Crown Holdings Inc (CCK) 2024 Q2 法說會逐字稿

Good morning, and welcome to Crown Holdings' second quarter 2024 conference call. (Operator Instructions)

Please be advised that this conference is being recorded. I would now like to turn the call over to Mr. Kevin Clothier, Senior Vice President and Chief Financial Officer. Sir, you may begin.

Thank you, Ell. Good morning. With me on today's call is Tim Donahue, President and Chief Executive Officer. If you do not already have the earnings release, is available on our website at crowncork.com. 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 SEC filings, including our Form 10-K for 2023 and subsequent filings.

Earnings for the quarter were $1.45 per diluted share compared to $1.31 per diluted share in the prior year quarters. Adjusted earnings per diluted share were $1.81 compared to $1.68 in the prior year quarter. Net sales in the quarter were $3 billion compared to $3.1 billion in the prior year, reflecting a 6% increase in global beverage can volumes with North America up 9%, offset by $94 million from the pass-through of lower raw material costs.

Segment income was $437 million in the quarter compared to $414 million in the prior year, reflecting improved results in global beverage. Free cash flow in the first six months was $178 million, a record amount through the first six months, driven by strong operational performance, reduced capital spending, tightly managed working capital. The balance sheet strengthened further in the quarter with net leverage at 3.2 times compared to 4.0 times in the same period in the prior year.

In June, KPS Capital Partners agreed to selling Eviosys. We expect proceeds of approximately $300 million net of tax from our 20% interest in Eviosys. As stated in the earnings release, third quarter adjusted earnings per diluted share are projected to be in a range of $1.75 to $1.85, with full year guidance of $6 $6.25 per share, an increase from our previous guidance of $5.80 to $6.20 per diluted share.

Key assumptions supporting our updated guidance include net interest expense of [$380 million], average common shares outstanding of approximately $120 million exchange rates at current levels, full year tax rate of approximately 25%, depreciation of approximately $310 million, non-controlling interest expense between $140 million and $150 million, dividends to non-controlling interest of approximately $125 million.

We now project 2024 full year adjusted free cash flow to be at least $750 million, with no more than $500 million in capital spending. With the combination of projected strong free cash flow and proceeds from Eviosys sale, we expect to finish the year below the low end of our peers previous near previous near-term net leverage target of 3 to 3.5 times. We expect cash flow to remain strong, allowing us to resume share re-purchases while continuing to drive the deleveraging process towards our new long-term net leverage target of 2.5 times.

With that, I'll turn the call over to Tim.

Kevin. Thank you. Good morning, everybody.

Some brief comments, and then we'll open the call to questions. As reflected in last night's earnings release. And as Kevin just summarized, second quarter performance came in ahead of expectations. As a result of 6% global beverage volume growth contributing to income for combined global beverage operations, expanding 21% compared to the prior year.

Strong beverage results, combined with lower capital expenditures and tightly manage working capital in our non-beverage businesses resulted in positive free cash flow in the second quarter, some $350 million better than last year. Net leverage at the end of the second quarter was 3.2 times lower than both the first quarter and prior year end.

Americas Beverage reported a 15% increase in segment income on the back of 10% volume growth in the quarter with 9% growth in North America and 12% in Brazil. Our full year volume growth estimates are now at 5% to 6% for North America and mid to high single digits for Brazil. Unit volume demand was again strong across our European operations, with shipments growing by 7% in the quarter.

With more fillers increasingly viewing aluminum cans as their preferred package of choice to address necessary sustainability goals. The conversion into aluminum cans continues to accelerate. Market sentiment has certainly shifted from Q4 of last year, and our outlook for the future remains positive. Income in the segment advanced funding for 27% in the quarter, and we should comfortably exceed the 2021 income level this year.

Income performance in Asia Pacific improved by almost 45%, pushing the segment's margin to 19% of net sales in the quarter. The result of a significant improvement to our cost base and actions taken to improve revenue quality beginning in Q4 of last year. Shipments were down 5% in the quarter. And while we expect full year shipments to be down a similar amount, the result of our improved cost base is expected to continue to generate further income improvement in the third quarter.

As expected, Transit Packaging income was down to the prior year, primarily a result of lower volumes in the strep and protective businesses. Freight markets remained soft with lower load volumes and purchasing managers indices that is the PMI in both the US and across Europe remain in contraction. We, therefore, remain cautious in our outlook for a broad industrial recovery. Until then, we will continue to keep costs down and manage the business very tightly.

Income in Q2 was better than Q1, and we currently expect Q3 to be better than Q2. Kevin discuss the approximate $300 million net of tax proceeds from the Eviosys sale. As we become more comfortable with the receipt of those proceeds of this year, it is likely that we would use the bulk of those proceeds to buy back shares.

In summary, global beverage operations had a very good first half, and we see that momentum carrying over into Q3. Transit Packaging is expected to improve in Q3 versus Q2, and it feels as at both food and aerosol cans. Volumes may have found a bottom. Margins are healthy, and we currently expect the 2020 for EBITDA will exceed the record EBITDA recorded last year.

The company is generating significant free cash flow per share for the balance sheet is strong and getting stronger, and we look forward to the receipt of Eviosys sale proceeds before year end.

And with that, Ell, I think we are now ready to open the call to questions.

(Operator instructions)

Chris Parkinson, Wolfe Research.

Great. Thank you so much on. You've put up some pretty good results in North America in particular on. Can you just talk about the overall demand dynamics of the marketplace, what you're seeing by substrate as well as, you know, any Crown specific factors, including market share gains that you just give us some insights for the second half as well as into 2025?

Thank you. You're welcome. So I think, you know, what I would say is it's not just North America are not just the Americas. I think we have a globally and beverage across all three of the beverage business as we had an outstanding result in the quarter, furthering the results that we had in Q1 specific to your question as it relates to North America, I think we have a very balanced mix of customers that is the end markets that our customers that are serving very balanced.

As you're aware, we're not overly weighted. In fact, we're probably under indexed to mass beer. I'm certainly in the United States. We have a large beer business in Canada. But in the United States where we're underway to mass beer and, as you know, their mass beer under a little pressure and perhaps some of some of the beer volumes being cannibalized by ready-to-drink cocktails and sell features and the like over the last couple of years.

But I think just a really well-balanced portfolio and the customers that we're serving are doing quite well, and we see that carrying through to the end of the year.

Got it. And just as a quick follow-up, in terms of the operating environment, you've made some significant efforts, I would say, honestly, over the probably the last year plus on that have been flying a little bit under the radar screen at the mercy recently, it's been in Asia in terms of the operating leverage that you're seeing across your asset base.

I mean, where do we stand with those initiatives on a global basis, let's say it only limit their question to Asia. but where do we stand with those initiatives right here right now, as far as the buy-side community thinks about numbers, not only for '24, but in terms of just that a comfortable run rate of 2025 in terms of your asset optimization. Thank you.

So I think as we've stated, we believe that in the North America on an annual basis, we're probably 95% utilized. I caution you a little bit. We're in the summer months here. We're well over 100% right now in its income.

And we draw and some of the inventories we build in some of the shoulder months as opposed to the summer here, but the [Batesville] closure is complete, I think of unfortunate that we closed the factory, but the reasons behind that. And, so we're starting to reap the benefits of that.

And then combined with we do dumb hire a new Vice President of Manufacturing for our beverage operations here in North America. Actually, it's a fellow that used to workforce in a similar position years ago, and he came back to us. We're really happy to have them. And it is making some significant improvements to process fees from that we have in place.

We've around the edges trimmed some less efficient capacity that we've had in in Europe, both in the UK in Greece and we did the same as you'll recall, in Asia in the fourth quarter. And those efforts are largely complete. And we are reaping the benefits of a much improved cost base in both locations. And again, it'll continue through the end of the year.

Philip Ng, Jefferies.

Hey, Tim, North America, I mean 9% volume growth is pretty impressive. I know coming in a year, you're expecting mid-single-digit growth from share gains. And what's driving some of this movement here as we can look out to '25, '26 beyond, are we done with the share move and you expect to grow more in line with the market? How should we unpack what you're seeing out there? Because promotions still seem pretty choppy out there.

Yeah. So just taking them for 9% I think we didn't we certainly did a little better in Q2 than we had hoped. We previously told you fill we expected 4% to 5% for the year. We've now upped at the five to six just on the back of the first half. I think if we look at the first half, we must be up we have in front of us are we must be up close to 8%.

So I'm not suggesting that we're going to slip in the second half. I just think we've got six months ago, and it's always better to be a little cautious, but even 5% to 6% for the full year in a market that feels like it's up somewhere between 1% and 2%, you know, we don't have all the data.

So feels like we're doing quite well in that market. We're continuing to grow our business. And as you can tell by our margins, still, we're growing the business and are in a responsible way. I would suggested, as I said earlier, we've got a nice balance of end markets that we're serving me. We might have picked up a little bit of share, but the majority of the growth is coming from our customers doing better.

And then the broad customer set that exists in North America and one of the large TST companies is out today. I think there's some Instructive commentary in there about their own volumes in North America. And I think one of the other large [CSD guys] was out over the last week or so and they talked about a half, it's a struggling consumer.

So we're the beneficiaries of a bit of a supply base that has a variety of products were not too heavily weighted on to any one in market. I think as we think about 2025 and forward, I think it's probably much more appropriate, Philip. I think as we sit here today, it's only July, but more appropriate to think about our growth in '25 and '26 shows more in line and with the market.

Okay. And then from a capital deployment standpoint and balance sheet, obviously getting [Kupol mill] and hear from them. So we can say, well, that's great. And you can use it for buybacks. And you mentioned CapEx casualization is closer to the mid 90s. You lowered your leverage target between our time to help us unpack that?

Tim, when we look at the 2025 and beyond now is CapEx going to be pretty muted as D&A for a little bit just because growth stepped up balance sheet [60] and really good spot as you exited the year. How do you how do you balance buybacks versus paying down debt? Kind of help us think through that and those moving pieces?

Yeah, sure. We have a new leverage target of 2.5 times. What I can tell you is that if we buy no stock back between now and the end of 2025, we would be at 2.5 times or slightly below the 2.5 times by the end of 2025. But as I said in the prepared remarks, more likely that we take the bulk of the proceeds from media houses and buy back shares .

I don't think we need to race to get the 2.5 times, but as a target and we can get there over time, while at the same time accomplishing the buyback of shares and having that accrete to the remaining shareholders on CapEx, you know, unless something changes dramatically, I think we have an industrial infrastructure in every region right now that should be able to handle the growth that we foresee over the next one to two years.

I don't see any reason why unless there's something really different that happens that we would need to spend any more than $500 million this year and next year that Kevin discussed earlier.

Got it. So outside of the cash proceeds from the sale, are you back to being open to buy back stock here? Because to your point, if you do no buyback to get to 2.5 times? And will you be using a portion of the cash next year for buyback as well?

So I would I think what you should, you know, I would say that the journey to 2.5 times doesn't have to happen by the end of next year, although it could I think that can be a journey that happens over two to three years. And therefore, there's a mix of debt paydown and share buyback along the way.

Okay. Super. Thank you and congratulations on very strong results.

Thanks, Phil.

George Staphos, Bank of America.

Hi, everyone. Good morning. Thanks for the details. Thanks for taking my question and congrats on the quarter. I wanted to come back to the top line performance in the Americas. Is there anything else that you can point to in terms of why volumes look like they were better than you were expecting? Was there any variance in terms of mix of business? Did you have more and sales with term more tolling? And the reason we're asking the question.

The second question is how do we take the 9% to 10% growth overall for the segment that 10% and bridge to that, whatever was 2.5% overall revenue growth for the quarter year on year? I had a couple of quick follow-ups after that.

Yes. So the revenue growth, George, is going to be impacted by the pass through of lower aluminum right.

So that's only a couple of percent from the map (Inaudible) (multiple speakers)

We talked about this earlier about it, just to remind everybody at the beginning of the year, we described to you the situation where the glass business that we have in Mexico had a of an outsized year last year, I don't want to say double what it traditionally has, but as a number of the fillers in Mexico sought to improve their glass float were replenished their glass returnable glass float.

We had an outsized performance last year and in this year, business has returned to what it was previously. That is a really solid business with EBITDA margins in the 20s and but certainly not as good as last year. So there's a offset to some of the beverage can growth is the glass business in Mexico returning to what it was previously.

Okay. Tim, thanks for that. I appreciate that forgotten that. Can you talk about how Signode you obviously looks like it's been performing at least in line with your expectation that that would lead me to confirm that given the commentary into third quarter has Signode class again, we talk about it being down, but off a tough comp and the other businesses performed overall versus your expectations and versus the market and how they continue to fit into your strategy.

So class we just talked about and the only, let's say, further on classes, listen, it's really a good business. I think we're only in class in Mexico. It's a really a solid business and it's a relationship with one of our larger global customers and a number of other customers who were we're happy with the business. The transit business, perhaps $3 million to $4 million lower in the quarter. Than we had expected.

And on really that's just the lower volume and then we (Inaudible). So I think third quarter will be down again. And then the fourth quarter on a comparative basis becomes easier because Q4 last year was a little weaker. We had, I think Q2 and Q3 last year as well as the full year were record years for Signode transit and done, but the business holding up, okay. I mean it's a business where we don't spend a lot of money.

So we don't pad the soft volumes in the legacy business by buying new businesses. We're expecting this business too hold a chair and run through the cycle with very little capital put in and generating a lot of cash. So it is a highly cash generative business on the order of 85% to 90% conversion from EBITDA to unlevered cash. That's after CapEx and tax.

The other businesses, I would say that both there's all and can making equipment performing in line with expectations. A little disappointed in food can volumes here in North America much I won't say much softer, but certainly softer than we had hoped for across a number of the end markets. So we will see the third quarter brings us that's always the big quarter for the food business, but food being a little softer than we had expected. So the other the other business think about maybe were down $7 million or $8 million from what we had hoped for, George.

Anthony Pettinari, Citi.

Morning. It's actually Bryan Burgmeier sitting in for Anthony. Thank you for taking the question. Maybe just from a high level, I think at the start of the year that the implied EBITDA from your EPS guidance was maybe $1.87 billion or so, with all the puts and takes today, is there a new implied EBITDA number. I think the midpoint of EPS maybe points like $20 million upside, but I know there were a bunch of below-the-line changes. So any finer point on that would be great.

It's a great way to ask the question. You're commended for your cleverness because like comment, then it's no longer implied, is it? But I think -- I don't mean to be a smart aleck. Your initial comment about the implied $1.87 billion is pretty accurate -- $1.875 billion and if you want to you want to add $20 million, you can't be that far off. If you want to circle a number, think about $1.9 billion and plus or minus five, you know, plus or minus five to 10 of a $1.9 billion or you're starting to see get real final numbers because $1.9 billion. But I mean, that would be -- if you're looking to circle a number I go there.

Got it. I appreciate that detail. Thank you. And then maybe just on Asia Pac. I know volumes were down because of Crown's actions on supply. But is there any detail you can provide maybe on the underlying demand environment in Vietnam are Cambodia or maybe the region that large? Just trying to think about how the consumer might be doing? Thanks. Thanks and good luck in the quarter and I'll turn it over.

So Asia, we took as you rightly point out some significant action on the cost base. I would suggest to you that not only we do we take five lines out, which is about 14% of the capacity. We've probably reduced headcounts on the order of 20%. Then addition to that, we did, as I said in the prepared remarks, we took some actions to improve revenue quality. Said, a different way, we prune some customers from the portfolio that did not provide adequate returns for the efforts that we're making to support the market.

I would -- as I sit here today, China -- China maybe is up 1% or 2% Southeast Asia, perhaps up in the -- just feels like it's hard to say because you get seven or eight countries that we're operating in. But Southeast Asia, perhaps up on the order of mid to high single digits. So the market's continuing to grow.

Ghansham Panjabi, Baird.

Good morning, guys. Going back to the second quarter, you know, obviously the performance to been driven at least a large part of North America. Can you just give us a little bit more detail on that. Is it just a function of promotional activity having picked up at the customer level along with the mix that you cited from a customer standpoint?

And then if the market itself was a little bit better -- I'm just trying to reconcile that aspect versus your guidance, which really is just raise based on the 2Q?

Yeah. I mean, listen, the Americas Beverage business that we report is Canada, US, which is North America. You've got Mexico, Brazil and Colombia. I would say we did well and we did well on every market. And then specifically to North America, as everybody is laser focused on that market up 9%. Other than as I said earlier, a balanced customer portfolio that really benefited us not only in Q2 but also in Q1. And we see that benefit carrying through the end of the year right, not much more to say Ghansham, I don't want to get into specific customer accounts. But, I think we're just fortunate as we sit here today, that we have a very balanced customer mix.

And then the second part of your question, I'm sorry, just remind me again.

On the guidance for the back half of the year. The updated 2024 guidance has been --

Yeah, we sat here -- Kevin and I sat here earlier in the week, and we were late last week, and we said to ourselves, we're going to get this question. I just you know, you got six months to go and, you know, no sense to get ahead of ourselves. We've got the opportunity to talk to you again in Q3. The implication of the question and certainly some of the comments that were made in the overnight reports are that perhaps it could be a little better.

And what we've guided you and you all may well be right, let's hope you're right. And there's some reason for us to feel really good about the balance of the year and we'll have a chance to talk to you again in October, and we'll update it again then.

And just to clarify the initial question. So is promotional activity in North America better than you thought? Or is it sort of comparable to what --

I'd say it's a little bit better Ghansham. There does appear to be more buy two get one's, although it's -- it feels like we're going to get some here in August ahead of Labor Day by one of the big CSD guys. And that's a welcome promotion that we're looking forward to, but through six months, a little bit better than we had hoped for. But if you look at overall market volumes, you know the market was up 1% to 2% in the quarter, our best estimate we don't have the numbers and least can volumes.

And you know, for the six months, maybe we were up 0.5% to 1.5%. So promotional activity, a little better, but certainly subdued from what we're used to historically. But the promotional activities helping to offset some of the inflationary impacts and some of the other struggles that consumer is facing. But it feels like we're going to get a little bumpier in Q3 that we just -- we're now trying to understand, and we'll see how that manifests itself.

Okay. Understood. And then for my second question, as it relates to Europe. What's going on there, because there's the core consumer could not have changed that quickly versus the last two quarters. Do you see the upside in 2Q sort of as a mean reversion after a sluggish 1Q and then the previous destocking, et cetera? Or what's happening.

I think the destocking I caught us and some others off guard in Q4, and it was pretty sharp. So we saw a little bit of that come back in Q1 and Q2, especially early in the quarter, they really -- the fillers really came out of the gate part in Q2 ahead of the summer tourism season, The Eurocup.

And it just feels like there's a momentum here for whether it's restocking or a preference for the fillers to use more and more aluminum to try to achieve a variety of sustainability goals that they have and that there being -- I don't want to say force because I think everybody believes it's the right thing to do, but we're trying to achieve some goals here that certainly need to be achieved. And aluminum does that quite well.

Arun Viswanathan, RBC Capital Markets.

Great. Thanks for taking my question. Hope you guys are well. Congrats on the good results. I guess when you look at the portfolio now, I just wanted to get your further thoughts on that comment about and maybe '25 and '26 North American beverage can growth being closer to the market. I know that in the last year or two, you've had some share gains. But wouldn't the portfolio mix continue to maybe lead you to slightly above the market? Thanks.

It may, as we sit here today, it's the third week in July and we'll see what the consumer wants to do. We'll see how healthy the consumer is. We're going to get to an election here in several months. And generally, regardless of which party wins the election, at least we all then no who's in charge and what policy is going to be. And that will drive how companies spend money and how companies promote and what company's outlooks are.

So we're certainly going to learn a lot more after the election, and we're all going to feel better one way or the other after the election, regardless, if we like which parties and control, we're going to feel better because at least we have some certainty as to policy, but you might be right. I mean, I think that we're going to continue to see sparkling water do well. We're going to continue to see ready-to-drink cocktails. That is the vodka-based instead of the malt-based continue to do well.

And we'll see if the carbonated guys can reinvigorate soda be attire and are full calorie. Just a little early to jump on that right now. I think we were focused on driving as much gain as we can in the third quarter and through the balance of the year. And then we'll see where next year brings us and build off of that new platform that we have.

And then maybe if I could just ask a follow-up. So in Americas beverage and Europe beverage definitely and A-Pac beverage above your expectations. If you are to like look at those three segments, how much of that improved performance would you attribute to volume versus execution? Is it may be like a third volume and two thirds execution? And then how does that the sustainability of the results and should remain in that area? Or how do you think about the performance in those two buckets?

So I think in the Americas, you think about three-quarters of that performances volume, you get volume numbers that big, it solves a lot of problems, three quarters or even a little bit more. Europe, a significant proportion, maybe 50% of the growth is volume. You've got maybe 30% to 35%, as we've said before, being the result of some improvements to our contractual structures to recover margin that we had given away in past years. And then the balance sheet being operational improvements.

And then in Asia, its cost base and the pruning of some customers where we just frankly didn't get the return, we needed, but largely in a declining environment for us, all cost base were improvements to the revenue structure now. I would argue that we're not going to have lower volumes every year. We're going to -- in Asia, we're going to participate in this volume growth going forward and also much lower cost base, it should be very beneficial to us going forward.

And then just lastly, if I could. On just initial thoughts on '25 cash flow, there's obviously CapEx you noted could remain in that $500 million range. So do you see an inflection point as well on free cash flow? Thanks.

Well, I think Kevin suggested at least $750 million this year and we're doing as much as we can to right-size inventories and working capital employed in the business and drive debt balances and or off-balance sheet financing down as hard as we can, given the higher interest rates.

But you know, $750 million this year could be better than that this year, perhaps could or should it be better than that next year. Yeah, perhaps I think there's an opportunity to do better than that next year. I don't -- I'm not sure when you suggest inflection what number you're hoping for. But off the base of the business we have and what we see were fairly confident in the generation of cash flow and certainly well above $6 a share in both this year and next year.

Michael Leithead, Barclays.

Just one for me. Some of the businesses that provide headwinds this year, such as North American food can, can making equipment. You just talk about your confidence today that we've reached bottom there and presumably they're stable to getting better as we move into next year.

So I think can making equipment, it's at a bottom, right? We're basically at a business right now that's doing tooling and service. We're not shipping or we're shipping very few machines. So as the global beverage can market waits to take its next step up for volume, whether that's natural volume over time or whether there is a significant substrate shifts; we'll participate and at that point but I don't see canmaking getting any lower. It should only go up.

Food cans, a little disappointing compared to our forecast, but food cans doing okay. I think the business where we went down this year was aerosol cans and some of that was volume related. Some of that was competition related where with lower volumes. We've had some folks get a little aggressive on price.

So I think we've seen a bottom in aerosol can volumes. It's been fairly stable this year. So I don't see -- if your question is, should you expect us to tell you it's going to be another leg down next year, I don't think you should expect that.

Adam Samuelson, Goldman Sachs.

Maybe first question just on transit. I think in the prepared remarks related to maybe a few million in light of what you've been expecting or hoping for. Can you maybe just recalibrate what the expectations are for that business in the second half? Still seem like the industrial economy still is sluggish. I think the prior view have been income growth and that -- income growth or flat to slightly up for the full year, tracking decently below prior-year income levels. Help us think about how we should think about the top and bottom line for transit in the second half?

Thank you.

Yeah, I think come third quarter will be down compared to the third quarter last year, which was a pretty high quarter. I think it was a record quarter and then the fourth quarter, the comparison gets much easier. The business started to feel the impact of lower volumes in Q4 specifically last year. So I think there's an opportunity for Q4 to be a little higher than Q4 last year and Q3 to be lower than Q3 last year, maybe we're flatter in the back half of the year than we were in the first half of the year. But you rightly point out, industrial markets are a little soft and we're managing through it and keeping costs down and trying to drive as much value out of the businesses we can.

Okay. That's helpful.

And then if I can maybe circle over to the European beverage business. Maybe just a little bit more color around some of the different geographies of the year end. I mean there is pretty strong through the first half and maybe some catch-up from destocking. But any notable geographies in your portfolio that were well above or below that 7% volume that you reported in the quarter?

Yeah, we described to you previously that we are much stronger in Southern Europe than we are in Northern Europe. So if you think about the Mediterranean and the Gulf states, we're much stronger, much larger there than we are in Northern Europe, Central Europe. I don't know as of the market -- I don't know how the markets did specifically in the various Northern European countries versus the Southern European countries. But most of our growth in the quarter versus last year would have been relative to our strength in Southern Europe and the Gulf states.

Jeff Zekauskas, JPMorgan.

I think average temperatures in June or maybe 3.5 degrees above average in the US and in July, temperatures have also been elevated. Do you think that that affects your demand -- do you track those factors?

Jeff, it's a great question, and I'm chuckling here because historically, you would think that and I remember years ago, we had the same situation happen one year -- we had a we had a May or June where we had like 20 days at least in the Philadelphia region where we had temperatures above 90 degrees. And all the sales guys could tell us was it's too hot. Nobody is going outside for picnics. So that's why volumes are down.

So I think -- I don't -- it's hard to say. You get a sales guy enough information. He'll use any of that information as an excuse as to why doesn't sell something. Now having said that, we did sell a little more, but I think as we look at our volume performance versus what we believe the overall market's volume performance was and what the commentary coming out of the two large CSD companies over the last week, I think, we see a market that's pretty healthy given a consumer that's under stress and given pretty large inflation in the product and then our strength above what you would describe as a healthy market, certainly compared to some recent history.

We can only attribute to a balanced customer mix, balanced end market mix, but it could be -- I don't think it's -- I think the temperature commentary you just gave us is a worrying sign. So let's hope it's just an aberration this summer and we get back to some more moderate temperatures that we've seen in the past. But I'm not sure I could say that temperatures in June and July are driving the volume.

Okay.

Second question is earlier in the call you said your utilization rates for 2024 on average might be 95% and you're above 100% now and the trend of your CapEx is downward. Is it that there's a continual de-bottlenecking of a few percent to year-end capacity that allows you to keep your CapEx down? Or might you run into issues because your utilization rates are too high and there's a little bit more demand than you expected?

No, and again, great question.

I think the de-bottlenecking or the implied efficiency, hopefully, we get better every year. We don't always get better, but hopefully we get better every year. A few percent is probably high, but 1% to 1.5% I think is probably more appropriate. We run fairly efficiently now high efficiently, high asset utilization, fairly low spoilage, but there's always room for improvement.

Kevin described capital as being no more than $500 million. So within an envelope of $500 million, if we need to add some capacity, it doesn't have to be a brand new factory with two sparkling new lines. We can add some equipment to existing lines or existing factories to speed up and push more good cans out of the back end. And we're not starved for capital at $500 million. I think we're just -- it's a reflection of how much capital we've invested in the business over the last several years, and it's time to get returns on that capital and specifically cash-on-cash returns on that capital as we sit here today.

Stefan Diaz, Morgan Stanley.

So Asia beverage profitability came in better than we were expecting. I think last call you called out maybe a $4 million to $5 million per quarter tailwind from your restructuring efforts. So I guess as came in better than you are expecting, how should we think about these tailwinds for the remaining two quarters?

Well, I think the restructuring tailwind is probably correct on the order of $4 million to $5 million. I think one thing that did happen here in Q2, volumes although they are down 5% in the quarter, better than we had hoped for, I think Vietnam, we're starting to see some acceleration in Vietnam. There's been a fair amount among the analysts written about one of the large customers in Vietnam closing a brewery that just to make sure we all understand what they did.

They closed a smallest of their six breweries, and they'd expanded one of the larger breweries and they're doing that similar to what we're doing, trying to improve efficiency and cost. So they didn't take any capacity of the system. In fact, they've added capacity to the number of leaders appear they can brew. So volume a little better in Vietnam and it was actually quite strong in Cambodia in the last six weeks of the quarter so I think we see that continuing through Q3.

And then when we get to Q4, Q4 last year was actually quite strong. But as we look at the Asian platform, I think the last three quarters were averaging something like $48 million of segment income. So you take four quarters of that, you're getting yourself pretty close to $200 million of segment income for the year, which is a nice place to start when we think about going into the future with the prospect of being able to achieve that with volumes down. So as volumes return to our system and we participate in volume growth in that market, which we see for the next several years, pretty good place to start from with a much reduced cost base.

Great. Thank you.

And then you also raised your expectation for non-controlling interests. Any additional detail there? As I just maybe [preserve] are performing a little better than your original expectations?

Correct.

Great. Thank you. I'll turn it over.

Gabe Hajde, Wells Fargo Securities.

Tim, I have to go back to North America. So based on the data that we see, I think sparkling water, what you guys have a pretty big presence in sell-through has been pretty good; carbonated soft drink, as you pointed out, you have to out of the three big guys that have reported, in fact, volume down across our system, and one of which is still pushing some pretty meaningful price.

So I guess as part of your conservatism sell-in versus sell-through for the summer season and maybe you got to throttle back fourth quarter volumes and I don't know why some of your customers would be building inventory just given the environment that we've been in. But I'm just curious if there's any disconnect from your vantage point.

And then relatedly, can you quantify for us maybe in the fourth quarter some of the positive impacts from mixed benefits of product sales down in Brazil? Because I think -- I mean, I want to say segment profit was up $70 million in the fourth quarter and a part of which I'm sure was utilization. And like I said, maybe some positive mix effects in Brazil.

Just real quick on Brazil, Brazil is principally a beer market for us, right? So positive mix, it's their high [seas] in Q4 and Q1 as they go into their summer season. So I'm not allowed to say other than we expect beer to continue to grow. And as we've always told you in the past, we don't get too excited about a soft quarter here or there. We've had soft quarters or even a soft year one or two years ago but we always remain fairly bullish on the Brazilian market as we look at any three- to five-year period. We're fairly confident the market is going to continue to grow.

I think returning to North America, typically the customers don't build inventory. We shifted -- I'm just in time. Now they will build inventory ahead of the Labor Day, July 4th Memorial Day. So we're going to see some -- we're going to see -- we hope -- it feels like we're going to see some promotional activity here in August ahead of Labor Day and they'll build a little and then we'll see where the fourth quarter takes us.

We can, Gabe, we can talk about the implied conservatism. I think it's -- we're six months through the year. We're having a good year. And as I said earlier, we're going to get a chance to talk to you again in October, and we will revisit the guidance at that point.

Understood.

Sticking with Brazil, it's been a little choppy. I think your volumes were down 1% in calendar Q1 and you're talking about being (technical difficulty) is what you said. One of your competitors was up pretty big in the first quarter. Is there anything that we should be drawing from that? Or is it just simply customer mix down in Brazil (multiple speakers)--

No, no. The only thing I'd remind you is that the first quarter of 2023, I think we were up 20%-some. So we had a different comparison Q1 of this year versus Q1 of last year, perhaps than compared to what some others did. There might have been a little volume that's moved around. But I think as we said in the prepared remarks, we expect our Brazilian volumes for this year to be up mid-to-high single digits. So we're looking for a fairly healthy performance for the last six months in Brazil.

Okay. And sorry (inaudible) I was specifically talking about ends in the fourth quarter of '23 it's just -- when I look at that profit number relative to any period in the past. So --

I don't remember the profit number in Q4 last year.

I mean, Gabe, typically we're selling -- for every can, we sell, we sell and I mean, there's no difference from our perspective.

Mike Roxland, Truist Securities.

Yeah, thanks Tim, Kevin, and Tom for taking my questions and congrats on a good quarter.

Just wanted to touch upon the efficiency question that was asked earlier. Obviously, (inaudible) greenfield plants in North America over the last few years and elsewhere. For your legacy plants, can you just provide any color around potential benchmarking you're doing against these newer, more efficient plants and maybe any steps you're taking to improve cost efficiency, productivity, and any specific savings that you're targeting? And over what timeframe?

Just trying to get a sense of how you benchmarking (inaudible) you're trying to deploy similar practices. Or you have a (inaudible) new plants with some of your other plants, maybe targeting savings from that.

Thanks very much.

So the first thing I'd tell you is that the lowest cost plants we have are the legacy plants. These are plants that are largely depreciated, that's number one, but more importantly, they have workforces that have been making cans for a long time. These guys are really skilled. It takes a lot of skill to make a beverage can at the speeds that we and the others in the industry do.

So our highest cost plants are the new plants, and it's incumbent upon us to recruit new skills, to transfer skills from the legacy plants into the new plants, have the new plants understand the process, have them incorporate all the policies and processes that we've incorporated over decades, not only at Crown but all the companies across the industry.

So it's a cycle of continuous improvement and eventually, the new larger plants will be lower cost than the legacy play plants. But the legacy plants are really low cost. I mean, if you want to -- if you want to think about the cost to convert aluminum into a finished can, you roll up everything beyond direct materials. It's pretty hard to beat some of our legacy plants. We're very fortunate at Crown and I'm sure our competitors would echo the same sentiments about their people.

But we're really fortunate at Crown, not only do we have excellent people in the supervisory manufacturing skills throughout the corporate offices, but the fellows on the line in the factory, they've been -- fellows and ladies, excuse me -- they've been in the factory there for -- some of these guys have been there for 40 years. And really, we're just fortunate that we have people that are dedicated and they have the skills that they have to generate the volume of cans that they can generate on a daily and a monthly basis.

Edlain Rodriguez, Mizuho.

Tim, just a quick follow-up on trends. As we look into 2025, like what drives better results? I mean, do we still have costs you can still take out or those volumes need to pick up quite a bit for -- to see an improvement? And is that a business that will benefit from lower interest rates? How should we look at it going into '25?

I think what you just summarized, the answer is all of the above. Certainly, lower interest rates will spur more economic activity. But I think as you think about some of the products that we make, what end markets they support, you've got general construction, you've got housing, you got (technical difficulty) [steel] mills and metal fabricators, you've got the car industry.

And so I think there's always a little bit of cost to take out. I'd be a little hesitant to promise you anything. We did a significant above the factory floor headcount reduction in '22, into '23. And I think we have a cost base that's well set up to benefit as volumes return. I would be a little hesitant to take more out because I don't want to fail customers as volume returns. Certainly, as you point out and as I just said, lower interest rates will spur more economic activity.

I think that volume is the big driver. So it's -- the volume continued to go down. Well, yeah, we could continue to have more of an industrial slowdown. My sense is post the election, as I said earlier, we're going to get -- we and others more importantly others, are going to get more certainty as the policy going forward and they're going to get back to the business of running business and growing their business and we stand to benefit from that.

So Ell, I think that was the last question so that'll conclude today's call. Thank you very much and we thank you all for your interest in the company, and we'll speak to you again in October.

Bye now.

Thank you. And again, that concludes today's conference. Thank you, everyone, for joining. You may now disconnect and have a great day.