Crown Holdings Inc (CCK) 2013 Q3 法說會逐字稿

Good morning and welcome to the Crown Holdings third-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.

Thank you very much, 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 third quarter and then turn it over to Tom, 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 on this call, as in the earnings release, we will be making a number of forward-looking statements. Actual results could vary materially from such statements. Additional information concerning factors that could cause actual results to vary is contained in the press release and in our SEC filings, including comments in the section titled Management's Discussion and Analysis, the financial condition and results of operations in Form 10-K for 2012 and in subsequent filings.

Overall, the Company had another strong quarter. Our comparable diluted earnings per share of $1.13 for the third quarter were ahead of last year's results of $1 per share and somewhat ahead of our revised guidance. Our strategy has been to carefully improve Crown's businesses in the large markets of North America and Western Europe by investing where customer demand calls for it, reducing costs, very carefully allocating capital and adjusting capacity to market demand.

At the same time, we have and will continue to expend effort and deploy capital to develop and grow in emerging markets such as Eastern Europe, Turkey, the Middle East, North Africa, Colombia, Brazil, Mexico, China, and Southeast Asia. This strategy, as we have executed it, generates growth in sales and earnings, while still generating significant free cash that we can return to our shareholders.

Although the third quarter was not as strong as we had expected, overall performance was still quite good. In fact, we believe our performance validates our strategy and gives us confidence in Crown's long-term growth and profitability.

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

Thank you, John, and good morning.

Diluted earnings per share for the third quarter of 2013 were $0.81 compared to $2.20 in 2012. Diluted earnings per share on a comparable basis were $1.13 versus $1.00 last year. Net sales for the quarter were up just over 1% due to higher global beverage can volumes and favorable currency translation, partially offset by the pass-through of lower material costs.

Global beverage can volumes increased 6% in the quarter with food can volumes in Europe down 1.4%. Overall segment income at $299 million improved $22 million from prior year, primarily due to the increased beverage can volumes and lower depreciation expense.

During the quarter, we announced a restructuring action to eliminate certain positions in our European division. We expect to spend about half of the $32 million total cost in 2013 and the remainder of 2014. We expect to realize approximately $17 million of the $25 million in annual savings by the end of 2014 and the balance in 2015.

During the quarter, we are purchased approximately 2.5 million shares of our stock for a total of $106 million and announced then $300 million on share repurchases for the year. The end of the quarter was almost $1 billion of cash and availability under our revolving credit facility.

At this time, we are updating our guidance for fourth-quarter [2000] comparable earnings per share to be in the range of $0.46 to $0.51 per diluted share. We expect our full-year free cash flow to be approximately $500 million, which currently includes approximately $275 million in capital spending.

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

Thanks, Tom. Good morning to everyone.

As Tom noted, we, again, saw solid global beverage can volume growth in the quarter. Segment income performance increased almost 8% in the quarter on the back of lower costs and the higher beverage can sales, offsetting volume softness in European Food, the result of pressure consumers continuing to cut their overall spending and temporarily muted beverage can demand in Cambodia caused by public protest following its national election.

In Americas Beverage, sales volumes rose 1.6% as strong performances across Central and South America, including a 10% increase in Brazil, a 7.5% increase in Colombia, and a 6.5% increase in Mexico, all more than offset our decline in North America, that is the United States and Canada, in which we mirrored industry performance at down 0.05%. Our North American year-to-date volumes are off 0.8% to 2012 compared to industry volumes, which are almost 3% to the prior year, reflecting our balanced portfolio and the importance of the can in the overall packaging beverage mix.

Demand in Brazil remains strong, and we are on plan to open the new beverage can plant in Teresina with commercial shipments scheduled to begin in the first quarter of 2014.

North American food can and closure volumes and segment income were level to the prior year as the business continues to execute well with stable demand and exceptional operating performance.

Sales volumes in European Beverage were up more than 5% in the quarter, due to increased demand throughout the division, notably from our new Turkish plant. The increased volumes and improved manufacturing performance led to another strong quarter of operating results for the business.

European food can unit sales declined 1.4% in the quarter, due principally to lower demand in the UK and Germany, more than offsetting a very strong performance in Italy. Segment income in the quarter reflected the lower volumes.

Coming out of a strong Q2 volume performance, which was up 3.6%, we had not expected the Q3 sluggishness, which is a reflection of the continued pressure on the European consumer.

Beverage can unit sales in Asia Pacific were up 19% in the quarter compared to 2012. Segment income performance in the quarter reflects higher startup costs and lower food can sales, which offset the increase in beverage volume.

With new plants in Bangkok and Danang starting up in late Q2 and Sihanoukville starting in July, much of the beverage volume increase is coming from these new plants, which are in the very early stages of their learning curves.

With all of our announced capacity additions now in production and the plants progressing through their startups, we are confident that we will experience further volume and profit growth into the future.

Our equipment business in the United Kingdom and our global aerosols businesses all had another good quarter, offsetting the impact that the continued European economic weakness has had in our specialty packaging business.

As part of our ongoing effort to lower our cost structure, we announced a restructuring action during the third quarter to significantly reduce European overhead costs. Tom previously described the details with full-year annual savings anticipated at $25 million.

Overall, the businesses have performed well in an environment in which the consumer continues to be challenged and lacks confidence. While overall volume was positive in the quarter compared to the prior year, demand was lower than our expectations in some businesses, and buying a combination of improved manufacturing performance and cost reductions drove overall performance.

I will now turn the call back over to John.

Thank you, Tim. And, Shirley, with that, I think we are ready to take questions.

(Operator Instructions) Ghansham Panjabi, Robert W. Baird.

Hey, guys. Good morning.

Tim, you mentioned beverage can volumes up 5% for Crown in Europe. Can you just give some commentary on what the market looked like, Europe specifically, and then also what you saw specifically in the Middle East as well?

I think the numbers that we got from the equivalent of the CMI in Europe has Europe up about 6.5%.

Okay. And the Middle East for you guys?

The Middle East, we would have been up more in Europe than the Middle East. Our Middle East would have been up 2% to 2.5%, and we would have been up similar to the market -- 6.5% to 6.6% in Europe.

Okay. So that -- in terms of the European food can, then, you talked about the potential for cyclicality there. But it seems like your other businesses in Europe seem to be doing okay. So how do you separate between cyclical uptick in European Food, which I think will be expected for a couple of years now, versus what could just be a secular decline? Any parameters you can point to specifically?

I think there are two things. This is John. I think there are two things, at least. And I am sure Tim and Tom will have more, but there are two things at least you need to keep in mind.

First of all, with regard to beer in Europe, we continue to see a change in package mix from returnable glass to cans. That continues. And that is very positive for the beverage can throughout Europe.

The other thing is, that in Europe on the soft drink side, per caps, compared to many other places in the world -- the United States and Mexico, for example, but other places as well -- our per capita consumption is still relatively low.

So there are certain markets -- a number of markets -- a couple were a little soft this year for the soft drink companies, but generally speaking, [provadane] soft drinks has continued to grow throughout the recession, and I think it's because of per caps, and there's a lot of opportunity for our customers in Europe. So you will see that.

So that's the situation. The other is, you need to remember, canned food in Europe, generally speaking, is of very high quality. The cans are fully -- many of them are fully lithographed, so beautiful billboard effect. Full pullout convenience ends. Nobody has can openers in Europe, and the food contained in the cans is of high quality.

And as a consequence, a little higher -- quite a bit higher pricewise than it is in North America. It's a different container and a different product, almost.

So we have seen this now throughout the recession, consumers reducing expenditures with regard to processed food. Particularly in a place -- places that have unemployment that range from, say, 24% to 28%, our customers are telling us people are buying rice, potatoes, tomatoes sauce, et cetera, in bulk, and they are reluctant to buy processed food at higher price points.

So that is how we explain it. I don't know if, Tim, you want to add anything to that.

The only thing I would add is, obviously, we are down 1.4% in the third quarter. Year to date, we are flat. It is just that we had expected an increase in the third quarter and an increase this year coming off of a couple of years ago when we had the big downturn.

Well, that's right. But you had asked about the contrast between beverage and food, and that is the explanation I gave was really -- that is our view of the contrast.

Okay. Thanks so much. That's very helpful.

Shirley, can you hear me?

Yes, I can, sir.

We are having real trouble hearing you and the callers.

Okay. Thank you. Let me go ahead, and we'll turn that volume up for you. George Staphos, Bank of America Merrill Lynch.

Hi, everyone. Good morning. I guess the first question I had, given the volume growth, given what -- you know, certainly, you have some volume decline in Europe in food, but not a disaster, all things considered. Why are you guiding lower in the fourth quarter versus the fourth quarter last year, considering all of the capacity that you've added, which, in theory, should be adding to earnings. The related question is, which of your segments do you actually expect to be down in earnings year on year versus the fourth quarter? And then I had a follow-on.

I think, first, George -- and Tom will talk to specifics about income or not fourth quarter to last year and so on -- let me say something, first of all.

Our food issue in Europe is not simply volume. Tim is right. The overall unit volume is not very much down. But we are suffering in Europe from a mix -- adverse mix. We have been selling here in the third quarter and early in the year, but in the third quarter, it was marked. We are selling more smaller cans, fish cans, et cetera in Spain, right through southern Europe, North Africa, and we are selling fewer big cans -- peas, corn, soup, ready meals in northern Europe. We have seen this now for several quarters. It has been apparent in France, Germany, Benelux, UK.

And that mix change, we are just carrying a lot more margin dollars, a lot higher prices and higher absolute margin dollars with the big cans and the small cans. So that mix change is a fair bit of our issue in Europe.

We are not alone in this. I know you follow the industry, and others will have said the same thing.

Now, Tim will comment on your questions regarding beverage can volumes and capacity and fourth quarter and so on.

Yes. George, I think, we still continued to expect European Beverage to perform very well in Q4. We expect further growth, and we expect further profit improvement. I think, as we look at the North American beverage situation -- and we also expect continued growth in both units and profitability in Brazil. But as we look at the North American situation, which is a very large market for us and for the industry, we are not in a position right now to project healthy growth statistics in North American beverage. So that is offsetting some of that growth we are seeing in other areas. A very small decline in North America can offset very large declines in Brazil and elsewhere.

Okay. Well, then I had a follow on. European Food has been down fairly sharply over the last several years. This is not just a Q3 event. And I know the Company has been trying to restructure, but so far, given the longer-term, again, not just one quarter trends that you are seeing in mix, it hasn't yet led to an --

We cannot hear you. Hello?

It looks like George's line has disconnected. We will go ahead with the next person. Phil Ng, Jefferies.

Good morning, guys. Can you hear me?

Yes, we can.

All right. Great. I know your free cash flow generation is typically very back-end loaded, but it would seem like you would have to generate pretty strong Q4 record for a Q to hit that $500 million target. Can you kind of help us understand what are the main drivers to achieve that target?

Yes, Phil, it is Tom. We do expect to hit the number, and there will be a large element, as you say, from working capital. But we think it is real, sustainable working capital improvement.

At the same time, some of the numbers that we had in the fourth quarter last year, compared to this year, we are getting a favorable look.

For example, CapEx should be a little lower in the fourth quarter than last year. Things like interest and taxes could also be lower. So the combination of working capital, as well as the non-working capital items, is how we get to $500 million.

So are you guys drawing down production, and is that partly why your Q4 guidance, at least from an EPS standpoint, is a little lighter than what we were expecting?

I wouldn't say anything dramatic, but, yes, certainly there will be some amount of lower production, and any effect on the EPS is included in our numbers.

Got you. And then, just sticking on Europe Food, you guys have done a lot of cost takeout. Assuming volumes do stabilize in factoring in this mix dynamic, how should we be thinking about the margin profile going forward? It has been down a few hundred basis points. Have margins pretty much bottomed out here, or could we see a little more deceleration, or could we actually see it turn a bit going into 2014 and 2015?

I think we are anticipating that margins will be improving in Europe as a consequence of the cost reduction activities; restructurings in terms of plant closings and consolidations over the last several years now; the overhead reduction, which is principally focused on food; and we are anticipating and we are seeing the European economies are beginning to turn up pretty much throughout, and we are anticipating that, as a consequence, consumer spending is going to improve. Unemployment slowly is going to improve. So we believe we are at the bottom of the cycle here with our food can business in Europe.

Got you. And just one last one question. CapEx for 2014. Is that $250 million to $275 million still a good number? I know you guys were participating some growth projects. We really haven't heard too much on that front.

Yes, Phil, probably -- yes, I think that's a good range. Maybe a little closer to the higher end, but $250 million to $275 million is about right at this point.

Okay. All right. Thanks, guys.

George Staphos.

Hi, guys. Can you hear me now?

George, we can, and we are waiting with bated breath for your follow-up question.

Oh, my gosh. Then I better make it a good one.

So European Food, this is not a one quarter event, and I realize -- I was listening to your answer, I guess, to Phil's question -- that you think you are at the bottom of the cycle. But why not -- and I recognize there are lots of issues around this. Why not more aggressively consider whether you have too much capacity and perhaps restructure, because the last three years of efforts, while I know a lot went into it, has yet to deliver earnings that are commensurate with where you were several years ago.

My follow-on question -- and then I will turn it over -- is -- again, I understand your strategy, and longer-term it has worked. But if I look at your invested capital over the last four years, from 2009 through 2013, it is up $1 billion; your EBITDA is flat. And so help us understand why next year your return on capital will improve and why you need to spend upwards of $275 million on CapEx. Thanks, guys.

Yes, George, just a couple of things, and I know Tom and Tim will want to chime in.

First of all, we don't have too much capacity in Europe, so we don't view further restructurings in the form of reducing factories and taking capacity out as appropriate.

So that is that. We do think, though, of course, we can take more costs out from all of our European businesses, and that is really what the most recent restructuring is aimed at, and we will be doing more things of that type. But we don't see any further major restructurings of our food business in Europe.

There are always going to be little things here and there, but we think the footprint, where we are, what we have done with food can plants, we are in really good shape. We are a low-cost producer in the context of Europe. We're going to get a lower cost.

As to your question about beverage -- and Tim and Tom can talk about this more, but I was reflecting on it this morning, frankly, after I read your comments. We could have had the same conversation on a regional basis 15, 16 years ago in the Middle East when we were adding capacity. Initially, return on invested capital in the Middle East declined. We were building new plants and organic growth. As you fill up a beverage can plant -- and I know you know the industry almost as well as I, perhaps better than I do -- it takes you about 2 to 3 years to be running as well in your new plants as you are in your mature plants. Then, as you add additional lines in the new plants, at times you will have a downturn in productivity, and then you come back up to -- you are absorbing overhead extremely well and throwing off a tremendous amount of cash.

So we could have had the same conversation about your concerns about when is return on invested capital going to get better in the Middle East. It is one of the best regions we have.

We could have then moved on, and we could have had the same conversation, and maybe we did -- you and I have been talking to each other for a long time -- the same conversation about Brazil. We started out in Brazil somewhat early with a fairly large plant in the state of Sao Paulo. The first couple of years were a little bit tough; took us a while to fill it up; took us a little while to run better.

We now have three big plants in Brazil. We are the lowest cost producer in Brazil. We are gaining share in Brazil, and I think we are the leading -- the industry leader from -- in terms of profitability and return on invested capital in Brazil.

Now, when we put the new plant into production, Teresina, there's going to be probably a little bit of a downturn year on year in ROIC. Then we will come back up as we fill the plant up.

Now we can move over to China and Southeast Asia. We could have this conversation every single time. So it is all about your conviction as to whether or not you have picked the right growth markets, and do you still think the rate of growth is strong, and do you still think supply/demand is in relatively good balance. We do.

Right.

We have got strong, strong belief in the strategy, but I agree. I agree. We could do an alternative strategy, George. Stop all capital investment, buy back stock. You could say that our return on invested capital is going up, and I could tell you that, in about five years, you would be extremely unhappy with what was left. But maybe Tim could add to that.

Hey, John, if I could -- and I respect what you are saying. I am not telling you to undo or rip up what you have done over the last four years. But the scale of the investment is on a much larger company now and, therefore, you are incurring much more in the way of startup, I think -- correct me if I am wrong -- than what you would have done 15 years ago.

And so my comment is more about what are the puts and takes in absorbing what you have already done as opposed to undoing. But, anyway. Thanks for your thoughts.

Yes. (multiple speakers) I mean, proportionally, our investing activity in the last three years has been quite large. I would agree with that. We have got a lot of new plants. I think we were saying we got nine new beverage can plants within the last three years. We are going to start a tenth here this year. So that's a fair point. And we intend to pause now in terms of organic growth capacity additions, but we don't want to discontinue it altogether.

Okay. Understood.

Yes. Okay. Good. Thanks, George.

Thank you, guys.

Al Kabili, Macquarie.

Thanks. Good morning. I just wanted to drill a little bit into Asia-Pacific. Your earnings are down year on year. I know you mentioned some startup costs and some weakness in the food can business in Thailand. But the food can piece is a pretty small piece of the overall Asia Pac business. So with the two small additions you did, and the growth, I would have just expected a little better results in Asia Pacific. So I am wondering if you can kind of help us bridge that decline that you saw.

Well, I think it's a fair question, Al. I think the first point, the food business, while it is small overall to the Asian business, it is not a small business. It is $125 million to $150 million in annual revenue. So there is a fair amount of income associated with that business.

On the beverage side, as we described, we have three new plants, all of which are 3- to 4-months-old only, only came into production in late June and July. So they are extremely early in the cycle, and we have two second line additions that we did back in the first quarter, one in China and one in Malaysia. So there is a lot of activity right now, and there is a lot of startup, coupled with one of the new factories that we started was in Cambodia in July and the market has taken a downturn -- we believe, temporary -- following the national elections where the opposition party is still contesting the results of the election.

So there has been a fair amount of social unrest and demonstrations and tanks in the street and things like that, and the market has curtailed quite a bit. So we have got some underutilization at that factory, coupled with startup costs in the other factories. But we are -- as John said, we believe strongly in the growth of the region and in each one of those countries. And, with volumes up almost 20% of the prior year, in the quarter, a little bit below our expectations, but nonetheless still very high, and we believe it sets us up well for the future.

The startup costs, is there any way to help us quantify what year over year those costs were, and are the startups progressing as you expected, and what are you seeing right now?

I would say startups are progressing as expected with the exception of the new Cambodian plant where demand is muted. But on the order of, if you wanted to think about year-over-year increase in startup, it is $5 million, $6 million, maybe a touch more, this year versus last year in the quarter. It's a big number, right? There is a lot going on.

Okay. And how are things running right now, and then if you can just kind of give us a flavor for Cambodia? You said the market was down. Can you give us a flavor for how much, and what is the recent trends that you are seeing there?

Well, I think the factories are running according to their learning curve, and in Danang, I think we are ahead of the learning curve. The others were on learning curve.

The Cambodian market has been exceptionally weak, given the protests. It could be down on the order of 30% or 40%, the market, and we are the market in Cambodia.

So it doesn't mean that this is a permanent impairment of that market. It is temporary, and we strongly believe it will come back, especially as we get closer to the November-December build season for Chinese New Year.

Okay. And then, final questions, just on the CapEx piggybacking on some previous questions. The $250 million to $275 million, I mean, you can still -- even at $200 million of CapEx annually, that is enough to grow a couple of lines, typically. So why so much growth CapEx when incrementally all the data that we are seeing in most of the emerging markets points to some softening rather than acceleration?

Well, look. We are not absolutely sure that we are going to spend at the $275 million level, but we want to plan for new opportunities.

As Tim just said, Asia grew 20% in the third quarter in units -- we did. And in Southeast Asia, we are growing with the market. In China, we are taking share because we anticipated this growth ahead of anybody else, and so we put in capacity. But we want to leave ourselves with some flexibility.

And in the Middle East and Europe, as we look at that, there are some opportunities there as well, although we are not planning anything for Europe in terms of capacity. But we may be on a little the high side, but we want to -- we have had tremendous success over the past 10, 12, 13 years, growing our global beverage business. And we want to be able and plan to take advantage of opportunities as they might arise.

Okay. All right. Thank you and good luck in the fourth quarter.

Thank you.

Chris Manuel, Wells Fargo Securities.

Good morning, gentlemen. It is actually [Gabe] sitting in for Chris.

A question about Americas Beverage. Some of the competitive intelligence that we hear talks about some of the branded guys increasing promotional activity, and then some of the Nielsen data maybe suggests private label is off a little bit. Can you talk about the dynamic in North American beverage, maybe near and maybe medium term, as well as how you see pricing and demand supply in Brazil?

Yes. Why don't I talk about North America, and Tim will respond to Brazil.

I mean, first of all, as Tim said, we were up pretty much in line with the market in the beverage can -- or off, if you want, 0.05% with the industry in the third quarter. And we have seen some promotional activity. A lot of it was post-Labor Day, and I think if you took a look at the quarter in its entirety, promotional activity below what we ordinarily would have expected to see.

So I think that is kind of good news. There is room, we think, for our customers in the soft drink side to improve things with a little bit more promotion than they have been doing, and so I think that is positive.

The other thing that is positive -- and I know it is early days, but just listening to some of the things that we have heard coming out of the marketplace -- is that it is pretty apparent to us that the cans share of the package mix in nonalcoholic beverages in North America has improved.

I think that's very positive. I mean, the whole industry is off 0.05%, but our impression is that unit volume among our customers might be softer than that. And we think that is a package mix change and makes perfectly good sense for us since we know the can is the best industry for people to put their products into for too many reasons for us to discuss on this call. So I think that's positive.

Looking ahead, I think our customers know better than we. They are very large, well-capitalized companies, tremendous R&D capability, new product capability, but we think they are actively addressing some of their issues possibly, for example, different sweeteners for the diet drinks and so on. So there is a lot of activity, new drinks, other things than traditional carbonated soft drinks. So we think there is a lot of reason to be not terribly pessimistic but maybe even thinking that things could turn around here a little bit.

But, Tim, you want might to talk to Brazil, and you may want to add something to what I just said.

No, I don't think I need to add anything to North America.

On Brazil, I think, as we said earlier, as we look at the third quarter, we were up 10%. For the year, we are up similar to that number. The market continues to grow. There is a proliferation of sizes that we are able to provide -- all the sizes in Brazil to our customers. We have got a World Cup next year in Brazil. There's a lot of room for increased activity and promotion from our customers. As you know, beer is a much greater proportion of the package mix for the beverage can makers in Brazil than it is in other parts of the world. And, John, I think, walked you through our conviction as to add capacity and understand the near-term consequences of adding capacity.

But, just if you want to take a view as to where we think we are going to be in volume next year in Brazil, we will be double what we were in sales unit volume what we were in 2010.

So we have doubled our actual sales unit volume, and our capacity has probably increased a little bit more than that over that period of time getting ready for further growth. So that is the volume side.

On the price side, I think it's a little early for me to comment. We don't see any negative issues on the horizon on the price side, but, other than that, too early to comment.

Thank you. And then, maybe a question for Tom. Free cash flow, how you see it evolving, and we kind of touched on CapEx for next year. Are there any big puts and takes with respect to pension or anything else that we should be thinking about for next year?

No, Gabe. I can't think of anything that is going to move the needle that much. Working capital, one way or another, could have on effect, but other than that, I don't expect a big change in pension, cash tax, CapEx, or any of the other items.

All right. Thank you, gentlemen. Good luck.

Thank you.

Adam Josephson, KeyBanc.

Good morning. Thanks, everyone.

Just a couple of questions. John, one more on North American beverage. So it sounds like what you are saying is, you think the third quarter trend in terms of the industry down 0.05% is more representative of what you think the longer-term trend will be than the first half, which was down 4%ish.

Well, I don't know want to overdo this. I mean, one quarter is not enough, obviously, for us to say that things have turned, but I thought it was very positive.

I mean, we had expected that we would do better. We gained a little share year on year, but it wasn't just that. Talking to our customers, we had thought our third-quarter North America and US-Canada beverage business would be stronger than it was, obviously apparent. And it wasn't.

But, having said that, we were off 0.05%; the industry was off 0.05%, and I thought that was quite positive. So, yes, I mean I am hoping that maybe this thing is turning around a little bit.

One on Brazil. Can you give us some sense of what kind of benefit you expect from the World Cup next year just based on your previous experiences?

Tim does more knows about soccer than I do, so I will let him give you a shot there.

I think, with or without the World Cup, we are fully expecting another very strong performance in Brazil next year, not only for Crown, but for the whole industry. And I think our customers are expecting the same.

But I don't see -- if this year, in the third quarter, we are up 10%, had we had a World Cup this year, maybe we would have been up 11%. So let's not overdo it. But I think it does underpin the demand that we do expect next year, but it's not something that is going to blow the number way over the top. We still expect an extremely strong performance next year as we have had for the last couple of years, both for the Company and the industry.

Thanks, Tim. And, John, one last one on China. At what point, do you expect capacity there to be roughly in balance with demand?

Yes. It could take two more years, but I think the rate of new capacity being added has dropped dramatically, but it could be another couple of years.

All right. Thank you very much.

You're welcome.

Scott Gaffner, Barclays.

Good morning.

Good morning, Scott.

I just wanted to follow up on the ramp of the new facilities, a lot of discussion there on profitability and when those come to full capacity. Can you just, first of all, talk about when, on a volume perspective, we get to full capacity from day one? And then, you mentioned maybe after a year, you get up to the full volume capacity, but it takes another two years or so to get up to the full margin potential of those facilities. Can you quantify for the change in profitability, the change in returns between year one and year three sort of average so we can get a sense of how those facilities ramp up on profitability and volumes?

Well, I don't think we want to talk too specifically about our elements and profitability. What I will tell you is -- and what John was referring to -- between full-year volume capacity output after 12 months and full margin potential sometime in year three, the elements that we are talking about is increased efficiency, increased productivity, less spoilage, better changeover times, which leads to increased productivity, et cetera.

So I think they are the elements that John was referring to, but I don't think we really want to start talking about specific elements or quantification of profitability.

Okay. But what about just the change -- the directional change? I mean, 200 basis points, or is it a much larger change in profitability than that?

Within a plant? (multiple speakers).

Yes, when you go from year one year to year three.

(multiple speakers) Absolutely. You are talking several hundred basis points at a minimum and more as we move through startup through the end of year one, and then even as we move to this year three period that John was referring to, you're still talking about 200 basis points within that factory, yes.

Okay. And when we think about the inventory side, the working capital associated with these facilities, I would assume you have a little bit more working capital at the beginning, and then is sort of starts to fall off at some point as you are running more efficiently and have less spoilage. How does that sort of play out?

Well, it falls off, as you have less spoilage and more productivity, but it goes up as you have more sales unit volume going out the door, and you have more needs and demands from your customer. But think about each factory probably adds $20 million of working capital to the overall Corporation's working capital.

Okay. And when we look at repurchases, to date you have done a significant amount of repurchases, $300 million. Any opportunity to continue to be in the market in the fourth quarter?

Yes. As you said, Scott, we have done $300 million so far. We do have a little bit of room there, but we are not ready to commit to actually any more than the $300 million at this point.

Okay. Thank you.

You're welcome.

Anthony Pettinari, Citi.

Good morning. Just a follow-up on European Food. You talked about some of the volume issues and more the mix issues that have impacted that business. And I am wondering if you are seeing any change in competitive behavior over the past year that has maybe worsened some of those mix issues.

And then maybe a related question. You referenced your European capacity being appropriate, but maybe there are some opportunities for cost takeout. I am wondering, to the extent that you can, can you talk about what kind of steps you are taking to achieve cost reduction without really reducing capacity?

Yes. Why don't I try it first. We are not seeing significant competitive activity -- changes in competitive activity in food. Our view is that the overall unit volume softness and the mix -- the adverse mix effects are pretty much affecting all of our competitors and ourselves similarly.

So we are not seeing that.

In terms of cost reductions, the one that we just recently announced was basically overhead costs. And it was a view that we are moving our European operations, particularly our non-beverage operations very aggressively to a management structure numbers, et cetera, in line with our best operations in North America, Asia, and so on.

So you could argue it's a little bit overdue, but we are doing that.

Now, one of the reasons we are able to do it is you may recall that we moved our European headquarters a number of years ago from Paris to Zurich. We changed the way that we've looked at management of a number of these countries significantly. And, as a consequence, we were able to take out layers, and we have continued to take out layers. And that is what this most recent initiative was focused on.

Looking ahead, although I think our factories, generally speaking, in the food area have done very well, we know that there is progress that could be made and needs to be made to improve efficiencies, drive down spoilage, manage overtime better -- all those things that you do to drive down costs in a factory. So those are initiatives that are underway, and we are going to take those forward into 2014. So that's the way we look at the food business.

Anthony, if I could just go back on food cans -- and I am glad you brought the topic back up -- because earlier in the conversation I didn't get a chance to talk about this. But I think if we look at -- and this goes to your point about increased competitive activity. If we look at the performance of our European food can business this year compared to last year, generally the margin -- the units are stable year on year through 9 months. The margin profile, adjusted for the bad debt write-off that we had, the margin profile is similar to last year as well.

The big downturn we had in European Food happened last year. 2010, 2011 were very strong years. 2012, we had a lot of increased competitive activity and a volume performance that we were not satisfied with. We are running right about where we were last year. The unexpected -- or disappointment that we have this year is mix, as John has talked about, and we haven't recovered volume as we hoped we would this year. But there hasn't been any further deterioration this year. It's just that we haven't recovered as we had hoped.

Okay. That's very helpful. I'll turn it over.

Thank you.

Alex Ovshey, Goldman Sachs.

Thank you. Good morning, guys.

Good morning.

Just going back to North America beverage, we have seen a pretty sluggish volume trend there over the last couple of years. Can you talk about where you see your utilization rates today in North America beverage? And, over the last few years, we have seen the other two players take out capacity. How do you think about your capacity footprint in North America and whether or not there would be opportunities to potentially bring that down over the next couple of years?

Well, largely, we are in good shape. And I know you have -- if you followed our volume performance year on year for the last several years, you will know that we would have been up to, at worst, flat or minus 0.05% in any one quarter, but in several quarters, we have been up 1%, 2%, even 3%.

So we have a well-balanced portfolio among branded and nonbranded nonalcoholics, and we have a fair bit of alcoholic. And we don't see any need to adjust our footprint at this point. We are pretty well-balanced, and I would say our utilization rates are in the low 90% range, if you wanted a number.

Yes, looking -- just adding to what Tim said, our market share has been between 20% and 21% in Canada and the United States for the last three years, and we anticipate we are going to try to keep it right around there. If the markets were to slide more rapidly than we think, well, then, we will take a look at the capacity. But at the moment, we don't see any need for that. We are utilized over 90% and, for us, the focus in North America is going to be continue to drive -- try to drive costs out in our North American beverage plants with some improved performance in some of the laggards that we have. And we think there is an opportunity there.

That is helpful, Tim and John. And, on the corporate expense line, that is tracking well below last year's levels for the first three quarters. Can you just help parse out what part of that decline is pension, and do you have an updated number for corporate expense for 2013?

On a full-year basis, pension will be down in the corporate area around $20 million. So you are seeing that pretty much ratably over the quarters. I would expect we are going to be in the low [$160s millions] for the year at this point. Yes. And, as Tim just said, the third-quarter number was in line with the second-quarter number of $36 million.

Got it, Tom. And then, I want to go back to the issue of beverage business. So for the first three quarters of this year, your revenues are up $157 million, and your EBITDA should be down $2 million year over year. Some of the factors that I can think of is, you did an acquisition of a general line can company in China. Maybe can you tell us what the revenue contribution of that acquisition was? Because I know there wasn't too much EBIT there.

And then, were you running benefits from insurance proceeds related to the Thailand plant through your numbers in 2012, and did that essentially go away in 2013? Maybe you can put a little bit of color around that factor as well. That would be very helpful.

Okay. So you referenced a superior multi-packaging acquisition, and I think when we made the acquisition last year, we probably told you that the annual sales contribution was on the order of about $125 million, $130 million a year. And you are right. It is a general line paying business that when we bought it, it was underperforming, and we are making efforts and incurring some costs to try to improve that performance. But we believe it sets us up quite well to expand three-piece production capacity, not only in China, but in Vietnam and other countries.

So the margin contribution there is quite low at this point compared to the sales contribution, but we do have confidence in our ability to improve that and the market demand and need for that business in the future.

On the insurance, we will have -- last year, had business interruption insurance for the factory that was taken out by the flood in 2011. That would have run through income last year as we were replenishing some of those cans from other locations, be they from Asia and/or Europe, into the Asian region last year. Our Thai plant actually got started up later this year than we had anticipated.

So the combination of the lack of the reimbursement from insurance and the additional startup costs that we have in Q3 because of the delay in the startup of the plant, yes, that certainly has an impact.

Okay. Got it. Thanks, Tim. I will turn it over.

Debbie Jones, Deutsche Bank.

Good morning.

Good morning.

I was wondering if you guys could talk about the trends that you are seeing in the Middle East right now, and what type of growth rate you are expecting going forward? And I know the region is quite large, but how you feel about the supply/demand balance where you compete and if there are any opportunities for consolidation?

Yes. The Middle East market, overall, we think is up on the order of 3% to 5%, something like that. We are essentially flat because we have not been adding any capacity, and I think we have talked about this before. Particularly in Saudi Arabia, we have had several soft drink companies decide to go into self manufacture. So they have been adding some capacity. As a consequence, we have not been adding capacity, and we wanted to wait and see how the market develops before we do that.

Looking ahead, longer-term, 5 to 10 years, we think the market is going to continue to grow in the range of 4% to 7%, 8% or faster. So it's a tremendous growth market. But at the moment, we don't have any plans to add capacity until we understand better how some of this self-manufacturing capacity is going to affect the overall supply/demand balance.

Okay. Thanks. That's helpful. And I was just wondering, can you give some guidance on the capital spending for Teresina and Brazil just in terms of what you are going to do in 2013 versus 2014 to get that up?

I would say the spending will be largely weighted towards 2013. There will be some residual spending in 2014, but the majority will be in 2013.

Okay. Thank you very much.

Phil Gresh, JPMorgan.

Yes. My first question is just on the cost savings. Tom, you talked about $17 million in saves from the current restructuring program hitting in 2014. You have also done other restructuring programs in the past. So I am just kind of curious, between the carryover benefits and the new saves, if you could just kind of put it all together for us and tell us roughly how much in incremental saves from 2014 to 2013 we should be thinking about? There have been quite a few programs at this point, so just trying to get the numbers.

Yes. The majority of the past restructuring actions, Phil, are already in the 2013 numbers. There should be some mid-single digit increment going into 2014 from the old ones and, obviously, we talked about the incremental from the project this year.

Got it. Okay. And then, just last clarification on Asia Pac. Sorry to beat a dead horse. But, I guess, the startup cost of $5 million to $7 million or so, you guys had expected it to be better as we progressed from what you said on the last call. I understand what you were saying about the Thai startup being a bit late. But I guess what I am wondering is, how should we think about when that kind of neutralizes or actually turns -- you start lapping those costs and actually might turn positive? Is it fourth quarter? Do we wait need to until first or second quarter of next year? At what point do you think that happens, and I will stop there.

I think the reference to what we have said previously was that we always expect the startup costs to get better. We never said they would get better in Q3 because we had so many new plants in Q2 and Q3. But, clearly, we would expect by Q1 of 2014 that we will have a positive comparison. That is, startup costs that we are still incurring in Q1 of 2014 will be lower than they were in Q1 of 2013.

Okay. And then, just last question on a nonreportable segment. I think you guys were expecting some of the cost savings to kind of accelerate the benefits in the second half of the year, but the EBIT was actually down year over year. So any additional color you can give us to bridge that? I know you talked a little bit about volume, but anything else you could give would be helpful.

So back to your original question to Tom, most of the prior restructuring activity we have undertaken over the last couple of years in Europe has been centered around European aerosols and European specialty packaging. We are seeing those cost savings. Unfortunately, what we have had is a very soft demand for some European specialty packaging products owing to the recession.

Got it. Okay. Thanks.

You're welcome.

Chip Dillon, Vertical Research.

Yes and good morning. A couple of questions. One is, as you all look at your future growth, you mentioned the regions you plan to grow in. Do you feel the cost of those newer plants might actually cost more than the ones you have recently done? Because I understand a lot of your growth in the last couple, three years that we are now going to start to see the fruit of, has come from moving older equipment into these newer regions. And are you sort of out of that, and will you be buying more new equipment?

No. We don't expect a significant change, Chip. As a matter of fact, we haven't moved old lines in five or six years now. So all of this capacity, certainly what we just referred to over the last three years, the 9 or 10 plants, including the new Brazilian plant, that has all been new, state-of-the-art equipment. One of these days you will have an opportunity to visit some of our international plants, and they are spectacular.

So they are brand new. The buildings are great. The equipment is new, and we are planning for a lot of sales through those plants. So that's not going to change any.

What can change, but it fluctuates upward and downward, basically, is construction costs of the buildings and the land. But the equipment, we don't think it will. As you know, most of the 90% of the critical production equipment in a beverage can body line, we manufacture ourselves, and we supply all of the tooling and continue to post startup.

So we can control that very, very well. And so, really, it is just a function of what you think is going to happen to cement, steel, land costs. And in some of these places, no question, it is going up somewhat. In the case of land, simply because demand for industrial space is increasing, particularly in Asia as the economies do so well. But, no, no. You are not going to see any sort of significant change in capital costs going forward over the past several years.

Okay. Then a quick one. On the minority interest dividends, I know they were, what, $65 million for the first 9 months, and I guess in the last couple of years, it has tended to be bigger in the fourth quarter than, I guess, the first three quarters on average. And what would be a good guess for that for the full year? Could it reach $100 million?

I think it will be somewhere between $90 million and $100 million, Chip.

Okay. Got you. And then, just lastly, you know -- and this doesn't really affect you all, although you might make their equipment. I am not sure. But, there is a new can plant being built in Virginia that, I am understanding, has a sort of a lighter weighting technology involved with it. Is that something that could maybe cause other food can guys in the US, as contracts come up, to have to consider adopting that technology, and could that have an impact one way or the other on you guys?

Yes. A couple of things. No, we are not building that equipment, but we do build some of the equipment of the type that they are going to be using. But we will not be supplying it.

As to the lighter weight, that was a rumor that circulated 6 to 9 months ago. We are pretty sure that it is bogus and that the opportunity to have very substantial light weighting of the type that's been described is simply not the case. The technology that this company is using is well known to everyone in the industry, including the other two American food can companies and all the other European food can companies. There is actually nothing that is being done that is proprietary.

However, what has been discussed is simply not feasible in the context of North America and not very feasible in Europe. The nature of the retorts, the nature that our customer is handling, the nature of shipping and handling through the supply chain to the ultimate customer, we don't think there is anything to that.

Okay. And then I have to ask you real quickly one more. The CapEx number you mentioned for next year looks similar to this year and yet, for the first time in three or four years, unless I missed it, you are not really announcing construction of any new plants once we get past Brazil, unless I missed it.

So I would have to assume that we will probably hear more on that in future calls or maybe that CapEx number could come down next year as time goes on.

Well, it may. And so we don't see nearly as many opportunities going over the next year as we have over the past several. So that is a factor, and we agree with you. But always keep in mind that, although our, let's say, recurring CapEx -- so-called maintenance CapEx is quite low, really, in metal packaging if you are running it properly and maintaining your equipment properly, we are always looking at cost reduction opportunities. And that is something that we still know we have in North America and in Europe -- further automation; take people out; speed up lines; improve productivity; as Tim said, reduce spoilage. Well, often that requires some capital investment. So where we have really good fast return, high return, with payback, cost reduction opportunities, we are looking at those also, particularly for Europe and North America.

I think, as you know, we said at the outset here we are real careful about putting capital into North America and Europe. I mean, there is a lot of talk about the so-called specialty can phenomenon in North America, which, of course, means anything other than 12 ounce. We have been very, very careful about adding any capacity. We want it to be customer pool, not something we are trying to push on them.

So cost reduction activities are uppermost in our minds, and that is some of what we are talking about for next year.

The only thing I would add to that, Chip, is that the analyst and investor community, when you look at growth CapEx, you are always focused on beverage. But we have got 50% of the Company that is non-beverage that does require capital, and we have opportunities for growth and/or cost reduction, as John mentioned, in that other $4 billion to $4.5 billion of businesses.

Got you. Very helpful. Thank you.

Thank you.

At this time, I will turn the call back over to the speakers.

Okay, Shirley. Thank you very much. That will conclude our call today. We thank you for listening and ask you to note that our fourth-quarter 2013 conference call will be scheduled for February 4 at 9 a.m. Eastern Standard Time. So 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 lines.