Crown Holdings Inc (CCK) 2014 Q4 法說會逐字稿

Good morning and welcome to Crown Holdings' fourth-quarter 2014 earnings conference call. (Operator Instructions). 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 remarks regarding the Company's performance in the fourth quarter and full year and then turn it over to Tom Kelly who will take you through the numbers and give you some additional detail. Tim Donohue will very carefully review the performance of the 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.

Crown finished 2014 with a very strong fourth quarter with sales up 3% over 2013 and segment income up 14% versus prior year in spite of adverse currency and aluminum premiums. Our full-year performance was exceptionally strong by every measure, including sales up 5.1%, segment income up 9.5%, cash from operations of $940 million and free cash flow of $612 million. Earnings per share increased 14% without any share repurchases and in spite of a higher tax rate.

Altogether, this was the best year for our Company in its recent history and validated our focus on strong organic growth, continuous improvement in all aspects of our operations and seizing strategic opportunities as they become available such as our two highly valuable and accretive acquisitions in European food cans and Mexican beverage packaging.

Updating you on the acquisitions of Mivisa and EMPAQUE, the integration of Mivisa is complete and went exceptionally well, to the point where we no longer are distinguishing it internally and will not distinguish it in these remarks from the rest of our food business in Europe. We are awaiting word from the Mexican competition authorities about EMPAQUE, but are hopeful that we will have a positive result in the near term.

Looking back, 2014 has been productive and full of activity that has strengthened the Company. Tim Donahue will describe the many steps taken to continue our growth development improvements. You may be surprised by the extent of our actions, which, of course, always speak louder than words.

Turning to 2015, we are pleased to report that it will be another outstanding year for the Company with increasing sales and income and very strong free cash flow. Our approach remains unchanged, which is to maintain our focus on metal packaging with good diversification both from a product standpoint and geographically.

Before I turn this over to Tom Kelly to give you further details on our performance and a description of our expectation for 2015, it would be well to take note of the recent announcements regarding the combination of two of our competitors. We will not be commenting on that transaction during this call and will not take any questions concerning it. We thought it would be best to make this clear at the outset. So with that, I will turn it over to Tom.

Thank you, John and good morning, everyone. Diluted earnings per share were $0.12 in the fourth quarter of 2014 and $2.82 for the full year. Diluted earnings per share on a comparable basis were $0.48 in the fourth quarter of both 2014 and 2013 and $3.41 for the full year as compared to $2.99 in the full year of 2013. Net sales for the fourth quarter increased 3% over 2013 primarily due to contributions from the Mivisa acquisition that closed in April of this year, partially offset by a negative currency impact of $90 million.

Segment income for the fourth quarter was $193 million with the improvement over the prior year primarily due to higher profits in America's beverage and European food. Our adjusted income tax rate of 25% for the year is in line with our previous guidance. Free cash flow of $612 million for the year was well in excess of our previous guidance due to a number of factors, including our ability to apply Crown's working capital policies and procedures to the Mivisa operations.

Looking ahead, we currently estimate 2015 full-year comparable diluted earnings per share of between $3.50 and $3.70. This guidance assumes a 2015 exchange rate of $1.13 per euro and 10 months of EMPAQUE results. The impact of the stronger dollar reduces our 2015 earnings per share by $0.25 compared to what earnings would have been if 2014 actual rates were used to translate 2015 results. In other words, the midpoint of our range of $3.60 would have been $3.85. Note that this is a translation issue only as we manufacture our products in the regions where they are sold and hedge any significant foreign currency transactional exposures that arise.

To quantify the translation sensitivity of our net income to movements in the euro, we estimate that a $0.01 change in the euro exchange rate has a net earnings impact after tax and interest of approximately $0.012 per share. Our leverage ratio is generally unaffected by movements in the euro as the net debt to EBITDA ratio in our euro-based operations is comparable to our overall leverage ratio.

We currently project 2015 first-quarter comparable diluted earnings per share of between $0.47 and $0.53 per share versus $0.57 in the first quarter of 2014 reflecting currency movements and a difficult comparison in our European beverage segment as the impact of higher aluminum premiums did not affect our 2014 results until later in the year. We currently project a 2015 full-year tax rate consistent with our 2014 rate of approximately 25%; although it may vary from quarter to quarter. We also project full-year 2015 free cash flow of at least $550 million with approximately $350 million in capital spending. The impact of the stronger dollar in 2015 reduces our free cash flow by $30 million compared to 2014 constant currency basis. I'll now turn it over to Tim.

Thank you, Tom and good morning to everyone. As both John and Tom discussed, 2014 was another year of progress for Crown. Segment income improved 9% for the year and 14% in the fourth quarter as the benefits from the Mivisa acquisition combined with solid operating performances across our operations offset the impact of unfavorable currency translation and record high aluminum delivery and warehousing premiums.

In America's beverage, fourth-quarter sales volumes advanced 3% over the prior year as North American volumes, which were up about 0.5%, were bolstered by 8% higher Latin American volumes, which for Crown consists of operations in Brazil, Colombia and Mexico. During 2014, we further expanded our specialty product mix across the business with the completion of two new high-speed multi-sized can lines in Brazil, including a new line at the new Teresina plant and the installation of a third production line in the Cabreuva plant. So-called specialty cans, that is cans other than the standard 12-ounce can, now represent 35% of our Brazilian sales, which we believe is in line with the market. We also converted two standard can lines to sleep format, one in Ft. Bend, Texas and the other in Guadalajara, Mexico.

Additionally and as described previously, we entered into a definitive agreement to acquire EMPAQUE, the leading beverage manufacturer in Mexico. Crown has been present in Mexico for more than 75 years across multiple productlines and we look forward to the expansion of our presence in this growing market. So all in all, solid operating performance in 2014 combined with high return capital deployment gives us promise for continued growth in the future.

Performance in North American food remained strong throughout 2014 with full-year segment margin at 15.7%. The food team continues to execute well and the benefits of our low-cost platform offset slightly lower volumes in 2014.

Our European beverage business posted a strong result in 2014 on the back of higher volumes from operations in France, Spain and the UK, which offset softer volumes in Jordan and Saudi Arabia, higher aluminum premiums and unfavorable currency translation. Fourth-quarter segment income was impacted by aluminum premiums and $2 million of currency; although much of that was offset by our efforts to continue to reduce costs and improve manufacturing performance. During 2014, we initiated the conversion from steel to aluminum in our Custines, France plant by installing a new high-speed aluminum beverage can line. We expect the line to be in commercial production three months from now.

Additionally, several investments were made to expand nonstandard 33 centiliter capability with so-called specialty cans. Specialty cans now comprise 60% of this segment's unit sales. In 2015, we project further volume growth, but, as Tom discussed, unfavorable currency translation and higher aluminum premiums will provide a difficult comparison for the business in 2015, particularly in the first half.

European food volumes improved 32% in the fourth quarter due primarily to the inclusion of the acquired Mivisa assets and also to continued strong performances in France, Germany and the UK, as well as from new food can operations in Dubai and Turkey offsetting $5 million of currency in the quarter. As John noted earlier, the integration of Mivisa into Crown Europe has progressed according to plan and to date has included numerous actions such as the movement of production volumes among plants to enhance service to customers and the consolidation of operations in the UK and Africa where we have closed food can plants in both Ghana and Senegal and consolidated that production into Mivisa's new production plant in Ghana. We continue to review our new low-cost production base at Mivisa to optimize our European food operations.

While currency will have a dampening effect in 2015, we fully expect segment income in the European food business will increase over 2014 levels as a result of the additional contribution from Mivisa in the first 4.5 months as compared to last year. Unit volume sales of beverage cans were flat in Asia-Pacific in the fourth quarter as growth in Southeast Asia was offset by softness in China. For the year, the division recorded 11% volume growth with improvements in China and from newer facilities in Sihanoukville, Cambodia, Bangkok, Thailand and Danang, Vietnam all recording their first full year of operations in 2014. Segment income benefited from continuing manufacturing improvements across many facilities offsetting the impact of a stronger US dollar against most Asian currencies and an increasingly competitive landscape in China, which we see continuing into 2015.

In nonreportables, we had a strong finish to the year. Each of the businesses, that is aerosols in North America and Europe, European specialty packaging and our equipment manufacturing business, CMB Engineering, all performed well, somewhat offsetting the challenge in aerosols of a decrease in the use of shaving foam and gel due to a consumer trend toward shaving less frequently. In early 2015, we anticipate completing the sale of four industrial specialty packaging plants to HUBER Packaging Group of Germany as soon as the local consultation procedures have been completed.

So in summary, a real good performance in 2014 and with the activities we completed in 2014 and have underway currently, we are confident in further improvement in 2015.

Lastly, before I turn it back over to John, I want to acknowledge Ray McGowan, who retired as President of the America's division earlier this year. With more than 40 years in the packaging industry, Crown was fortunate to have Ray for the last 13. I know I speak for everyone at Crown in thanking Ray for his leadership and continuously improving all facets of our America's businesses, including safety, quality and profit performance. I would also like to take the opportunity to recognize the team at CME Engineering who was the winner of the Queen's Award for International Trade 2014 marking the second time in the last four years they have been recognized. In a ceremony last month, her Royal Highness, Princess Anne, toured the factory and presented the award to honor their achievement. A proud moment for the entire team. And with that, I will turn it back over to John.

Thank you, Tim and Tory, I think we are ready for questions.

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

Thanks for taking my question and congratulations on the year and a good ending to 2014. I jumped on late, so I don't want to ask a question that you may have already covered, but just quickly can you comment at all on how the pricing environment is developing in China and Asia into 2015? Secondly, in Brazil, where in the Americas you did a lot better than we were modeling, that is neither here nor there, but I was wondering how much of your progress versus your plan was driven by Teresina and if you could carve out any other highlights in the Americas. Thanks. And I will jump back in queue.

George, just on China firstly, pricing in China obviously has trended downwards in the fourth quarter of 2014 as we move into 2015 and it still remains under pressure and I will leave it at that. But it is fully baked into our estimates that Tom provided earlier.

On Brazil, if you missed the comments, obviously we opened Tersina. We also put a specialty can line into Cabreuva where we are making all the sizes from 9 ounce up to 18.6 ounce and that is going quite well. The Brazilian market, a little bit soft after the World Cup, let's say, in September, October, November. December was quite strong. January is very strong. Although I will mention to you that Carnaval is two weeks earlier this year; it's in the middle of February as opposed to I think March 4 or 5 last year, the start of Carnaval. So we will have a very good performance from January 1 right up to February 17, 18. Things will slow down a little bit in the back half of the first quarter and then we start to accelerate again in the second quarter.

George, I would just add to that the good news in China is demand continues to be quite strong. Sales were up 11%, 12%, 13% across the market last year. The fourth quarter was slower because Chinese New Year was later unlike Carnaval. But in any event -- but the problem continues to be the problem, which is supply has been outrunning demand a little bit and we saw it in the prices. Southeast Asia, we are doing very well. The markets continue to grow and pricing is stable and we continue to grow. So I think that's good news.

Hey, John, one quick one here; I apologize. Again, if you mentioned on the call already, I apologize. The asbestos provision ticked up a little bit. These are not big dollars, obviously, thankfully, but anything that we should be aware of in terms of a trend change there? Thanks and I will turn it over.

No, it really isn't. If you will remember, we are looking 10 years ahead, adding a year and making some small adjustments. And when we look over the last five or six years, nothing alarming in this. We go up and down a little bit it seems like every year.

Okay, thank you.

Philip Ng, Jefferies.

Your Europe food business was pretty weak and margin improvement decelerated a touch. What drove the shortfall? Was that some pullforward in Q3? And it didn't sound like you had any integration issues on Mivisa, but can you call how we should be thinking about synergies going forward?

I assume you're talking about European food because you would be hard-pressed to characterize our North American food business as weak.

No, Europe food.

Okay. European food, I think what we would tell you after the Mivisa acquisition is the business is now more seasonal than it was in the past. Meaning that the fourth quarter going forward will be a smaller quarter relative to the overall food performance. Mivisa, far more weighted towards fruits and vegetables and little to no pet food or ready meals, which are soups and stews, which are more stable throughout the year. So the fourth quarter just becomes a smaller quarter relative to the overall campaign.

Okay. Any color or update on how we should be thinking about synergies from Mivisa in 2015?

I think we are moving along quite well. I think we are on track to meet or exceed the prior synergy numbers that Tom provided last year, which was EUR20 million to EUR25 million I think in total in the full year. So that will be achieved through the end of 2016 with more advancement made in 2015.

Okay. And then for CapEx guidance for 2015, are you baking in any growth projects and how much of that is tied to EMPAQUE?

Obviously, EMPAQUE has a capital plan and when we acquired EMPAQUE, we knew of that capital plan. So on the order of $25 million to $35 million perhaps is the EMPAQUE plan. It's a number of operations, as you know, not just beverage cans, but bottle caps, aluminum rollon closures for the growing bottle market in the States and also class, although there is not a lot of expending in glass forecasted. And beyond that, we will let you know the projects as we get further underway.

Just to add, as we always do, our emphasis, as you know, in capital is on growth. And that emphasis hasn't changed. So we are always focused on growth and 2015 CapEx carries that on.

Okay. And just one quick last one, your guidance for 1Q, you're forecasting a noticeable stepdown on a year-over-year basis. I noted there are some offsets or headwinds on the premium front, but it also implies based on your full-year guidance a noticeable pickup in the coming quarters. Can you talk about the bifurcation?

Yes, Phil. You have currency, obviously. You have the premiums and remember, we did have lighter results in the Middle East in the second half of the year and a real strong first half last year, so that will also impact the comparison.

Okay. All right, thanks.

Adam Josephson, KeyBanc.

Good morning, everyone, and congrats again on your free cash flow this year. Tim, can you talk about your pricing outlook for European food cans this year, just based on your negotiations to date?

I think I would characterize it as stable to modestly up.

Is that based on -- can you parse that out at all between Mivisa and the --?

No.

No, okay. Okay. Just on EMPAQUE, have your DNA expectations for that acquisition changed since you announced the deal, just acknowledging you haven't closed it quite yet?

No, Adam. It's essentially in line with our original estimates.

Okay. And just one on capacity utilization in North America bev cans. Can you just hazard any rough estimates as to what you think utilization rates are in North America in bev cans? Do you think there is a need for capacity reductions in the foreseeable future based on your forecasts?

I think we are all pretty well utilized. From time to time, there is excess capacity, but that excess capacity doesn't exist in any one region or any one location. I would characterize utilization, 91% to 93%, 91% to 94%. Keep in mind that with the conversion of the business slower than a new rampup, but the conversion of the business, the specialty cans, there is less capacity when you are doing changeovers than if we were running straight out on 12 ounce. But I think as an industry and at Crown, we are in the low to mid-90%s utilization. I don't see right now any need for capacity to come out.

Tim, thanks a lot. Appreciate it.

Chris Manuel, Wells Fargo.

Congratulations to a strong cash year. Wanted to focus on two things. First, just a quick one. Did I hear correctly that you are anticipating EMPAQUE closes pretty directly that you have effective in your numbers for March 1 forward, is that right?

Yes, we are hopeful. We have been working with the Mexican authorities as they have requested us to and we think it looks pretty good, but we will wait and see. But, yes, we think planning for March inclusion is appropriate.

Okay, that is helpful. So my two questions are, first, when I think about where you are -- a little bit around European beverage, if we could, where you are as you sit today with how much premium headwind did you have in 2014, what do you have embedded into 2015 as you sit at current levels and maybe kind of an update on the process of how you anticipate beginning recovering or are you able to begin to recover some of those and then what the market is like? Is it tight, is it -- how are you feeling with capacity there?

Chris, I will give you the numbers and then John can comment on the second part of the question. As far as the impact in 2014, it cost us about $17 million and looking ahead to 2015 at the rates we have in the budget, it's about $20 million additional.

And as far as recovery, Chris, there has been little or no sign of pass-through premium in the European beverage can market and as you know, I think we've got about 18% of the market, so we tend to be a follower in that regard. So don't expect price relief associated with premium.

Okay, that's helpful. And my second question is, as we look at your free cash flow numbers for 2015, $550 million, can you maybe help us with a few of the underlying components there? It sounds like a change in pension, what do you have embedded for working capital, etc.?

The working capital improvement is about $50 million to $75 million.

Okay. Has pension changed --?

Non-pension cash, somewhere between $75 million and $80 million.

Okay. And D&A stays about the same or --?

No, D&A will be up with the addition of EMPAQUE. We are probably looking at about $250 million for D&A for 2015.

Okay. That's helpful. Thank you. I will jump back in the queue.

Ghansham Panjabi, Robert W. Baird.

Can you parse out volumes in Europe and the Middle East for bev cans in 4Q? Just trying to see if there's a bifurcation there.

Yes, what you would characterize as Europe was flat in the quarter, up a few percent for the year and the Middle East was in the quarter down high single digits, down mid-single digits for the year.

Are you expecting a similar type of trend in 2015 in both regions?

I think we expect growth in the low to mid-single digits in Europe, and as Tom mentioned earlier, we would expect a little bit of contraction year over year in the first half of the year in the Middle East and in the back half of the year, it flattens out.

Great. And just as a follow-on, if I read into your comments earlier on Brazil correctly, it seems like you are still expecting growth overall in Brazil bev cans even with the tough World Cup comp. Did I read that correctly or --?

As we said, there will be a number of things that impact Brazil. We have an earlier Carnaval this year, so the so-called season will come to an end two weeks earlier. Obviously, we don't have World Cup, but the market does continue to grow. I think fillers recognize and consumers do prefer cans in the Brazilian market and we expect growth to accelerate again in the back half of the year resulting in an overall growth in bev can sales in Brazil.

Great, thank you.

Debbie Jones, Deutsche Bank.

You talked about continuing to focus on growth and I was wondering if you could just compare what we have seen over the last one to three years globally and what you kind of expect to see over the next two to three years and if there will be opportunities for Crown to continue to invest in organic new capacity?

I'll focus principally on beverage because I think that is probably your question.

Yes.

Asia, we think, will continue to grow. China we imagine will continue to grow double digits as the entire market for all beverages, Asian drinks, beer, soft drink continues to grow and conversions continue, particularly in beer from one-way glass to cans. So that should be good from a growth perspective. Southeast Asia, we expect the same for the same reasons. Brazil, we think this year, as Tim mentioned, we think there's going to be some continuing growth this year, notwithstanding the outstanding 2014 that we just had, but slowing down, probably low single digits the next several years although a function of the economy.

North America, I won't go into; you are familiar with the trends there. Europe, we think, as Tim said, it should continue to grow in the 2% to 4% range, a lot of it beer, but a lot of it has been soft drink as well. And again, package mix is driving it a lot. And the Middle East is frankly just a function to a great degree of the degree of [people] that they have and overall trends are good, demand trends are good. There's room for a lot of growth, but, of course, month to month, week to week, quarter to quarter, hard to know what is going to happen. So we think the general situation -- Mexico continues to grow and we think there's going to be a substantial continuing package mix change there from glass to beverage cans. So we think the overall situation is quite good.

Okay, thanks. And then I guess on South America, are you fully ramped up, the two new lines that you brought on in 2014? And then can you just comment on how your customer mix may have impacted your results in the quarter and expect it to impact results in 2015?

Customer mix where?

In Brazil, and I guess just beyond kind of the mix of your customer, if you had any customers that were gaining share in the market that may have helped you in your results.

Well, I remember what you are referring to. Our customer mix will not change much in Brazil 2015 versus 2014 and yes, in answer to your question, yes, the new capacity is running full and well and so we anticipate -- another reason why we anticipate a strong year in Brazil.

Okay. And just last question, the electricity headwind for you guys in 2015, are you able to quantify that?

Nothing significant for us.

I think partly you need to keep in mind we are all familiar with the drought and we all know that Brazil generates a lot of electricity from hydro, but the drought is not having an equal effect throughout the country. So we have one fairly large plant in the middle of the country. It would appear that some of our competitors have many more plants in the middle of the country, so we seem to be far less affected by electricity and energy.

Okay, that is helpful. Thank you. I will turn it over.

Chip Dillon, Vertical Research Partners.

Most of my questions have been answered, but I've got one. Could you talk about the US food can business? One competitor is building a new plant and another recently built a new plant. How is Crown's CapEx in the segment in 2013 and 2014 compared with prior years and what is the outlook for CapEx in 2015 and 2016?

We are talking about North American food. I would say that we have a very low-cost platform from which we operate in North American food, which is largely responsible for the higher margins that we enjoy than perhaps some others do. We don't have a need to spend capital in that business currently. Capital each of the last couple of years and even next year not any more than a handful, if you will, in millions of dollars, $5 million, $6 million. That would be a lot for us.

Commenting on the recent capacity additions, one of them is on the West Coast where we don't really participate in two-piece or three-piece cans, so it has no impact on us. The recent announcement that you are referring to, it does appear that one of the other competitors is trying to lower their cost profile by consolidating several activities into one facility. But other than that, you'd have to ask them. I can't comment on it.

Okay. That helps. Thank you very much.

Scott Gaffner, Barclays.

Tom, just a quick follow-up on the pension cash first. I think you said $75 million to $80 million in 2015. How does that compare to the 2014 pension cash and can you talk about the longer-term outlook on cash contribution?

Our pension cash in 2014 was $81 million. The difference is purely lower exchange rate translates to a lower number and that's essentially the number we would expect going forward, pretty much flat.

Okay. And did you talk about -- on the pension expense, I assume you have some headwind as we move into 2015. Can you talk about the pension expense headwind?

Yes, I did mention it to (inaudible). So we had $56 million of expense in 2014, projecting about $45 million in 2015. We had the same discount rate and mortality table headwinds that everyone else had, but in our case we actually benefited from a lower inflation rate environment in the UK, which more than offset those headwinds to bring the number down.

Okay. And then a little bit broader question, when I look at North America, can you talk about any opportunity around specialty cans? I don't know if I heard you earlier talk about conversions of lines into specialty cans, but, if not, can you just talk about the opportunity there and can you also talk about what you are seeing in the promotional activity from some of your customers, especially on the CSD side? Are you seeing that pick up at all?

We are seeing what others are seeing. Our customers are showing increasing interest in specialty cans using packaging as a way to generate some excitement and respond to some of the concerns about caloric content and so forth. So we are sensitive to that and Tim mentioned that we are responding to it and we will continue to do that. Otherwise, we think our customers on the soft drink side are going to put a big push in this year to try to turn things around and we wish them well.

Thanks. Good luck throughout the year.

Mark Wilde, Bank of Montreal.

Yes, just a couple of questions and pardon me, if I am crossing over familiar ground here already, but did you give numbers for Mivisa from both a revenue and an earnings standpoint last year?

For 2014, no, we did not.

Can you give us some idea what that might have looked like?

I think you know the numbers that we would have announced or referred to when we made the acquisition. We don't have our actual numbers as we have them because we've integrated the business, but I would tell you that you shouldn't expect that they're anything other than at least what they were when we bought the business and slightly up given the strength of the pack we had this year.

Okay, that's helpful, Tim. The other question I had, it is just a small one, but I noticed that the asbestos number was up about $10 million. Can you give us a little color there? I would have thought that those numbers would continue to decline gradually over time?

Yes, Mark, that was asked and answered a little while ago and if you will recall, you may not, we are projecting constantly 10 years forward, so we are adding a year and making some adjustments over 9. So this number is well within a range that we have been out with for the last five, six, seven, eight years, so we don't see anything alarming in it and no, we read nothing into it at all.

Okay. The last question I had, John, just if you look down in Brazil, the per capita consumption of beverage cans is so much higher than you see in a lot of other emerging markets. Do you have any thoughts on why that is so in Brazil and whether there is any sort of upward cap on that?

I think, Mark, the per capita consumption is reasonably high, I haven't checked it -- I think of it more in terms -- we think of it more in terms of package mix and I think what you are referring to is correct. Package mix in beer is quite high and the reason for that is that the -- okay, the last couple of years, growth in Brazil has not been particularly good, but over a 10-year period, it has been very good and consumer spending has been up quite a bit and there have been a lot of government policies to try to improve incomes of lower middle income, middle income people. And that has coincided with the brewers pushing the growth that they have into cans. So all the growth has been coming in cans plus conversions. And then if you read about Brazil, you know that buying practices have changed, many more big supermarkets, people are going and takeout is becoming a bigger and bigger method for consumption of everything, including beer.

So it's just been a great run for the brewers and it's been a great run for the can companies. That's really why. But I don't think it's -- it's not a hell of a lot different than what we have been seeing in Southeast Asia, for example. Okay, they are not nearly as far along in terms of retail sales, etc., however, the brewers, for growth, they are all pushing cans and they are really moving from returnable glass to cans and very little interest in one-way glass.

Okay. All right. That's helpful. Thanks, John.

Al Kabili, Macquarie.

Good morning and sorry if you covered this already, but just as it relates to the first-quarter guidance and then relative to the year, it looks like 1Q is down year-over-year relative to an improved earnings for the full year and can you just help us with the puts and takes of the progression, how you factored the progression in earnings for the year?

Yes, Al, the main headwinds are going to be currency, premiums, which didn't really kick in as much until the second half of the year and Middle East. We had -- numbers got a little softer in the second half of last year but were strong in the first half. Those are the three primary reasons.

Okay, thanks for that, Tom. And related to the Middle East, have you seen any incremental degradation going on there given the political strife, etc.?

The Middle East, it is hard to talk incrementally. Things swing wildly week to week there in terms of when you can ship, where you can ship and so forth. So no, we haven't seen any real change in the last month. It has been weak in the second half of the year for all the reasons you know and it is carrying on that way, in our view, at least in the first half of the year.

Okay, but as far as the earnings are going, it hasn't taken a further stepdown more recently versus the run rate in the back half?

No.

Okay, that's helpful. Just last question for me and I will turn over is just, on the BPA legislation in France, just wondering if you can update us on how you're working through that and if that is having any impact on the European food can business.

Well, as you know, the French legislation applies to France and you may have recently seen the European Food Safety Agency Administration did a thorough study, looked at everybody's studies at length and concluded that BPA does not constitute a health hazard and they were very definitive in that. Unfortunately, so far, the French are carrying on. We have made plans for it, so we are fully prepared to comply with the French law and it's in the numbers and projections that we've given you for 2015.

All right. Thank you very much. Good luck.

Alex Ovshey, Goldman Sachs.

I think you mentioned a divestiture on the industrial side. Would you be able to tell us the expected proceeds and associated EBITDA with the sale and timing?

Yes, neither one considerable. I'll just leave it at that.

Okay. Got it, Tim. And then pro forma leverage, can you just update us where you are with EMPAQUE and if there's an upper bound to how you guys think about where leverage can go?

At the end of the year, we will be about 3.6 times. With the addition of EMPAQUE, that will tick up about half a turn to 4.1 or so and then by the end of 2015, we will be back in the mid-3s.

Very good, Tom. And then last one, on the food can pricing side, is that done in Europe for 2015?

Largely done. We characterized it earlier as stable to modestly up.

Great. Thanks, everyone.

Tyler Langton, JPMC.

Just on Asia beverage, with the volume decline there, you have to keep profits relatively flat. I just wondered if you could talk about was that cost-cutting, was it better performance at some of the newer plants, just any color there would be appreciated.

Well, volumes weren't down; they were down in China, but they were up in Southeast Asia. They were flat overall. (multiple speakers)

I'm talking about revenues being down 3%, sorry.

Okay. Some of that has to do with the passthrough of lower aluminum costs as it is priced in LME or Shanghai, so I wouldn't get too concerned. But largely the answer to your question as it relates to profitability has to do that three of the newer factories that we opened in mid to late 2013 in Southeast Asia experienced their first full year of operations in 2014 and combining that with not only in those three plants, but continuous manufacturing improvements in several other newer plants.

Got it. Okay and as you look out into 2015, do you have a sense for, when you look at Southeast Asia and China, sort of [behind] trends for this year?

I think we expect volume to be up in both China and Southeast Asia and as we said earlier, pricing will remain competitive in China and pricing is stable in Southeast Asia.

Got you. And then if I missed it, Tom, I think you mentioned premiums were a $17 million impact for 2014 in Europe. Do you know what they were for the fourth quarter in Europe?

Yes, $7 million.

Got you. Okay. Thanks so much.

Adam Josephson, KeyBanc.

John or Tim, one of your competitors recently talked about a move among your customers toward global supply contracts. Can you provide your views on that topic? Thanks very much.

Yes, some of our customers have more of an interest in this. I think what we have seen so far is you end up with a number of regional negotiations that are done at more or less the same time and sometimes in the same place; although often not even that. So it's a little more time-consuming for us and maybe a little more expensive in terms of travel to meet the customers' wishes. However, the outcomes are not all that different because supply demand dynamics, cost dynamics, currencies, all of that vary so much from market to market. So we are not unduly alarmed by or it's not a good thing or a bad thing; it's just a little bit of a different thing.

So you don't expect it to have much if any impact on you in the years to come?

No, I don't. And I think, as I said, for all the reasons I just mentioned.

Thanks, John.

George Staphos, Bank of America Merrill Lynch.

Again, apologies if you already discussed this. Just as we take a step back and look at the industry over the last 4 to 6 quarters, maybe 4 to 8 quarters, there's been a lot of change in the can business, a lot more capital allocation discussion. Even more recently some things in the headlines relative to your peer companies. John, do you think your strategy changes at all given the new factories going in and some of the potential moves by your peers, or you think your strategy pretty much stays the same? And in answering the question, why do you see your strategy working the same way, or why do you see it evolving over time? Thanks. And again, good luck in the quarter.

George, are you referring principally to food in North America?

I'm referring to food in North America, but potentially other moves that we've seen as well or discussion points.

Yes, okay. As Tim said earlier, the food in North America situation that is going on, we don't feel that we are going to be very affected by it and we think we understand what our customers -- what some of our competitors are doing. We have consolidated our food can business dramatically over the past 10 years. It has been long enough ago so you have forgotten and I've forgotten myself a lot of it, but we have done a lot of work in that regard, so we've got the right number of buildings. You can always do a little bit more and we are very, very low cost and you see it on our margins. It's a consequence of the fact that we are low cost. So what we see now is some, I would say, a little bit of catch-up by some competitors who are doing things to try to improve their cost situation and we are not alarmed by it and we are not surprised by it. If anything, you might argue it is somewhat overdue. Beyond that, as we've said at the outset, we are not really -- we don't think we should comment and we are not going to comment on this other beverage combination. We will just have to see where it goes.

Okay. Fair enough. I had missed that. Again, good luck in the quarter, guys.

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

Good. Well, Tory, thank you very much and everybody, thank you for joining us on the fourth-quarter 2014 call and we look forward to seeing you and speaking with you next time. Goodbye.

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