosols, vacuum closures, beverage, it was all stronger as you would kind of expect, given what's going on in Mexico.

Colombia is a sleeper for us. It has been a good market, but quite modest. The country overall has done well from an economic growth standpoint. Disposable incomes are going up, and so on and so on. Unfortunately, so far, the brewer -- and that's really what the situation is -- is not using very many cans. So it is kind of slowing us down.

Beyond that, there are some very attractive markets -- well, there are several very attractive markets. Chile, for example, comes to mind, but it is well served by an incumbent. So I wouldn't expect beyond those three countries -- Mexico, Colombia, and Brazil -- much activity from Crown over the next five years.

Okay. Very good. That is helpful, thanks.

Chip Dillon, Vertical Research.

First question is on the -- you mentioned the minority interest would look to be up a little bit, at least on the income statement, from last year. I noticed the -- and maybe this is a timing issue -- the dividend was down quite a bit in the first quarter versus what you paid in Q1 of 2012. Historically, I think you've paid out about 80% of the accounting income to the minority holders as dividends. Is that sort of the same kind of level, like $80 million or so, we should see for this year?

Yes, I think that's fair, Chip.

Okay. And then on CapEx, I know it's early days for next year, but we have seen CapEx -- even if it, I guess, is up around $240 million -- you are kind of suggesting it will be a little higher this year, it's still declining from where it had been. As it looks right now and given that the plant in Brazil will be finished by year-end, would it be safe to say that it probably declines further in 2014 or is there a list of things that could make it stay flat or even go up?

Well, it might be fair to say if we are thinking, say, $235 million or something like that this year, $200 million to $235 million, I wouldn't say it's safe to say it's going to decline, just for all the reasons we've talked about. As we have grown and we have gotten better coverage and our customers grow and so forth, we are presented with opportunities that we had not anticipated. But yes, I would say $200 million, $230 million ought to be a reasonable range.

Okay. And the last question is I know you mentioned earlier on the dividend issue that you certainly benefit from having a lot of flexibility from year to year. Is there a tax factor or any other factor that you could just remind us of as to why even a token dividend, which probably would have no impact on your flexibility, wouldn't make sense? Again, we often talk to people who -- and maybe there are not that many of them left, but there are funds that do value some dividend over no dividend, and that might broaden your potential shareholder base.

Yes, Chip, we are open to the proposition. We speak to you and others and to our shareholders about the question, and frankly, at the moment we haven't been able to bring ourselves around to thinking that a token dividend is going to be a significant value creator for our shareholders.

If we thought it was, we would feel more strongly about it. So we just haven't been able to come to a conclusion that this is the thing that we need to do now. But it is something we think about constantly. We talk about it with the Board constantly. We are constantly getting other opinions. So we are aware of the issue and so on, but we just so far haven't been able to bring ourselves to think, as I said earlier, that it's going to make much difference to our shareholders.

Got you. And one last question on Brazil, I heard from another source about a year or so ago that if you look at the US beer business, it's roughly 50%, maybe 55% packaged in beverage cans. And when you look at Brazil, its beer business is up in the high 30%s, approaching 40%. So obviously one function is that their business is probably growing in terms of volume more than ours is in the States.

But do you see, with sort of the 5% to 10% growth rates that you were talking about, potentially that their beverage -- the can share of total beer could approach the US? And when do you think that could be the case?

We definitely think it is going to approach the US. I think it is going to exceed the US. I think the US is unique in the sense that longneck one-way bottles, for marketing reasons here that we don't have a lot of time to get into, are reasonably popular with the brewers. We don't see that outside the United States.

So I think cans could easily exceed the levels in the United States over the next five years.

George Staphos, Bank of America Merrill Lynch.

I'll make it quick. Can you comment as to when you would expect China to be at a 90% or better operating rate, and what your level of utilization is right now? Thank you.

George, taking into account the learning curve, which is to say on the new plants, which assuming the limitations we have on production because they are new, we are sold out in China for the year. So we are fully sold out.

And as a consequence of the fact that we moved early and what we did, we are getting a large proportion of the growth in China, all of the growth. So that's our situation.

Very hard for us to comment on what utilization across the whole country is going to be for the year because we are guessing it's going to be much higher than everybody thinks because we think that the other people who have added new capacity will not run as effectively as we, and even if they do, we think the market is basically going to sell out the capacity.

We don't see -- when you look at effective capacity available this year, we don't see the kind of excess capacities I've seen other people talk about, 20%, 25%. I don't think that's going to happen. I think capacity utilization is going to be over 90% of the capacity that can really be used.

So we are pretty calm about China. We are not happy about the price decline in the fourth quarter last year. We thought it was unnecessary, and we talked about it earlier. But we think China is going to be fine from a capacity utilization standpoint this year.

And John, the intelligence that you have gotten regarding others potentially -- their ability or inability to produce at the level they had initially anticipated, I am assuming you got that from your customers replaying back. Would that be fair?

Absolutely. We have got three-piece can makers, steel can makers that are trying to make two-piece beverage cans with workforces that are really not up to the job. They are having all kinds of problems, so -- among other things.

We've got new companies that have never been in the beverage can business that have entered. Not many, but a couple in China. They are not doing terribly well. So we have got quality issues that some of our competitors are facing. So I'm not that worried about supply/demand in China. I wish prices were better, and they will be in time.

Thank you. Good luck in the quarter.

Shirley, I think with that, we can wrap things up, and I thank you all very much. That concludes the call for the day. We would like you to note that our second-quarter 2013 conference call will be scheduled for July 18 at 9 a.m. Eastern Daylight Time. Thank you very much.

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