Good morning, and welcome to Crown Holdings Second Quarter 2021 Conference Call. Your lines have been placed on 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. Thomas Kelly, the Senior Vice President and Chief Financial Officer.
Sir, you may begin.
Thank you, Harley, and good morning.
The conference call.
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 atcrowdfort.com. The conference call. 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.
The conference call. Additional information concerning factors that could cause actual results to vary is contained in the press release and in our SEC filings, the quarter, including in our Form 10 ks for 2020 and subsequent filings. Earnings for the quarter were $0.95 per share compared to $0.94 in the prior year quarter. Adjusted earnings per share increased to $2.14 in the quarter compared to $1.33 in 2020. Net sales in the quarter were up 34% from the prior year, primarily due to increased volumes across all segments, the favorable foreign currency translation and the pass through of higher material costs.
Segment income improved to 3 the $95,000,000 in the quarter compared to $250,000,000 in the prior year, primarily due to higher sales unit volumes, the conference call, including recovery in many locations affected by COVID in last year's Q2. As outlined in the release, We currently estimate Q3 2021 adjusted earnings of between $1.90 $2 the Q1 of 2019. This estimate includes the results of the European Simpler operations through August 31. We are increasing the midpoint of our full year adjusted earnings guidance from $6.70 per share to $7.35 per share, the Again, assuming the sale of the European Tin Plate business closes at the end of August. Our expected adjusted tax rate for the full year remains at 24% to 25%.
I'll now turn the call over to Tim.
Thank you, Tom. Good morning to everyone the And thank you for joining us this morning and our continued best wishes for the continued health and safety of you and your families. The As reflected in last night's earnings release, the company recorded another strong quarter for the 3 months ended June 30, 2021. The Despite numerous transitory headwinds such as supplier and transportation delays, COVID lockdowns and cost increases, Our global associates continue to rise to the challenge of supplying our customers with high quality packaging products in a safe and timely manner. The Demand remains strong across all product lines and geographies and importantly the company continues to convert this growth into record earnings.
The Average segment income from continuing operations over the last four quarters or last 12 months June 2021 the is approximately $100,000,000 per quarter higher than the average of the 4 preceding quarters or LTM June 2020. The With approximately $60,000,000 of that income growth found in the Americas Beverage segment, clearly a step change in our earnings output. The We look forward to commercializing significant new capacity in the second half of this year into next to take the next step change up. The The results of the European tinplate operations are now shown as discontinued. Had the business been included in continuing operations, the LTM June EBITDA would have approximated $2,100,000,000 Before reviewing the operating segments, we remind you that delivered aluminum in North America the is approximately 65% higher today than at this time last year.
LME and delivery premium are contractual pass throughs, the So reported beverage revenues reflect both the volume increase and the higher aluminum cost. The As last year's Q2 was the so called COVID quarter, we will also provide beverage growth percentages for the first half of twenty twenty one versus the first half of twenty nineteen to give a bit more information perhaps relevance related to our beverage can unit volume growth. The In Americas Beverage, demand remains strong across all the markets we serve with overall segment volumes up 18% compared to the Q2 of 2020. First half twenty twenty one versus first half twenty nineteen volumes advanced 19%. The As described previously, we expect demand will continue to outweigh supply for the foreseeable future.
Commercial shipments from the first line of the company's new beverage can plant in Bowling Green, Kentucky commenced in June with shipments from the second line scheduled to begin in September. The The 3rd line in Olympia, Washington and the 2nd line in Rio Verde, Brazil are now scheduled for an early 4th quarter startup. The As previously announced, the company will commercialize 5 new can lines in 2022. New two line beverage can plants are being constructed in both Uberaba, Brazil and Martinsville, Virginia along with a second can line being installed in Monterrey, Mexico. The Additionally, the company announces today that it will construct a new two line beverage can plant in the Southwestern United States the With commercial shipments commencing late Q2 of 2023, customer commitments have already been secured for the plant's production capacity.
The Unit volumes in European Beverage advanced 28% over the prior year's Q2 and 14% for the first half compared to the first half of twenty 2017. Income reflects contribution from the volume growth, which was recorded throughout the segment. Asia Pacific recorded 15% volume growth in the quarter and 8% for the first half versus the first half of twenty nineteen as most operations across Southeast Asia were able to grow despite numerous COVID lockdowns and movement control orders. We do expect both Crown and customer operations to be subject the various and intermittent COVID lockdown measures throughout the balance of the year. Commissioning will commence at the new plant in Vung Tau, Vietnam in September with customer shipments beginning in October.
Results in Transit Packaging were significantly higher than the next year and in line with our expectations as strong demand for transit products and solutions mirrored the surge in overall industrial activity. The The business did well to navigate transportation delays, cost increases and supply shortages and is well positioned for continued earnings growth as These conditions gradually ease. We expect earnings growth in the back half of the year to approximately approximate first half growth. The Demand remained firm across North American food and aerosols along with the beverage can equipment making businesses. The In summary, a record first half for the company.
New capacity was commercialized during the quarter and significant new capacity will be commissioned the back half of the year. Importantly, we continue to convert growth into expanded earnings and cash flow. Segment income and adjusted earnings in the first half up 50% to 60% over the prior year and leverage at 3.6 times after repurchasing $300,000,000 of company common stock the As Tom discussed, we have raised full year guidance and the expected closing of the tinplate sale still remains the Q3. And with that, Harley, we are now ready to take questions. Thank you.
Certainly, we will now begin the question and answer session.
The Thank you.
Tim, I think you touched on
some of the supply chain disruptions that you overcame in the quarter. I was hoping you could talk the A little bit more about where you're seeing that. And is it quantifiable how much you may be left on the table or missed out on this quarter because of some of these disruptions? And does that just get pushed into the Q3 or just any way to kind of help us think through that?
Yes. So I would say that I think you're all well aware of there are container shortages globally. So the Suppliers getting containers to move product around has been a challenge. There are with the rapid the restart of the economy both here and in Europe. Component manufacturers are overwhelmed and so their ability to manufacture components the For assembly for us, for example, in our beverage can equipment making business and or the transit businesses, the A little bit delayed.
Construction steel, other construction products, the Whether it's lumber, cement, drywall, all of that in high demand and a bit delayed. The So I don't want to characterize, I mean clearly there's the biggest impact we had in earnings in transit the Would have been in the transit business and maybe that's a handful $5,000,000 or $6,000,000 It probably gets pushed into the next the Several quarters, not just the back half of the year, the next several quarters. There's a limitation as to how much our teams the If we received everything we were waiting on tomorrow, there's still a limitation on how much our teams can process at one time as well. So that'll the Take a little while, but given the performance and the trajectory of the overall company in each of the individual businesses, the I'm not overly concerned about it. We are in the business of providing service to our customers whether that be the high quality products or service.
And so you always hate to tell the customers the They're going to have to wait or turn customers away and but they're generally They're hearing it from all of their suppliers and we're hearing it from many of our suppliers as I expect many companies are.
The Great. That's helpful color. And then maybe a follow-up question for Tom. I was hoping, could you give us how much the pass the of aluminum and other input materials boosted sales year over year in the quarter. I was just hoping to
get a cleaner look at overall incremental margins of the business.
The Yes, I don't have that in front of me, Mike. I can follow-up post call on that.
Got it. Thanks, guys.
The Thank you.
Thank you. The next question is from Arun Viswanathan of RBC Capital Markets. Your line is open.
The Good morning.
Thanks for taking my question. Congrats on the strong results. I guess I just the I just wanted to understand maybe get your thoughts and perspective on some of the scanner data. So we've obviously seen Some conflicting reports on volumes and those are up against some tough comps. So when you think about your own kind of beverage can volumes, you're the nicely year on year.
Where would you expect those volumes to kind of, I guess, the checkout over the next couple of quarters. Would you expect similar kind of percentage gains within your own system? And again, Could you help us kind of understand maybe or maybe just offer your own perspective on what we're seeing in the scanner declines as well? Thanks.
The Yes. So we provided you the not only the second quarter volumes versus the Q2 of last year. And I don't want to say it's not relevant. The But clearly the Q2 of last year had a large event that none of us anticipated at that the quarter. I'm making the comparisons very easy this year.
It's why we gave you the first half of twenty twenty one versus the first half of twenty nineteen. You get a better picture of perhaps the It forces you to extrapolate what growth is because it's over a 2 year period, but nonetheless it's extremely significant, especially for a packaging business. The The growth, we continue to expect growth across the businesses, all of the businesses, perhaps the The Asia business will be a little slower depending on some of the COVID lockdowns, but we expect significant growth through the back half of the year. The It will not be at the Q2 levels because the Q2 last year was so depressed in certain markets, but significant growth. We are still turning away unfortunately the In Europe and the Americas, we are still turning away customer requests.
We're still importing cans into the United States, Not quite at the level of last year, but fairly close and demand remains high. The I understand some of the scanner data may have some of you worried. I think, I'm not sure the That scanner data includes all retailers. And when it doesn't include all retailers, especially the largest retailer in the country, the You need to take that you need to try to find another way to measure it. But I can tell you where our company sits the And within our industry what we're hearing from our customers, they are desperate for cans.
We're desperate to get as much capacity up and running as quickly as we can. The And so the growth outlook for us remains very strong.
The Okay, great. Thanks. And as a quick follow-up, maybe I can just ask a question on capital and cash. So you'll be exiting this year at a relatively high rate of CapEx. And obviously, at the At your Investor Day, you kind of laid out a plan and outlook for capital from here on.
But you also have some new the commitments as far as dividend and potentially some stock buyback actions. So could you just kind of review the priorities for cash use at this point. And where you expect to kind of finish the year on net debt and leverage? Today.
Well, I think what we've said before is leverage we'd like to be in the 3 to 3.5 times and the Depending on how we see capital requirements going forward that will determine whether or not we're the At the higher end of that range or the lower end of that range. I think we should be comfortably within that range by the end of this year And it will allow us to buy back a significant amount of stock. Obviously, we've initiated a dividend. We're going the The intention is to continue to pay the dividend and depending on capital requirements going forward, I think the leverage is going the where we want it by the end of the year, especially after the 10 plate sale. And the So the piece that moves around is how much doc you buy each year.
So the In other words, almost all of the cash flow, free cash flow we generate each year will be used for dividends and share buyback. The One thing I'll say, we've got I think some of you fellows that have been covering the the low characteristics of a packaging company, especially a metal packaging company, you're not so comfortable with higher levels of debt. We have tried to the Maintain and we still maintain we never had a leverage problem. And as you can see, even with buying $300,000,000 of stock before the proceeds from Tinplate, the The leverage is 3.6 times. So leverage is not an issue for a metal packaging company.
You may not like the time it takes us to get there, but we're fully confident we're going to the We're going to get there and we're going to generate the cash. Now that we're there, we're going to buy back a lot of stock.
The conference call.
Thank you.
Thank you.
The next question is from Kyle White of Deutsche Bank. Your line is open.
The Thanks. Good morning, Tim, Tom. Congrats on the quarter. Good
morning, Kyle.
I just wanted to walk through the guidance for the full year, the raise, specifically on the back half. The Can I get to about a 26 EPS raise for the back half? Just wondering how much of that is driven by having the European template results for July August? The How much is driven by some of the repurchases that you've made in the quarter? And then just how much is driven by underlying business growth?
Thank you.
The Yes. I mean, so the European Tinplate business, the 2 months is worth about $0.20 So then the residual the Effectively everything else you mentioned, improvements in the underlying business net of anything going the other way.
The Got you. And then I want to talk about Europe. You announced some new capacity here in the U. S. You haven't really announced any new capacity in Europe, while other competitors or peers have.
The Are you concerned at all that you might be losing share in that reason? Is it just a function of the markets you're in and the customers you have maybe not growing as fast? Or is it just you'd rather allocate the capital to better markets such as Americas and Asia Pac?
No, I don't. I think it's just a matter of timing And don't go to sleep on us. That's all I'll say. So we have the With the exception of the one market over there that we don't participate in, we participate in the balance of the Western European market. So the Crown at the appropriate time will make those decisions and make those announcements.
But no, we're fully confident the Our platform in Europe and the platform's ability to offer continued growth to the company.
The Got it. Thanks. Good luck in the balance of the year. Thank you.
Thank you. The next question is from George Staphos of Bank of America Merrill Lynch.
Hi, everyone. Good morning. Good morning, George.
Thanks for the details. Congratulations on your progress so far. The I want to come back to some commentary from last quarter and see what if any effect we should consider for the rest of the year in 2020 2 from your comments. So last quarter you said you were worried a little bit about a pull forward of volume, the accelerating volumes and that was a reason why sequentially you were looking for a downtick in 2Q versus 1Q. As it turned out that was not the case.
You had the Better quarter sequentially. Do we still have to worry about that pull forward or are you less concerned about that the in terms of the back half of the year. And stretching a bit, recognizing it's not 4th quarter, the Do you think that given what you're seeing from customers, from your capacity plans and your ability to allocate capital the That you should be able to grow through the dilution in 2022 considering European food European template won't be part of the portfolio.
The So I think the
we had this discussion last quarter because the I understand the question George. We're sometimes as baffled by the outperformance the As you are. And as I said last time that the reason why you're not overly ecstatic with it is it could go the other way and then that's a more difficult conversation. The Having said that, I would say as we look forward to the back half of the year, the The amount of available capacity that we have to have an upside earnings surprise is significantly limited from where we were In the Q1 or even at the end of the Q1. And then we are it's the The Asian COVID situation across several of the countries, there were some lockdowns in Q2, but not to the extent that we were anticipating.
We do anticipate that across Asia and some of the markets we're going to get More lockdowns. We have lockdowns in 2 jurisdictions right now for the next 3 weeks. So that will have an impact. The The other thing is transitory inflation. We'll get the inflation back in the formulas next year, the But there is some inflation in the business.
And having said that, we're earning through it the With the growth we have, looking at the Q4 and into next year, Do we have enough growth to earn through the dilution from Tinplate? Well, I think One of the ways you're going to earn through the dilution from Tinplate is buying back amount in the stock. And it's not clear to me, George, that we're trading on a PE multiple anyway. So the Whether we post $7.50 or $7 it's not sure to me either. Anybody is really looking the At an appropriate PE multiple for our company and I'd leave it at that.
Fair enough. The Fair enough, Tim. And for the record, nothing really matters for this call, but I mean your performance was better than expected as was your guidance relative to our model for what it's worth, but just for the record. What are beverage company marketing folks telling you about the outlook the for new categories, new product innovation. In other words, is there something else that can take the baton or at least keep up in the race with the Spike Seltzers, what's your view on that on next categories, if there are any?
Or do we have to worry just about or expect the Just new flavors out of spiked seltzers to be the driver of can growth over the next couple of years.
Well, the I know of 1. I don't want to talk about it because I don't want to expose the idea which is the Specific to one customer or perhaps a group of customers. But I think the We should expect that the marketers are going to continue to try to develop. It doesn't mean they're all going to be successful, but they're going to continue to try to develop the New products and new flavors, new mixed cocktails the Across a variety of whether it's real alcohol based or some kind of mash of alcohol mixed with a variety of flavors, the Be it more healthy or less healthy and that's probably the wrong term to use. The But I'll leave it at that.
I don't think we see any shortage of ideas coming from them. The Historically, we might have been worried about how much we are going to spend on incremental artwork the for some of these labels, but given the strength of the market now we charge for the artwork. So I'm not so worried about incremental artwork that we do that the If a product fails, but I think as we've said, we continue to maintain the outlook is really strong
the conference call.
And it's given the amount of imports we have coming into North America this year, I'm a little bit more bullish the On the next 24 months perhaps than I was before because it hasn't really slowed down from last year like I thought it would.
The Thanks, Tim. My last one and I'll turn it over just from some inbound that we've gotten. Can you update us On the portfolio and how you look at transit, how you look at North American template relative to the fit, the relevance, the next couple of years. The importance in the portfolio and in particular what you think the trajectory for transit the It is over the next couple of years. Thanks and good luck in the quarter.
Sure.
So the first thing I'll say is that we've pegged August 31st the For the tinplate sale for the purposes of the discussion today, we're hopeful that it closes earlier than that. I don't think it's going to close the July 31. As we look at the other businesses in the portfolio and specifically the To your question, the non beverage businesses, we've discussed previously that they don't require a lot of capital. The The return on capital from those businesses is quite high and the cash flow generated is quite high. And so to the extent that the Any organization has a lot of demands on its cash be it growth capital in one business versus another and or share buybacks dividends return of the capital to shareholders.
It's important in our view to have a well balanced and businesses that generate a lot of cash flow the Where you just tend to garden, you're not having to plant a lot of trees. And so for the time being, We're running those businesses as efficiently as we can. I would like to have a discussion with
all of
you at some point, the We were able to demonstrate to you the upside to a business like Transit Packaging. But for the time being, we're just going to tend the garden.
The All right.
Very good. I'll turn it over. Thanks, Tim.
Thanks, George.
Thank you. The next question is from Gabe Hajde of Wells Fargo Securities. Your line is open.
Tim, Tom, good morning. I hope that you and the Everyone that's important is doing well. I'm trying to revisit a question that I think George started to go down the path of recognizing difficult the to talk about some of these topics in a forum like this. But I guess is there anything you can share with us from customer dialogue that gives you comfort the that the industry doesn't find itself kind of in a meaningful oversupply situation in 18 months to 24 months. And part of it is obviously predicting consumer behavior, but We're talking about potential for substrate gains or maybe the multiplier effect of premix cocktails that maybe were under appreciating the Similar to kind of what we're observing in Brazil that's happened over time with returnable glass.
So the We touched on this a bit last time, Gabe. I think even if we even as we come back from the pandemic, I think the spiked seltzers the Or one thing, right? And mixed cocktails are another. And if you were a bar owner, when you think about people going back to a bar the 1st and if they're going to drink those products, they're going to be served in a can. They're not going to be served the They're not going to be mixed by the bartender.
And if you were a bar owner, It offers you the opportunity to control inventory and control waste and control theft in a much better way than the bottles of alcohol would have to be mixed with seltzer out of a gun, etcetera. So I think from that standpoint, we're not so worried about the reopening. The And I think piggybacking on that when you think about that it offers a lot of upside to the can the Into the future. But you're right, you never know what consumer behavior is going to be. I do think there's a large portion of the population, the Not only in the United States, but especially in Europe, where habits have changed post pandemic We're not really post pandemic.
We're still in it. But and it's going to take a longer time for that to return to the What we view as historical normal that perhaps we anticipate. But the Yes, there's always a possibility we're as an industry we're going to overbuild and I don't see that happening for the next 2 to 3 years. I think the As I've said and I can only say it so many times, demand is going to far outweigh supply for the next several years. And the You're not going to scare me right now by telling me some guys doing this or some guys doing that and the How do you feel?
Where we sit today, we know we've got customers banging on door every day looking for more supply and the We're not in the business of telling people no. So we're not worried about it.
Okay. Thanks for that. And then I guess the Kind of early indications from on premise and factory opening. And I think kind of going back to the scanner data, something that I don't necessarily think we have great visibility on, at least on the sell side, is obviously the supply chain is much different and pipeline fill the ahead of kind of the July 4 holiday. From our research, I think that was pretty robust.
Do you have any visibility in terms of or anything you shared with us the In terms of kind of where those inventories are, again, appreciate that. Like I said, kind of the Memorial Day holiday, I think, was the Somewhat missed just given timing of reopening across the country.
Yes. So it's an interesting question because the When cans are in short supply, typically the customers don't warehouse a lot of cans or warehouse a lot of filled product. But the Given the cans are in short supply, what I don't have a handle on right now is are they buying ahead and warehousing empty or filled cans the for the balance of the summer and the Labor Day because they're worried about supply. That the I couldn't honestly tell you, but I can tell you that the demands on us have only increased from the conversation we had 3 months or 6 months ago.
The Okay. Thank you.
Thank you.
Thank you. The next the question is from Ghansham Panjabi of R. W. Baird. Your line is open.
Thanks. Good morning, everybody.
The
Tim, what do you think is realistic in terms of the growth rates for the industry specific to the U. S. In 2021 versus 2020? And then the new plant that you just announced, the two line plan. Is that for existing product categories, new categories that we just don't know about at this point or a combination of the 2?
The I would say it's existing and new customers, but existing categories, Ghansham. The I'm sorry, what was the first part of the question?
Just the industry growth rate.
The The problem is the COVID quarter kind of screws it up, right? So the I would tell you that if last year we had what do we have Tom, 97,000,000,000 units And with imports we are about 108, 110, 112. The Is it reasonable to say that this year you could have 10% on 112, that seems like a big number. I think it depends on The suppliers' initiation of capacity output, the If we were apples to apples, I'd say that Crown is comfortable with 10% on its base. The It could well be that we have 10% this year, but I feel more comfortable in the the 5% to 7% range as an industry.
Got it. And then in terms of the The delta variant and the impact on lockdowns, etcetera. What are you seeing across the regions real time? The And then also in Brazil, I don't think you mentioned much about Brazil, but that country is going to lap some pretty significant comparisons the back half of the year versus an extraordinary last year. Just your outlook for the back half of the year,
specifically Brazil as well. The Yes, I think that's I mean we're going to remain sold out in Brazil. The only headwind we have in Brazil is How quickly we get the 2nd line up in Rio Verde. Yes, clearly the comparisons are much the Higher in Brazil, if we all had more capacity, it wouldn't matter. We're going to chew up all this new capacity as quickly as we can make the cans, they're going to be taken by the customers.
On the Delta variant or the other miscellaneous variants around the world, we've talked about Asia And the Asian governments are really trying to restrict the The number of new cases. And when I say restrict the number of new cases, you take some big Asian cities with the Several million people, they don't like to have 20 new cases. So that's why the restrictions there are so much different. Now the availability of vaccines the And the availability of quality vaccines is much lower across many of these Asian jurisdictions than it is in Europe the In the United States, I don't I'm not in Europe and we haven't been able to get to Europe. So I'll pass on that for the time being.
I would say in the United States, I don't believe any of the governors want to go to back the lockdown. And I would Go as far to say, to the extent that they were able to use lockdowns, for whatever other political purpose they had, They've accomplished that other political purpose. They're not going back to lockdowns at this point. And with some of the Bigger cities, I know we are in Philadelphia, we've got at least 60% to 65% of the people fully vaccinated in the city of Philadelphia. And at some point, the Perhaps not popular to say, I don't really care.
If you don't get vaccinated, don't complain when something bad happens to you. The There's an opportunity out there for you to be vaccinated and for you to protect yourself and your family. And if you're not willing to do that, the That's on you, but don't ask the rest of us to suffer and delay living our lives because the You've got some belief one way or the other where you don't want to take the vaccine. It's pretty clear, right? Drug companies aren't trying to kill us.
The They're trying to extend our lives so they can excel us more drugs. I haven't heard a good reason why people don't get the vaccination. So I don't think the Regardless of any of the variance, we might have some cities like Los Angeles that are forcing us to mask up again. I don't think we're going back to any shutdowns in the United States anytime soon.
Got it. Thank you.
Thank you. The next question is from Jeff Zekauskas of JPMorgan. Your line is open.
Thanks very much. You spoke about your year over year can growth. What was your sequential can growth
in beverage?
The From Q1 to Q2?
Yes.
Oh boy, hold on. Q1 was that 8%?
No, no, no. The No, I know that was up 8%. But it's that's a meaningless number, right, because it's got the COVID quarter last year. I think what you really want to know is how many more cans did we sell in the Q2 than the Q1?
That's it. That's the question.
The 19.5 in the Q1.
Yes. So the What I can tell you is globally we're a little over 20% in the the Tom said 19.5%, but I think it's yes, maybe it's 20%, not 19.5%, 19.9% in the Q2 and Maybe for the full year, we're like 13.5 something like that. So if that gives you help.
Okay. I'll take what you're giving. The In the quarter, what was EPS from continuing operations?
The Sorry,
what was the question again, Jeff?
Sure. In the second quarter, what was EPS from continuing operations the And what was EBITDA from continuing operations and pro form a if you didn't the Discontinue the Kin Plate business.
So the EPS is on scheduled, right? Yes, the 214
from continuing operations. No, but exclusive of disc ops.
The So the earnings per share from continuing operations was $0.57 discontinued was $0.37 I'm sorry, the Continuing with $0.97 discontinued was a loss of $0.02 But
No, adjusted.
The Yes, it's the $2.14
So is it $2.14 in disc ops and $1.64 in continuing operations? That's a rough quarter. Yes.
You've got to be careful with that because you have to pro form a to Discaps doesn't mean what we're going to lose, right? You have to back out interest and everything else. Yes. There's no on
the face of the income statement, when we show you the Income from discontinued operations, it's not reduced by any interest expense. All the interest expense is up in continuing operations the As required.
Okay.
And your second question was EBITDA the For the Q2 from continuing operations?
Right
and pro form a.
The So, I don't have the Q1 press release. So pro form a 12 months June.
The I know pro form a 12 months ago.
Yes. So if you had the prior press release, if you backed out
So it's 559 For pro form a, if you look at the prior numbers. But I don't know if that's correct. Is that the right numbers at $5.59 for the quarter pro form a?
The So what I was trying to say Jeff, if we look at the Q1, the LTM March EBITDA the Was 1917 and that has food as continued operations, right? There were no discontinued operations.
And the
Pro form a 12 months June is 2081. So the 2nd quarter on a if we didn't have the The Q2 is $164,000,000 higher than the Q2 last year. On this call, that's the best I can do for you without spending a lot more time in some others. Fair enough. I want to spend.
Okay. Thanks very much.
The Thank you.
Thank you. The next question is from Mark Wilde of Bank of Montreal. The line is open.
Thanks. Good morning, Tim. Good morning, Tom.
Good morning, Mark.
The First of all, Tim, did you provide a capacity number for that new Southern U. S. Plant?
The I would tell you to think about $2,500,000,000 very similar to Bowling Green and or Martinsville.
The Okay. All right. That's helpful. Then in Transit Packaging, when you acquired the business, I think you were pointing to about $85,000,000 or the $90,000,000 a quarter in EBITDA. Is that still a reasonable number in your view in light of kind of The efforts you've made to improve the business or is it a little higher, a little lower than that going forward?
Yes. So I think where we see segment income the Plus depreciation we're going to be $90,000,000 would be $360,000,000 a year. We're going to be higher than $360,000,000 this year no doubt. The So we'll see what industrial activity is for the balance of this year and into next year and into 2023, but There's no reason why that number shouldn't continue to grow at least at GDP rates until such time that the We take a different view on how much we want to try to grow that business.
And would you say, Tim, just if we look at that second quarter number, Were there any pieces of that business that were still cyclically weak or is that second quarter number reflect the business is pretty much the running
full. So there's nothing cyclically weak. What is a little depressed the is the equipment business just because we're having issues on the supply side from our suppliers getting components the And other items and I estimated that maybe at about $5,000,000 earlier during the call. Demand is exceptionally strong the And as I said earlier, even probably far stronger than we can handle right now with the folks we have in place If we had all the supply, but we don't have all the supply.
Okay. And the last one for me.
Is it possible for you to just talk with us broadly the about what Crown is doing to help boost the recycling rate for North American beverage cans. I think that's running about the 50%. And I just I wondered, given the energy intensity of aluminum cans, if we continue to landfill 50% of all of them, Is this going to somehow threaten that whole sustainability argument around cans if that rate isn't moved over time?
The Mark, we did this last time and when I went back and thought about it, Thought crossed my mind that you're a shield for the paper industry. So the One thing I feel really good about is the paper guys are never going to find a way to package carbonated beverages. However, your point the Your question is a good question. And you and I had a disagreement on whose responsibility it is. No doubt the The government is going to make it either our responsibility or our customers' responsibility because we don't vote in elections.
The individuals vote in elections. But if consumers who are individuals don't start properly handling or disposing of the Products that have real value, aluminum has real value and we're going to have we're going to find a different answer. But we have talked in the We've asked about higher recycling rates in deposit states versus non deposit states. And I don't really want to the Get on one side or the other of that issue because some of our customers have strong feelings of that. However, my view is if we're going to have deposits for aluminum You better start having deposits for everything else that goes into the waste stream.
It's not fair to pick on 1 substrate. The Okay. What is Brown doing? We sponsor a number of efforts the around the organization nationally and internationally and we do it not only individually as a company, But we do it in coordination with the Can Manufacturers Institute as well.
Okay, fair enough. Thanks, Tim. Thank you. Good luck in the second half.
The Thank you.
Thank you. The next question is from Neel Kumar of Morgan Stanley. Your line is open.
The Great. Thanks for taking my question. In terms of the 18% segment volume growth year over year in Americas Beverage, Could you just break down the volume growth in North America, Brazil and Mexico? And then in North
America, Mexico? Yes, I could. I think the You're going to have exceptional numbers in Mexico and Brazil because Those markets were so depressed last year in the that was the COVID quarter and many of our the alcohol customers were shut down. The cans those some of those a lot of those cans were made, but they were sold in North America. So I would say the North American number the In the high single digits, the Mexican and Brazil numbers, high double digits.
And when I say high double digits, I mean high double digits.
The Okay. As we said
earlier, Neil, as I said earlier, I don't want to characterize some of the growth rates the In the second quarter is meaningless, but when we start seeing numbers like that, they're somewhat meaningless because of what the COVID quarter was last year.
The Right. That makes
sense. Here's what I'll tell you. If we looked at the first half of the 21 versus the first half of twenty nineteen. Mexico and Brazil are up the High single to mid double digits in that period, so growth still quite high. And North America, up more than 20% over that period.
The It's just a I think it's a more relevant measurement period than comparing against the Q2 of last year. The Or we can sit here and talk about unbelievable growth rates that mean nothing because you can't model them forward.
The Right. That makes sense. And then just in terms of beverage can imports, the I know you mentioned that crowns that are in imports are a bit lower than last year, but it seems that imports for the overall industry are up significantly year to date.
The So I was just wondering if you
had an estimate of how many cans could potentially be imported this year versus 7000000000 to 8000000000 cans imported last year. And are you seeing any evidence of beverage customers having to intermittently source cans from abroad as you and the other large producers are generally sold out?
The Yes. So if I I didn't mean for you to think that we're importing a lot less cans. We're importing a lot of cans this year again, Slightly below what we imported last year. So I don't know what the the Industry imports where last year you mentioned number of $8,000,000,000 If that's the case, we probably imported 25% of those. I can't tell you the What the other guys did, but we're still importing an extraordinary amount of cans this year.
There are customers out there trying to the Make their own deals to import cans because we and the other global manufacturers, there's only so much we can do.
The Great. Thank you.
Thank you.
Thank you. The next question is from Alton Stomp of Longbow Research. Your line is open.
Great. Hi, Tim and Tom. Thanks for taking my question. Of course, I mean, you guys pretty much beat every segment versus the But the big surprise to me was European bevcan volume number and particularly the first half of twenty nineteen being it's almost as strong as America's. I guess, what drove certain region where you are seeing strength to drive that huge growth of the Mid teens versus first half of 2 years ago.
So well, the There is growth in the market. And even prior to all this beverage can euphoria, there's been consistent 3% to 5%, 4% to the 6% growth across Europe year in and year out for the last decade or decade and a half. Couple that with we have the Installed new capacity throughout our European operations, although we don't have anything announced right now. The Between 2019 and today, we put a new 2 line camp plant in Valencia, Spain and a new one line camp plant in Parma, Italy. The So we have new capacity.
So that would be the specific to Crown, that'll be the reason why our growth numbers are pretty high compared to the first half of twenty nineteen.
The Great. Makes sense. And then just as you just referenced, you obviously haven't announced ag capacity. I guess how soon might that be coming? Or how big the next 12 months to add capacity in Europe in your view?
I don't we'll I don't want to the I guess we're not going to talk about that right now. We'll let you know in due time.
Okay. Makes sense. Thanks guys.
Thank you.
The Thank you. The next question is from Anthony Pettinari of Citigroup. Your line is open.
Good morning. The quarter. At the Analyst Day, you talked about expectations to grow global beverage can volumes, I think, by 10% 2021. I think in your response to Jeff, you talked about maybe being able to grow 13% plus, if I heard that right. The So that's the first question.
And then to the extent that there has been that change in view, is it primarily driven by better than expected the demand or is it really driven more by better operations in terms of getting some of these plants up earlier than expected and running well?
The Well, so what we said was, I think Jeff was asking the rate of growth in the Q2 versus the Q1 and what we said was the the quarter was up about 20% and year to date June were up about 13% or 13.5%. So clearly the second half second quarter had higher growth the Q1, some of which is due to COVID. I still think we're going to grow in the 3rd Q4, but those growth rates the Q3 will not match the growth rate in the Q2 because of the comparison to COVID. So I think perhaps the On a global basis perhaps 10% or 11% is still a reasonable number.
Okay. The Okay, that's helpful. And then we've read about increases in construction costs, whether it's materials or steel or labor. The When you look at the cost of constructing and staffing a greenfield bevcan plant maybe compared to a couple of years ago, Is it up 10%, 15%? Is there any kind of rough any kind of color you can give us on that?
And then In terms of impact or risk from rising construction costs to CapEx guidance and maybe the longer term CapEx goals that you articulated at the Analyst Day, any thoughts there?
The So where we sit today and it's plant specific because it's the We expect some of this will I don't know if the steel guys are at their apex yet, but they might be at their apex. But as we sit today, the If I sat down to sketch out a plant cost today versus what we thought a plant was going to cost us to build 2 or 3 years ago, It could be 20% to 25% higher today than it was 2 or 3 years ago. I don't think we're going to stay at that level over the next several years. So I don't the I think we need to adjust our long term capital planning to take that in the account. I think we're going to get a reversion on some of that.
The The risk to the company by spending an extra $30,000,000 or $40,000,000 to build a factory today versus the 2 or 3 years ago, I think you need to look at that risk over a 40 to 50 year period because when you build a factory for beverage cans, the You plop it down in a place and as we've said before, it's not like moving a call center, right? It's not like moving all you fellows out of the New York City to Hoboken. You're not going to move a can plant. So that plant is going to be there for 40 or 50 years. So we're not going to get overly excited.
We don't like it, the But we're not going to get overly excited nor change our strategy as relating to trying to service our customers.
The Okay. That's extremely helpful. I'll turn it over.
Thank you.
Thank you. The next question is from Adam Samuelson of Goldman Sachs. Your line is open.
Yes. Thank you. Good morning, everyone.
Good morning.
A lot of ground has been covered. I really just want to clarify. The So on the guidance, in one of your earlier comments, you mentioned that about $0.20 of the 25 percent, so the increase in the implied second half guidance is really a reflection on the treatment of the divestiture and the timing impact. And then separately, you just said that the In May, you talked global can volumes for the year would be up 10%, and you thought that was still the A pretty good ask of maybe 10 to 11. I'm just trying to make sure I'm characterizing that right, especially given the magnitude of the 2nd quarter outperformance.
And so is the view, have you tempered your second half volumes if you exceeded the full year range by so much in the Q2? Just trying to make sure I'm Comparing apples to apples there.
No, but the comparisons in the second half are much different than the comparisons in the first half, specifically the second quarter, right? The You've got growth rates in some of the locations that were severely impacted by COVID last year in the second quarter. The You're not going to have those same growth rates in the second half because those markets came back in the second half of last year. So the While there's still going to be very good growth in the second half, you just can't have another COVID quarter nor do we want another COVID quarter.
The That I get. I just maybe frame differently then. Is it that in the guidance that you've given for both the Q2 and frankly for going back to the Q1, which you meaningfully exceeded in both cases, is the real variance you had left a good amount of kind of volume contingency the out of your formal guidance because you were uncertain about the macro and ultimately mobility was good, demand was good and operations the Ran well that you were able to outperform your initial expectations in both the first and second quarter?
The Yes.
I think
we're doing our best to bring capacity on the As quickly and as efficiently as possible, it's and if we're up 13.5% through 6 months, the Maybe for the full year, we're going to be up 11.5% or 12% or 13%. As I sit here today, I'm telling you 10% or 11%. It just the It really depends on how quickly we can get the capacity up and running and how efficient the factory is when it comes up and running. We have a lot of capacity coming up the In the second half and I have no doubt that whatever we bring to market we're going to fully sell out. It's just it's a function of how quick we can get it up.
The thank you. Any additional questions, Adam?
Sorry. Yes, that's very helpful. Thank you very much. Thank you.
The thank you. The next question is from Adam Josephson of KeyBanc. Your line is open.
Thanks. Tim and Tom, good morning.
Hope you're well. The Good morning, Adam. Thank you.
Just a
couple of guidance questions. Tom, just on the buyback, can you clarify what you're expecting to buyback this year? Is Is it just the $3.79 or an amount significantly greater than that as part of your full year guidance?
The As Tim was saying, we're kind of solving for the leverage. So we want the leverage to be 3 to 3.5, pick the midpoint of that. The We'll buy back stock such that we're about 3.25. So the $379,000,000 there will be more to come as we go through the last 6 months.
Got it.
Okay. And Tim, on the 3Q guidance, it's a similar question to what came up on the last call, which is normally your 3Q earnings are higher than your 2Q earnings. I know you're losing a few cents, I assume, in September from European the presumed absence of European template. The Can you just again remind me or help me understand why the implied sequential earnings decline? I know you said the You think you'll have some production constraints, which I think you thought as well going into the Q2.
You talked about inflation, but the I think you also talked about inflation your expectation of inflation last quarter and obviously you ended up beating your guidance quite significantly. The
We've modeled and given you a forecast assuming we keep European tinplate through August. The For most of you who followed us for some time, you know the European food business is heavily weighted to the 3rd quarter and it's Heavily weighted to September. So that is a fairly good sized number. The I think that as we sit here, there are areas where the Inflation, there is inflation in the business and it will take us until we get the contract risers the opportunity to do that next year to recover that. And I hope we're being a bit cautious, but we'll see, right?
It's just the As I said earlier, one of the big things Adam is that the available capacity in the 3rd quarter the To outperform what you or I would forecast the available capacity is lower because you've already built into your forecasts the That you're going to sell everything and more that you can make in Q3.
Got it. I appreciate that, Tim. And just longer term one on CapEx. So I think you talked the It's about $900,000,000 this year and obviously you just announced new plants come 2023 ish. The Is there any reason to expect a decline in CapEx from this year's presumed levels of $900,000,000 over the next, call it, the 2, 3 years.
So I think there's I think as I sit here today, I could comfortably tell you that we expect to the We spend similar or more next year. Beyond that, my crystal ball is not that good. So we'll see.
The And Tim, just one last one on the cash flow issue. Just given the new assumed closing date of the end of the deal. Any thoughts on what your cash flow might look like? I know working capital is going to be messed up. There are other issues that are going to be messed up, but Any thoughts on what cash flow is likely to look like given these myriad issues?
Yes. So Again, the food business, a lot of shipments over the summer and the The cash flow is lower because you lose the earnings from the business for the last 4 months. Not only that, but the The working capital true up with the buyer happens within the purchase price mechanism not through the cash flow statement, not through free cash flow. The So I think, again, I don't like to use the term meaningless, but it's not something that's meaningful for modeling purposes going forward.
The Right.
Appreciate it, Tim. Thank you.
Thank you.
Thank you. The next question is from Phil Ng of Jefferies. Your line is open.
Hey guys, thanks for squeezing me in. I guess you mentioned Tim, your outlook for next 24 months a bit more bullish than you previously thought. It sounds like maybe a little less worried about the reversal from a reopening dynamic, but any more color the on why you're a little more upbeat than you were call it 3 to 6 months ago on the demand side?
Well, two reasons. The The one is that the customer requests for cans have not subsided at all. In fact, they're increasing. The And the level of imports that we and others are bringing in again are not really subsiding. And the Just as we talk to customers and you think about what a reopening might look like or a delayed reopening might look like, the It just gives you a little bit more confidence that even in a full reopening, it's the The growth rates are going to far outweigh any impact from a reopening.
Got it. Were there any pockets that were more stronger, a bigger contribution. Is it any of these new products that we might not be as close to? The spec seltzer seems to be it has moderated a little bit and maybe the reopening piece. I'm just trying to flush out what are there any variables or your customer base where you've seen a little stronger demand than you previously expected?
The Yes. So obviously, they're not going to have the same growth rates that they've had in the past, right? They've had tremendous growth rates, but they're growing off the a much larger base. So from the standpoint from a can company standpoint, there's still significant unit volume growth. The Sometimes we get hung up on growth rates and we forget about absolute unit volume growth and the contribution we get from that.
The The demand has been across all products. The Without saying something I don't want to say, I'll just leave it at that.
Okay. That's helpful. And then when we think about the back half of the your guidance, a few of my peers have just mentioned that maybe the guidance looks a little more conservative and there's different reasons why You're accounting for that. And you mentioned maybe the capacity constraints provides a little more limitation for big upside surprises like we've seen in the first half. Appreciating you have some of that capacity coming on later this year.
But when do you kind of expect that capacity kind of hit its full stride where you would have more optionality the early next year, but just any more color around that would be really helpful.
The I'd like to think we're and we are getting better and I'd like to think we are getting better at bringing lines on the And getting up through learning curve quicker and better than we have in the past. I think we are doing that. We have the Some locations around the world that do it much better than others. So far it feels like the first line in Bowling Green is going real well. The Now are they able to continue that advancement through learning curve as well as they're doing on the first line when you the complicate the plant and you bring up the second line at the same time we'll see.
So typically we like to tell you that it takes us about 12 months to get through full learning curve.
Some of the factories do better
as I said and the Please do better, as I said. And the only thing I can tell you is I know that all the teams are trying as hard as they can. The
Got it.
All right. Thanks a lot.
Thanks, Phil.
Thank you. Our last question is from Salvator Tieteano of Seaport Research Partners. Your line is open.
Yes. Thanks for taking my question. The Just wanted to check a little bit on the new startups. Firstly, I was under the impression that some of them were scheduled for Q3, so I want to confirm that the They are being delayed by a few months as most of the startups are now in Q4. And secondly, as we think about the startup expenses, the Do you expect most of them to align with the calendar of the start up, say Q4 or with the hiring and training in advance, the Could Q3 include a lot more startup costs than Q4?
How should we think about that?
So you are correct in saying that the There's been a small slippage in bringing some of the factories up maybe a month or 2 from the late Q3 into early Q4. Some of that has to do with raw material supply, building supply. Some of quite frankly has to do with the fact that the We're right in the middle of the season and we're trying not to disrupt the plant from running at the highest efficiencies it can possibly run at. The On startup costs, the only thing I'm going to tell you is we don't talk about the impact of startup costs. The We've been building plants, greenfield plants for well over 20 years.
We've added significant greenfield capacity to our the platform globally in every market. It's something we do and it's just something that's embedded in the forecast that Tom's provided you. So I don't think I have an answer for you as to whether there's more or less. It's part of the business when you bring up factories and the We're going to have enough growth and enough positive things happen that we don't need to talk about the impact from start up costs.
Yes. I guess, I think in the past you the I mentioned also that you do not provide an explicit dollar number. My question here will be more about the timing. As we try to model it on our own and make our own assumptions, Should we think that because these are early Q4 startups that a lot of the startup costs will happen in Q3? Or should we think that no, it's going to February of Q4 regardless of what amount we
don't have. If you're going to model it, if you're starting to plan up the In Q4, you're going to have a little bit of training and other expenses in Q3 and then you're going to have some as the plant comes up through learning curve, the You've got significant expenditures in Q1 and Q2 until you get the breakeven. And that's just all part of the number the That you're seeing. I let you guys model how you want to model.
Okay, perfect. Thank you very much.
The conference call.
Thank you. So Harley, I think you said that was our last call. Thank you very much, Harley. And the For all of you, that will conclude our call today. Thank you for joining us.
We look forward to speaking with you again in October. Bye now.
The conference
call. Thank you, speakers. And that concludes today's conference call. Thank you all for joining. You may now disconnect.