Crown Holdings Inc (CCK) 2015 Q3 法說會逐字稿

Good morning and welcome to Crown Holdings' third-quarter 2015 earnings conference call. Your lines have been placed in 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 (technical difficulty), 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. 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 2014, and in subsequent filings.

The Company had an outstanding quarter, as all of you have seen. Constant currency revenue increased 6% over third quarter 2014, and segment income was up 13%. The strong performance was widespread, but particularly so in America's beverage and European food. The former had a revenue increase of 39%, with segment income up 68%. And although food Europe revenue was down 3.3%, segment income increased by 8.4%.

There has been a rapid integration of Mivisa in Europe into our food business and Empaque into our Americas beverage group. And with both, new opportunities for growth and cost optimization have exceeded our already high expectations.

In general, demand was very good globally in our beverage businesses and most markets were equal to or up on prior year on a unit volume basis. Food unit volume sales were down somewhat in all regions, but our operations performed very well, either overcoming or offsetting the volume effects.

We have multiple growth projects and cost reduction initiatives underway, all of which are going well with results that will increase Crown's income and return on investment. We continue to look at opportunities to buy good metal packaging businesses at attractive prices and we have confidence in our ability to manage and incorporate new enterprises as they are added.

We anticipate a strong closing quarter and consequently a strong performance for the year, in line with the plans we have previously outlined for you and which Tom and Tim will discuss in more detail in a minute.

As some of you probably know, this will be my last quarterly earnings call as I move on to retirement and a different role here at Crown. So I thought it would be worthwhile to step back and briefly characterize the Company's position.

We believe Crown has never been in a stronger condition. We are a highly specialized metal packaging company focused on rapidly moving consumer goods, principally beverage and food. Globally, we are present in every attractive region as the market leader or among the leaders. Our controlled spending and focus on quality and service are second to none.

We believe the future is bright. We have excellent people from top to bottom, including particularly Tim Donahue, who will be taking over as our CEO in January of 2016. Our capability in the area of research, development, and engineering is unparalleled in the industry. And we have a world-leading group of project and construction engineers who consistently implement major capital projects quickly and more cost-effectively than anyone in our industry. And finally, we are a global leader in the design and manufacture of machinery for the production of metal cans, which gives us a clear competitive edge.

In closing, our performance this quarter and this year validates our understanding of the global metal packaging industry and Crown's strategy and execution. And of course, our success has been and will be possible only because of an outstanding group of people with whom I have been so proud to be associated for the past number of years.

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

Thank you, John, and good morning. Earnings per share were $1.01 in the third quarter of 2015 compared to $1.76 in the third quarter of last year. Earnings per share before certain items were $1.34 in the quarter or $1.55 at constant currency rates compared to $1.36 in 2014.

Net sales for the third quarter were down 5% at actual exchange rates, but grew 6% at constant currency rates, including contributions from the Empaque acquisition. Segment income at $328 million in the quarter was consistent with 2014, as improvements due to the inclusion of the Empaque results were offset by unfavorable currency translation. Segment income at constant currency rates improved by $41 million over the prior year.

Our comparable tax rate for the quarter of 21.2% benefited from local tax deductions in Brazil, arising from foreign-exchange losses on US dollar borrowings. This benefit partially offset pre-tax foreign-exchange losses also resulting from weakness in the real and entirely accounts for the difference in the rate compared to our previous guidance. Assuming no further movement in the real from its current levels, we currently estimate a full-year effective tax rate of approximately 24%.

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 results in a corresponding decline in the portion of those earnings attributable to the noncontrolling interests.

Looking ahead, we currently estimate comparable fourth-quarter earnings of between $0.65 and $0.71 per share, giving us a full-year range of $3.54 to $3.60, an improvement over the $3.41 in 2014, despite currency headwinds. We are estimating full-year free cash flow of approximately $550 million, with $350 million in capital spending. This guidance assumes an average exchange rate of $1.13 per euro for the remainder of the year.

I will now turn it over to Tim.

Thank you, Tom, and good morning to everyone. As both John and Tom discussed, our results in the third quarter were well ahead of the prior year on a currency neutral basis. Global beverage unit volumes improved 13% over the prior year, with the required acquired Empaque operations accounting for 8% of the gain.

The balance of the growth versus last year's third quarter was primarily attributable to strong performances across the United States, Canada, Southern Europe, and Southeast Asia. Against our earlier guidance, the third quarter was ahead of our expectations, mainly as a result of stronger-than-expected beverage can volumes, which more than offset the sharp devaluation of many emerging market currencies during third quarter.

As Tom has provided the impact of foreign currency by segment in the earnings release, my commentary regarding segment operating performance will be on a currency neutral basis. Turning to the operating segments, sales unit volumes in America's beverage improved 25% in the quarter due largely to the acquired Empaque operations. Excluding Empaque, volumes in the segment were up 6% over the 2014 third quarter, reflecting 4% growth in the US and Canada, as well as strong growth in the Company's legacy Crown Mexico operations and in Colombia.

Brazilian volumes also advanced in the quarter, owing to a strong month in September and we expect the summer selling season to be firm. While we have yet to break ground for the new plant in Monterrey, Mexico, planning for the construction is ongoing and we now expect an early fourth-quarter 2016 start up.

Also, during the quarter, we reached a new six-year agreement with our employees at the Weston, Ontario, plant. Returning employees who are represented by the United Steelworkers ratified the agreement, which now runs through August 2021 and we welcome them back.

In North America and food, revenue and income again showed declines to the prior year, primarily the result of the previously discussed customer loss, as well as an earlier than expected end to the Midwest corn pack. During the quarter, we announced the closure of two North American food can plants: one in Baltimore, Maryland, and the other in Chatham, Ontario. Both were difficult but necessary decisions that more appropriately align our capacity with customer demand.

Unit volumes in European beverage increased a bit more than 1% in the quarter as strong demand across Continental Europe -- that is France, Greece, Eastern Europe, Italy, and Spain -- offset continuing demand weakness in Jordan, where its proximity to Iraq and Syria make shipments very difficult.

The new aluminum beverage can line in our Custines, France, plant continues to progress up its learning curve. And as expected, the impact from aluminum premiums was a slight positive. We have also announced the installation of a second beverage can line in the Osmaniye, Turkey, plant with a commercial start date targeted for late 2016, early 2017.

In European food, improved efficiencies, lower spoilage, positive mix, and the continuing integration of Mivisa all contributed to offset a 1% volume decline in the quarter, leading to an 8% income improvement over the prior year. The various harvests this year were actually very good, but just not at the high level seen last year.

The third-quarter provision for restructuring also includes charges for the closure of two European food facilities. To rightsize our food end-making capacity, we have proposed the closure of an end plant in the United Kingdom and we have also announced the closure of a food can plant in Morocco as we emerge that business into the acquired Mivisa facility.

Beverage can unit volumes improved 8% in the Asia-Pacific segment on the back of strong double-digit performances in Cambodia and Vietnam. Productivity improvements throughout the segment, coupled with the growth in volume, offset continued soft pricing in China.

In September, we commenced commercial shipments from the new second beverage can line in the Bangkok, Thailand, plant. And also during the quarter, we announced and began construction of our third beverage can plant in Cambodia, with a late second-, early third-quarter 2016 startup expected.

Performance across all operations in non-reportables was firm compared to the prior year, with the decline in revenue attributable to the April 2015 divestiture of the industrial specialty packaging business, which we have previously discussed with you.

So in summary, we've had a strong first nine months and are about where we expected to be at this point. The acquisition of two very good businesses has allowed us to earn through most of the currency and other headwinds faced to date this year.

Importantly, while currency is affecting all multinationals, our underlying businesses remain strong, as evidenced by the strong demand for our products and our expanded margins. We expect continued earnings growth through the fourth quarter, which will result in EPS growth for the full year, despite the significant foreign currency impact from a stronger US dollar.

And lastly, before I turn it back over to John, on behalf of all Crown employees and stakeholders, I want to acknowledge John for his tremendous leadership and vision as the Company's Chief Executive Officer over the last 15 years.

For those of you who have followed Crown over the years, you will recognize the strength from which we operate today versus 15 years ago. In large part, it was John's resilience, determination, and desire that transcended the challenges that the Company faced. His leadership allowed us all to work with a sense of possibility and has provided an invaluable learning experience to the entire Crown team. And for that, we humbly say thank you.

And I will turn it back over to John.

Thank you, Tim. And so we are now ready to take questions.

(Operator Instructions) Scott Gaffner, Barclays.

Congrats, John, and congrats, Tim, on officially moving into the new role shortly. John, it has been a pleasure. My couple of quick questions, first, is, Tom Kelly, you mentioned the $41 million year-over-year segment income improvement. I think you said that was ex-FX.

Can you walk us through that? I mean, obviously, Empaque was a big part of that $41 million, but where was the underlying segment income improvement, ex-Empaque?

Are we talking Americas beverage or in total?

I thought you said $41 million in total year-over-year segment income improvement ex-FX.

Right. So as you can see on the table on page 5 of the release, if you just compare the 2015 and 2014 rates, you see the $3.69 versus the $3.28, which is the actual rate number. Going segment by segment, obviously in Europe, it is largely the euro.

In Americas beverage, some of that is Empaque. Also, some in Brazil. A little bit in Canada. North America food, obviously nothing. And Asian, very little. So it is really laid out pretty clearly, I think, on page 5 of the release.

Specifically, Scott, think about a number -- of the $41 million, if you wanted to attribute something to Empaque, about 60%.

Okay.

In Americas beverage.

No. 60% of the $41 million. Yes. Which is almost $39 million in Americas beverage.

Okay. No, that's helpful. And then just when we look at the 4Q guidance, before, if you sort of took the full-year guidance and the midpoint of the 3Q guide, you got to about $0.70 on 4Q. You are above that with the 4Q guidance at the high end.

Obviously, FX is a negative. Aluminum premiums, I guess, would be a positive versus the prior guide. Anything else that has really changed versus that prior implied $0.70 EPS guidance for the fourth quarter?

Scott, I think based on what we provided you in July, I think the aluminum premiums are still roughly in the same area. So that is about the same. It will be a positive, but it is the same positive that we previously expected.

I think, obviously, we had a better third quarter and we have kept the full-year guidance more or less the same at the midpoint and we've just shifted a couple cents earlier. And perhaps you are right, we might make a little more, but that is the guidance. I think we are mindful of the sharp devaluation of the emerging market currencies that we experienced in Q3, and we will see where the rest of the year takes us.

Okay. Thanks. Good luck.

Tyler Langton, JPMorgan.

Thanks. Good morning. And best of wishes going forward, John. I think Tim, you mentioned volumes were up 4% in the US and Canada's quarter. Could you just provide a little more detail on what is driving that and how sustainable you think it is?

Well, I think there is a couple of things. We -- as you know, we settled the long-standing dispute with the workers in Canada. And although the plant was running last year, we are running much better this year, so we are able to make more cans.

And I think the other thing is just customer mix. From quarter to quarter, our customer mix versus others' customer mixes will move cans around and this quarter, we just happened to be the beneficiary of good customer mix. But we do have a very broad customer base that we have worked on attaining over the years. And it has paid off, obviously, very well in this quarter.

Okay. Got it. And then I think just in your opening remarks, you mentioned you were, I think, finding some new opportunities for growth and cost savings with both of the acquisitions. Can you just provide a little more color around that?

I think that was a comment that John made. And so as we look at certainly Mivisa in Europe, we believe, with Mivisa, we have the lowest cost platform across food Europe, bar none. I would extend that around the world, bar none; just incredible opportunities. for us to continue to reduce our system costs and use that lower system cost to deliver benefits to our customers and gain additional business over time.

And then in Empaque, as you know, and it has been well documented, the Mexican beer market continues to grow in absolute terms. And the transition from returnable bottles to either one-way bottles or one-way packaging, i.e. cans, is a phenomenon that we do not see stopping. And that will offer us further opportunities as well.

Chris Manuel, Wells Fargo.

Good morning, gentlemen. And congratulations, John, on a very successful career and your steadying voice will certainly be missed.

Thank you, Chris.

Along those lines, Tim, can you maybe -- you are inheriting a well-oiled machine here. Can you maybe give some kind of early thoughts as to what you might want to do a little differently or how you would view the world maybe a little bit differently?

Well, there is an old expression, Chris: if it is not broke, don't fix it. Now having said that, as I said in my remarks and John also pointed out, we feel really good where we are at right now from the standpoint of the countries we operate and the products we operate in.

We think we have been fortunate. We work real hard at selecting -- and I will say John worked real hard -- at selecting the countries where we wanted to be and avoiding a couple places where we didn't want to be. We all have a challenge in China right now. We understand that. But the growth is tremendous and we will see where that takes us over time.

So I don't -- I think it is a lot more of the same. We are going to continue to drive down costs and continue to offer quality and service to our customers to try to differentiate ourselves and take advantage of the opportunities that are presented to us.

I don't think we ever want to be the victim of consequence, right? There are very few times in a business like ours when you are offered opportunity and you have to take that opportunity. And I think that is something we have all learned well under John's leadership and we are going to continue to do that. But any major changes, Chris? No. It is about keeping your costs down and selling more units and being responsible.

Okay. That's helpful. And Tom, I know you said this earlier, but I missed the free cash flow and the CapEx guidance for the rest of this year.

Well, for the full year, about $550 million in free cash and that would include $350 million in capital for the full year.

Okay. So that would appear as though you have got to do a pretty big chunk of CapEx in Q4. And kind of given where you are year-to-date working capital, it looked like you are going to be well beyond that. Is there any other unusual factors we are not thinking about, number one?

And then number two, could you maybe help us walk through what the big buckets might be looking into 2016? Early thoughts, would CapEx be in a similar range? Higher? Lower? Other thoughts for working capital, et cetera.

Well, on the capital for 2015, we did expect to spend proportionately more in the fourth quarter as compared to the rest of the year. And as you said, we have spent $176 million out of the $350 million. So that is in fact what is happening. We may have some slippage into 2016. It is a little early to say, but it wouldn't surprise me if, on the other hand, if we do come closer to $350 million. So we are staying with that guidance.

On the working capital, we have done better in working capital so far this year compared to last year. But that is purely timing and we are staying with our guidance and the working capital guidance we have previously given. Don't look into the numbers through nine months as an extrapolate because it won't work because of the timing.

And I am not -- I don't think I want to get into 2016 just yet. We are going through that process now.

All right, that's helpful. I'll jump back in the queue. Thanks, guys; good luck.

Adam Josephson, KeyBanc.

John, all the best to you in your future endeavors. One on the Midwest corn pack. You guys mentioned an earlier-than-expected end to it. Can you talk about what weather patterns drove that and what impact that had on the segment's volume?

Yes. We were -- when I say an earlier than expected, I think the pack just came to a sudden stop about 10 or 12 days earlier than we had expected. And that was just early frost in the upper Northwest -- upper Midwest. I'm sorry.

But -- and that probably -- we were down mid double-digits in volume, as we have been all year, and 85% to 90% of that is due to the loss of a large customer that we have discussed with you previously. And the balance would be just an earlier end of the crop.

Got it. Thanks. And just a couple others. I know, Tim or Tom, I know you're not giving guidance for next year. But aside from an extra month and a half of Empaque and a benefit from lower premiums, whatever that benefit will be, are there any other big items to be mindful of next year in terms of potential benefits or drags, assuming no acquisitions?

Well, we continue to try to drive system cost down. You see that we are in the process of removing four food can plants globally. We have a number of capital projects which have been, obviously, identified. And that will not contribute a lot to next year, but what will happen is the projects that we have completed in prior years were certainly run better and contribute more as they come up their learning curve.

So again, it is too early to comment. But as John pointed out, I think we feel pretty good about our position and we would expect further growth. We are just not in a position, as we are going through the process right now, to comment further.

Thanks. Just one last one on Brazil. What are your expectations for the Brazilian beer market? And what will be the seasonally strong fourth quarter as well as next year, just given the uncertainty pertaining to the economy, the Olympics, et cetera?

Yes. You know, it has been a -- it was a difficult campaign this year. Obviously, they had a hard comparison, just due to the World Cup in 2014, compounded by negative growth where they are at now.

What we did see -- the industry saw pretty good filling increases in fillings in August and September. We saw it in September and we expect the fourth quarter and the first quarter of 2016 to be quite strong, as they usually are. We will see the -- and they are always strong. I am sorry, Adam.

So what we always see in Brazil is the high season being very high. The question is always how low does the low season go. And when we have a World Cup or an Olympics, that generally tends to raise the bar on the low season. So I think we expect a better 2016 than we had in 2015 in the low season.

Got it. Thanks a lot, Tim. And congratulations.

Philip Ng, Jefferies.

Hey, John. It has been a pleasure working with you and congratulations. A question for me. You talked about four food can plant shutdowns, both in North America and Europe. Can you frame what the cost take-out opportunity could be and how quickly would we see it?

Well, I think the biggest cost savings will be achieved in the European segment and I think we will also have significant savings in North America. And we would expect the savings in North America to be realized earlier than in Europe. We have a consultation process we will need to go through in the UK. And that will take a fair amount of time. So the factory won't actually be shut down for several months.

Okay. All right. That's helpful. And you talked about how in Europe -- Continental Europe has been pretty strong. Can you give us some color how volumes are tracking in the Middle East? I think it this is -- you are starting to lap some of your tougher comparisons, right?

Yes. What I would say to you is that excluding Jordan, we were flat year on year in the Middle East. Jordan was down double digits and it reflects principally, as I said, their geographic location next to Syria and Iraq. The borders are rarely open. And when they are, travel into Iraq and through Syria to the other countries you are trying to get to is either not possible or extremely difficult.

Okay. We are seeing a slowdown broadly in China, at least from the headlines we are reading. Are you seeing any slippage in demand there and any concerns in terms of pricing going into next year? I know it might be still early in the negotiations. Just want to get your thoughts on China, broadly.

Well, I don't have any comment on pricing other than pricing continues to be soft and we will see where that takes us as we go into next year. The only comment I would make on China's growth slipping is that I guess they are projecting 6.9%. And that 6.9% off a much larger base than they were 5 years ago or 10 years ago when the growth rates were 10% or 12%. And I think I would take 7% on a huge base like they have.

So I would be a little careful. The headline is -- it is a nice headline for somebody who wants to write a negative article about China. But 7% growth on a base that has expanded that much is still tremendous growth and offers tremendous opportunity for companies that sell products. And our challenge is not volume; our challenge right now is the pricing environment. And that is something that will have to get worked out over time.

Got you. Then just one last one for me. Margins in Americas were pretty strong. What is driving that improvement and was it mostly driven by just better execution, integration of Empaque? Or is it just Brazil being off to a pretty strong start in 3Q?

So it is a combination of a lot of things. So Empaque obviously, I will say, is responsible for much of that and it has been contributing all year, which you haven't been able to see in the first and second quarters was the contribution from Empaque because the Brazil comparison year on year was down, whereas this year in the third quarter it was flatter. So you see Empaque coming through. Coupled with 4% volume growth across a system like we have in North America, which is very low cost, is a lot of volume and it drives a lot of incremental margin as you push that volume through the system.

And then number three, as I said, we are running much better in the Weston plant and we are back -- we are almost back to what we would call full productivity and optimal efficiency. So we are getting there and that is driving improvement as well.

Okay. Thanks a lot. Good luck in the quarter.

Anthony Pettinari, Citigroup.

Good morning and John and Tim, congratulations on your new roles and transition. In North American food, in 2Q and 3Q, operating income was down about $15 million year over year each quarter. Do you expect kind of a similar impact in Q4 with the customer loss?

And then just looking to 2016, are there further actions you can take in North American food in terms of capacity or conversions or maybe new customers to get earnings back closer to a 2014 level? Or could you just comment generally on the kind of competitive environment North American food with new competitors (multiple speakers)?

Yes. Let's just take a quick view -- the first thing I will say is that the fourth quarter -- if the second and third quarters were down $15 million year on year, we are not going to be down anywhere near that much in the fourth quarter. The fourth quarter is a much smaller quarter. And I will eat my hat, perhaps, but I think we will be much closer in the fourth quarter this year compared to last year than we had been in the second and third quarter. Albeit, we will be down a bit.

We have an extremely low cost food can footprint in North America. We now have two, two-piece food can plants. The one plant that we have announced the closure of in Baltimore was a one line, two-piece plant, which was not as low cost as we would have liked. And a significant amount of the volume we lost on that large customer were two-piece cans.

So we remain extremely low cost in two-piece food cans. And we only have -- after the closure of the Chatham plant on three-piece cans, nonspecialized three-piece cans, three or four, three-piece factories. So we have a low-cost footprint and obviously with the closure of those two plants, we are taking cost out.

And it will take a little time to recover volume, but what I would tell you is that the disruption that we faced in our food can business this year has largely been a result of the one customer loss. And there has been little to no impact on pricing this year. It has been really volume and the margins associated with the volume that we lost on that big customer.

Okay. That's very helpful. And then just a follow-up for Tom on working capital. I think your previous guidance was $60 million. Looking at 4Q and the full-year free cash flow guidance, I mean, it seems like 4Q working capital would be a bit higher than that. Do you give that back in 1Q or can you just maybe give a little bit more color on working capital for the full year. Is it that $60 million still?

Yes. It is in the range of $60 million for 2015 and yes, it is typical. We won't give it back permanently, but it is typical in the early quarters of any year that we do build working capital. But this particular reduction in the long term is permanent.

Ghansham Panjabi, RW Baird.

Just to echo some of the comments, John, congrats on your tenure at the Company and what Crown's accomplished under your leadership. And obviously, Tim, best wishes in your new role.

Thank you.

As it relates to customer consolidation, if the InBev-SABMiller deal goes through, how should we think about the potential impact on Crown? Can you sort of remind us of how contracts carry over when the customer gets acquired? And also what impact you felt, if any, when InBev acquired ABI -- Anheuser-Busch -- a few years ago?

I am going to stay away from the specifics of our contracts with our customers. What I would say is that when you look at the footprint of ABI versus SAB, obviously they're going to have to get through a significant competition commission review in the United States. And it may be that there is no consolidation there at all in the United States.

I think the significant pieces of SAB that ABI acquires, notably Africa, where we are not present in beverage cans, and Eastern and parts of Western Europe, where we have a position with SAB and where cans are not used to the same level by the acquiring company as they are used in the United States, Brazil, and China. We do have a relationship with ABI, obviously, in China. But again, that will be subject to competition review as to whether they can consolidate.

They will pick up -- ABI will pick up presence in Colombia and Central America. ABI is already in Brazil. So as you go around the map, they are kind of complementary with the exception of China and the United States, where there is an overlap and perhaps that will be subject to competition reviews. And so we are not expecting any large consolidation in terms of their buying as it -- represents what they are going to buy in cans from us.

What happened after they bought Anheuser-Busch? Well, I think, clearly, it was a complementary overlap as well in the United States. But one thing we have seen with InBev is they push cans aggressively in China. So it was generally good from the standpoint of volume in our business where they understand the benefits of the high quality, low-cost can.

Okay. That's helpful. And then on BPA non-intent, the technology seems to be picking up speed in terms of the rollout in both Europe and also North America, at least according to your suppliers. Can you comment on where you are in the adoption rate across your portfolio and what customers are sort of thinking at this point?

Well, I think generally our customers, like us and like our competitors, we follow the science. And we all believe the science is sound and it has been proven over and over again by almost every major recognized health body around the world.

Now having said that, there are some fringe elements that are promoting junk science and that is driving perhaps a change in consumer demand. And our customers may move, if and when they believe it is appropriate. There are alternatives available. Some of those alternatives are good alternatives. Some of those alternatives are not good enough yet.

So I think we're all waiting for better alternatives, not only the can companies, but the fillers -- both food and beverage fillers -- before we would make a switch from a coating which has been proved time and time again to be satisfactory and safe.

So is that a no, you haven't seen any increase in adoption?

There has been very little at this point.

Debbie Jones, Deutsche Bank.

John and Tim, good luck to both of you. My first question: Tim, as you look around the world at your regional exposure, what are you most excited about in terms of growth opportunities for cans, either volume growth or trends in pack mix shifts?

Well, I think we're going to continue to see tremendous pack mix shift in China in beer from returnable glass to cans. And so as I described earlier when Phil asked the question about Chinese growth, we are not in any way worried about lower Chinese growth. It is still tremendous growth on a bigger base and the opportunities for can growth are still tremendous. The issue there is capacity and pricing.

We do still see several opportunities in Southeast Asia. As you know, and as we have described, we have doubled the Bangkok plant and we are opening a third plant in Cambodia and we will continue to look for opportunities. We have got four very good low-cost factories in Vietnam that we continue to grow into and that market is growing. So I would say Southeast Asia, we remain very excited about the opportunities in Southeast Asia.

I think the Brazilian population continues to grow. I think in Brazil, you have seen the can as a percentage of the pack mix in beer grow to the mid 40%s, creeping up to the higher 40%s, and we would think there is no reason why that can't get into the mid-50%s, much like we have in North America. So that will offer opportunity in the future, notwithstanding slower Brazilian growth, but I think can growth will be good.

And then Mexico. As John pointed out, the acquisition of Empaque has provided us with tremendous opportunity in Mexico. As that market moves from -- as the market, I'm sorry, grows in absolute terms, but also compounding that moves from returnable glass to one-way gas and one-way cans.

Okay. Thanks. That's helpful. And my last question is just you had a lot of questions about Americas bev, but just specifically in North America -- or actually the US and Canada. Is there a beer and specialty can uptick that you experienced this year that you think is sustainable into next year? Or did you kind of suggest that this is a one-time thing?

Well, I would -- you said specialty can, Debbie?

Both. I would just -- if you could actually separate them. It seems like you got a lot of benefit from --.

Well, I think we have two factories which make specialty cans. One in Texas -- in North America. One in Texas and one in Mississippi. And we see no reason why they shouldn't continue to do well through next year, and growth for specialty cans continues to outpace our capacity in that regard.

And then 12 ounce cans have been exceptionally strong. And as I said earlier, from quarter to quarter, that does change among the can companies based on customer mix. And we have had a -- and we continue to have what we believe is very good customer mix. So we have been fortunate in that regard.

So I don't think we -- I think we are pleased. I think through nine months, the industry is flat this year in North America in terms of beverage cans. We are up about 2%, so we are little ahead of the market. We might have been a little behind the market last year. These things ebb and flow, but I think we feel pretty good about where we are at.

Alex Ovshey, Goldman Sachs.

A couple of questions for you. First, the contribution from Empaque in the third quarter, was it similar to what it was in the second quarter? Or is there some seasonality in that business that we should be thinking about?

There is seasonality, although I would say there is less seasonality in Mexico than as you go further north. But I would say if it represented 60% of what you saw of the growth in Q3, it was probably a similar number in Q2.

Okay. And the strongest quarters, even though there is not that much seasonality, is it the second and third calendar quarter of the year for Empaque?

Yes. But we expect Q4 to be quite strong. And so one of the reasons why the Q4 earnings estimate is significantly above Q4 2014 is Empaque. And as I said earlier, what you had in Q1 and Q2 this year was Brazil being soft relative to the prior World Cup year, offsetting the Empaque. You didn't see it come through.

Third quarter, Brazil was comparable to last year and you saw Empaque come through. And you will have that again in Q4 and that is why you have the earnings growth in Q4.

Got it, Tim. And then the Monterrey plants -- so I think it is getting pushed out from a May startup to the fourth quarter. Let me know if that is correct. And then what is happening there that it is getting pushed out?

And then just some questions around the plant. Can you talk about how much of the business is contracted? How much is sort of dependent on being able to take share from two-way glass?

So you are right. We've moved the start date to early October of 2016. And the reason for the move and the start date is because we are not going to be prepared to construct the plant until we have business under contract.

And when we begin constructing the plant, you will know we have business under contract. Until then, we continue to plan and develop plans for the plant.

Okay. Got you. That's helpful, Tim. And just lastly from my end -- so aluminum premiums, I know you said no change to sort of how you are thinking about it. But can we take a step back? Can you just remind us how you are thinking about it? Ultimately, what the headwind was to you over the last couple of years, how much of that we have gotten back so far, and how much is still on the common terms in terms of being able to get back in 2016 and beyond?

Yes, Alex. We came into the year with a cumulative headwind of about $30 million. And if you remember, we were predicting more headwind in 2015. In the first quarter, we said the number was 9. Second quarter was flat. We got a few million back in the third quarter here and we will get even more in the fourth quarter. So that on the full year 2015, it will be a tailwind of a few million dollars.

I think it's -- again, we are going through that process now. I don't want to get into the tailwind in 2016. But clearly, there will be some.

Okay. Excellent, Tom. All right. Well, very good. John, best of luck to you in your retirement, and Tim, best of luck to you in your new role. Look forward to working with you.

Thanks, Alex.

Chip Dillon, Vertical Research Partners.

Yes. Thank you. John, all the best to you as you move on, and Tim, good luck.

Thanks, Chip.

First question has to do with the Mivisa acquisition. I know that when you did that deal, you were talking about cumulative synergies of $35 million. And I know it might be hard to keep score with all the operations thrown together, but as we look from the third quarter, either backwards or forwards, how much do you feel you have gotten of that and how much more is there to come?

I would say where we are at now, Chip, we are about two-thirds of the way through that. And with the activities or the actions we have just announced, that will bring us to the full amount and we should recognize the full amount -- just about the full amount through next year. There will be a little bit that slips into -- in the following year, but by the end of 2016, we will have recognized at least -- if it was $34 million, we will be at, I think, $31 million or $32 million of that number. So on a cumulative basis, right? On a full-year basis, I'm sorry.

Got you. And then if you can say, when we look at the Monterrey plant, I know there is a lot of expansion going on, both at the brewery level and as well as the packaging level there. Is the issue there, is it that there may not be enough demand for what you are proposing or is it just basically coming to terms and that the demand will likely be there?

We believe the demand will be there, but we are not going to chase the demand without a contract.

Yes. Okay. That makes sense. And then maybe Tom could talk a little bit about -- update us on where we are in terms of the debt. I know there has been obviously a lot raised and now you are starting to -- you are in payback mode or certainly will be in the fourth quarter.

But how much of it right now is fixed versus floating, taking into consideration swaps and the like? And what is the strategy there? I mean, is there sort of a bias to try to fix more of it, as it appears rates one of these days may start to go up?

Chip, we are about 40% floating debt right now, which is some term loans that we have. There are no swaps or anything overlaying the underlying debt. The ongoing strategy is as we generate cash, we are going to pay down the debt we can pay down, which is typically going to be the floating-rate debt. And we would change that math a little bit.

However, we are always looking for opportunistic refinancings. And if we can get a 10-year bond at an attractive rate, we would take advantage of that as well. So we look at it all the time. And to directly answer your question, we are at about 40% floating right now.

Okay. And last question, just to make sure I am not missing anything. In addition to Mexico, where you mentioned October of 2016, could you clarify: is your plan to try to add a second line there at that plant a year later? And then the other two plants we should be focused on are Cambodia and Turkey. Or am I missing anything?

So you have got a second line in Turkey. New plant in Cambodia, which will actually be a one-line can plant tied to a long-term customer contract. And then in Mexico --

What about Thailand?

Thailand is a second line that just came up. So that is already in commercial production. And in Mexico, the Monterrey facility will be a one-line plant and a second line would only be added if and when needed for -- as the market grows or we gain additional contracts. So we are not going to put capacity in ahead of contracts or certain volume.

George Staphos, Bank of America Merrill Lynch.

Thanks for taking my questions. Echoing everybody, Tim, again, as we discussed earlier, congratulations on your new role. And John, honestly, it has been a pleasure working with you. I have always enjoyed the dialogue and you deserve a ton of credit for your stewardship of the Company in the early 2000s, when things were looking pretty dark. Congratulations to you and enjoy your retirement. It has been a pleasure working with you.

I guess my first question would be on Americas beverage. Relative to our model -- there has been a lot of discussion on this on the call anyway. That 16% margin, I am not sure I have seen in the past. Recognizing there were a number of things that drove it and you did a good job of calling out what the drivers were, how sustainable is that, do you think, for a third-quarter margin and for a platform looking out over the next several years? Or how would you have us contemplate that as we look out to our own forecasting in the next two years?

Well, George, you have been around the industry a long time. You know the key to any successful beverage business is high utilization of the factories. And we certainly had that in the United States in Q4 -- I mean, Q3.

We are running much better this year. We have had almost a wholesale management change across our beverage division over the last 18 months and we believe we have got a really good team now and things are running well. We are extremely low cost. Demand has been very strong from the platform of customers that we have.

And so in large part, that has allowed the benefits of the Empaque acquisition to come through, coupled with the fact that Brazil was comparable to last year at this point. Keep in mind -- we don't talk about it a lot in Empaque because it is a small piece of Empaque that we acquired, but there is a significant Crown cork business that was acquired in Empaque. And there was a very highly utilized and successful glass business -- three-furnace glass operation, which is fully sold out as well in Mexico.

And so there are a number of different drivers to that margin. I don't really want to comment on whether 16% is sustainable. I think we always look at absolute margin. As you know, the percentages can move up and down, dependent upon the pass-through of raw material.

But really the key thing, George, notwithstanding Brazil and Mexico, would be utilization in the United States. And we are very highly utilized right now and it is a good position to be in.

Tim, could you comment on what you think the average utilization will be this year in the major producing regions? So North America, Mexico, Europe, Asia, it sounds like you're sold out. But whatever you could share there would be helpful.

Yes. I -- you can define capacity a number of different ways. The one thing I would tell you in the United States is that we have been oversold this year and we have had to turn some business away, which has been unfortunate because we've worked really hard to develop a lot of business. But can demand has been very strong, so we will look to ways to increase productivity to meet that future demand.

Mexico, we have also been sold out this year, not only in the Empaque operations, but also in Crown Mexico. And we continue to believe, as we have talked about on this call, that future demand in Mexico will be strong.

In Europe, we are also sold out -- more or less sold out in Europe. Certainly oversold in the summer months, and certain regions like Turkey continue to grow. And that is one of the reasons why we have the second line going in. Certainly, there is softness in the Middle East and that is just going to have to be something that we work through over time.

The Middle East has been a region that, as you know, and we all know, has been volatile for a very long time. And Crown has been present in the Middle East now, either via Crown or its predecessor companies, for 40 years. And it is something we will work through from time to time.

But Southeast Asia, I wouldn't say we are sold out. We continue to add capacity to take advantage of future growth opportunities that we see, but we are very highly utilized. We will be in the low 90%s in Southeast Asia. And then in China, we are -- you know, the market is probably in the high 70%s, 80% utilization range. And I would say that we are at least 5 or 8 points higher than that. We would like to be more than that, but it is a challenging market right now.

Brazil -- market was a little slower this year than we would have liked. But again, we are in the mid-to high 80%s, low 90%s, and we expect that gap to close a little next year. Because we do see can growth in Brazil next year. So I think all in all, beverage utilization around the world is quite strong for Crown and I believe it is for our competitors as well.

That's very helpful. Two quickies and I will turn it over. One: if we think about Southeast Asia and utilization rates there are fine. Are you seeing any effect from China and its pricing weakness beginning to slip in to Southeast Asia? Or not really.

And then the other question I had -- I think just piggybacking on Chip's question. You have, as I recall, some relatively large maturities coming in 2018 or 2019. Do you anticipate basically taking care of those through debt paydown from existing free cash flow or do you think you will likely want to or have to refi any of that and term it out for a number of years? Thanks, guys. Good luck in the quarter.

Okay. I will take the Southeast Asia and Tom will take the debt question. I think Southeast Asia, you know, we have not really seen any impact anywhere near the China phenomena that we are experiencing in terms of pricing. I think generally, our customers are aware of opportunities just like we are aware of opportunities. They want to have healthy, strong suppliers and that is what they have with Crown in Southeast Asia.

But having said that, they are obviously aware of the pricing disconnect between China and other regions of the world. We would characterize -- and we do characterize that to them as an anomaly, one which is not sustainable for China and would not be sustainable at all for the balance of the world if customers are looking for high quality service and innovation. That is just not something that can be sustainable for very much longer in a place like China or anywhere else in the world.

So pricing is what pricing is. It is competitive. And we look to keep our costs down to remain as competitive as possible and keep our position. And on the other one, I will let Tom take that question.

Yes. George, the debt that is due in 2018 and 2019 are the term loans in our revolving credit facility. And we would expect to term out a little longer at least some of that. Just the pure amount of debt is more than we need to repay to get to our target leverage ratio. So there will be some residual borrowings out there that we would expect to refinance.

Mark Wilde, Bank of Montreal.

Congratulations, John.

Thank you.

Just a few cleanups. One: I wondered on the aluminum premiums if you can address the issue that has been talked about a little bit about whether contract changes have reduced your ability to kind of recoup all of the headwind you have taken over the last few years?

Well, without being specific, the convention in Europe was a little bit different than the convention in North America. And we have endeavored to try to harmonize contracts in Europe, or at least the function of the premium in Europe, to the northwest contract feature. So that potentially reduces a little bit.

A bigger impact in us recovering the cumulative cost that Tom described for you is the premium -- a large part of the premium is denominated in dollars. And with the dollar strengthening against the euro, there will be less for us to recover -- less for all of us to recover in the future just because the dollar becomes a bigger component of cost. And I think it is what it is and there are other levers for us to pull.

And Tim, that is helpful. Would you care to take a stab at how much of that $30 million, these two issues notwithstanding, you would expect to be able to recoup? Just ballpark.

I think I wouldn't. How about no? But I think as Tom said, we are going through the budget process right now. I think when we -- we will give you a much clearer idea of year-on-year improvement due to the premium when we talk to you in February about 2016.

Okay. A second issue that has been talked about recently is just the impact of customers becoming more globally focused in their sourcing and in their analytics. Have you guys seen any real change there?

Well, they are -- there have been customers that have run global sourcing tenders. I will say that each region is still regional. And there are different suppliers and different capabilities by region and it does come down to regional ability, regional demand, regional capacity, and regional pricing. So I would leave it at that.

Okay. And then the last question I had is just I think John in his comments mentioned that you were still interested in acquisitions. And I just wondered how far you would have to reduce debt before you would be comfortable in looking at more acquisitions.

Well, I think from where we sit -- and that is not my position or John's position. I think we have probably full support of the Board that given where our leverage is right now and our ability to generate cash and quickly pay down debt that if there were opportunities right now, we would take advantage of those opportunities right now if we were so fortunate to be successful.

Okay. All right. That's helpful. John, enjoy retirement. Tim, good luck.

Scott Gaffner, Barclays.

Thanks for taking the follow-up. Just one quick clarification. On the Monterrey plant, the CapEx spend there -- or I guess, first, how long does it take to construct? I mean, obviously, it seems like less than a year if you are now targeting October of 2016.

But the second part would then be did some of that CapEx get pushed into 2016? And if so, was there another project that took its place in 2015?

We won't have constraints of weather in Mexico, so we will be able to build rapidly through the winter months. And we will have a timeline similar to what we have employed in Brazil, which is a more rapid construction timeline. And we would expect a very good startup with the team there, considering that we already operate three beverage can plants in-country and the employees are quite mobile and Monterrey is a desired location to go to for many Mexicans.

Perhaps a little of the capital has slipped into 2016. Although if we get started in the next two or three weeks, I would expect the timeline not to have slipped that much.

Okay. And my last question, just on North American food. I realize the competitive response to the new capacity going into 2015, you were able to lengthen some of your existing customer contracts in North America. But I was just wondering on the margin, do you still have some contracts coming up for renewal into 2016? And could we see continued slippage there of customers?

Yes, I think it is probably too early to tell, but most of our large contracts have been extended and there are some shorter-term contracts, which will come due, but they are not large contracts. But again, too early to tell. I think we are probably better off waiting until February to discuss that in a little more detail.

Thank you --

Well, I think, operator, that is the last call. Thank you very much for listening, everyone, and we look forward to speaking with you again in early February for the full-year results and the 2016 outlook. Thank you.

Thank you. And that concludes today's conference. Thank you all for joining. You may now disconnect.