Crown Holdings Inc (CCK) 2014 Q3 法說會逐字稿

Good morning, and welcome to Crown Holdings' third-quarter 2014 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. 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 Kelly, who will take you through the numbers and give you some additional detail. Tim Donahue will review carefully the performance of various businesses and discuss our views as we look ahead as well.

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 2013; and in subsequent filings.

The Company had a very good quarter from virtually every standpoint. Demand for our products held up very well, particularly in European food cans and Asian beverage cans. Our European Beverage group did an outstanding job through operational excellence and cost controls in offsetting the increases during the quarter in the regional aluminum premium.

Globally, our relatively new beverage can plants in China, Southeast Asia, Brazil and Turkey, continue to improve their operations as they ascend the learning curve. They are settling in as outstanding performers.

Our significant acquisition closed in April of this year of Mivisa. The leading food can company in Spain and Portugal continues to progress very well. The company is being fully integrated into our operations in Europe, the Middle East and Africa, and the excellent people at Mivisa are fitting in quickly and making great contributions. The synergy process is well underway and on plan.

We are also very pleased to have been able to conclude an agreement to purchase the leading beverage packaging company in Mexico. EMPAQUE is the leader in beverage cans in Mexico, the leader in the Western hemisphere in bottle caps, and a leading glass supplier in Mexico. As with Mivisa, we are acquiring a first-rate company which has outstanding people, modern management and manufacturing processes, and an outstanding asset base of excellent factories. We could not be happier with an acquisition than with this one.

We thought it would be well to talk with you about the impact of these two significant acquisitions, Mivisa and EMPAQUE, on Crown, and the prospects that we see for Crown in total as we look ahead. First, our company will be significantly bigger and stronger in key markets as a consequence. We anticipate that sales for 2015 will be approximately $10 billion, with a substantially stronger food can business in Europe and, likewise, a very much strengthened beverage packaging business in North America.

We monitored for many years opportunities in the food can business in Iberia and in the beverage packaging business in Mexico, hoping that we would have an occasion to make sensible acquisitions at reasonable values. Fortunately, opportunities arose in both places. And in a relatively short period of time, we have been successful in securing these two excellent companies for Crown.

You saw the impact of the Mivisa acquisition in our results in the third quarter. We believe that Mivisa will continue to make significant contributions for the overall financial performance of the Company, and that EMPAQUE will also have a strong beneficial impact. Tom Kelly will provide metrics to you in a moment that will give you an indication of how we think the Company will do as a consequence of these two acquisitions, and all of the other actions that we have had underway in the last several years, including most notably, investments in emerging markets, beverage can capacity, and consequent strong organic growth.

In the past, we have provided earnings guidance for the immediately upcoming quarter, and the annual guidance has been provided after the fourth quarter. Today, in light of these significant changes at Crown, we felt it would be appropriate to give you our thinking concerning the Company's prospects over the next 15 months. We will, however, continue to provide more specific earnings guidance in our call with you in January reporting 2014 results.

As we look at the two transactions that I mentioned earlier and our other activities, we believe that Crown has never been stronger and that our prospects are excellent. We are the clear global leader in metal packaging, and number one or number two in almost every market in which we participate. Our plants are low-cost, and all costs are actively managed and tightly controlled. Our segment income margins bear this out.

In addition, we believe we are the technology leader in all of the metal packaging areas that we have chosen to pursue. We have an intense focus on our operations, and all of our people understand that every day, every week, every month, we need to show continuing improvement.

Finally, it has been many years since Crown last made a large acquisition, although it was not because we did not look for opportunities. We simply did not find things that met our criteria for quality of the asset available, attractiveness of the market involved, and the volume being sought by sellers. As I mentioned earlier, we were fortunate then when the excellent opportunities arose, we were able to take full advantage. Chance does favor the prepared mind.

So, with that, I'll turn it over to Tom Kelly, who will give you more detail on the quarter and our thinking about the future.

Thank you, John, and good morning. Diluted earnings per share for the third quarter were $1.76 versus $0.73 in 2013. Diluted earnings per share on a comparable basis were $1.36 compared to $1.04 in 2013. Net sales for the third quarter increased 9% over 2013, primarily due to higher European food can volumes, including contributions from the Mivisa acquisition that closed in April of this year.

Segment income for the second -- third quarter was $328 million, with the improvement over the prior year driven by the results of the European food and North America food segment. The impact of a lower tax rate on the third quarter results was a benefit of $0.06 per share compared to our previous guidance.

We currently estimate 2014 fourth-quarter comparable diluted earnings per share of between $0.41 and $0.51, and full-year comparable earnings of between $3.37 and $3.43 per share. This guidance includes a negative impact of $0.04 per share versus our previous guidance, due to the recent weakness in the euro.

To give some background on the level of our exposure to the euro, approximately 30% of our global sales originate in euro countries, with Spain, France and Italy accounting for the majority of those euro sales. To quantify the sensitivity, a $0.10 change in the average euro exchange rate in one year has a net earnings impact, after interest and tax, of approximately $0.12 per share.

Movements in the euro do not have a significant impact on our debt leverage ratio, because we have hedged that exposure with euro-denominated borrowings. We currently project a 2014 full-year tax rate of approximately 25%, and are maintaining our estimate of free cash flow for the full year of approximately $500 million. Looking ahead, we plan to use our cash flow in 2015 at 2016 to reduce net debt, with a target leverage ratio of approximately 3 times at the end of 2016. We currently estimate that 2015 earnings per diluted share will be 10% to 15% higher than 2014 earnings, assuming an average euro rate of [128] for 2015.

Tim will now take you through the operation.

Thank you, Tom, and good morning to everyone. As both John and Tom discussed, performance in the third quarter was strong, driven by higher beverage can volumes throughout many developing markets, notably Turkey and Southeast Asia; excellent manufacturing performance throughout; and the strong European food can demand, coupled with the integration of the Mivisa business.

In America's beverage, sales volumes were off 3%, as growth in South America of 2% was offset by a 5% decline in North America. Through nine months, can volumes in Brazil are up 16%. And while the market did cool post the World Cup, demand remained firm throughout the third quarter. As we stated in July, we believe we will see a solid summer selling season through our fourth and first quarters.

Our new plant in Teresina continues to progress after beginning operations in the second quarter. And we have recently completed the construction of a third beverage can line in Cabreuva, which will be dedicated to specialty can sizes. Commercial shipments will commence next week.

As noted on prior calls, specialty cans represent about 35% of the overall can market in Brazil, and we are well-positioned, as all four of our can body plants have multi-size capability. North American food can volumes were down slightly in the quarter, the result of an earlier pull-ahead into the second quarter, as previously discussed in July. Favorable mix and strong operational performance continue to drive excellent results in this business.

Unit volume sales were down 2% across our European beverage operations, as results in Turkey, Spain and the UK almost fully offset softer Middle East demand. Volumes in the Middle East, while down, came in better than earlier anticipated. Excellent manufacturing performance continues to offset the impact of rising metal premiums.

European food can volumes increased 41% in the third quarter, due primarily to the contribution of the acquired Mivisa businesses and strong shipments from the legacy Crown factories across many countries, including France, Germany, Greece, Italy, and the UK. The market was strong almost everywhere, as beans, corn, peaches and tomatoes all delivered good yields.

If we were to exclude Mivisa, our shipments were up high-single to low-double digits in the quarter. This is a rough comparison, and it will be the last time we try to break this out, as the integration is now too far along to properly measure this going forward.

Unit volume sales of beverage cans in Asia-Pacific were up 10% in the quarter on the back of strong demand in Cambodia, Thailand and Vietnam. Segment income benefited from the increased volumes as well as continuing manufacturing improvements across a number of facilities.

As John discussed, we feel very fortunate to have acquired both Mivisa and EMPAQUE. Both companies not only contain excellent personnel and manufacturing assets, but also operate in markets with opportunities for continued growth.

We have significantly strengthened our profile in the European food and North American beverage can markets, and have capitalized low-cost, high-performing assets onto our balance sheet at historically low interest rates, leading us to believe we have completed these acquisitions at very attractive multiples, and created value both in the near and long-term for our stakeholders. Benefits of these two acquisitions, coupled with ongoing growth in numerous developing markets, and continuous improvements to manufacturing performance, provide much confidence for the future here at Crown.

With that, I will hand it back over to John.

Thank you, Tim. And Shirley, I think we are now ready for questions, please.

(Operator Instructions). Chris Manuel, Wells Fargo.

Congratulations on a strong quarter. (multiple speakers) I very much appreciate the extra color looking into 2015 as kind of a first cut at how you think things will look, but I kind of want to take a step back and try to get a sense as to where the Company could be in a few years out.

So, I mean, if we take legacy Crown, you are capable of generating $450 million to $500 million of free cash flow, and had the last several years. As you've now got Mivisa into the fold and look to getting EMPAQUE towards the end of the year, as you look forward to -- maybe it's not 2015, but 2016, 2017 -- is this free cash flow something that could be low to mid-600's? Or how do you think about -- you know, as you spoke of bringing value to the table by doing these acquisitions, how do think that will translate into cash flow?

Yes, well, Chris, thank you very much. And we thought you would appreciate the look into 2015, and we hadn't anticipated that you were going to jump into 2016 and 2017. But having said that, yes. I mean, we think that we are on an upward trajectory here. And all performance measures and free cash flow is a big one for us, as you know, because the business throws off a lot of cash and, typically, cash well in excess of our CapEx requirements, even with a lot of growth around the world.

So, yes, we think things should improve. I don't know -- Tom, you want to try to look into 2017?

I don't think so, John. I don't think we are quite ready to give cash flow for 2017. But I agree with the general premise, Chris, that the acquisitions will be additive to the historical cash flow.

Okay. If I could follow-up too with the EMPAQUE stuff, that's -- again, that's slated to close towards the end of the year, I believe, right? And second, is there anything -- could you give us a sense as to what -- you have to negotiate contracts for that business, as it's largely takeout/liftoff from Heineken.

Do you anticipate the contracts being significantly different than those in your beverage business today? And how do you think -- glass is a new business for you -- how do you think those will compare to potentially contracts there for timing and mechanisms for pass-through and such, compared to what you have in your present business today?

Yes, Chris. We anticipate -- and we know already, as a consequence of due diligence -- that the nature of the contracts, longer-term/medium-term contracts in Mexico, are very, very similar to the US and Canada, but we're very comfortable with that.

And as to the glass business, it's our first experience with glass, but we are very pleased with this particular business. As you know, it's one plant, but adjacent to a major customer with a long-term contract. And the glass business, as we now understand, has pass-through formulas that we are very comfortable with. So, we feel real good about the whole package.

Okay. That's helpful. Thank you. I'll jump back into queue.

Al Kabili, Macquarie.

And I appreciate again the color on 2015. Can you just clarify on that outlook what you're assuming for pension? Does that include the lower interest rates we've recently seen? What kind of headwind that could be giving us next year? And I assume you're using current FX as well in that -- in your assumptions for 2015?

The currency exchange rate for the euro is $1.28, so I can tell you that. As far as the pension, we've included a range to account for things like pension and many other assumptions that can go different ways. So, we have -- we won't really know the pension number until the end of the year; but for now, we have put a placeholder of a range, and that accounts for part of the reason we have a range.

Okay, I appreciate that. Thanks, Tom.

Tim, just switching over to aluminum premiums, can you help us with what the headwind ended up being in both the Europe bev business and also America's bev in Brazil in the third quarter, what the spillover headwind we should be thinking about is for those segments next year? And if you can continue to offset the premium headwinds with productivity -- you did a nice job in the third quarter -- how sustainable is that piece of it?

Okay. So, I'd say in the third quarter, the impact of higher metal premiums compared to the prior year in the range of $6 million, $7 million, $8 million; headwind in the third quarter in Brazil, a couple-of-million-dollars. I think our full estimate for the year is still around $20 million, as we had provided you earlier, back in the second quarter.

As we look ahead to next year, clearly, the -- as you know, the premiums have gone higher. And there will be a further headwind to experience next year if we don't, as an industry, begin to amend contracts and properly pass these through. Having said that, we're going to continue to endeavor to offset these costs, as we have this year. We have a new team in beverage in Europe, and they are doing a very good job, as you can tell, operationally. And our goal is to offset as much of this cost as we can.

Yes, I'll just -- if I could add one thing, to the extent that in Europe, in particular, we come off-contract at the end of this year -- and we are now talking about pricing for next year -- we will, of course, adopt the proper cost base for aluminum and everything else as we set prices for next year. But to the extent that we have multiyear contracts, as Tim said, we either have to renegotiate or we have to live with them. So, we are aware of that. And it's all included in the guidance that Tom Kelly gave you earlier.

Okay, I appreciate that. All right. And the last one is on 2015. I don't know if you gave us sort of an estimate for free cash flow, but maybe some of the pieces as far as how you see CapEx, if there's any sizable cash restructuring cost next year to be thinking about? I think you closed a food can plant, I think I just saw recently here. If you can give us some color there as well. Thank you very much.

I mean, it's still a little early out, but at this point, we are thinking about $300 million of CapEx in 2015. And as far as restructuring, we have been running at about $30 million to $40 million a year. I think for now, that's a decent estimate to use for next year.

Okay. Thanks, Tom. I'll turn it over and good luck.

Thank you.

Ghansham Panjabi, Baird.

Just looking back a year ago for 3Q, if I remember correctly, Southeast Asia had slowed and European food wasn't all that great from a volume perspective either. Has the market turned for European food? And then also some context on Southeast Asia as well, from a volume perspective?

Okay. Let me just -- Ghansham, I'll talk about Southeast Asia. And if you recall our comments last year in Southeast Asia, there were two significant market events or political events that impacted our volumes, both in Cambodia and Thailand. They were protesting Cambodia post the elections, and a number of protest, public protests, in Thailand. And clearly, that had an impact on the business.

But our view was that, long-term, these are going to be very healthy growth markets. And you can see the bounce-back this year compared to last year. But if you wanted to understand it even better, if you were to look at Cambodia and/or Thailand and/or Vietnam versus 2012's third quarter, not just 2013, if that was depressed, there's still double-digit gains from 2012. And on a compound basis, clearly, they're double-digit as well, over that two-year period.

So, our view has not changed with any of these markets. And we are not going to be put off by short-term events that may or may not happen.

On European food, we are always down to the strength of the harvest. And last year, the harvest was not as strong. And there was a -- you know, there are other events that do happen. One of the -- meal section, for example, was impacted by a meat scare that they had in several countries last year. But, again, these are temporary events and they pass. And you can see the strength, the long-term strength, given that the value proposition that the can offers to the consumer and the retailers, and the long-term strength of the food can business in Europe.

And the yields, as we discussed, were quite strong across almost every crop this year. So it was an outstanding year, and we benefited from that.

Okay. And then just in terms of trying to understand the fourth quarter guidance specifically on -- how do you feel about your inventory levels at current across your portfolio? Are operating rates, for the most part, any different for you as you look out to 4Q versus maybe last year?

I think we are in real good shape inventory-wise. We made some adjustments earlier in the year in one of our businesses, as we talked about in July. And we are in real good shape as we enter the fourth quarter, as regards to inventory levels.

Okay. And then just one final one in the Middle East business. I'm sorry if I missed this, but did you break out what volumes were down for the quarter, for 3Q?

In Europe, I think we said we were down -- well, if I didn't say it, we were down 2%. (multiple speakers) Beverage was down 2%.

In the Middle East?

(multiple speakers) Oh, I'm sorry -- the Middle East was down about 5%, and Continental Europe was flat basically. So overall down 2%.

Okay, thanks so much.

You're welcome.

Debbie Jones, Deutsche Bank.

I was hoping we could talk a little bit about Brazil. Can you just -- I can't recall, did you have two or three lines at Cabreuva? And is this an extra line or just a conversion to specialty? And then I'd just like to talk about the ramp-up costs at Teresina. And then how you feel about the mix between glass and cans heading into 2015.

Yes, Debbie, why don't I do Cabreuva and Tim will pick up the other two subjects. We had two high-speed 12-ounce lines in Cabreuva traditionally. And if you'll recall, Cabreuva is right in the middle of the state of Sao Paulo, the biggest, most prosperous state in Brazil. So what we've added is a third line capable of multiple sizes, quick changeovers and a lot of capacity.

So we needed it. We'd been shipping cans in from other factories in the north and the south of Brazil, incurring a lot of freight. So we're going to overcome that and be able to grow with the market. So we feel real good about it, and we are really well-positioned for next year.

And Tim will respond to Teresina and what we are seeing about the package mix, which we think is still favorable for the Crown -- for the can.

In Teresina, in the third quarter, I'd start up -- the line came up in late second quarter; startup costs, I think about $1 million here in the third quarter. And hopefully, that number begins to come down, especially as we get into the high season here in the fourth and first quarters.

The beer mix, I think, as we've stated previously, cans are running about 45% of the package mix for beer. And obviously, that's up from 40% to 42% over the last couple of years. And we see no reason why it should retrace those steps. If anything, it should continue to garner more share of the mix.

Okay, thank you. And if you could just talk about North America a bit. I think your performance is a little bit less than where the CS data -- the industry track data came in. And I'm just wondering what kind of impact that's having on your utilization rates? And just kind of how you think about that going into 2015? (multiple speakers)

Yes, these are, from time to time, depending on our customer mix and our geographic mix, we can gain share or lose share against CMI data. And over the last five or six years, I'd say we've probably been the beneficiary of customer and regional mix. And this year, we are on the other side of that coin a little bit. So, nothing too alarming.

Utilization is still fairly strong. You know, obviously, as John discussed in the second quarter, we are in the stages of not only evaluating but making some of the production lines more flexible to accommodate other sizes. And that obviously absorbs some of the standard 12-ounce capacity that you may have a concern with.

Okay. Any color you can provide on what type of specialty cans you might be looking at?

Well, I think you could think about sleek and 16-ounce cans. But beyond that, I don't have anything further to say.

Okay. Great. Thank you very much. I'll pass it over.

You're welcome.

Mark Willoughby, Bank of Montreal.

Could you talk a little bit more about Mexico? Just get a sense of what the operating rates look like on both sides of the business there, both glass and metal. And then what kind of growth you see down there in terms of just annualized unit volume?

Yes, I think the operating rates this year for the businesses we bought, the beverage can business was operating in the range of 90% of capacity, a little bit better than that. Glass was essentially sold out with an opportunity for some relatively low-cost capacity expansions in the next several years. So, that's pretty strong. There's quite a strong beverage season this year, both glass and cans in Mexico.

Looking ahead, several things. We think the Mexican economy is going to continue to grow 2% to 4% a year, GDP growth, we think is quite reasonable. There have been a lot of reforms introduced, as you know, in Mexico, that we think are going be positive. So we are anticipating a growing middle class with more disposable income, and so forth. So we think that's going to be positive.

Can is a relatively low proportion of the beer can mix. There's still a lot of returnable glasses; there was in Brazil 10 years ago, and still is, but it's changed a lot. So we think the opportunity for the can continues to be very favorable, particularly in beer.

So, all in all, as we said earlier, everything looked pretty good to us. A very good company; a tremendous anchor customer, if you will, and a strong market with a growing economy -- and a relatively young population. So, all those things told us EMPAQUE was a great opportunity for us. And we are really delighted we were able to get it.

John, if I could just follow-on, any thoughts on just capital needs in that business, whether it's to expand capacity or just make incremental improvements?

Yes, we've got quite a detailed capital program for the business. There are a number of things we think we can do. They did have some excess capacity going 2014 and 2015. We feel real good about utilizing that. But we don't see anything real big over the next year anyway there. But the -- Tom discussed, more or less, where we think we are headed; we included the EMPAQUE requirements in that estimate.

Okay. All right. And then the last thing I wondered -- it seemed like kind of a cool summer here in many parts of the US. Do you think that had much of an impact on either beer or soft drink in the third quarter?

Honestly, I don't really know. Tim, do you want to take a guess? We would be pretending to know something we don't, if we said it did.

Yes, okay. Okay, good enough. Thanks.

Yes, you're welcome, Mark.

Chip Dillon, Vertical Research Partners.

First question is sort of on what your thoughts are at this point -- you mentioned the $300 million CapEx projection for next year. Does that include any new lines, especially, let's say, on the other side of the world?

I think at this point, we are not prepared to discuss any further expansion projects.

Okay, got you. And then looking at currency, you mentioned the $0.04 hit in the -- I guess the fourth quarter from the euro. What was the exchange rate impact, if it's notable, in the third quarter? Or had the currencies really not moved sufficiently to have much of an impact yet?

Yes, there was not much of an impact at all in the third quarter.

Okay. Got you. And then looking at the US food can -- or I'm sorry, beverage can market, you mentioned you lost 5% in North America. And I think it's been a couple of quarters where I think you've underperformed the market just because of your mix, I suppose. How does -- any visibility in terms of how that might progress? I know you mentioned, obviously, you're going to change your mix more towards specialty, but in sort of the base 12-ounce, any view from your customers in terms of how that might at least move up closer to where the market is?

Well, I think our customers are always looking at ways where they're going to promote their brands and drive their business. And we are -- we're always looking for them to do that, and we are quite supportive in their efforts. I think to try to -- for me to guess right now how successful one set of customers is going to be versus another set of customers -- but clearly, there is secular decline in carbonated soft drink consumption here in the United States.

And there are a number of initiatives that the soft drink companies are undertaking, including all-natural, low-calorie sweeteners. And we are hopeful that they are going to continue to progress on that and become more successful.

Got you. (multiple speakers)

I think, Chip, just quickly, we anticipate we are going to bounce back somewhat in North American beverage cans next year. So, we don't think we are going to continue to run very much differently than the overall market trend.

Oh, okay. And then this is the last one. I know it's -- the pension expense number, obviously, is a moving target, watching the 10-year note from day-to-day lately. But when you look at the contribution for 2015 and 2016, obviously, the Highway bill would probably clarify what that number will be. And I mean, it looks like -- I mean, this year so far, it's $63 million year-to-date. If you could just update us on what you think the contribution will be, if that's the total for the year, what it will be? And kind of what the view on 2015 and 2016 are -- would be right now?

Chip, we'll be running about $80 million, both in 2014 and 2015. A little early to say in 2016, but the Highway bill did not have an impact on us because we currently have no contributions to the US plans.

I see. Got you. Thank you.

Phil Ng, Jefferies.

Can you give a sense to what the synergy opportunity is for EMPAQUE next year? And how should we be thinking about the free cash flow of that business?

Yes, Phil. The synergies at this point we are thinking about $6 million on an annual basis. As far as the cash flow, you're looking at $40 million or $50 million -- obviously, after interest, tax and everything else.

Okay. And when I look at your guidance for Q4, even after backing out the $0.04 impact for FX, it's a touch lighter -- at least what we were expecting. Are you kind of baking in some macro headwinds? Or can you give us a little more color what you're accounting for at this point?

No, I don't think there's anything particularly significant to point out that we've baked in. So, no. I can't really give any more detail on it.

Okay. Any thoughts on China? I mean, I know SABMiller cited some weakness during the quarter. It sounded like it was more weather-related, but macro environment has slowed down a little bit. How should we be thinking about price next year?

We think with the supply demand situation being what it is, which is continuing good growth but a fair bit of excess capacity, we don't anticipate much change in price. We think, though, that as the market continues to grow, and our relatively new plants continue to fill up and run better, we may see a little relief on the cost side. But we are anticipating pricing in China is going to be essentially unchanged.

Okay. And just one last one. Your nonreportable segment kind of bounces around. It's a little bit lumpy. In the last quarter, you had some timing-related issue on the equipment sale side, but it was still a bit weaker in Q3. Can you talk about what you're seeing on that side of the business?

Oh, you're right. The equipment business can be lumpy from time to time. It's not a consistent consumer business like the other businesses we have. Nonetheless, obviously, we are very confident in the full-year outlook in next year's outlook for the equipment business.

And then just on the other side, what we think we are seeing in aerosol is a small softening, let's say, in shave gel demand. And that is having a small impact on aerosols.

And is that centered around Europe, North America? Any regions in particular?

I would say both. It's the fashion -- you know, it's just a fashion change right now, which could always change next year.

Okay. All right. Thanks. Good luck on the quarter.

You're welcome.

George Staphos, Bank of America Merrill Lynch.

Congratulations on the progress in the quarter. I guess I wanted to just do a little bit of housekeeping first. The various guidance comments that you provided in answering some of the questions earlier in the call, those all assume EMPAQUE closes, correct?

Yes, that's right.

Okay.

It closes early in the year; if not, by the end of the year.

But you have -- Tom, you have a full year of EMPAQUE in there, and that drives EPS and the CapEx and so on, correct?

That's correct.

Yes.

Okay. Thank you. Now the next question on EMPAQUE spending again, I know it's in the $300 million of CapEx, but could you comment at all as to where EMPAQUE spending is for -- call it 2015 or 2016 relative to what the spending levels have been? That -- you said they are very good assets, but do they require more investment?

George, the spending for 2015, for example, is very much in line with what they have been spending. There isn't any significant CapEx that I could call your attention to. I mean, you're familiar with the glass business, so you understand -- you're familiar with sectioning machine replacements, with furnace rebuilds, et cetera. And there's nothing terribly significant in 2015; maybe a small capacity addition.

So, no, it's pretty much -- the CapEx plans for 2015 are pretty much in line with what they have been the last several years. And no major capacity additions in beverage either.

Okay. Thanks for that, John. Now, Cabreuva, can you comment at all in terms of how much capacity add this third line provides you? I recognize the specialty line is not going to be running 1 billion units, I wouldn't expect; but is it $0.5 billion? $800 million? What -- any range on that?

(multiple speakers) I think around $800 million, George.

Okay.

(multiple speakers) George --

All right, I'm sorry, John.

It's a high-speed line; but, of course, to your point, it's capable of 16-ounce and multiple 12-ounce and sleek sizes and heights. So that's what the market in Brazil has been evolving to heavily -- which is very positive for all the can makers. But so you're absolutely right. We may call it nameplate $800 million, but it's going to be maybe a little bit less than that when you get finished with the various changes.

Okay. Thanks. And two last questions, I'll turn it over. Can you comment at all as to if there are any changes in your volume trajectories into fourth quarter from third quarter, especially in Europe and emerging markets? And forgetting about seasonality, obviously. So, are you seeing any effect thus far from the concerns anywhere in the market about Europe slowing, emerging markets slowing, impacting your business as we sit here middle of October?

No. Excluding seasonality, the answer is no.

Okay. And then the last question is, you've done a tremendous job over the last number of years of basically betting on growth. You've added roughly $1.4 billion, $1.5 billion of revenues with these two acquisitions; you've added $13 billion-plus in terms of emerging market beverage can capacity.

And ultimately, that's the right thing to do when we are still early in the recovery. And hopefully, there are a number of years ahead before the recovery slows down. What -- let's say things change. What contingency plans, what strategic moves would you make to manage the Company if growth were to suddenly slow down, given the fact that you've made these investments the last number of years on growth?

Thanks, guys. And good luck in the quarter.

Well, George, we continue to have quite a bit of flexibility on the CapEx side and on the restructuring side. So, naturally, if growth were to slow markedly, globally, we would cut back. And, of course, we would cut back all spending. And so, that would be the response you would expect and that's the one that we would attempt to achieve.

And -- but yet, we would do everything we possibly could to hit our free cash flow targets, and then use the cash appropriately. So that's about the only thing that we would do, at this point.

John, would you redirect any of that cash to buyback? Or would it even go more quickly to debt paydown? Thanks again.

Well, we might. I mean, it's somewhat hypothetical, and -- as you know. And -- but, yes, we certainly might. In 2015, probably not. 2016? If we could and we would look at it. But we might.

Okay. Thanks. Very good.

Thank you.

Alex Ovshey, Goldman Sachs.

Couple questions for you. You gave a lot of the moving parts around 2015 free cash flow. Would you be able to just give us a range for what you expect [2000] free cash flow to be? And what the dividends to minorities will be in 2014 and 2015?

On the details of the cash flow in total on 2015, no, I don't think we are prepared to do that. The minority dividend is about $80 million, I'd say, in both years.

Okay. Thanks, Tom. And then for Mivisa, can you tell us what the EBIT and EBITDA contribution was in the third quarter?

No. No, we really can't. I mean, we -- the integration process is -- okay, it was in April closing; it's pretty far along. We're -- as Tim said, we are having trouble picking out the spaghetti strands ourselves now. And no, we really couldn't.

Just -- Alex, just to put some color on that -- I didn't mean to be so short with my answer, but it is a short answer. And the reason, as John said, we are -- the integration process implies that we are moving hundreds of millions of units, whether they're can bodies or ends, from their factories to ours, our factories to theirs; they all contain different pricing with different customers, different freight lanes. And it's just a -- it's a very complicated thing. And it's not any more relevant, as we're one company now.

The other thing I would just -- keep in mind, the Mivisa management team, which is an excellent management team, they've picked up regional responsibility now for Iberia, North Africa, sub-Saharan Africa, all of the export ends. And that was a sizable business for them and for us.

So you take all of that, and that means transferring our factories to them in certain cases, and some of theirs to us. And then the moves that Tim just mentioned, we are really rapidly losing visibility on two separate companies in Europe.

Okay. I appreciate that color. And maybe the other way to try to ask the question, I mean, is -- does there appear to be upside to the initial synergy expectations that we outlined for Mivisa, both on the volume and maybe potentially pricing side, as you're further along on the integration? Is there anything you could say on the synergies outlook there?

Well, I think on the synergies -- no, I mean, synergies are about what we had thought. We never speculated on pricing, but time will tell on that.

Okay. And then just on CapEx, $300 million -- can you update us what the maintenance plus CapEx needed to get costs out of the business is after the EMPAQUE and Mivisa acquisition?

I'd say of the -- think about a number of $120 million to $140 million. And we are not going to have a discussion right now. You could always have a discussion that when we start making can lines more flexible, is that maintenance or is that growth, or is that -- what is that? So, it's a range. Right? $120 million to $140 million, think.

Right. Thank you, Tim. All right. I'll turn it over.

Tyler Langton, JPMC.

Just wondering what the 10% to 15% guidance in EPS for next year -- could you just -- I don't know if you can provide sort of just volume growth estimates by the major products that are assumed in that guidance?

No, Tyler, we really can't. I mean, we look at the whole portfolio and ran scenarios and flexed it. And we are comfortable with the range, but I really don't want to get into any more detail beyond that.

Okay. Yes, I understand. And then I think Europe, you just mentioned volumes were flat this quarter. Could you just run through, I guess, maybe what some of the drivers of that was?

Oh, you're talking about --?

Bev cans, Europe bev cans.

Yes. European beverage cans being flat. Well, I think we had a strong 2Q. Just like Brazil would've been strong during the World Cup, the European countries obviously participate quite heavily there. And so, post-Q2, you have a little returning towards balancing out the supply chain, especially for those countries that didn't advance as far as perhaps if they would've stopped the supply chain. But beyond that, I don't think anything else notable other than, for our business, flat in Continental Europe.

Okay. Got it. And then just with the Middle East -- and I think you said down 5% in the quarter -- have you seen any signs of improvement recently? Or is it getting worse? Just any sort of change in direction there?

Yes, I think when we talked to you in July, we were a bit more hesitant perhaps at that point than we would have been, had we talked to you a month later. July was -- especially the first half of July and the month of July, was quite a bit softer than the full quarter. August and September actually came back a little bit.

So, again, this is a region that knows conflict very well. It's -- we've been in the Middle East as a company, or our predecessor company, now for 35 years. And we are -- these things happen from time to time. But I think long-term, this is a market continues to grow 5% to 8% throughout the Gulf. And we are going to participate in that in one way or the other.

Got you. Okay. And then last one, I don't know, again, for the 2015 guidance, can you just give a rough estimate of what the interest expense in D&A that assumes?

I don't have it in front of me. Interest I'd say we're going to come in probably about the same as this year's number. (multiple speakers) D&A, it's tough to say until we complete the step-up process with EMPAQUE.

Got you. All right. hanks so much.

Thank you.

Scott Gaffner, Barclays.

A question on the 2015 guidance. If I look at it 10% to 15% EPS growth, looks like just from earnings accretion alone, you should get about half of that, so maybe the base business is growing 5% to 7%. But you obviously have some European -- some euro headwinds that you talked about a little bit, but they don't seem to be maybe as large as we would've anticipated. Is there any other major headwinds we should be thinking about, just on the base business as we go into 2015?

Well, I think we -- throughout this call, we've talked about a number, and you just indicated a couple earlier. We talked about, on average, metal premiums will be higher -- it appears they will be higher next year than they are this year. The euro will have an impact. And I think your assumption is right, that our base business is going to be up mid -- in the mid-single digit range. And that encompasses offsetting those two major headwinds that we just talked about.

But other than that, I don't see any other major headwinds. We're going to continue to experience good growth in a number of the developing markets. And -- no, I think we're -- as you get -- no, we're pretty positive on the outlook for next year.

Okay. And just on that one headwind, you mentioned the LME premiums, but at the same time you were talking about renegotiating some contracts. How many of your contracts or percentage is coming up for renewal as we move into 2015? And as you move to get the LME premium pass-through, does that necessarily limit your ability to actually get pricing on those contracts as well?

I think the -- we are not going to go into detail about when the contracts end, but renegotiation would probably be a difficult task. We'll see how the industry overall feels about it. Probably a pretty difficult task. And we anticipate limited success in the estimate that Tom gave you earlier.

New contracts, obviously -- we need to cover all our cost increases, not just premiums. And we will be attempting to do that.

Okay. And I mean, on the cost-out in Europe in the third quarter, you did a good job on the cost-out in order to offset some of those premiums. Is that cost-out something you can maintain as you move into 2015 or even into the fourth quarter?

Yes, it is. What we've seen over the past year and, really, we started it last year, there's been a tremendous emphasis on our European beverage business, particularly in the continent, but also in the Middle East as well. Improved operating efficiencies, drive down spoilage, drive down all costs, make better utilize our factories, be smarter about where we are shipping, how we are shipping, how we are coordinating. And we anticipate that progress will continue into next year. And Tom has included it in his estimates for next year, and understanding what we might need to do to offset premiums if they continue to be a problem.

Okay. And just lastly, you mentioned earlier -- you thought you'd see a bounce-back in North American beverage in 2015. Is there something that you've been talking about with your customers that gives you that level of confidence? Or is this more market-related? Can you just flesh that out a little bit?

I think what John said was that we would expect next year that we will be more -- our performance will be more in line with the industry performance, as opposed to this year, where we were moderately underperforming in the industry.

Okay, thank you.

Thank you.

Adam Josephson, KeyBanc.

Just one more on the puts and takes for 2015 compared to 2014, how you talked about some of the accretion and some of the drags you expect. Anything on the food can contract that you're losing? I thought that might be a fairly notable drag next year. Is that -- are you thinking that's not necessarily the case?

No, it's another headwind that, obviously, the base business has to overcome. But it's in the guidance Tom gave you.

Okay. Just a couple others. Normalized tax rate for the Company post-EMPAQUE?

Yes, Adam, I think you are still looking at about 25% for 2015.

Okay. So no change from 2014. In terms of North American food cans, just can you talk about the state of the market at this point? You've had some recent repricings, as have your competitors. You've had some contract losses, et cetera. Can you talk about what you see there longer-term, just in light of everything that's happened over the past year or two?

I think if you look at our food can business in North America, it's an exceptionally run business. And that's borne out by the margins we make, not only in absolute terms across the entire food industry when you compare us to others, but even when you compare us internally among our other businesses.

And I'd say that what you described is largely complete. Obviously, as you know, there's a new entrant. And we've got really well-run low-cost factories. And we fully believe we are going to continue to be very competitive and do quite well in the business.

Thanks. And then just a couple others. On North American bev cans, what do think the likely long-term growth or decline in that market is? You've talked about CSD being a secular decline. But do you think it's -- what do you expect the long-term declines to be? And what, if anything, do you expect to have to do to adjust for that?

We don't honestly have a precise view on what's going to happen. I think there are too many moving parts over which we don't have a lot of control. So I mean if we were guesstimating right now, we'd probably say, well, the next several years, we may see the -- what we've seen in the last number of years, beer can volumes growing somewhat, carbonated soft drink declining somewhat.

But there's so many factors that are involved. Tim mentioned sweeteners and marketing, public perceptions. And so we don't really know. But we think it's a pretty slow decline. And we anticipate that we can cut costs and do things -- more specialty cans, more variety and so forth, and largely offset it. At least that's certainly our plan.

Thanks, John. And just one more on Asia-Pac. Obviously, EBIT was quite good in the quarter; up much more so than in recent quarters. I know Southeast Asia was growing substantially, but that's been the case now before. Can you discuss what kind of change this quarter, and whether you expect this kind of EBIT growth to continue in subsequent quarters and why?

What happened over the quarter is what we discussed with you in the first quarter and the second quarter, which was, we have a lot of new plants. I'm trying to guesstimate what proportion of our volume is new plants that were put into service within the last three years.

Close to -- three or four years, 50%.

We're saying 50%, 60%. So if you think about that, these are factories that need to run seven days a week, 24 hours a day, 340, 350 days a year at high rates of efficiency and low spoilage for us to do well. Well, it takes a new workforce with new equipment, a period of time to get to highly-capable levels of operation.

And we told you earlier, when a number of you were somewhat distressed about margins in Asia in the face of growth, it's going to take us a little while as these factories keep coming up the learning curve and keep getting better. So what you are really seeing in the numbers is continued growth, as Tim mentioned, and continued improvement in our operations.

The good news is we've still got a lot of ways to go. We've made a lot of progress and we are seeing improvement all through the region, but we've got a lot of runway to continue to improve in. So it looks very positive for us in Asia.

Thanks a lot, John. Appreciate it.

Alton Stump, Longbow Research.

I think most of my questions have been answered. I just -- as you look back to European food -- and I totally understand that it's hard to splice out the base business versus, obviously, Mivisa in the quarter. But high-single/low-double digit is an awfully big number. How do think about 4Q? Or is it too early -- I assume that the harvest is pretty good; is that going to benefit fourth quarter at all? Or was it mostly a 3Q event?

Well, I mean, obviously, low-single to -- or high-single to low-double digits is tremendous growth for the food business. But it -- you know, these are comparators against a prior year that -- where the harvest may not have been as good. But the harvest issue was quite good across a lot of products. And that accounts for why we did so well.

We still are packing in Europe and in North America right now. And we're two-and-a-half weeks into October. So we are going to have a -- I think we're -- the completeness of the harvest is going to be quite strong this year. Obviously, when we get a frost, it's going to stop on that day. But we're going to continue and would expect to have a good performance for the full year in food, both in North America and Europe.

Okay, great. Thanks, Tim.

You're welcome.

Thank you. And our final question comes from Chris Manuel with Wells Fargo. You may ask your question.

Just a couple clean-up questions for you. Just to help us frame -- this is your first opportunity to talk about EMPAQUE publicly, so I wanted to kind of ask a couple more questions there. But it was a pretty nice step-up from, I think, $130 million of EBITDA last year to what you anticipated this year is $150 million. And I think you mentioned $6 million of synergies earlier. So is that sort of what you're anticipating as a number for 2015? Did I catch that correct?

Well, we didn't give you a number for EMPAQUE for 2015. But we think EMPAQUE will do better next year than this year. As I said, it's a great, great collection of assets and factories and people in a strong market. So, we have a lot of confidence in it.

Okay. Maybe let me ask the question just a little different. The $6 million of synergies that you're anticipating, is that something that you believe you can get in the first, say, 12 months you're involved with the business? Or will it take longer?

No, we think we'll get it in the first 12 months.

Okay. That's helpful. Then the second element, just maybe a little clean-up, because there's -- I'm a little confused to an extent with some of the premium stuff. It's -- looking at it at [420] or so as it sits today, you talked about improving some of the spoilage and some of the other efficiencies in the business.

But have you been successful going out today into the market, raising some pricing to offset that? It would appear as though you've been able to do some work, looking at how strong your numbers are. But could you maybe give us a little color there as to -- have you been successful getting some of that?

Well, Chris, we are in mid-October here, and we are in robust conversation with our customers around the world who are not accustomed to formula pass-throughs, about the necessity for aluminum -- of our can prices reflecting actual aluminum costs, not imaginary aluminum costs. So, we think we're going to be successful. And that's certainly our intention, and that's what we are trying to do.

Okay. Last question, if we could switch gears a minute to China. That's been another area where, as you've brought some capacity online, there's been some overcapacity embedded within the markets. Can you maybe give us an update as to the situation there, where you feel you sit today? If you anticipate any improvements as we look forward to 2015 and 2016?

Well, I -- as we said earlier, the excess capacity, if you will, situation has changed a little bit for the better this year, but not a lot. And therefore, that's why we are saying we don't think there's going to be much improvement in pricing in China year-on-year. But we think, for Crown, there could be an opportunity for some improvement in our overall operations and profitability, simply as a consequence of more volume being run more effectively in the factories that we have. But China for the moment just stays where it was over the course of the year -- pretty good growth; but also capacity.

Are you still seeing double-digit growth there?

This year, yes. And we think that's how the year will finish, yes. Exactly. And just one little reminder. At the moment, China sales $300 million to $400 million for us?

Yes, 3% to 4%.

$400 million. So, we need to keep it in context.

That's helpful. Thank you, gentlemen. Good luck.

Thanks, Chris.

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

Okay, Shirley, thank you very much for all your help. And all of you, thank you for being on the call with us this morning. And good bye.

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