Crown Holdings Inc (CCK) 2015 Q2 法說會逐字稿

Good morning and welcome to Crown Holdings's second-quarter 2015 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 comments regarding the Company's performance in the second quarter and then turn it over to Tom Kelly, who will take you through the numbers and give you some additional detail. Tim Donahue will review carefully the performance of the various businesses and discuss our views as we look ahead.

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. Additionally, 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 2014; and in subsequent filings.

Everything considered, the Company had a strong second quarter, which was generally in line with our overall plan for 2015 performance -- in fact, somewhat ahead of it at $1.03 per share. On a constant currency basis sales for the quarter increased 5.7%, and segment income improved 6%.

Some of the adverse trends we experienced earlier in the year moderated, such as the regional aluminum premiums, which were not as much an issue in the second quarter and which we expect will continue to be less of an issue as we go forward. In addition, the value of the US dollar, although somewhat greater than that at the end of the first quarter, has stayed within a fairly tight range against the principal currencies outside of the United States where we do business.

Unit volume sales were generally good, with some notable exceptions. In the Americas our beverage volume was up 21% in the quarter and 15% year to date. Food in the Americas continued to be weak relative to prior year, due principally to the loss of a major customer and seasonal delays.

Our European beverage business was down 4.3% in units quarter to quarter, caused principally by weakness in the Middle East. But we saw a recovery in June in Europe. On a year-to-date basis we remain down 6.2% in beverage units in Europe and the Middle East.

Food volume in Europe was up 1% for the quarter, but year-to-date, if you remember, we are up 13.5%. From this you can see that we are continuing to realize substantial benefits from our acquisition of Mivisa in Europe, which has added great strength to our European food business. Likewise, the acquisition of EMPAQUE in Mexico has made a significant contribution to our North American beverage can business. In Asia we continue to see strong demand, with beverage unit volumes up 6.2% in the quarter and year to date up 8.3%.

We believe that demand trends will continue to show improvement over the balance of the year, as North America generally should be relatively strong. And we believe Brazil will start to come back from the very weak second quarter and first half. The European food can business reports good growing conditions, apparent stronger consumer demand across Europe, and good export growth as well.

Our beverage can business in Europe finished the month strongly. And the Middle East business reports somewhat better demand as well, although off relatively weak prior-year comparisons.

We thought it would be useful to give you an overview of Crown's thoughts concerning broad market trends for 2015. We continue to anticipate that the United States and Canadian beverage can markets will be down from 1% to 2% the entire year. However, we believe Mexico should be up between 4% and 6%. Aggregating unit sales for the three countries which comprise North America, beverage can sales for the region will be essentially flat for the year -- that is, Mexican growth will offset US and Canadian decline.

We forecast the Brazil market to be down 1.5% for the full year, with the recovery in the second half of the year from the comparatively weak first half. The European beverage can market will be up 2% to 4% for the year. And we continue to forecast the Middle East will be down 5% to 10% versus 2014, but the second-half comparisons should be better.

In China and Southeast Asia we continue to forecast beverage can sales to be up 8% to 10%.

Regarding food, we believe the markets in the US and Candida will be roughly flat for the year. And in Europe we are anticipating market growth between 1% and 2%. Tim Donahue will address Crown's performance within all of these categories in a moment.

Overall, we are forecasting that revenue and earnings per share for 2015 on a currency-neutral basis will continue our upward trend of recent years. As you recall from my earlier comments, both Mivisa in Europe and EMPAQUE in Mexico have made very substantial contributions to the Company's performance. Both businesses are largely integrated now into the Crown system, and both are demonstrating excellent performance.

So in conclusion, taking everything together, the first half of the year has gone well. And we anticipate that 2015 will continue as a strong year of solid performance for the Company.

I will now turn the call over to Tom.

Thank you, John, and good morning. Earnings per share were $1.02 in the second quarter of 2015 compared to $0.76 in the second quarter of last year. Earnings per share before certain items were $1.03 in the quarter or $1.17 at constant currency exchange rates.

Net sales for the second quarter were down 4% in actual rates but grew 6% at constant currency rates, including contributions from the Mivisa and EMPAQUE acquisitions. Segment income of $272 million in the quarter includes $30 million of unfavorable currency translation. Improvements due to the inclusion of the EMPAQUE results and an additional three weeks of Mivisa were partially offset by lower food can sales in the US and beverage can sales in Brazil.

Assuming no further movement in pricing, we now estimate we will see a small positive impact in Europe from aluminum premiums in 2015 compared to 2014. This compares to our previous guidance of a $10 million year-on-year negative impact. Our comparable tax rate for the quarter, at 25.2%, is consistent with our guidance of 25% for the full year.

Lower net income attributable to noncontrolling interest primarily reflects reduced earnings in Brazil compared to 2014. As you know, a decline in earnings in our joint venture operations resulted in a decline for both Crown and the earnings attributable to noncontrolling interest. Looking ahead, we are estimating 2015 full-year comparable earnings of between $3.50 and $3.65 per share compared to our previous guidance of $3.50 to $3.70 per share, primarily reflecting lower profits in Brazil.

We are estimating free cash flow of approximately $550 million, with $350 million in capital spending. This guidance assumes an average exchange rate of $1.10 per EUR1 for the year. Currently project 2015 third-quarter comparable earnings of between $1.25 and $1.35 per share. I'll now turn it over to Tim.

Thanks, Tom, and good morning to everyone. As discussed by both John and Tom, operating results in the second quarter and for the first half of the year were firmly ahead of the prior year on a currency-neutral basis. Global beverage can unit volumes improved 9% in the quarter, mainly a result of the EMPAQUE acquisition, with performance at EMPAQUE offsetting much of the adverse $30 million currency translation impact.

Against earlier guidance the second quarter was ahead of our expectations, mainly as a result of higher-than-anticipated beverage can sales unit volumes in the United States, Canada, Mexico, and Asia-Pacific offsetting lower-than-expected beverage can volumes in Brazil, Jordan, and Saudi Arabia, and in North American food. As anticipated, aluminum premiums -- while still elevated against historical norms -- had a negligible impact in the second quarter compared to the same period last year.

Looking at the operating segments, in Americas beverage overall sales unit volumes were up 21% in the quarter, driven by the EMPAQUE acquisition. Excluding EMPAQUE, volumes were up a little bit more than 1% across the segment, as 3% growth in the United States and Canada, combined with growth in Colombia and legacy Crown Mexico, offset a low double-digit decline in Brazil.

Currency had an adverse $8 million impact in the quarter as a result of the weaker Mexican peso and Brazilian real compared to the US dollar -- and when excluded, segment income improved $22 million or 26% over the prior year, despite the market softness in Brazil. For the first half our Brazilian sales volume was down 6%, and we estimate the overall market to have been down 5%.

While Brazilian demand slowed considerably in the second quarter, we expect second-half 2015 volumes to be flat to up, particularly in the seasonally strong fourth quarter. As previously discussed, planning and preparation for the construction of our new plant in Monterrey, Mexico, is ongoing, with a late third-quarter 2016 startup expected.

Our North American food business continued to perform well, with segment income margin at 13.5% of sales. However, this was considerably below performances in prior years due to double-digit volume declines. The previously-discussed customer loss was compounded by delays in fish and some vegetable packs.

Customers are now pulling cans. So we expect the back half of the year, while still down to the prior year as a result of the customer loss, to be flatter. And to estimate that for you, I would say that if the first-half segment income was 70% of prior year, we expect the second-half segment income to be about 90% of prior year, with the shortfall being the loss of the customer account that has now been well discussed.

Segment income performance in European beverage was impacted by $7 million of currency translation in the quarter. Unit volumes declined 4%, mainly a result of the 10% decline in the Middle East as demand remained weak, caused by numerous ongoing conflicts in the region. While demand is expected to remain subdued until more stability exists in the region, we begin to lap over easier comps in the second half of 2015.

The impact of aluminum premiums was negligible in the quarter, and we expect a gain in the second half compared to the prior year. The new aluminum beverage can line in our French plant is performing well following its commercial startup in early May. We expect growth in the second-half segment income on a currency-neutral basis and flat to up on a reported basis.

After improving 32% in the first quarter, European food volumes advanced 1% over the prior year in the second quarter due to strong shipments from Northwest European operations. Excluding currency headwinds of $14 million, segment income was up $19 million or 30% over the prior year due to the incremental volume gains and cost reductions. The quarter included three extra weeks of Mivisa sales compared to last year, but this was offset by the required divestiture of our former Spanish business, which was consolidated for two months in last year's second quarter. The integration of Mivisa is progressing according to plan.

While still too early to comment on the size of the various food packs across Europe, we do expect currency-neutral third- and fourth-quarter food performance to be strong. Currency will have a bigger impact in the third quarter, just given the amount of segment income being multiplied by the lower exchange rates.

Beverage can unit volumes in Asia-Pacific were up 6% in the second quarter on the back of 13% and 11% growth in China and Vietnam, respectively. The contribution from the unit volume growth and continuing improvements to productivity and efficiency offset the soft pricing environment in China. We remain on-plan to start second beverage can line in our Bangkok, Thailand, plant, with commercial shipments expected to commence in early September.

We completed the sale of the industrial specialty packaging business in early April, which accounts for the majority of the sales decline in nonreportables. Segment income year-on-year reflects the divestiture and currency translation.

So after six months, we are more or less where we expected to be. On the back of two very good acquisitions, we have managed to earn our way through several headwinds in the first half and are well positioned to continue to grow over the balance of the year. And with that, I'll turn it back over to John.

Thank you, Tim. Operator, I guess we are ready to answer some questions.

(Operator Instructions) Chris Manuel, Wells Fargo.

Good morning, gentlemen, and congratulations on the strong start. Two questions: first, could we maybe parse a little bit up what is happening in Europe? I think you mentioned Middle East was down double-digits, total segment down something in the mid-4s. What -- if you look more at kind of traditional Continental Europe versus parts of Eastern Europe/Middle East, what was the difference? And how does that change over the balance of the year?

I think -- Chris, I think if we want to describe Europe -- proper Europe -- we would say Europe was roughly flat in the quarter. And for the back half of the year, we expect Europe to continue to grow. And that will offset the weakness that we've had, and we expect to continue to have, in the Middle East. And we'll have overall growth in the entire segment in terms of volume for the year.

Was there anything -- I guess really where I'm going there, Tim, is it seems to be a touch behind what the market was doing. I think the market was up a couple points. Is there any reason maybe you are a little behind? Is it timing? It doesn't sound so based on your comments that you just made. But was there something with customer mix, etc.?

I think, Chris, more precisely in the first half -- but essentially same thing with the second quarter -- we believe the market was up 2.1% in Europe. We were actually down 2.9%, and it was essentially timing. We had some qualifications with a fairly -- some new locations with a big customer. And we were delayed in qualification. So we think we are going to pick it up in the second half of the year.

Okay. That's helpful. The second question I had was aluminum premium. So it's going to be a modest benefit this year. How are you feeling as you -- I recognize it's very early yet to look into 2016, but you should have a pretty sizable pick-up. Can you maybe talk about how you view retaining that pick-up versus -- you have raised some price the last couple of years to offset, but I still think cumulatively you are a good chunk behind. How do you balance that?

Chris, if you are suggesting that we should go out and do a hedge -- I'm not sure if that's what you are suggesting, but the risk with that is that the premium keeps moving around. And the convention in Europe is that it's not part of the pricing formula. And as John has talked about before, while we've endeavored to do that, the balance of the market has not gone in that direction, as we see in North America.

Now, we are going to have a benefit next year, primarily in quarter one versus quarter one this year. But the back half of the year will essentially -- if the premium doesn't move from where it is today, it will be essentially flat to where we are today. So you'll have -- the charge we had in Q1, we'll pick up. And then after that we're basically flat year on year.

Okay. Thank you. Good luck, guys.

Philip Ng, Jefferies.

Good morning, guys. Margins improved pretty nicely in Asia-Pac. Can you talk about what's driving that? Is this some of that startup cost rolling off? And any color on pricing would be helpful.

I think, as we have discussed previously, Phil, the pricing in China remains weak. Southeast Asia is much firmer. Volumes improved 6%. And anytime you have volume growth, you should have margin growth if you have a pricing architecture which makes sense. And then don't forget -- as you are well aware -- we brought up a lot of capacity across all of Asia, not just China, but throughout Southeast Asia over the last several years. And the plants are running much better. So efficiency and productivity doing real well. And that's just falling through to the bottom line.

Got you. And then from a Mivisa integration standpoint, we've seen margins improve pretty nicely in Europe food the first half of this year. Any update in terms of incremental cost takeout, synergy opportunities down the road? How much of that improvement is driven by volumes as well?

You know, it's a very big -- our food can business in Europe is a big business. So when we describe a 1% volume advancement, that's a significant amount of volume that's spread across the network of plants we have. So that drives a lot of volume.

Now, just be a little careful: the margin improvement we had in the first half reflects the first quarter, where we didn't have Mivisa year on year. We certainly had Mivisa in full for the third and fourth quarters last year. So that will be an apples-to-apples comparison as we get to the back half of the year.

But the business is going well; the integration is on plan. I think we fully expect through the end of 2016 to realize on an annualized basis EUR25 million of synergies. And we are well on plan to realize that. As John has described, we bought a tremendous company with great people. And it's given us a lot of opportunity to improve our results and share those benefits with customers.

Okay. And just one last one for me. It looks like the Middle East is continuing to be weak, but it sounds like comps are going to get a little better in the back half. Any thoughts on Greece? I know it's not a big part of your business, but any color on that front would be great.

I think -- two things to remember: we export a lot of cans from Greece into Europe and the Mediterranean region. So so far we are doing pretty well in Greece.

Okay. All right. Thanks a lot, guys.

Anthony Pettinari, Citi.

Good morning. Just drilling down on Brazil, is the expectation for improvement in the second half purely seasonal pickup, or are your customers maybe doing better than the market? Because we are hearing reports of recession accelerating in Brazil. I was wondering if you could just give a little color on the market there?

Anthony, last year the first half benefited from the World Cup and the growth that the market was enjoying over several years before this so-called recession that you have just alluded to. But the market is expected to be firm in the second half, and we are seeing shipments pick up here early in July. It's still too early to talk about, and the third quarter is not as strong as the fourth quarter. But all signs point to a very firm second half, especially the fourth quarter.

Okay. That's helpful. And then switching to North American food cans, you had the contract loss that was well telegraphed. And I think you have said that you have no contracts that are up for renewal this year.

When we think about a competitor bringing in capacity online, are there contracts up for renewal in 2016, 2017? Or is there a way that you can kind of gauge that risk in the next couple years of additional competitive pressure in North America in food cans?

We always have contracts that come due, especially in a business like food year on year. But I would say all of the major contracts -- none of the major contracts come due in 2016.

Now, having said that, we have not seen any customer pressure from the new entrant other than the one contract where we lost business. The additional shortfall that we had in Q2 was related to some delays in packs, seasonal and fish, which we are already seeing the pull happening now. So I wouldn't overreact too much to the second quarter. We are going to do quite well in the back half of the year here.

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

George Staphos, Merrill Lynch.

Thanks. Hi, everyone. Good morning. I wanted to talk about margins in the Americas, broadly. So first off in beverage Americas, recognizing that you did see growth in profit dollars, is there a way to discuss what the effect of Brazil's problems had in terms of your overall margins, which were down despite the inclusion of EMPAQUE?

And then, within North American food, recognizing that you are happy with the performance and that most of the variance in the quarter was related to things that should transition or reverse in the third quarter, are there any other areas where you can lower your cost position -- which you did such a good job of over a prior number of years -- to improve your margins on a going-forward basis?

So George, on Brazil, I think you and the balance of the analyst community have done a fair to good job, if not even better, than trying to estimate what margins might look like in Brazil. And certainly historically they have looked a lot better than in North America.

And as you rightly point out, profits are up. And profits are up nicely on a currency-neutral basis, due solely to EMPAQUE and growth in North America. So the growth in North America offsetting much of the Brazilian decline in volume terms -- but North America margins, obviously, being lower than Brazilian margins.

And I don't want to speak specifically to margins other than that in general terms. So I'll let you figure that out -- the balance of the way.

But we had a firm, strong quarter in the Americas. It's just a little disappointing Brazil was weak. But we are going to do fine. We are not too worried about that. We're happy with EMPAQUE, and North America is operating great. We're doing really well in North America from a productivity standpoint right now.

Now in food, yes, there's always ways we can take out more cost. But we need to be careful that we can supply all the diameters and specifications that customers require. We have recently moved one of the two-piece food can diameters from our Toronto, Ontario, plant to the Owatonna, Minnesota, facility. So it will be a third line in Owatonna, and we'll make just beverage cans in Western Ontario.

So that will take some cost out over time. But as you point out, margins are still pretty healthy in that business. And we'll get the volume back here in the second half.

Tim, two quickies around that. Thank you for the color, first of all. So what I get on your commentary on Americas beverage: it wasn't a -- you didn't have a pricing issue as much in any one region as much as it was just a mix issue. If that's correct, just let us know.

If you are looking at margin, George, it's mix -- country mix. And it has to do with volume softness in Brazil.

Okay. Fair enough. And then on the move from Toronto to Owatonna -- now, I remember Owatonna being your first two-piece food can plant. Is this a three-piece line you are moving into Toronto, if I heard you correctly?

It's a two-piece line. It's just a different diameter than we have in the Owatonna facility. So it will add that diameter to Owatonna.

Does that give you any kind of ability to maybe take out capacity elsewhere in the Midwest, if you now have more two-piece capacity south of the border?

No. It will leave us with two two-piece plants: one in Baltimore and one in Owatonna.

Okay. My last question -- I'll turn it over: can you update us on your leverage goals for the year? Any movement there? Thanks, and I'll turn it over.

George, we think we are going to be somewhere in that 3.8%, maybe 3.9% leverage ratio by the end of the year.

Okay. Thank you.

Adam Josephson, KeyBanc Capital Markets.

Good morning. Thanks a lot for taking my questions. One, in terms of your full-year guidance, it sounds like premiums are about a $10 million to $15 million benefit compared to where you were three months ago. Was Brazil the lone offsetting factor that led you to reduce the top end of your guidance? Or was there something else as well?

I don't think the premiums were as high as $15 million. Probably $12 million. And yes, Brazil was the primary factor resulting in the reduction in the top end of the range.

Thanks, Tom. And just one more for you, Tom. Dividends to minorities this year -- both income statement and cash flow statement?

As far as the cash, probably somewhere between $50 million and $55 million; and on the income statement, about mid-60s -- maybe $65 million.

Thanks, Tom. And Tim, in terms of the US soda market, the volumes looked a little weaker sequentially. Any noticeable changes there compared to last quarter, or last year, or the last couple years?

No, I think that it's been well documented, the shift away from carbonated soft drinks. And that continues. It was down -- I think you all get the CMI numbers for the quarter, and you'll see that carbonated was down again.

We had a strong performance, and I think some of that was good fortune for us in our customer mix. And they might have been a little -- our customers might have been a little softer in Q1. They pulled back in Q2. Combined with -- last year we were having to source cans to support the Western plant that was on strike. And this year, 12 months later, the factory is running much better and at much higher efficiency, with a workforce that's been in place for 12 months. And we're not having to source those cans.

Adam, I think one thing worth keeping in mind -- and we referenced it in our opening comments, and we'll continue to do that going forward -- is the North American market, we think, is clearly comprised of Canada, the United States, and Mexico. The Mexican market, from a can perspective and a beverage perspective, particularly beer, is playing a big part in the US story, as you know.

And if you look at it that way, as we said, we think Mexican growth is going to at least offset or more than offset US weakness. And the other thing I think is noteworthy from Crown's perspective is you need to think a little bit differently about our mix of customers going forward. With the EMPAQUE acquisition today in North America -- Canada, the US, and Mexico -- our beer share is 40%; soft drinks is 60%. So those things are all benefiting us.

Thanks, John and Tim. And, Tom, one last one for you, just on the EMPAQUE currency exposure. Can you talk about what your Mexican peso exposure is now?

Well, it's similar to anywhere else, where we do business in the local currency in Mexico -- somewhat mitigated by the fact that we have aluminum in dollars.

Revenue was about $700 million, $[715] million.

Revenue is -- yes. So there is some exposure similar to what you would see in any other country.

Thanks very much. Appreciate it.

Ghansham Panjabi, Baird.

Just back to your initial comments at the beginning of the call on the 9% beverage can volume growth for the quarter, just for that specific business, what do you estimate operating income grew on a constant currency basis? Do you have that?

Global beverage? That's what you want?

We'll try to have it for you after the call, if you like. But we haven't rolled up global beverage/global food on a currency. We've been doing it by geography. I'm sorry.

Okay. Just the beverage can business would be helpful. And also, last quarter on the conference call you called out a slow start to 1Q in European beverage. I think you called out some contract timing issues with your larger customers. Did you get the snapback in volumes that you thought you would for the second quarter?

We got some recovery; so for us, yes, the second quarter was somewhat stronger than the first in that regard. And we expect it to improve as we go along.

Okay. And then just finally, on the Middle East business, just in terms of the broader exposure that you have to the region: is it your sense, John, that things have started to stabilize in that region? Obviously comps get quite a bit easier as well, but do you see any signs of stability for you guys?

I think our volumes are stabilizing, Ghansham, but the situation is clearly not stabilizing. So weak spots/strong spots move around. And overall we think the comps are going to be obviously somewhat more favorable, because the second half last year was, frankly, quite poor.

So we think it's stable in that regard. But you know from the standpoint of where you can ship and what you can do on a daily/weekly basis, things are not very different.

Okay. Thanks so much.

Debbie Jones, Deutsche Bank.

Correct me if I'm wrong, but I think you took up your Mexico growth targets, I think, for volumes from 3% to 5% to 4% to 6%. Is that related to the new capacity that you are building, or are you just seeing trends improving?

It's just trends improving. The market was up strongly in the first half of the year, and that caused us to change the forecast.

Okay. Thanks. And then I know we talked about North America here, but if I could just go back to the US -- you did call out some items that are helping to improve productivity in this country. Is there anything else that you think can continue into 2016? Or are a lot of these things kind of one-time related issues or improvements?

I think they are not one-time. They are improvements to the system, and so in that regard they are permanent. Now, do they create year-on-year growth in earnings from 2015 to 2016? They may, but clearly the improvements are permanent.

Okay. Thanks. That's helpful.

Chip Dillon, Vertical Research Partners.

First question is: can you just remind us -- I believe Monterrey -- you mentioned that next year, I think, late third-quarter you would start up a line there. Is that actually a two-line plant? If so, what's the current status of the second line?

And then if you could just update us on what you think CapEx will do next year? And I'm assuming that there are, at this point, no plans for any additional lines to be built in your system.

I think it's premature -- I'll come back to Monterrey in a second -- a little premature to talk about next year's capital. And you shouldn't make any assumptions as to whether or not we are or are not going to add lines to the system. As far as Monterrey is concerned, we'll bring one line up in late third-quarter 2016. And we would expect within a year to bring the second line up.

Okay. Got you. That's helpful. And then as you look at the situation in China, you mentioned 13% volume growth. And I believe that was for the market.

And yet pricing continues to be impacted by what's been this relentless construction of capacity. As you can best tell, do you see any moderation in the growth in the capacity as you look out in 2016 and 2017? In other words, has the industry sort of had enough of the low margins there?

So the 13% we referenced, Chip, was our volume. And we believe the market is up anywhere from 9% to 14%. So we think we are right in line with the market.

You're right to point out that capacity has been coming online at a little quicker pace than we and others would like. I think that there are a number of the smaller competitors that are struggling. But until you get some reform in China as to how the Chinese national companies are banked by the Chinese banks and the Chinese government, you are going to continue to see -- or perhaps will continue to see supply coming on in the face of demand which either meets it or exceeds it.

So a little hard to predict right now. If we went back two years, the amount of capacity coming online was certainly far greater than it is right now. But that doesn't mean that there's still not capacity coming online now.

Yes. I think, Chip, as Tim said, the supply/demand balance as we project it over the next several years is not getting worse, but unfortunately it's not getting better. So we are anticipating that pricing where we are today is probably going to be the norm for the next several years. And we are planning for it.

Our plants are running much more productively. As we run more units through them, and we run at higher rates of efficiency, and lower spoilage, and so forth, we lower our costs. And so that's our approach.

We're not going to invest any more in China, obviously. And we do think there are going to be consolidation opportunities over the next several years. And we're going to be alert to those and see what we can do to perhaps take advantage of them.

Got you. And just the last one, which is two parts. One is as you look at your North American experience, which certainly seems better than the market in the last quarter, when you break it down and you look at the beer business, how much of that is perceptibly a transition of, say, some of the craft beers moving to cans versus just a better experience with the big beer brands?

And then, I guess secondly, I know on previous calls, people have brought up the issue of your returns on the investments you had made back around 2010, 2011, 2012. Could you just remind us that -- is it really not fair or accurate to look at those returns until you are about a couple of years beyond them, just given the startup times involved in filling up the plants? And maybe that's what you are experiencing now in Asia?

Let me talk about the beer in North America. I think it's well to remember that we are very strong with our beer customers in Canada and now very, very strong in Mexico, somewhat less so in the United States.

We also, we think, have done an excellent job growing with the craft brewers. And we've got a very large, diverse group of craft brewers who are good customers, and whose interest in cans is growing, and whose purchase of cans is growing.

So to the extent that exports from Canada and Mexico into the United States combined with package mix change in Canada and the US is occurring from glass to metal and the craft beer phenomenon, that accounts in large part for why we've done as well as we've been doing with the brewers here in recent years. I think Tom and Tim are pondering the question on returns.

Chip, I think if you go over the last decade -- and you said the last several years -- but if we went over the last decade, where we had expended significant capital to grow the platform: we started in the Middle East, then went to Brazil; Eastern and Southern Europe; Southeast Asia and China. And I think as we look back on all of those, I would tell you that we are quite happy with all of those investments and believe that the returns from all those investments have been on plan with the exception of China.

As we discussed on China, China is not an issue of volume. I don't think we got the market wrong in terms of demand; I think what we got wrong -- and many others, not only in our industry but other industries, have got wrong -- is the amount of capacity that's going to come on and compete for that tremendous growth that everybody sees.

That has certainly dampened our experience in China. But I think we need to be a little careful not to pollute the overall review of the infrastructure expansion program with the experience in China. It's one market. It makes up about 3% to 3.5% of our overall revenues. And we're happy.

I would say, look -- if we look at our capital program over the last number of years, it's been wildly successful. The returns in Brazil have been fantastic. Colombia has done great. Mexico even before EMPAQUE has done really well. The Middle East over a ten-year period has been extremely profitable. So we're really happy. Southeast Asia has been spectacular. And you are not going to hit a home run every at-bat, but we think it's been a tremendous program. And we're really proud of it.

Fair enough. Thank you so much.

Scott Gaffner, Barclays.

Thanks, good morning. Going back to North American food for a minute, when I look at the profit forecast you gave for the second half of the year, it looks like EBIT is going to be down about -- you know, operating margin -- operating profit is going to be down about $25 million for the full year. I think half of that is probably the customer loss.

Can you talk about the other half of the $25 million? Is that mostly from the pricing sessions last year, or how should we think about that? Because I think you talked about the North American food market being relatively flat year-over-year.

Yes, I would say that probably two-thirds of that decline that you mentioned is related to the customer loss. And the balance will be lower overall volumes in the market. I don't think we said the market was going to be flat, right? I think we expect food cans to be down a little bit.

Okay. And then the delay -- I guess you called out a delay in the harvest in the second quarter. Maybe a delay in (multiple speakers) cans?

Yes, what we had was -- so fish has been delayed into July. What would have normally been a stronger pack in June we are seeing in the first couple of weeks of July. We had some really harsh weather in the Southeast. So our Southern vegetable customers have been delayed this year.

Okay. Switching to the Mexican market for a minute, you guys are adding capacity; your competitors are adding capacity. I guess some of the brewers are now adding beverage can capacity, too. Is there any concern that even though the market is growing 5% to 6% that we could end up in another situation like China with overcapacity?

No, there's not. I think when we say the market in China is growing 5% to 6%, we are basically focused -- 4% to 6% -- basically focused on Mexico. But of course, exports into the United States from Mexico filled product, then going up as well.

I think what you're referencing is the two major brewers who have -- between them have about 90% of the market in Mexico are planning to increase their exports into the United States. And more significantly for us, they are planning to change their package mix and start pushing cans a lot harder than they have. So what we're planning to do -- what one of our competitors are planning to do -- we think lines up very, very well with Mexican market growth and the major brewers' plans for increasingly aggressive exports into the United States.

Okay. And then just lastly, looking at North America specialty can growth, can you talk about how that's gone year-to-date, or maybe in the quarter as well -- and if you have seen any margin pressure there within specialty cans?

It continues to be an exciting package for the can companies, for the customers, for the consumer. And we continue to see it grow. We have not seen any margin pressure in that package.

Thanks.

Alex Ovshey, Goldman Sachs.

Thank you. Good morning. To confirm -- on the impact of FX on the Americas business, you said it was $8 million on the operating earnings line?

In Americas beverage, Alex, $8 million. Yes.

Thanks. Can you provide a rule of thumb on how to think about the exposure to the peso and the Brazilian real?

I don't want to give you a rule of thumb other than our Mexican revenues are about $750 million, and Brazilian revenues are $550 million. And you can then look at respective currency movement rates year on year. But short of that, I don't have a rule of thumb. What we have done in the past, using the euro as a proxy, we have told you that for every EUR0.01 decline in the euro would cost us -- or $0.01 decline in the dollar versus -- in the euro versus the dollar, it cost us $0.012 cents in earnings. Maybe we need to revise that number slightly, but we'll come back on that.

Okay. You've also said that in Mexico and Brazil the aluminum, which represents the majority of COGS, is in US dollars. So we have to take that into account as well?

That's correct.

Okay. And then in the Middle East, can you just talk about the volume decline there since the high-water mark, whenever that was, and if there is any need for potential optimization of the footprint there?

I think if you want to look at the high-water mark, we are probably down on the order of 15% from the high-water mark. But I don't think at this point we are willing to say that this is permanent and requires any rationalization.

I think it's a region that we know quite well. And it has been volatile from time to time, but it's been a very good region. So we're going to -- as John said, we're going to operate as well as we can; run as efficient, low spoilage; try to be as productive as we can; move cans around when we can. And the market will come back.

Got it, Tim. Pack mix -- I heard you say that in Canada and the US, it continues to favor the can. What about Mexico? Is there an opportunity within Mexico for it to shift?

The same thing is true in Mexico, and I'm particularly referring to beer. The Northern Mexican market tends to be more of a can market. Central and Southern Mexico is still very largely glass.

We know that our customers -- our beer customers are looking strongly at changing the pack mix in Central and Southern Mexico. And then, as I referenced earlier, the shipments of fill product into the United States -- we know that the major brewers are going to be pushing cans aggressively here in this year and subsequent years.

Got it, John.

Just to follow on that, Alex. As John said, the pack mix shifting slightly to cans; but in terms of glass, what we see in glass is more one-way bottles, which obviously promotes growth in glass as well. Currently still a large returnable market. But as the market grows in total -- in units in total -- and as they replace the float, they go to one-way to returnable.

Got it, Tim. Just lastly from me, housekeeping. In your cash flow number, can you tell us what your expectation for cash taxes and working capital could be/will be in 2015?

Cash taxes, about $130 million; working capital, a source of probably about $60 million.

Got it, Tom. Thanks very much, everyone.

Tyler Langton, JPMC (sic - JPMorgan).

Good morning. Thanks. Just for euro food, I think you mentioned volumes were up 1%. Does that include Mivisa? Or was that just more of an organic growth rate or a market growth rate?

All of the growth we saw in European food would've occurred in Northwest Europe. As we said, we did have three extra weeks of Mivisa sales in this year's second quarter compared to last year. However, that's offset by the required divestitures that we had of our former Spanish business. So the apples-to-apples comparison for the Spanish acquisition Mivisa -- that's basically flatter, and the growth we've seen in the UK, France, and some of the other Northwest countries.

Okay. Got it. And then give us a sense, I guess, where -- in terms of, again, European food -- where volumes are compared to prerecession or peak levels? Are they sort of 10% below where they potentially could be? I don't know if there's a number you have.

No, I think for the market, we would describe food can volumes in the European sector as basically where we were prerecession. It is a very firm business.

Got you. Okay. And then just last question -- I don't know if I missed it: for CapEx, is it still $350 million that you are looking for this year? I know it's been tracking a little bit lower through the first half.

Yes, Tyler, we are still assuming about $350 million in CapEx for the year.

Got it. Okay. Thanks so much.

Mark Wilde, BMO.

Just three quick questions. First, North American kind of food margins -- Tim, if we go back and look, the prior four years you were kind of 17.5% to about 19.5% margins in the segment. Can we get back there?

Well, I think it's going to take a little time, Mark. I think, obviously, we lost a very big customer. And there were some other actions we took to protect the business long-term. And that's why we don't have any major customers with contracts coming due in 2016 and perhaps even in 2017.

But it is a -- you know, at 13.5% in a low-volume quarter, still a pretty good result. And I think you'll see improvements in the margin in the second half of the year. But it's going to take several -- or a few years before we would anticipate getting back to 17%.

Okay. And just kind of following on that, there's a story out this morning that a French food packer -- I think you pronounce it Bonduelle -- is looking at buying Green Giant here in North America. Do you guys currently do any business with Bonduelle over in Europe?

Bonduelle, a French food packer, is one of our largest customers in Europe.

Okay. All right. And then finally, John, just yesterday the EC had some commentary out on this proposed deal between two of your largest competitors. And they had some commentary where they said sort of having effective competition requires certain minimum size and a widespread network of production facilities. And I'd like to get sort of your read on what they mean by that and sort of how Crown fits in that?

Well, I think what they mean by it is -- and I'm guessing here, but I'm guessing what they mean -- is they are concluding that the beverage can market in Europe is a very broad regional market. It's not limited country to country. And we've always thought that.

So they are also well aware of the fact that there are some large multinational beer and soft drink customers across the same region, all of whom tend to want to be able to buy across the region from limited numbers of suppliers.

So I think it means what it says -- is that they are concerned about the consequences of the combination. Now, I suppose one route could be for them to perhaps insist on a sale of a major entity that needs to be created. From our perspective, perhaps they might think that the two other competitors in Europe not involved in the transaction might be strengthened and thereby help competition. We don't know how they are going to go. But I think the fundamental is it looks to us like the conclusion is: this is a broad regional market. It's not limited to countries.

Okay. So just -- when I look at your footprint, you are very, very large in the UK; and then you've got what looks like kind of reasonable-sized positions in Spain and France. But it doesn't really look like you hit the rest of Northwestern Europe. So I just wonder whether you feel like right now you would qualify as having a widespread network?

Well, we do; that is to say, we have a factory in Poland. We have one factory in France. But, Mark, you are right. If you look where we are, we are more heavily in the periphery, really -- the UK, Spain, Portugal, Greece, Turkey. And we are not very present through the middle of Europe. So we think that could open an opportunity for us, if that's the Commission's solution, which is to try to do something about the concentration in the middle of Europe.

Okay. And just last on this, John. Do you think that having two strong competitors is enough for the regulators over in Europe? Or do they really want kind of three competitors? Just from the conversations you --?

I have no idea, Mark, but I'm hoping for two.

Okay. All right. Thanks, John. Good luck in the second half of the year.

Thanks, Mark.

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