Crown Holdings Inc (CCK) 2013 Q2 法說會逐字稿

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

Thanks, Shirley, and 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 second 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 our views about how the business is developing for the year.

Let me remind you that in 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, financial condition and results of operations, in Form 10-K for 2012, and in subsequent filings.

Crown just completed another strong quarter. Volumes were up year-on-year in most of our businesses, with gross income and segment income improving accordingly. Earnings per share from continuous operations, at $0.96, were well above the prior year's $0.84. All of our businesses performed well and, equally importantly, the markets in which we participate around the world were, generally speaking, quite strong.

There is an exception in the second quarter in Europe as a consequence of very cold and wet weather, which continued on from the first quarter. However, the weather situation there has improved markedly, and we are seeing a pickup in the business in Europe as a consequence. All of our plans to drive down costs, be attentive to sound price policy and price strategy, and to add capacity in growing markets, continue to bear fruit. And we believe that 2013 for Crown has proven so far to be, and will conclude, as one of our Company's most successful years.

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

Thank you, John, and good morning. Diluted earnings per share for the second quarter of 2013 were $0.93 compared to $0.89 in 2012. On a comparable basis, diluted earnings per share were $0.96 in 2013 versus $0.84 last year. Currency translation did not have a significant impact in the quarter. Net sales for the quarter were up 2% due to higher global beverage can volumes, offset by the pass-through of lower material cost.

Global beverage can volumes increased 3% in the quarter, and food can volumes were up about 2%. Overall segment income, at $273 million, includes $23 million from the prior year, primarily due to the increased beverage can volumes and, as previously described, lower depreciation and pension expense; partially offset by a charge of $11 million to reserve for a portion of the outstanding receivable balance due from a European Food can customer.

Our adjusted tax rate for the quarter of 26% was in line with our previous guidance of 26% to 27% for the year. During the quarter we purchased approximately 4.4 million shares of our common stock for a total of $188 million, and currently plan to allocate the majority of our 2013 free cash flow to share repurchases. We ended the quarter with almost $1 billion of cash and availability under our revolving credit facility.

At this time, we are reiterating our previous guidance for full-year 2013 comparable earnings per share to be in the range of $3.20 to $3.40 per diluted share. Third-quarter 2013 adjusted earnings are currently projected to be in the range of $1.15 to $1.25 per share. We expect our full-year free cash flow to be at least $500 million.

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

Thanks, Tom, and good morning to everyone. As Tom noted, we had a good quarter, as the benefits of our diverse customer and geographic mix offset the impacts of a global macroeconomic environment which remains challenging, and poor weather in many of our markets. Global demand continued to increase for beverage cans, while food can demand also picked up in the second quarter.

In Americas Beverage, segment income improved 9% as efficiency improvements offset a slight volume decline of 0.9%. Our volume in the North American market was down 1%, while Latin America was flat for the quarter. Brazil, which got off to a slow start in the seasonally smaller second quarter, had an exceptionally strong June, and this momentum has carried into July.

Through six months, Latin American volumes are up 9%, and we expect demand to remain strong through the second half. As we announced in April, we remain on plan to open a new beverage can plant in Teresina, Brazil, with commercial shipments scheduled to begin in the first quarter of 2014.

Our North American Food can business continues to perform very well. Food can unit sales were up 1% in the quarter; and, combined with strong manufacturing performance, offset lower food closure unit sales.

Unit volume sales in European Beverage were up 4.5% in the second quarter, and reflect our geographic footprint throughout Europe. Improved manufacturing performance, volume from our new plant in Turkey, and higher volumes throughout the Mediterranean operations, offset softness in northwest Europe.

European Food can unit sales advanced 3.6% in the quarter on the back of strong performances in Eastern Europe, Spain, and the UK. The increased volume improved segment income by more than 6% when adjusting for the bad debt reserve.

Beverage can unit sales in Asia-Pacific were up 13% in the second quarter compared to 2012, helping to offset lower food can unit sales in Thailand, and $6 million of incremental and unreimbursed startup costs.

During the quarter we opened two new plants; one in Danang, Vietnam, and one in Bangkok, Thailand. And with the commercialization last week of our new plant in Sihanoukville, Cambodia, we now have 16 beverage can plants across Asia-Pacific, seven of which are in various stages of start up and learning curve.

A lot of activity, but the construction phase is now complete, with the plants fully handed over to the manufacturing teams. Management in Asia-Pacific has handled the expansion extremely well over the last several years, and we have an excellent platform from which to grow and explore new opportunities across what we believe to be the fastest-growing global geography for packaging.

Our equipment business in the UK and our North American aerosols business both performed well in the quarter, offsetting the impact that regional economic weakness has had on our European aerosols and specialty packaging businesses. Late in the second quarter, operations ceased at a food can plant in the UK and a specialty can plant in Belgium. While necessary to remain competitive, these were not easy decisions, as both plants had fine workforces. We will begin to see the cost benefits of these actions in the second half of the year.

Our businesses have performed well through six months due to a combination of improved manufacturing performance, cost containment, and unit volume growth, which have more than offset the impact of continuing sluggish economic conditions and poor weather. The last several weeks have seen much warmer temperatures in both North America and throughout Europe, so we look forward and are hopeful for a good harvest season.

I will now turn the call back over to John.

Thank you, Tim. And, Shirley, I think with that we're ready to open the call for questions.

(Operator Instructions). George Staphos, Bank of America Merrill Lynch.

Thanks. Hi, everyone. Good morning. I'll ask a couple questions and turn it over.

If you think about the European Beverage can business, it would appear that, hopefully anyway, you're through most of the worst that you've seen, both from weather standpoint the last couple years and the economy. A, would you agree with that? And, B, if you think about the next two years, do you think we see more growth in beverage cans in Europe more for cyclical reasons, or for pack mix shift reasons? And I had a follow-on.

George, we have believed for some time, and continue to believe, that the European Beverage can market is going to grow at a sustained rate of 3% to 5% per year. And that's been pretty much the case, with notably few exceptions over the past decade.

So, I think it's a combination of things. I think as the economies pick up, that will undoubtedly help, perhaps more on the soft drink side than beer, but we think it's going to help in beer as well.

And then the pack mix situation is certainly going to continue to favor cans, particularly over returnable glass. So we think the prospects for the beverage can business in Europe are, generally speaking, quite good, with periodic pockets of weakness associated with weather or excise tax or other things. But, fundamentally, I think we're in very good shape, and the industry is in very good shape in Europe.

John, maybe a related follow-on to that before I go to the next question. Do you think you grow over trend line? Or you think 3% to 5% is a growth rate including the benefit from these factors the next couple years?

You mean the industry, or Crown?

Whatever you feel most comfortable talking to.

I think it's conceivable the industry could do somewhat better if the economies were to pick up. It's undoubtedly true to us, anyway.

Right.

It seems so, anyway. The unemployment rates are so high, we know they're having an adverse effect on processed food consumption; and, I've got to believe, processed beverage consumption as well. As to Crown, our plans are to try to grow in line with the market. We don't have any outsized ambitions in Europe.

Okay. The other question I had, and I'll turn it over -- obviously, there's been a lot of discussion about potential effects from new entrants and/or new capacity in the North American food can market. So, as you think about that market and your other mature markets in the US and Europe, do you see a need to either, on a more accelerated basis, adjust your footprint, adjust your customer lists, something more strategic or structural to maintain what have been obviously very, very good margins the last several years? Thanks, and I'll turn it over.

Well, George, it's a good question. And I'm kind of glad you asked it because it gives us a chance to just remind you some of the efforts we have undertaken in North American Food over the last five or six years. And I think it's quite evident in our performance in that business, which has been quite strong, and we've been able to sustain it for several years.

As you know, we've closed, and we've reminded you for a few calls -- we've closed, I think, seven food can plants in North America through 2008 to 2010. And it has had a great impact on utilization rates and productivity of the remaining infrastructure that we have in place for that business.

As to the new entrant, or the entrant in the market that's going to expand their presence in North America -- they are obviously already here; they're just looking to expand their presence.

Sure.

I don't think it's going to have an impact on our footprint. We potentially may lose some volume, although I will say we have not been formally notified by anybody that we're losing any volume. If we do, it would be a rather immaterial amount to our overall North American Food can unit sales portfolio. So it will require no restructuring on our part, although we certainly will look to replenish the business or make other adjustments necessary to keep operations running as full as possible.

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

Al Kabili, Macquarie.

Hi, thanks, good morning. I just wanted to dig into Asia-Pac a little bit. And I think, Tim, you mentioned there were $6 million of operating costs this year that impacted you -- or startup costs that impacted you this quarter. But do you know how that compares to last year?

What I said, Al, was it's $6 million incremental to last year. So I think last year we probably had on the order of $3 million to $4 million, if I'm remembering correctly, so you'd be up around the $9 million to $10 million range this year.

Okay, so that explains why you're flattish in op profit, despite the volume growth there.

Just to recap for you -- and we've said it a few times -- there has been a lot of activity this year. So we have two plants that started up in the quarter; another plant that started up last week. So, undoubtedly, there were startup and other costs that ran through the P&L in the second quarter related to Cambodia, even though it only started up last week.

We added second lines to two facilities during the first quarter -- one in Malaysia, one in China. And we're still in learning curve there, as well as learning curve from two plants that came up in China last year. So a lot of activity; we are working through it. The plants are coming through learning curve on or ahead of schedule.

And volume has not disappointed us where we put the factories, so we're quite pleased with that. So this is just a -- the normal evolution of starting up new factories. And we're going to work our way through it. And we expect the back half of this year, and next year, to be better.

Okay. And along those lines, in the back half, does the variance on startup costs year-over-year start to get more favorable in the back half this year? Or is that still -- you expect that to still be a little bit of a drag, with all the activity?

We'll have a variance, but it won't be as big as it was here in the second quarter.

Okay. All right, good. And then, switching -- last question is just switching over to the Europe Food and aerosol can business. Can you help us on Europe Food? Did you get any benefit from the cost savings that you've been doing this quarter in Europe Food? Or is all that still to come in the second half?

Yes, we did have some benefit. I don't think I can quantify it for you right now. We've had a few things happen here.

We did close the plant in the UK at the end of the quarter. So that benefit will begin to accrue as we go forward. But there have been other activities we've undertaken in the past -- overhead; headcount reductions; and we did close a plant about a year ago in southern France. So we are beginning to realize benefits there. And we obviously had volume gains in the quarter compared to the prior year.

Right. So if we start to think about the back half, with the plant closures that you highlighted, and some of the prior restructuring activity you've done, is there a way to help us with how you think you're tracking on the cost savings front in the back half of the year?

I would say we're on plans that we have previously described. Now, we had previously described a -- Tom would have to correct me if I'm wrong -- a number in the order of $30 million, split among aerosol, specialty, and food. And I would say we're on plan.

Obviously, Al, so much is dependent on volume, although we are seeing much better weather right now. So I don't want to start giving you -- you start going down your checklist, you've got X here and Y there. We obviously need volume to realize the benefits of all that, but we're very hopeful on volume given the weather.

Right. Okay. And just to clarify, most of that $30 million you haven't yet realized in the first half. Most of that is pending?

That's correct.

Okay, great. Thank you. Good luck the rest of the year. Thanks a lot.

Alex Ovshey, Goldman Sachs.

Thanks. Good morning, guys. On share buyback, can you comment if you bought back any incremental stock here in the third quarter?

We have not purchased anything in the third quarter, beyond what we did in the second, no.

Okay. Thanks, Tom. And then you bought almost $200 million in the second quarter, which is a bit of a surprise, because you typically wait till the back half to do most of the buyback. Tom, you said that most of the free cash flow is going to go to share buyback, and that number is at least $500 million. So, as you think about share buyback for the entire year, could it approach that $500 million level?

Well, this $500 million is before the minority dividends, but we'll buy back at least $300 million, perhaps more. I can't say now exactly how much more at this point. But we are confident in the cash flow projections we have for the year. We'll see how it plays out, but at least $300 million at this point.

Got you. And just on D&A, is there an updated number for the year? Because it seems to be tracking below the $150 million number that is in the K.

It is tracking. We'll probably be closer to $140 million, low 140s.

Thank you very much.

Mark Wilde, Deutsche Bank.

Good morning. There have been a number of stories in the press recently about some changes in the aluminum warehousing situation. John, I wondered if we could just get your thoughts on that, and whether that could have any impact on Crown over the next couple years.

Yes, Mark. We've all read the same stories about the rules being changed with regard to the rate of withdrawal from the warehouses, and the effects that that may be having on regional premiums. We think the regional premiums have been artificial for a number of years, and they've run up. Generally speaking, around the world, the premiums are hedged in the same way that the underlying ingot is, so it is not an issue.

In Europe, however, it is something of an issue. So I think it could be favorable for us going ahead if the premiums were to reverse, the so-called Rotterdam premium. So, we'll see. We don't have it in our plans, but it could be something of a modest upside.

Okay. And then just as a follow-on question, if I could. The stories about the player that's expanding in the food can business in North America -- I guess they're also introducing a lighter-weight can in both North America -- and I guess they've already done it over in Europe. Any sense of whether this is the beginning of a market trend, where we move to a modified food can, a lighter-weight food can; and what impacts that might have on you?

Mark, this story is utter nonsense. The ability to put, in this case, liquid nitrogen into a food can; improve internal pressure; thereby reduce gauge, the thickness of the metal, has been known for 15 years. But there are a lot of technical issues associated with it.

Now, Crown has introduced it to customers eight or nine years ago. It has limited application. So you shouldn't pay much attention to that at all. That's really not the basis for this particular company's actions in North America.

Okay, all right. That's very helpful, John. Thank you.

Ghansham Panjabi, Robert W. Baird.

Hey, guys. Good morning. John, there's been some speculation on one of the larger soft drink customers in the industry reshaping their portfolio, and potentially separating their beverage business. If that were to occur, can you help us think through how this would impact the industry?

Yes, I know what you're referring to. You mean how it would affect the packaging industry?

Yes. Just beverage can suppliers to that channel, and more focused sort of customer -- how would that impact you?

If the outcome were that the company in question became a more effective global competitor -- given all, particularly, the international growth opportunities -- I think it could be, generally speaking, positive. But I really, Ghansham, I really couldn't say.

Okay. Thought I'd ask anyway. And just in terms of the intra-quarter volume trajectory during the second quarter, adjusting for seasonality, any big deviation across your businesses? I know, Tim, you mentioned Brazil was a little bit stronger in June, but what about the other businesses?

I would say that the other businesses, in certainly the food can business, we saw a pickup in June in European Food can. European Beverage was a little -- slightly softer in June than it was in April and May. Although as we look at the weather right now, we have a situation where we might actually be concerned we run out of cans in the summertime. So we're not really worried about volume in European Beverage. We're quite excited about it.

North American beverage, if I didn't talk about it, was generally -- for us, it was level throughout the quarter. For the market, it looked like it got softer towards the end of the quarter.

Okay. Thank you. Very helpful. Thank you very much.

Philip Ng, Jefferies.

Good morning. Pleased to hear weather is picking up a little bit. Can you just give a little sense on how the vegetable pack is looking in North America and Europe?

Well, it's still early days, but shipments have picked up, and Tim can comment on the Americas. And I think I'll say quickly about Europe, the situation is improving in Europe.

The issue now, of course -- and it's always the way with the food businesses -- is the pack is late, how are the yields? It doesn't appear that they are poor in Europe. It looks like it's going to be a good pack. So as Tim said, we've got a lot of optimism around the food business.

But you might want to comment about the North American in particular, Tim.

Yes. So it's not only been extremely warm here on the East Coast. It's been warm throughout the Midwest for several weeks. And these are just great growing conditions for several crops, notably corn. It appears as if they may actually go in for a second planting on corn as well. So we're feeling pretty good. Dry beans, green beans, peas, corn -- everything looking pretty good, so we'll see how it plays out over the next two months.

Got you. And then focusing on Europe, ex-beverage, are you starting to see volume stabilize a little bit here? And should we expect margins, particularly on the food side in Europe, start getting back to that low-teen level, maybe late this year, early next year, with the restructuring cost savings flowing through a little more fully?

Well, I think as to food, as Tim said, our volume performance was up year-on-year. We think the overall industry was up somewhat.

Okay.

And, of course, if the weather holds up well, that's going to be a positive. The second quarter was so poor, unfortunately, that even though a good third quarter, it's not going to be the overall volume year that we had hoped for; but it's still going to be positive. So, yes, we think the food trajectory is, generally speaking, good.

But there's a drag, and we talked about it earlier on the call, and that is the unemployment rates in some of these countries, and underemployment rates, are so high that it inevitably has an effect, particularly on processed foods. So, stews, soups, things of that sort, become relatively expensive, and people trade down to staples. And so to the extent the economies would improve over there, we think all the processed foods and beverages and so forth would benefit.

Got you. And then just one housekeeping question. I noticed you guys had an $11 million charge during the quarter for a customer. Is that going to be a headwind going forward? And it seems pretty conservative; I would imagine that's one time in nature. I would've thought you would have flagged it as non-operating.

The customer is a good customer. I'm not going to go who -- they had a particular setback. But their underlying business is quite sound. And we think that we've adequately taken care of the problem as we see it.

And, Tom, you might want to comment on anything beyond that.

Yes, Phil. We don't know. We'll have to see if there's additional charges to be taken or not. It really just depends how it works out in the next six months, or perhaps a little longer.

And as to why it's continuing? The nature of the charge?

Yes, Phil, the reason we did not add it back was -- it's bad debt. We have bad debt every year and we typically don't add it back.

I know it was larger and a little more unusual. But trying to be consistent with what we've done in the past, we didn't add it back.

Okay. Thanks, guys.

Chris Manuel, Wells Fargo.

Good morning, gentlemen, and congratulations on a strong quarter. I just want to focus in on a couple areas that -- again, you had a strong quarter -- but a couple areas that were maybe a little bit below my expectations; in particular, Asia-Pacific. And I want to circle back to the discussion earlier that you had some startup costs.

But even if I -- poring through the numbers -- even if I adjust for the startup costs and add the $6 million back, as an example, your revenue growth was north of 20%, but yet your profit growth would've been a bit less than 20%. And that's been certainly the case in 1Q as well.

So I recognize that these are great projects, and long-term this is the place you want to be; you have good growth, and that things will fix themselves through time. But can you maybe provide a little more color as to an update on the competitive landscape, particularly in Asia? And when we would start to expect -- over the next couple quarters, maybe -- that this profit improvement would dramatically start to outperform the revenue improvement?

Well, one thing I'll remind you of. As you know, we purchased a large, three-piece paint can company in Singapore, with operations in Singapore, Vietnam, and China late last year. So, roughly half of the revenue increase that you're seeing in Q2 and year-to-date is related to the Superior business that we acquired. And as you will appreciate, Chris, three-piece paint can margins in many parts of the world are much lower than beverage can margins.

So you have a mix issue from an acquired business where the margin is just much lower than what we typically experience in beverage. Other than the startup cost, I don't believe we've seen any margin deterioration in our beverage businesses in Asia. That is, volume has grown sufficiently to offset any competitive activity that we may have talked to you about previously in China.

And then lastly, as we talked about, food can unit sales were a bit lower in Thailand. And we have a relatively nice-sized business in food Thailand -- it's about a $120 million annual business -- but they had a very poor pineapple crop. The weather has been extremely hot and dry. And packaged fish in Thailand has been lower this year, just given the cost levels of the fish itself.

So I would say that we don't see any issues that we really would call out at this point on the beverage can business. It's progressing at or above what we had expected.

Yes. I think, Chris, you've got to remember that with all of the plants that we've started in Asia -- and Tim referenced doubling almost the number of plants year-on-year. And if you could imagine that our plants typically run at over 90% efficiency and very low spoilage, and now we've doubled the number of plants, and they are either just beginning production or they're still fairly early in the learning curve --the average efficiency across the entire fleet, and the average utilization of fully productive capacity, is far below what it was last year or the previous year. So, actually, we're right on plan, we think, with Asia. And we feel really good about its prospects. And the cost per 1000 are going to drop dramatically as we continue to ramp up.

Okay. That's actually very helpful. Just one follow-up in relation to that. The pricing environment and the supply/demand environment, how has that been evolving? I know there were some issues a few quarters back that are still playing out.

But as you get into the end of this year, and you're done getting your plants all up, I don't think you have anything else on the horizon heading into 2014, in Asia in particular. Maybe if you could verify that or not.

And then how would you envision the supply/demand environment as you move into 2014 and beyond -- as you get closer to balance, that you may in fact want to go back and revisit some projects in 2014, 2015, in Asia?

A little hard to speculate into 2014, 2015. We've said we think the China market is going to grow low-double-digits, maybe a little bit better this year; and Southeast Asia, a little bit lower than that, perhaps, but certainly good.

There was some price activity, particularly in China, the latter half of last year. That played out and prices now are stable, arguably improving. We'll see as we move along into the year.

At the moment, I think we've said in the past, we're satisfied with where we are in China. We don't have any plans to increase capacity there over the next several years. By 2015 that could change, but certainly not 2014.

Southeast Asia, we're pretty satisfied with what we have as well. There always could be some opportunities at the margin. But we think, generally speaking, our focus now in beverage cans in China/Southeast Asia is to fill up the plants and continue to grow with the markets, and use these one-line plants we have and make them two- and three-line plants. So we think our prospects are real good in Asia.

One last quick one. With most of the projects -- I realize you still have one that will be opening up early next year in Brazil. With most of these projects winding up, and we think about CapEx, could you update us on what you think the number is this year, and how that might look into 2014, if there aren't as many projects on the boards?

Yes, I think, Chris, we previously said $230 million and on the last call we said we'd be a little higher than that. I'd say now, if we had to look out, probably somewhere between $250 million and $275 million for 2013.

And would that come down, then, in 2014?

It might be in that same range. It might be in the same range.

Okay, thank you.

Phil Gresh, JPMorgan.

Good morning. First question, just on the guidance. Typically at this point in the year you guys would narrow it, probably to a $0.10 range. So I was just curious, you had a good quarter, and what do you see as the risks to being at the low end of that guidance range at this point? It seems like you should be tracking probably towards the mid-point or maybe even higher.

You might be right, and typically in the past, you're correct. I think the only thing -- as we talked with Tom and John -- was that from the operations side, we look at the weather. And we're feeling really good about the weather right now, but we just don't want to get ahead of ourselves.

Okay. And on the free cash flow side, your working capital headwind year-to-date is the same as it was last year. Obviously you're starting up a fair number of plants still, so you're still working through that. But is there something different about this year that the full year should get back to neutral -- which I think is implied in your free cash flow guidance versus last year, where you had the headwind, considering all the plant startups and things like that. How are you thinking about working capital for the year?

No, there's nothing particularly unusual this year. We're always building working capital as we go through. And in the past two years we've been able to bring it down in the second half. And we expect to do that again such that we'll hit the number.

So, is it assuming neutral for the year to get to the $500 million?

The $500 million was a modest use to get to exactly $500 million, I believe.

Got it, okay. And then on Europe Food, I was wondering if you could talk about, in general, the competitive dynamics there. You're lapping last year's price compression at this point. Volumes have picked up a bit; the weather sounds like it's going to be more favorable. Any way that we start to see that impact of the supply/demand dynamics as we look towards the second half of the year and into 2014?

I didn't quite understand, Phil. What do you mean by impacting the supply/demand dynamics?

Meaning, demand has been tough because of weather and the macro environment; but if we start to see some of the volumes improve -- and we've seen you guys and others take some capacity out -- could we actually get in a situation where we might be able to see a little bit better pricing relative to all the compression we've seen in the past four quarters?

It remains to be seen. Although the weather is so much better now than it was, and we're expecting a pretty good third quarter; the second quarter was still relatively poor compared to our expectations, even though we outperformed last year. We thought we were going to be better even than that in food, when you add back the bad debt reserve. So, I think it's a little too soon to say.

As I've said earlier, there is such an overhang in terms of demand suppression associated with the general macroeconomic situation in Europe, it's really hard to speculate, for us anyway -- Portugal, Spain, Italy, Greece, just almost any -- France -- any country. Is there an expectation that they are going to get significantly better from an economic standpoint? Unemployment rates are going to decline? Disposable income is going to go up?

We're not making that kind of bet, frankly, at this point, Phil.

Okay. And this last question is on the restructuring. How much are you planning for cash restructuring this year? I think in your last Q you talked about the potential to do a little bit more. So where do you stand on that?

Well, I think that we always -- we felt it necessary to tell you in the last Q that there is always the possibility we might do a little bit more of those. We haven't completed any further plans than the two plants that we just closed at the end of June. But we're always looking to continue to take cost out and rightsize our business to remain more competitive.

But I would imagine restructuring expenditures that's going to run through the cash flow statement this year is going to be at least $50 million.

Okay. All right. Thanks a lot.

Adam Josephson, KeyBanc.

Thanks. Good morning, everyone. Tim, you talked about the Brazilian market picking up steam in June. What would you attribute that to? And do you have any concerns about the slowdown in the market that some other companies have talked about recently?

Well, I think there were some retail price decisions made by one or two customers early in the quarter, which suppressed their sales at the retail level, that they changed tact on towards the end of the quarter. And we began to see volumes pick up again.

And now we're into the beginning phases of the customers and the retail chains preparing for a much larger September through February period. So, other than that, I don't have a lot to add.

That's helpful. And, John, how would you compare the long-term profit growth opportunities that you see in Brazil, Southeast Asia, and the Middle East, based on the growth of those markets, your share in those markets, and your ability to add a second line to your plants in those markets?

I think the prospects in all of them are good. I mean, obviously, Asia Pacific -- China, Southeast Asia, for us -- from kind of a broad standpoint, GDP growth and all the things that result from it -- per capita income improvement -- is excellent. And so I'd have to say that from a growth perspective, Asia is outstanding.

Brazil has been a phenomenal market in spite of the economic slowdown there. The continuing preference, particularly among brewers, for cans is going to hold up. And that market, we think, is going to continue to do well. Maybe not the same growth rates as China/Southeast Asia, but it's going to do very, very well.

We've done exceptionally well in the Middle East for many years. And we flattened out there a little bit the last several years, largely because of the economic -- or rather, the political situation. The degree of unrest through the region is so extreme, and the volatility that results from it is such that a lot of opportunities that ordinarily would have come our way just simply haven't.

And there are places we know we'd like to go, but we can't, for either legal restrictions or practical limitations, because of the dangerous situation. But all three of the markets are good. But I'd say at the moment, as we said earlier -- I think Tim said in his comments -- right now, China/Southeast Asia obviously has been a real star performer for us and we think it's going to continue to be.

Adam, just one further thought on Brazil. We have this conversation every year on Brazil as we talk about the second quarter. Let's keep in mind that the second quarter is an extremely small quarter for beverages in Brazil. It's the depth of their winter down there; very few promotional reasons. They don't have a holiday season like we have in our fourth quarter here.

So we tend to get overly concerned, or some tend to get overly concerned, about the slowdown in the second quarter. It really is a time for some of our customers to balance out their inventories. But we don't have any concerns. This market has been very good, as John said.

I appreciate that. And just one last one on pension. Discount rates have gone up pretty significantly year-to-date. Can you discuss any pension relief that you would get, based on today's discount rates?

Yes, Adam, I don't think the change in the rates will significantly change, if you're talking about cash funding. At this point, I don't think it will have a significant impact. It may help us on the income statement in the future, but nothing on the cash.

Thinks a lot, Tom. Appreciate it, everyone.

Scott Gaffner, Barclays.

Good morning. I was hoping you could just run back through Latin America. Can you give us what you said the volume was in the region? And then can you specifically comment on the different countries -- Brazil, Mexico, Colombia -- what the volumes looked like (multiple speakers)?

Yes. Overall, the region was flat in the quarter. Mexico was up a few million cans, so call it flat. Brazil was down a couple percent. And Colombia was up a couple percent; so flat.

Okay. And it appears that inflation is having some issues on suppliers in the region, etc. Are you feeling any impact from inflationary issues in the region?

On who?

You mean on our customers, or from a supply standpoint?

On your customers. Your customers are having issues with inflation.

No, we haven't seen any problems, demand-type problems, resulting from a necessity by someone to adjust prices rapidly. That hasn't been apparent to us yet.

Okay. And then as far as further expansion, you mentioned the facilities where you currently have one line operating, and you could add to those facilities. Are most of those in Asia, or are there some in Latin America as well?

Most of those are in Asia at the moment. We have some opportunities in South America, but a little premature to talk about them.

Okay, thank you.

Anthony Pettinari, Citigroup.

Good morning. Following up on European Bev, I think you referenced volumes up 4.5% in the quarter. And I was wondering if you could give any color maybe on how volume growth broke out between Western Europe and Eastern Europe; Turkey -- or if you could give any specific color on specific bev can markets in Europe?

Tim has got some details on countries. Very broadly speaking, though, I think we could say that the Mediterranean region -- and these are year-on-year comparisons, remember -- the Mediterranean region did reasonably well. And Northern/Northwestern Europe, largely because of the terrible weather; you almost can't overstate -- although I think some of the calls of other companies have tried to -- you almost cannot overstate how bad the weather was.

So I think -- but Tim can give you some sense on how the countries look for us.

Yes, I would say that, if you wanted to look at the Gulf states, we were largely flat throughout North Africa and the Gulf states. And in Europe we were up about 7%, for a blended 4.5% in our European Beverage business.

And then if you wanted to look further and break out the Mediterranean, as John was just saying, versus Northwest Europe -- when we describe the Mediterranean, we're talking Greece, Italy, Turkey, Spain -- and that looks like we're up on the order of double-digits there; a little more than 10%, 12%.

And Northwest Europe would've been -- the UK and France would have been down mid-single-digits. I don't have the numbers in front of me. I'm adding the numbers up as I'm talking, but roughly that's not too far off.

Okay, that's helpful. Then maybe just a related question. You talked about European Food being weaker than expected for the quarter. Is weather the primary driver of that? Obviously, you talked about issues with a single, specific customer, but was the main driver --?

No, it was weather. It was weather. We thought the second quarter was going to be stronger than it was. And we had a pretty good quarter compared to last year, with a little bit of an adjustment that we all talked about. But we had not expected this weather.

We talked, I think, at the earlier call about how would food look quarter by quarter. And we all said if the Europeans had more normal weather than last year, which was terrible, and it turned out the second quarter was even worse than last year's second quarter. So, it was all the weather.

Okay. I'll turn it over.

Chip Dillon, Vertical Research Partners.

Yes, good morning, John, Tim, and Tom. I'm having a little bit of a -- just trying to figure out the CapEx guidance for next year. You mentioned it would probably be in the $250 million to $275 million range. And if you go back and you look at the 2004 to 2008 period, when you weren't really expanding, it was considerably lower, like $140 million to $190 million. And I know the footprint is bigger, but the only CapEx I see that could actually be bleeding into next year in terms of expansion at this point would be the Brazilian plant.

And not to say you wouldn't do more, but could you just help bridge that -- what gets you to that level of spending? Would it be probably new plants, or is there something else we should think about?

Well, I think the best way to think about it is we talked about beverage growth rates in China/Southeast Asia -- about 1.5 billion people in that region or more, if you throw in Indonesia. It's a big area, and the growth has been quite good.

In the Middle East, we haven't done much for the last number of years but the markets still look very strong there. So we've got a lot of global opportunities.

North Africa, for us, is doing quite well. So we think growth opportunities look very, very good. And yet cash generation is very strong. And we think we can carry on with a program of organic growth, and yet extremely strong free cash generation. And that's really what we're indicating.

Yes, and Chip, John mentioned earlier about our belief in sustained mid-single-digit volume growth across Europe. We don't have to build a new plant or add a full line in a beverage can plant to expand capacity. We can add incremental capacity within a certain line by adding a little bit more equipment in that line.

And so these are the kinds of things we're doing; as well as there are opportunities -- continuing opportunities for different sizes in North America and elsewhere.

Got you. And just a quick follow-on. When you think about Asia in particular, could we see you all enter countries that you're not in right now? Or would you likely -- or would it only be adding to plants where you already have a presence?

It's possible, but we don't have any plans for new countries at the moment. We're focused on the ones that we're in, and we're happy with those.

Got you. And then on the European front, when you talk about 5%, I'm assuming you're including the way you look at Europe, which would include the Middle East. And would that 5% largely be tilted more towards specialty cans or standard cans?

I think we've said 3% to 5% is our European operating assumption. And we said we had been relatively flat in the Middle East, although there are opportunities that we're not able to take advantage of because of the problems. So that's the way we would characterize the market.

And then splitting out between, as you tried to describe, specialty cans and standard cans, I think the notion of a standard can in Europe is far different than what it is here in the United States, where we use the 12-ounce standard can as a standard. In Europe, 50-centiliter for beverages as standard; as 33-centiliter for soft drinks.

And many other sizes.

For beer.

This nomenclature of North American specialty is unique to our market. Everybody else in the world thinks that beverage cans is beverage cans.

Got you. And then last clarification from Tom, you mentioned $300 million, at least, in buybacks. I assume that's for the whole year. So, incrementally, maybe at least $100 million more is the way we should think about it.

Yes, the $300 million was referring to the whole year.

Terrific. Thank you.

Thank you. At this time, I'll turn the call back over to the speakers.

We're done.

I'm sorry. Are we done, Shirley?

Yes.

Okay, good. Well, thank you very much. And, in that case, that concludes our second-quarter earnings call, and thank you. And we look forward to seeing you. I don't know if we announced the next one yet or not. No. Okay. Thank you very much, Shirley.

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