Crown Holdings Inc (CCK) 2022 Q1 法說會逐字稿

Good morning, and welcome to Crown Holdings' First Quarter 2022 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, [Kerry], and good morning. With me on today's call is Tim Donahue, President and Chief Executive Officer.

If you don't already have the earnings release, it 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 in our SEC filings, including our Form 10-K for 2021 and subsequent filings.

The company's reported earnings in the quarter of $1.74 per share compared to earnings of $1.57 per share in the prior year quarter. Adjusted earnings per share increased to $2.01 in the quarter compared to $1.83 in 2021.

Net sales in the quarter were up 23% and from the prior year, primarily due to the pass-through of higher raw material costs and increased beverage can volumes. Segment income was $383 million in the quarter compared to $369 million in the prior year, primarily due to improved profitability in North American tinplate businesses and can-making equipment, including a net benefit of $30 million from lower cost inventory, offset by the timing of insurance recovery for the incremental costs related to the Bowling Green tornado and $8 million of unfavorable foreign exchange.

We have repurchased $400 million of Crown common stock to date from the $3 billion program that was -- that the Board authorized in December. While Brazil remains soft, we do expect volumes to begin to recover in Q2 and throughout the year. And when combined with the stronger U.S. dollar and higher energy costs in Europe, we now project EBITDA to be $1.970 billion for the year -- for the full year. Our estimate for adjusted earnings for the second quarter is in the range of $2 to $2.10 per share. And for the full year, we remain in the guided range of $8 to $8.20 per share.

The full year estimate continues -- excuse me, the full year estimate continues to assume all losses from Bowling Green will be recovered from the timely collection of insurance proceeds by year-end, it assumes we repurchased additional $600 million of Crown's common stock in 2022 and a cumulative $1 billion for the year.

We continue to expect free cash flow to be $400 million with capital spending of $1 billion, and we maintain a target leverage ratio in the range of 3.25x for 2022. With that, I will turn the call over to Tim.

Thank you, Kevin, and good morning to everyone. I'll be brief, and then we'll open the call to questions. .

As reflected in last night's release and as Kevin just summarized, overall first quarter performance was better than expected, although compared to the prior year, results were mixed across the operating segments.

Global beverage can volumes up 1% in the quarter, reflects sold-out conditions in most markets and demand for beverage cans remaining in excess of our ability to supply, the exception being Brazil where our unit sales declined by 20%, in line with the market decline of 26%. Overall, global volumes advanced by 6.5% in the quarter when excluding the Brazil market.

We have summarized our major capacity expansion projects in the release with second quarter start-ups as follows: The second line in Monterrey, Mexico began commercial shipments earlier this month, and the first line of the new greenfield plant in Uberaba, Brazil will begin shipping to customers next month.

Reported revenues increased 23% in the first quarter primarily due to the pass-through of inflated raw material costs. Comparatively, the cost of tinplate steel is almost double the prior year, while delivered aluminum is up approximately 75% on average in the first quarter of 2022.

Recent strength in the U.S. dollar impacted segment income in the first quarter by $8 million and by operating segment was as follows: both European Beverage and Transit, $3 million each year, while Asia was $2 million.

In Americas Beverage, like-for-like North American unit volume growth was 6%, excluding the temporary loss of Bowling Green production capacity. Due to the temporary loss of Bowling Green, we carefully managed our capacity and inventory levels ahead of the busy summer selling season, reducing opportunities for further volume growth in the quarter.

Demand remained strong in Mexico and Colombia with unit volume growth of 4% limited by capacity. Low consumer confidence driven by high inflation and unemployment and the delay of [Carnival] led to significant first quarter softness in the Brazilian market. We do see volumes beginning to return early in the second quarter. And as Kevin noted, we expect further recovery as the year progresses.

Segment income in the quarter reflects approximately $20 million in incremental system operating costs due to the Bowling Green tornado. We do expect to begin receiving insurance recoveries during the second quarter. With both lines at Bowling Green now back in operation and continued learning curve improvements on the recently installed capacity, we expect second quarter income will exceed the prior year, offsetting Bowling Green insurance timing.

Unit volumes in European Beverage advanced 6% over the prior year with notable growth across Mediterranean operations and Saudi Arabia. Moving into the second quarter, we remain sold out and look forward to incremental 2023 capacity from recently announced projects in Spain and the U.K.

Income in the segment was better than forecast due to volume growth and mix, but as previously discussed, we do expect significant earnings headwinds in the segment during the second quarter and for the balance of the year.

Beverage can volumes in Asia Pacific advanced 8% in the first quarter as strong shipments across Southeast Asia offset the impact of COVID restrictions in China.

Adjusting for currency, segment income and Transit Packaging declined $6 million in the quarter, primarily due to higher costs, including the impact of inflation and the carryover of higher priced year-end steel balances brought into 2022. Appropriate pricing actions have been taken, and we expect second quarter income in this segment will reflect that.

As noted in the release, our North American tinplate and beverage can making equipment businesses had strong results in the first quarter. In North American Food, we benefited from additional 2-piece food can capacity installed in 2021, leading to 16% unit volume sales growth in self-made 2-piece food cans in the first quarter of 2022. Additionally, pricing actions were taken to recover [2021] inflationary cost items, including the benefit of prior year-end inventory.

So in summary, a solid start to the year with results mixed but overall ahead of plan. Looking ahead to the second quarter, Bowling Green is now back up and running. Contractual recovery of inflation commenced on April 1 in North America. Pricing actions have been taken in Transit to recover inflation, and we continue to expect global beverage can demand to remain strong. So with that, [Kerry], I think we are now ready to take questions.

(Operator Instructions) Our first question is coming from the line of Ghansham Panjabi of Baird.

I guess, Tim, maybe focusing on the U.S., I mean, clearly, mobility is starting to increase. People move around flying, et cetera. On-premise sales dollars seem to be improving as well commensurate with the restaurants, et cetera. Can you just characterize for us if that's having any impact on packaged beverage volumes or maybe even food as it relates to how you see the rest of the year unfolding?

Ghansham, it's a good question. You would expect what you just said to be true. I haven't -- we haven't seen it yet. Now as I said on the call, we were -- on the prepared notes, we weren't very aggressive trying to sell cans in Q1. We're a little concerned with our summer inventory levels, given that we lost capacity early in the year and we obviously won't have full capacity until we get the plant back through initial learning curve stages at Bowling Green, but it does not appear that demand for beverage cans, that the momentum is slowing that much. .

Sounds good. And then in terms of the modest reduction in EBITDA for this year, maybe you could just break out the various drivers. And then just given the timing of [Carnival] last year versus this year, do you have a sense as to what the impact might have been in theory, at least for the first quarter? And maybe just quantify for us what you're seeing so far in Brazil so far in 2Q?

Yes. So right off the back, Ghansham, I think headwinds on the reduction of EBITDA, currency, we were already forecasting currency to be a headwind this year, but it's probably an incremental where we sit today, it's probably an incremental $10 million from where we were at a couple of months ago. I think the -- just using the euro as a proxy, not all currencies move similar to the euro, but using the euro as a proxy, we're [107, 108] right now, and I'll bet you 2 months ago when we talked to you or 2.5 months ago when we talked to you, it was [111 or 112].

Energy in Europe think about incremental $20 million of headwinds in Europe from where we were at a couple of months ago when we talked to you. And Brazil, while it's offset by a minority interest at the EBITDA line, Brazil maybe $10 million to $15 million, offset by gains that we didn't anticipate at the time we talked to you. In Asia, Asia beverage and food and obviously, some outperformance in European beverage in the first quarter. That kind of gets you to a $30 million net EBITDA reduction.

Brazil, it's hard to quantify the delay of [Carnival]. The market was down -- I think the market was down 26%. We were down 20%. That doesn't make me feel good that we're better than the market. We're still down 20%. However, I got to tell you, maybe Carnival is at best 10% of the 26%. The balance is going to be shaky consumer confidence in the face of high inflation and high unemployment. And -- so as we've said to you before, we've seen these conditions before in Brazil from time to time, and it does not dampen our outlook for the growth in the Brazilian market long term. We have -- occasionally, we have dips in Brazil. And as we've said to you before, we always seem to recover to higher levels, and that's what we fully expect.

Our next question is coming from the line of Kyle White of Deutsche Bank. .

I just wanted to follow up there on Ghansham's question on Brazil. I guess given where the consumer is at and kind of the deceleration that we saw this quarter, what's giving you the confidence that you're going to see demand recover through the balance of the year? .

Well, I think we've already started to see comparatively year-on-year early here in April, we're on 3 weeks, 3.5 weeks into April, and we're starting to see not only comparative to last year, but in absolute terms, some positive momentum, some pull from the customers, positive momentum full. So -- and I think, obviously, we'll get Carnival here shortly. And we have the World Cup later in the year, and we'll have the summer selling season as we get to the fourth quarter for Brazil as well.

So as I said to Ghansham and I'll say it again, we've seen this before. It's an economy that can be volatile from time to time and the consumer can -- will react to the volatility in the economy as their confidence [wins] or ebbs and we're pretty confident that it's going to come back.

Got it. And then just transitioning to nonreportables. Are you able to parse out the drivers of earnings improvement this quarter? How much was driven by the sell-through of inventory from last year? How much was underlying improvement in food cans as well as the equipment business that you have?

So what I would tell you is, overall, food can volumes for Crown were flat in the quarter. However, we sold 16% more cans that we made, which means while we were flat, that means we bought a whole bunch of cans from third parties last year that we're not buying this year that we're able to sell. That's a significant piece of profit for us. We're not paying profit to somebody else, and we're not paying the freight to come in from Europe. .

As Kevin noted, we had about a net $30 million inventory gain. So that's a significant -- that's about half of the growth, I think, in the quarter and the other half. Think about the other half being 2/3 food cans and 1/3 equipment.

Next in queue is George Staphos from Bank of America. .

Just point of clarification there, Tim, on Kyle's question. So you said you sold 16% more food cans than you made. That was only [2 piece], right? And can you give us kind of a rough breakdown of [3-piece] versus[2-piece] for the Crown network as it stands currently? And then my first question -- or second question, I guess, is in terms of Transit, I think you said something in your release about there was inflation as you had expected. I remember from fourth quarter, you were expecting Signode -- you're expecting Transit to be a contributor to profit growth this year. Can you give us a bit more guidance in terms of what you're expecting this year? And whether your outlook for the segment has changed at all versus where you were in February? .

Yes. I think, I'm trying to -- I was going to give you a number. I hate to give you a number. It's just...

We'll take numbers, Tim. .

Yes. I know you will. It's just like -- I'll take half of your salary too, George. .

Half of nothing is nothing, Tim, so...

So I think if we think about Transit for the full year, I think we're probably considering currency is a headwind, and we sold a fairly profitable business that after those 2 items, we're probably still going to be up on the order of $15 million for the full year, which would tell you that in the next 3 quarters, we're going to be up about $20 million to $25 million net of the loss of the [Kiwi] business and a little bit of currency headwind. .

Understood. And...

Second question on 3-piece cans.

Yes, 3 piece versus 2 piece in terms of where you sit and you said... Go ahead.

So we didn't -- we don't buy any free piece cans-- everybody in the market, as you know, George, has excess 3-piece can capacity. We are principally a 2-piece can maker. We're probably, at Crown, 60% to 2/3 2-piece with about 1/3 of our business being in, 3-piece. And just looking at the first quarter, 3-piece cans were up a few percent -- 3% in the quarter. But the big growth that we had was in 2-piece cans, which were largely flat, but self-made cans were up tremendously. .

That's great. That's very helpful. Tim, my last one, just broadly on Americas Beverage can volume. Is there anything that you're seeing in the market related to North America that is dampening your growth outlook? Or if you could talk as to why you might feel comfortable or reaffirmed in your growth outlook relative to new products. And within Brazil, there's been a lot of questions already from Ghansham and Kyle on Brazil, which is obviously a concern right now from you. One of your peer rigid packaging companies today was talking about the fact that they're sold out in a different substrate, do you worry at all about cans losing share to glass because of the macro conditions, because of what you typically see from one way to returnable packaging, when you have macro downturns? .

Thank you, George. So I think in the short term, you will see potentially a shift in the large 600 ml glass bottle -- 200 to 600 ml glass bottle as consumers have less buying power and they look to share of beer among 2 or 3 people as opposed to having their own single serve in a can. Now having said that, these are short-term data points. This is a 3 to 6-month headwind in the economy. I think the outlook for the overall Brazilian economy and the outlook for Brazil as a global economy is quite right over the next 10 to 15 years. And -- so we remain -- we continue to remain very bullish on Brazil. I think if you look at anything in the short term, you can become concerned. We're not exceptionally concerned in the short term because we've seen it before, and we're very confident that it's going to turn and the can continues to be the increasingly preferred package in Brazil. .

And in North America? .

North America. As I said to Ghansham, I haven't -- I got to say we weren't very aggressive in selling in the first quarter, as I said. And having said that, we've got our own customers. And our other customers or smaller potential customers continue to ask for cans at rates that are much higher than we've ever seen. So I -- you would expect perhaps with everything that's reopening, as Ghansham noted, that perhaps we'd see a little dampening of demand, but it hasn't happened.

I think that I said it last time on the earnings call, I think the prospect of eating out at restaurants is not a very compelling prospect right now, and I don't mean to take a shot at some of those restaurants, but it's really expensive. The service is lousy. The food isn't that good. And so if you decide you want to prepare a meal at home, and I think the kitchen is being used a lot more nowadays than it was used pre-pandemic, and it will continue to be used pre-pandemic, the can for purposes of food and/or beverages is going to continue to be strong. And I think we're in a period where we felt really good from a sustainability standpoint as it relates to can a couple of years ago. And I think post pandemic, we're seeing the can or the can usage being reenergized by consumers in their own kitchens.

Our next question is coming from the line of Phil Ng of Jefferies.

Tim, I guess, Russia, clearly large export of commodities, including aluminum and energy, any supply issue that we should be mindful of? And then certainly, you've called out energy that's going to have a bigger impact on your margins in Europe, but it sounds like a few of your peers are trying to push past energy and freight costs a little more on a real-time basis. How are your conversations going as you kind of renegotiate these contracts in Europe as we speak? .

Well, I think as we renegotiate contracts, we are steadfast in our determination to be fairly compensated for the goods and services that we provide. And that includes energy, freight, raw materials and the conversion of those raw materials in the can sheet as well as any other cost, regulated, unregulated labor, et cetera.

So I think in the interim, however, we do have contracts. And we expect our suppliers and customers to adhere to their contracts. And likewise, they expect us to adhere to ours. Having said that, we have not seen any disruption in the supply of raw materials and/or energy to our global sites, including the sites in Europe.

Got it. That's helpful. And my question on Signode. Helpful to get good color that the contracts [will] reset from an inflation standpoint in 2Q. Can you remind us how those contracts work? Is it largely the bulk of your business have contractual pass-through, so the lag is more of a 1 quarter hiccup there? And then when you think about this business in the medium, longer term, certainly, it tends to be a little more cyclical. How is your outlook in that business? It seems like you're still expecting pretty strong results. Curious, anything you've done since owning it to kind of moderate that cyclicality going forward? .

The contracts, I'm sorry, on Signode. So for the most part, the larger customers have contracts, and they will have escalator clauses. But that probably makes up a small proportion, let's say, 20% of the overall Signode business. The rest of the business is priced monthly or by order based on where commodities will be, whether it's hot-rolled coil index where paper or where resin is from time to time. So we do have the ability to price more rapidly in that business than we do in the can business. .

Since owning the business, even before we owned it, the prior owner, we both have taken significant steps to move the business away from being principally a supplier to the metals industry with much greater supply to food and beverage and other consumer products. And having -- so having said that, if 10 to 15 years ago, they were selling 30% to 35% into the metals industry, maybe they're only selling 20% into the metals industry. And food and beverage, if it was 8% back then, it might be 20% now. I think nobody wants to talk about the R-word. I do think the backlogs, not only for equipment, and tools and services in Signode, but also in our can making businesses. I think the backlog is so large that even if things do slow a little bit, it will take a little while for the backlog to clear such that we don't see any disruption to the forecast I provided to George earlier for this year.

Next one in queue is Mr. Mike Leithead of Barclays.

First, congrats on the Transit Packaging divestment, really nice transaction multiple there. Are there other call them singles or doubles like that within the portfolio? Or I guess, just how do you think about your overall portfolio as it stands today? .

Yes. So I think -- that one was an easy one. It's software. We're not in a software business. Obviously, looking at the multiple, I wish I was in the software business. It's a small business, it's self-contained. It was fairly easy to do. The reason it took a couple of years to get it done is we're trying to find the right partner for that business who is going to continue to grow the business and service, the customers in the corrugated industry because many of those customers are the customers for Signode, for equipment and also the commodities.

There are numerous businesses under the Transit umbrella. And I would say to you that the focus is on improving the portfolio of businesses that Crown operates, whether that be in transit or in metal. And I think it would be probably inappropriate for me to say anything other than that, but we're always in the -- we're always trying to improve the portfolio of businesses we operate.

Great. Appreciate it. And then second, if we could just go back to European Beverage, it sounds like the market is quite strong. You've sold out. I appreciate energy is gone almost hyperbolic there. But does the market demand give you any sort of leverage for faster price recovery or contract structuring? I guess, how should we expect the cadence of recovery there? .

Yes. So I think we'll -- I think what we said, whether we said it in October or February, is that the -- it would take us a couple of years to get it back and we get about 1/3 of it next year and we get the balance of it in '24.

If we had excess capacity, you could price those cans at spot or, let's call it, in today's market. We don't have any excess capacity. So we are selling within the constraints of our contracts that exist right now.

Our next question is coming from the line of Gabe Hajde of Wells Fargo Securities.

I had a question not to focus too much on the near term, but I think there was some commentary about normalization of bev can volumes in the U.K. And I'm sort of trying to marry it up. I mean, I know it's a common practice, sure you'd have a large portion of the business on the contract before committing capital. So just curious kind of what you're seeing in underlying demand in that country and then sort of confidence interval in future demand trajectory there? And I guess, relatedly, if I missed it, I apologize, but you said profitability in Europe was a little bit better. What was driving that? Was that better volume or production levels? Or is there something else that happened? .

So Q1, better volumes than we had forecast, principally in Saudi Arabia and Jordan.

The U.K. is the largest can market in Europe. It continues to migrate away from other substrates to the can. There's a lot of capacity that's gone into the U.K. and the market remains sold out and demand for cans exceeds not only in the existing capacity, but the announced capacity. So I think we're -- we remain very bullish on the U.K. can market is all I really want to say at this point.

Okay. And then, again, I apologize if I missed it. Did you quantify sort of the earnings impact from the steel volatility that we saw in Q4 and then into Q1 for the Transit Packaging business? And then I guess, conceptually, the way I think about it is, to the extent those products are protecting high-value items on the road or in transit, I would suspect that you're able to get price efficiently. I mean I know you said that. But is there an opportunity for margin expansion? Or are you just ensuring that you're getting back inflation? .

So I think Kevin described net $30 million inventory and think about inside of transit, we probably had a headwind of $3 million or $4 million, $4 million or $5 million. So add that to the $30 million, and that gives you what we had on the on the tinplate side. So about a $4 million to $5 million headwind in transit.

So you got 2 things. You've got -- obviously, we're trying to make sure we recover inflation. We're also trying to obviously grow the business and grow earnings. So we're always trying to do a little better. So to answer your question, yes, we're trying to expand margins.

Now that's absolute margins. I think in an environment where the raw material costs, i.e., the pass-through is significantly higher year-on-year, we do appreciate that because of the denominator effect of doubling tinplate and 75% higher aluminum percentage margins are likely to be lower in that environment. And then vice versa, when the commodities come down, percentage margins go up.

The next one is coming from the line of Anthony Pettinari of Citi.

This is actually Bryan Burgmeier sitting in for Anthony. You've announced 2 new capacity adds in Europe in the last month or so. Is that an indication that your contract renewal talks in Europe are going well and you expect to see more raw material pass-throughs moving forward? Or are those kind of unrelated to one another. .

Well, I think they're always related. I think it's a reflection of the demand that we see in the market from existing customers who are willing to enter into volume commitments and also new customers, but it's underpinned by the notion that we're not going to add capacity unless we're fairly compensated for products. So the answer is it is connected, but you wouldn't build it if you didn't have more volume.

Got it. Yes, makes sense. Last question for me. In the U.S. and in Europe, are you seeing any signs of consumers trading down to lower-priced beverage products? And if you're not seeing that already, is it possible to say how a trade down dynamic towards lower-priced beer or lower-priced soft drinks would impact Crown given your beverage portfolio? .

So we are seeing store brands and the demand for cans from those who fill store brands and other labels that are not national labels expand exponentially right now. Obviously limited by our capacity and the Bowling Green temporary shutdown, but what you described is happening. I'm certain it's also happening in food, but I can't off the top of my head, I can't point to it. I can absolutely point to it in beverage cans. We do have a very strong private label beverage can business. And we're very strong with some of the regional marketers of beverage products. So I think that we do well in that environment, yes.

Next one in queue is Arun Viswanathan of RBC Capital Markets.

I just had a question about the ready-to-drink market. So that's one of the few markets we're actually seeing growth. Do you expect the negative comps and the scanner data to continue for non-ready-to-drink cocktail markets? And I guess, ready-to-drink continued to show kind of mid-single to high single digits. And how does that square with what you guys are seeing within your own system? Is it just you're seeing the growth because of the capacity that you have if in place? .

So I think -- we've talked about ready-to-drink for a little over a year, maybe a couple of years. It is picking up some momentum. Some of that momentum offsetting the slowdown in growth of spike sell-throughs, although Spike sell-throughs, while the growth has slowed or still an incredibly important part of the beverage can market, it's 10% to 12% or maybe even a little bit more of the beverage can market. And so many of these drinks are in [sleep] cans. And obviously, all of the capacity we've announced has sleep capabilities. So one of the reasons for expanding the industrial footprint is to grow the business in line with volume demand, but also grow the business for the types of products and the size or shape of the can that the marketers and the consumers prefer. So yes.

Okay. And then as a follow-up, curious about the [CSD market] in a similar way. That's a market that was relatively weak for many years, showing kind of [minus 1% or minus 2%] and seems to have turned around. Do you expect that positive growth in CSD to continue? And what should we expect as far as growth rates? And maybe is it across North America versus Europe and some of (inaudible)

So you want growth rates for CSD?

Yes. I'm just curious if you expect positive growth rates in CSD to continue and if it's kind of across regions, what are you expecting? .

Yes. I mean I think in North America, as you pointed out, it did decline for a while. It seems like we're back on the uptick on CSD. So I think we do expect some growth. I would tell you if you want exact numbers, you probably should be talking to your beverage analysts. But certainly, the 2 large marketers of CSD products have been showing fairly good growth. And I think they're fairly bullish. It's certainly in North America. And with respect to the one who's a bit more global than the other, they've been showing tremendous growth on a global basis. But I think in Europe, the big growth that we're going to see in CSD is more from conversion away from glass into the can. And I think the hope is that globally, we all get a bit more responsible with respect to the environment, and we start to see some PET come back to cans in several markets.

But the only thing I would tell you is that pretty hard for us right now in most markets to entertain that growth just given the sold-out condition. So it's going to take us a while as an industry to get capacity to the levels where we can absorb the growth that we think will come to the can over time.

Next question is coming from the line of Chris Parkinson of Mizuho.

Just very quickly on your comment on the environment and the PET. Just given what's happening in a few states, most of California, a couple of airlines and even Miami beach have an agreement with Pepsi kind of shifting over to aluminum versus plastic. Have there been any other incremental signs that there could be actually somewhat of a material shift even off of an incredibly low base? Or is that just something that continues to linger off in the distance? .

No, I think -- I don't want to say it's lingering in the ultimate distance, as you say. I think what you point out in a couple of jurisdictions, the momentum is there. There are some jurisdictions, there are some states at least in the United States, where it will take a little longer. But I think I think let's just say in the blue states, if you will, we're going to see a lot more momentum in that regard. I think all throughout Europe, we're going to see momentum in that regard.

But as I said earlier, to Arun's question. I think the limiting thing for us is our ability as an industry to get capacity in to accept more rapid fashion, the conversion that we think from an environmental standpoint that wants to be driven from those who have greater environmental concerns.

So we're -- as an industry, you've seen over the last couple of years, a significant number of announcements that we're all making, I think it's pretty clear that new product introductions by existing marketers or new marketers of beverage products are significantly weighted more towards the aluminum can than other substrates. So as an industry, we're trying to get there.

It takes time to build equipment. It takes time to procure equipment and it takes time to build a factory and train a workforce. So we're doing the best we can as an industry, and we're here to help clean up the planet.

Got it. And just a real quick question. You hit on the RTD already. Just very quickly, could you hit on just what you're seeing in both North American and European energy drinks, just what you've seen over the last 4 months as well as your outlook for the remainder of '22 and perhaps longer? .

Thank you. So we are -- we do have energy drink customers. We have -- we don't have a huge energy drink business. We're looking to expand on that, but the energy drink market on both continents that you've just mentioned exploding right now. So the outlook for energy is quite high.

Our next question is coming from the line of Mike Roxland of Truist Securities.

Congrats, Tim, Kevin and Tom, on a good quarter despite all the puts and takes. Just a lot of my questions have already been asked. Just 2 quick ones here. There's been some talk about improving supply chains -- obviously, that was prior to some of the recent Chinese COVID lockdowns. What have you seen just from a supply chain material transportation? Any of those constraints that really bottlenecks? Have you seen any improvement in them recently?

So let's put [Shanghai Port] aside for a second. Shanghai is the one that's happened over the last several weeks, month that has been something that's caught many industries off guard. We are managing our businesses effectively so far. And the hope is that some of that tension will ease. The port might be open, but they can't get workers to the port. So it's and the trucks from province or town to town in China also difficult. But I think we're working through that.

I think the big headwind that we've seen from a supply chain standpoint is in our equipment businesses for beverage can making equipment and some of the Signode equipment or transit equipment, motors and circuit boards, display screens, things like that, still in short supply globally. And we, like many other industries are doing the best we can to try to procure as much of the components that we need from a select few suppliers. Let's be honest, as a select few suppliers that meet the standards that we require and that our customers require. So we're all doing the best we can to try to do that. But that still remains tight.

Got you. And then just one quick follow-up. On the last point, Tim, on the constraints with respect to bev can making any impact to read through to your own expansions. So if there -- if there are delays in terms of recurring or getting the metals and other things you need to make your -- for that business, does that put at risk any of the expansions that you have planned, given the longer lead times to procure that?

So the only thing we've had is the second line in Martinsville, Virginia has slipped into early '23 from -- we thought we'd have both lines up and running in Martinsville this year. And the second line will slip into, I think, February of '23, and that really had to do with the supply of construction steel. But from time to time, we might have some bev can equipment or some transit equipment that slips 30 or 60 days from what we thought original deliveries would be. But as I said, we're -- we and others are doing the best we can to try to service our customers, procure goods to service our customers. It's been tight, but we're managing.

We have 3 more questions in queue. Our next one is coming from the line of Anojja Shah of BMO Capital Markets.

Just wanted to -- we're hearing a lot about elevated glass demand. We heard this morning from a major glass producer. Given that, can we get an update on your Mexican glass business? Are you seeing a pickup in interest or business around that?

So we are -- the answer is yes. And again, we are capacity constrained. We operate 4 furnaces in 2 factories. A significant proportion of our volume is tied under a long-term agreement with one customer. And we do our best to try to push more tonnage through the furnaces, depending on the type of bottles we're making, obviously, you make more or less depending on the bottle, but you can only push through so much tonnes.

So we're doing our best to service other customers. We have many -- a few other customers under contract as well. And then there's noncontract spot customers, obviously, that we'd love to be able to service. But as you say, demand is quite high for glass, at least as we see it in Latin America. We don't follow the other glass markets. We do follow the Latin American markets because of our exposure in Mexico, but it is quite strong.

Great. And then that new line that you just announced in Agoncillo in Spain, if I'm correct, I think you have steel lines there right now -- to steel lines, so is the idea eventually to retire those 2 lines? Or is there enough demand for all those lines?

So we -- you are correct. It was a steel beverage can facility. It's in the north of Spain towards the [Bilbao] region, where the steel mills are. And for that reason, it was set up as a steel plant, many decades ago. We have beverage can -- can making in the plant now. We have one steel line and we're putting in the aluminum line. Depending on the price of steel versus aluminum, we'll depend on if and when we retire the steel line, but we would expect to add a second aluminum line in time regardless of whether we keep the steel line or not, but it will depend on the arbitrage between steel and aluminum for those customers in Spain that may still be willing to take a steel can.

Our next question is coming from the line of Angel Castillo from Morgan Stanley.

Just a quick one, I guess, could you update us on the global beverage shipments number? I think you had given a kind of greater than 9% last year for the full year -- last quarter, excuse me. So just where do you see that coming in? And kind of how do we think about 2Q, whether you have some seasonality, but you also have some of these plants coming online and Bowling Green coming back on. So how should we think about the shipment numbers and the cadence to that full year again?

We're looking at something here. So we were -- we initially told you, let's say, 9% that we thought -- we grew 9% last year. We thought we'd grow another 9% this year. I think if we were looking at it today, given the softness we saw in Brazil in Q1, and I think Brazil does recover as the year goes on, but we're being -- we're being honest with ourselves and with you, maybe the 9% is now 8% just given the Q1 softness in Brazil.

Understood. And then I just wanted to switch to cash flow. Given all the softness, it's impressive you're still able to kind of maintain that $400 million. So curious what are some of the puts and takes there? And within that, any benefit or impact from [pension] as we see interest rates rising? .

Yes. So in terms of the cash flow guidance, clearly, we reduced the EBITDA guidance to $1.970 billion from $2 billion, so you have a $30 million headwind there. But we're looking all over the place for ways to make that up. And the easiest way is to reduce our inventory. We have a very high inventory level coming into '22. Due to all the supply chain issues, we've carried more inventory than we typically have had. So that is really the main driver or the main item that will offset the EBITDA.

Understood. And any, I guess, comments on pension?

Pension contributions are as we expected. The one thing on the pension, we are expecting to get in as part of the U.K. settlements in the neighborhood of $100 million of proceeds this year or through this year and through the first part of '23. That's on plan. In our $400 million free cash flow guidance, that would be additive. If you look at the press release, we've actually added back to the proceeds that we've gotten so far this year.

Yes. So just, Angel, just to make sure we're clear on that, the $400 million free cash flow does not include the recovery of the illiquid pension assets from the settlement -- last year's settlement of the U.K. pension plan. So when we talk about pension plans on a global basis, we really have the plan in the United States and Canada and other than that, it's very immaterial around the world for pensions.

Our last question in queue is coming from the line of Adam Samuelson from Goldman Sachs.

I was wondering if -- just on the equipment businesses in both transit and beverage can equipment. You talked about having a lot of visibility with the backlog, especially on transit through the year. Where is the book-to-bill in that business sitting today? I'm just trying to get a sense of kind of -- are we still growing backlog and kind of the... .

We are, I think -- we're a $220 million backlog. I always remain concerned that if the backlog stays too big for too long, does it stay there? Or does it do potential buyers lose interest to go somewhere else? So we're -- as I said, we're trying to do the best we can to procure those components we need to complete the orders and ship out the backlog. It's a business that -- when we acquired the business, the transit business, I think the backlog was $80 million, and now it's $220 million. Some of that is new product introductions, enhanced product introductions, the retirement of equipment that many users and customers have had for several years are looking to upgrade all of the above, but the backlog is quite high.

And I guess specifically, are orders still exceeding shipments at this point, especially for the longer lead bigger equipment? .

Yes.

Okay. All right. Is that also true on the equipment -- on the beverage can equipment side? .

Yes. Believe it or not, we have more orders on hand and new orders coming in, then we'll push out for specific pieces of the beverage can line this year, yes.

Thank you. Okay. [Kerry], thank you very much. I think that concludes the call today. We thank all of you for joining us, and we'll speak with you again in July. Bye now.

Thank you, speakers. And that concludes today's call. Thank you all for participating. You may now disconnect.