Greetings, and welcome to the Ball Corporation First Quarter 2024 Earnings Conference Call. As a reminder, this conference is being recorded.

Thanks, Christine. Good morning, everyone. This is Ball Corporation's conference call regarding the company's first quarter 2024 results. The information provided during this call will contain forward-looking statements. Actual results or outcomes may differ materially from those that may be expressed or implied. Some factors that could cause the results or outcomes to differ are in the company's latest 10-K and other company SEC filings as well as company news releases. If you do not already have the earnings release, it is available on our website at ball.com. Information regarding the use of non-GAAP financial measures may also be found in the notes section of today's earnings release. In addition, the release includes a summary of non-comparable items as well as a reconciliation of comparable net earnings and diluted earnings per share calculations. References to net sales and comparable operating earnings in today's release and call do not include the company's former aerospace business, year-over-year net earnings attributable to the corporation and comparable net earnings do include performance of the company's former aerospace business through the sale date of February 16, 2024. I would now like to turn the call over to Dan Fisher, CEO.

Thank you, Brandon. Before we discuss Ball's strong earnings and improved volume performance, I would like to thank all of the Ball team members that worked tirelessly to achieve the successful aerospace business sale on February 16, 2024. Sale proceeds were immediately put to work to reduce our leverage, strengthen our balance sheet, and return value to shareholders. In addition, I would also like to share that Ann Scott has announced her retirement as Head of Investor Relations after 37 years with the company. Just this week, Ann's first grandchild, Isabella Ann, arrived safely into the world. Needless to say, we all know what Ann will be doing in retirement: babysitting, golf, and being a lifetime Ball cheerleader. Ann will provide behind-the-scenes support to Ball through the end of the year. So as she winds down her time as a full-time employee, feel free to extend your well wishes via her Ball email. As you can tell from our call introduction today, our Investor Relations succession plan has been activated with Brandon taking the lead as the head of the department. Congratulations to Ann and her family on the new grandbaby, her well-earned retirement, and for your support of Brandon and Miranda as they take the next steps in their careers at Ball. Today, I'm joined on our call by Howard Yu, EVP and CFO. I will provide some brief introductory remarks. Howard will discuss the first quarter financial performance and key metrics for 2024 and then we will finish up with closing comments and Q&A. Our team delivered strong first quarter results following the successful and earlier-than-anticipated sale of the aerospace business during the quarter. Global beverage can shipments increased 3.7% in the quarter, and we immediately executed our plans to deploy sale proceeds to deleverage and initiate a large multi-year share repurchase program. Reflecting further on year-to-date 2024 performance, aluminum packaging continues to outperform other substrates across the globe. In North America and EMEA, first quarter volumes exceeded our internal expectations as customers pulled forward volume in preparation for the summer selling season, following notable fourth quarter 2023 destocking. In South America, strong volume performance driven by our customer mix and warm weather continued in Brazil. For a complete summary of regional shipments for the first quarter, please refer to today's earnings release. Given seasonality, our customer mix, and incorporating first quarter regional volume performance, we anticipate full year global shipments to grow in the low to mid-single digits range. Key drivers in 2024 are the benefits of deleveraging, repurchasing shares, improving operational efficiencies and fixed cost absorption, and leveraging our well-capitalized plant assets to grow the use of innovative, sustainable aluminum packaging across channels, categories, and venues. In addition, to further actions to strengthen the balance sheet and reduce long-term liabilities. Based on our current demand trends and the previously mentioned drivers, we are positioned to grow comparable diluted EPS mid-single digits plus off 2023 reported comparable EPS of $2.90 per share, generate strong free cash flow, strengthen our balance sheet, and return value in the range of $1.5 billion to shareholders via share repurchases and dividends in 2024. We look forward to showcasing our team and unveiling our future operating model and long-term growth plans at our biannual Investor Day scheduled for June 18 in New York City at the New York Stock Exchange. With that, I'll turn it over to Howard.

Thank you, Dan. Turning to our results. First quarter 2024 comparable diluted earnings per share was $0.68 versus $0.69 in the first quarter of 2023. First quarter sales decreased slightly due to the pass-through of lower aluminum prices and lower volumes in North America, offset by the pass-through of inflationary costs and increased volumes in South America. First quarter comparable net earnings of $217 million were flat year-over-year, primarily due to improved year-over-year performance in North America, EMEA and South America, offset by lower year-over-year results in non-reportable other, which were driven by improved comparable operating earnings in our aluminum aerosol business, being more than offset by non-comparable SG&A costs associated with the aerospace sale and higher year-over-year undistributed costs, which are detailed in footnote 2 of today's release. In North America, segment earnings exceeded our expectations and offset notable year-over-year headwinds associated with the U.S. beer brand disruption and the favorable benefits of the virtual power purchase agreement termination. The earlier-than-anticipated closure of Kent plant, which permanently ceased production during the first quarter, also aided results and supply-demand balance across our system. Benefits of effective cost management and plant efficiencies across our well-capitalized plant network will support incremental volume growth without spending incremental growth capital. We continue to anticipate sequential earnings improvement during the seasonal summer quarters, driven by modest volume improvement, improved fixed cost absorption, and effectively managing risk. In EMEA, the business continues to navigate varying consumer end demand conditions, particularly in Egypt. Overall, segment volumes were up slightly in the quarter following notable destocking by certain customers in late 2023. In recent weeks, demand trends have remained favorable, and the business continues to be poised for year-over-year comparable earnings growth in 2024, oriented largely to the second half and driven by volume and mix. In South America, our segment volumes increased 26.3% in the first quarter, driven by strong demand in Brazil and our customer mix. The Brazilian can market was up 18% in the first quarter. We continue to monitor the dynamic economic situation in Argentina and potential scenarios that could impact results. We remain optimistic about Brazil and our ability to deliver sequential earnings and volume improvement as we exit the summer selling season in South America. Additionally, in the first quarter of 2024 and up through the February 16 date of sale, our former aerospace business made $27 million of comparable operating earnings, which is included in the comparable net earnings of $217 million that I referenced earlier. Moving on to additional key financial metrics and goals for 2024. We now anticipate year-end 2024 net debt to comparable EBITDA to be below 2.5x. While we are currently at 2.2x at the end of the first quarter, net debt to comparable EBITDA will nudge slightly higher by year-end as the company starts payments of tax due on the gain of the sale of aerospace. 2024 CapEx is targeted to be in the range of $650 million, a year-over-year reduction of $400 million and largely driven by carry-in capital related to prior year's projects. We are on track to achieve our free cash flow target. Share repurchases are expected to be in the range of $1.3 billion by year-end. Through today's call, we have repurchased approximately $350 million in shares year-to-date, and earlier this week, the Board increased the share repurchase authorization to 40 million shares. The new authorization replaces all prior authorizations. This increased authorization will enable meaningful share repurchases during 2024 and beyond. Our 2024 full year effective tax rate on comparable earnings is expected to be approximately 21%, largely driven by lower year-over-year R&D tax credit associated with the sale of the company's aerospace business. Relative to the estimated tax payments due on the aerospace sale, the approximate $1 billion in taxes due will be paid throughout the remainder of 2024. Full year 2024 interest expense is expected to be in the range of $320 million. Excluding the non-comparable aerospace disposition compensation costs, full year 2024 reported adjusted corporate undistributed costs recorded in other non-reportable are still expected to be in the range of $85 million. And earlier this week, Ball's Board declared its quarterly cash dividend. Looking ahead to the rest of 2024, we remain laser-focused on operational excellence, driving efficiency and productivity across our business, and cost management while monitoring emerging market volatility. We are committed to maximizing the full potential of our company over the long term. We have executed on derisking the corporation through recent debt retirements, and we have no significant near-term maturities. The runway is clear for us to activate near-term initiatives to consistently deliver high-quality results and generate compounding shareholder returns. With that, I'll turn it back to Dan.

Thanks, Howard. Given the strong start to the year in 2024, we anticipate growing our comparable diluted EPS mid-single digits plus by offsetting the divestiture through growth in our aluminum packaging operations, interest income, lower interest expense, and the benefit of a lower share count. Looking ahead, we are focused on executing our enterprise-wide strategy to advance sustainable aluminum packaging solutions on a global scale by accelerating our pathway to carbon neutrality and unlocking additional value from within the organization by driving continuous process improvement and operational excellence. Together, we will strive to deliver innovative aluminum packaging solutions that can lead to a world free from waste and embark on a path to deliver compounding shareholder returns in 2024 and beyond. We very much appreciate the work being done across the organization and extend our well wishes to our employees, customers, suppliers, stakeholders, and everyone listening today. Thank you. And with that, Christine, we are ready for questions.

Our first question comes from the line of Ghansham Panjabi with Baird.

First off, obviously, congrats to Ann, a huge resource for all of us and more importantly, a real class act and also our congrats to Brandon and Miranda also.

Thank you for that.

Yes. So I guess, maybe, Dan, you could start off with just the updated thoughts on the outlook by the various regions. And obviously, there's lots of issues with comparability and customer issues and so on and so forth. So what do the markets feel like at this point?

Yes, good question. I think South America, we saw the strength in the fourth quarter carried over in the first quarter, and our partner did kind of win today in the market down there. So a really good start to the year. I think as it relates to Brazil, I think that economy continues to incrementally improve. We took a little bit of the refill glass back that we've talked about, we lost over 18 months in sort of that higher inflationary environment. So that's positive. So that's inflecting in the right direction. I think we'll probably increment higher this year versus our outlook in Brazil. And then Argentina is hanging in there. Howard and I were down there about 4 weeks ago. They're having a good crop. They'll get the proceeds from selling those agricultural commodities around the world here in the next couple of months, and then that should unlock some of their FX policies, which will certainly benefit us and derisk the balance sheet in that part of the world. Yes. So we're seeing growth. We're seeing slightly ahead in South America, writ large, that's the only country that's probably flattish to a little negative versus our going-in assumptions was Chile, but it's really negligible in the grand scheme. As you know, it's really all about Brazil. And that's in a really good spot. Europe, we saw growth ahead of what we anticipated. A couple of things are working in a favorable manner versus where we entered the year in terms of our assumptions. Number one, there was more destocking, I think, in Q4 across Pan-Europe, and I think some inventory levels got to a better position and look a lot closer to where they were heading into or prior to COVID. And then we're starting to see some pickup in the beer section in particular. So folks are going for volume a bit more than even we anticipated heading into the year in Europe. So that outlook looks great. And then the watch out, of course, is going to be what happens in the Middle East and how that influences energy prices and the end consumer. But all the underlying parameters are slightly ahead of what we assumed heading into the year. So we're encouraged. Let's see how we get on in peak season. And then Q1, I think, is the most challenging to architect and explain because of the year-over-year comparability. But the pull forward into Q1 from Q2 for us had a lot to do with one major brewer that was dealing with labor negotiations. And so we had to build some safety stock to potentially navigate some challenges there. So think in the area of $15 million to $20 million was pulled in from Q2 into Q1 versus our original assumptions. The balance of it, though, Ghansham, is you're really starting to see all of the structural changes and effects that we've made over the last 18 months. So we've rightsized operations, but more importantly, we've taken the higher-cost facilities out. And so as you get volume running against a more productive and efficient portfolio, you're starting to see those benefits.

Okay. Very comprehensive. And for the second question, it's really two parts. One is just a clarification. In Note A, you called out $17 million of corporate interest income. What does that refer to first off? And then second, the $5.5 billion or so of net proceeds from the sale, it looks like net debt is down $3.8 billion sequentially, a couple of hundred million for share buybacks. And I see the working capital, but I'm still having a tough time reconciling to that $5.5 billion or $6 billion. Can you help with that also?

Sure.

Yes, this is Howard. The interest income is specifically tied to the cash we have on hand, which amounts to over $5.5 billion. This contributes to the increased interest income we are seeing. As it relates to...

Is that included in EBITDA, sorry to interrupt, but...

Yes, yes.

Yes. In the corporate line, that's right.

Sorry, go ahead.

Yes, we expect to have paid down about $2.8 billion in debt. Initially, we thought the aerospace division would be closed after March 15, which led to a Euro-denominated debt that was due in mid-March. We paid that down. When you combine this with the $2 billion in proceeds we previously mentioned, it explains the $2.8 billion debt reduction, including the elimination of some short-term debt and revolving credit. With the cash we have, we also plan to reduce some interest expenses. Additionally, we discussed a $2 billion share repurchase program over the next couple of years. Initially, we targeted about $1 billion in share repurchases for 2024, but due to the timing of the sale, we are now aiming for around $1.3 billion in buybacks for 2024, in line with the Board's recent approval for repurchasing 40 million shares. Regarding capital expenditures, we foresee that amount being around $650 million for the year, which aligns with our previous statements. Our interest expenses are expected to be about $320 million, which is roughly $10 million better than our prior estimates, influenced by the early timing of these transactions.

Our next question comes from the line of Anthony Pettinari with Citi.

Congratulations to Ann and to Brandon and Miranda. I think I can't say enough good things about Ann and the job that she's done over the years. So congratulations. Just looking at North America, I think if you back out the energy benefit from last year, EBIT was up almost 25% on kind of flattish or down volumes. You talked about the fixed cost reductions from plant closures. I'm just wondering if there's anything more than that or any kind of finer point you can put on that in terms of the cost that you've been able to take out as sort of the operational performance within North America?

I will take a shot at this and then ask Howard to contribute. I believe it's twofold. Yes, it's related to the fixed cost absorption due to the recent closures of facilities and the improved performance across the portfolio. We've mentioned this before. Compared to five years ago, we have lost a couple of points, possibly three points of efficiency across our North American assets, but now we are making up for that. You are witnessing the combination of fixed cost advantages from the plant closures and the higher-cost facilities, along with the fact that we are operating more effectively. Many employees who have been with us for two or three years at several of these plants are now performing better. So I think it’s this combination. As for one-off situations, no. There are always a few positives and a few negatives, but overall, it’s really about the underlying performance of the facilities in the region. They are doing an excellent job.

Got it. In South America, you achieved impressive results with volumes increasing by 26%, but EBIT only growing by 10%. Could you discuss the price-cost dynamics in South America or why EBIT growth is lagging? Is this related to Argentina, or can you help us understand this better?

Yes, sure, Anthony. Let me address that. I believe South America was in its peak season. We mentioned in the fourth quarter earnings that Brazil performed very well during that time. It's important to consider the entire season as the mix and timing can change. In the fourth quarter, we saw low single-digit growth of around 2% to 2.5%, with operating earnings increasing by 60%. When combined with the current quarter, which had 26% volume growth and 10% operating earnings growth, we see a holistic view where we are up about 12% overall and over 40% in operating earnings across both quarters. The mix related to cans and ends will certainly influence these results, especially in South America, and we are observing that trend. So, I approach this by considering the overall busy season and its successful outcomes.

In the simplest way, we've talked about this for years and years. And can and end shipments, right? So we ship more ends in the fourth quarter than we did in the first quarter. So the balance of the entirety of the portfolio, really, that's where the volatility lies in terms of leverage, deleverage. It's not isolated within the quarter. You kind of have to look at it throughout the entirety of peak season. And that's the overwhelming gist of it. So we're happy with the leverage fall through over the six-month period.

Our next question comes from the line of Arun Viswanathan with RBC.

Just wanted to get your thoughts on how volumes in North America should evolve now that you're anniversary-ing the Bud Light situation. We've also heard of some share shifts within the industry. So yes, maybe you can just kind of give us your thoughts and if there's any category discussion that would be helpful or promotional kind of view as well.

Yes. We've discussed the share shift from one brewer totaling about 2 billion units, which has already impacted our numbers. We lost that volume, and several competitors gained from it. However, we have a plan to recover this year. Initially, we expected to see negative results in the first quarter due to the significant brewer disruption and the resulting volume dislocation. Nevertheless, we've secured some substantial new business, and you can anticipate that starting to materialize in the latter half of the year. Our aim is to stabilize in North America. The 2 billion units have been picked up by competitors, and we're planning for a similar volume increase in the latter half of the year. The specific volume size and mix will play out over the next few quarters, but you should notice a gradual increase in volume throughout the year in North America. We believe the industry will grow between 1% to 2%. The beer category is somewhat weaker, while CSD is performing slightly better. The mix will be important, and energy drinks continue to show growth. Promotional activities during peak seasons and the overall health of consumers will influence whether we land at 1%, 2%, or slightly above or below those figures. Regardless of these fluctuations, we feel confident about our operating earnings and cash generation.

We've noticed some fluctuations in aluminum prices. Can you discuss how this might affect you in the future? I'm unsure about your customers' situations; I believe some have hedging programs, but could this also influence demand if they decide to increase prices to offset inflation? Particularly in Europe, I'm curious if there are potential challenges from the metal premium pass-through. How would you assess this in light of the improving supply-demand situation in Europe?

Yes. I think it's probably much ado about nothing at this point. We're coming off of incredibly low aluminum prices right now in a historical context. That seems to be the preferred package. There's a shift toward that in a number of parts of Europe. I guess the watch out is what's happening in the Middle East, right? I mean is that going to inflect significantly energy prices. Some mills and some aluminum are protected because it's nuclear power or it's tied up with other energy sources that aren't fed out of that part of the world, but it's certainly something that would impact the end consumer, not our customers' behavior patterns at this time. We're not having any conversations that would give us pause or concern. In fact, it's just the opposite at this point. They're more aggressively going in and working on taking share and are using the can to do that. So I think it's a watch out. It always is, but what we're seeing right now is not of a concern. And overwhelmingly, what everybody has learned, to your hedging question in particular, I think folks got caught a little upside down over the last 2 to 3 years in some instances. And I think they paid a lot more attention to hedge strategy and kind of protecting where they are. If they locked in hedges, they'd be locking in those hedges at kind of all-time low levels. So I'm a little bit more encouraged by the structure of the industry and the behavioral patterns. And then obviously, the watch out is what's going on in the Middle East and does that have any impact.

Great. And congrats again to Ann and Brandon as well. Definitely, we'll miss speaking with her and getting her perspective.

Our next question comes from the line of George Staphos with Bank of America.

Thank you for the information. I want to echo what everyone has said and extend my congratulations to Ann, not only on your grandchild but also for being such an invaluable resource to us over the years; you are truly a legend in the industry. I also want to congratulate Brandon and Carmen on their expanded roles. Regarding operations, Dan, you mentioned that you are still working to regain the 2% to 3% operating efficiency loss experienced over the past few years. Can you update us on your progress in that area, excluding the benefits from the plant closures? Additionally, could you provide one or two examples of how lean practices or benchmarking are being reflected in daily operations?

Yes, we've received the latest numbers, and we have gained about 1% of the 3% efficiency we lost. The improvement is primarily evident in reduced overtime and spoilage. The older assets that were retired have contributed around 80% of this improvement. I believe we have just started to tap into the remaining 2% to 2.5% across our current portfolio of new assets. There is still room for growth, which is significant when considering roughly 50 billion units. We are in the early stages of this process. However, it's important to note that volume needs to increase for these efficiencies to materialize, and we are seeing some positive changes in the latter half of the year. We expect continued improvement and will provide more details at our Investor Day regarding our operating model, where we can offer a more in-depth analysis than in the past. I would estimate that we have closed facilities to achieve 1% of the 3%, and now we need to focus on optimizing the remaining assets to make further progress. We are in the early stages, but we are seeing incremental gains.

Okay. I mean, I guess, we'll talk about it in June, but a pushback could be, okay, well, you got 1 point because you shut a facility and then the remaining 2 or 3 is going to be tougher to get at because it's got to come from ongoing. So do you have any comment on that? That would be great, if not, we can stay with the June.

I would say no, that's not true. It's going to be easier because we have about 1,200 new employees with three years of experience who are learning how to make cans. This is an incremental step in terms of the learning curve, similar to what we've experienced during previous 18 to 24-month ramp-ups on facilities. If we stay focused and avoid attrition at the levels we faced during COVID, we will see progress in a methodical, pragmatic, and prescriptive manner. I'm optimistic that we will recover this within the next 18 to 24 months.

Next question. In Brazil, following up on what Anthony mentioned, were there any operational challenges regarding the lack of profit leverage compared to volume leverage? I understand you suggested looking at it in a broader sense. To your knowledge, did you lose any market share with any customers during a quarter where you experienced an 18% growth, or whatever the specific figure was for different customers or markets? The likely answer is no. However, were there any operational issues we should be aware of? Were there any customer losses, or did things proceed as anticipated in the quarter for South America and Brazil?

Yes, thanks. Brazil grew by 18%, while we grew by 26%. So we didn't lose any market share; in fact, we gained share positions. To clarify, the sales were weighted more heavily in the fourth quarter compared to the first quarter. That's the situation. We shouldn't have seen a 60% earnings increase with only 2% growth in the fourth quarter. If you take into account the end issue, which we've discussed many times, it can be inconsistent but very profitable due to the tax structures there. That's the situation. Nothing fundamentally has changed. It's not like Argentina or affected by pricing mechanisms or contracts. All of that is quite stable. It's just a natural fluctuation in the end metrics.

Understood. I have two quick points. First, regarding the aluminum question, I acknowledge the concerns, but it doesn't seem to be a major issue for you. Over the past few years, you've likely been addressing supply chain challenges, as evidenced by the significant aluminum inventory in warehouses that may be unusable due to sanctions. What risks do you foresee and how are you preparing for potential mill disruptions globally to avoid any price spikes or shortages in aluminum and can sheet? Secondly, could you provide some additional details on the payout linked to aerospace sales? Congratulations on the favorable valuation, but what contributed to that figure? Congratulations on the first quarter.

Thank you very much. We've learned a lot. My answer might be a bit lengthy regarding our approach to managing price costs, risks, tariffs, and sanctions related to our inventory supply. We've improved significantly since the tariffs were implemented in 2016. We have 21 different metal programs in place. For metals subject to sanctions, we're not shipping them to countries where that issue is even under discussion. We are directing our shipments to places where they can be utilized, maintaining trade relations with countries that might have concerning trade routes or unintended consequences related to those subjects. We have been actively managing these risks and have gained a solid understanding of the ongoing conversations, allowing us to stay ahead of potential issues. As a result, this is less of a concern now. I agree that a few years ago, we spent a disproportionate amount of time dealing with these challenges because they weren't part of our operational mindset or management process. However, I feel we have this well under control now, though I acknowledge that the global landscape can change unexpectedly, and we'll need to remain vigilant. Currently, I would categorize this as a very low risk regarding how we are managing our portfolio. I will now turn it over to Howard for additional insights on the proceeds comments.

Sure. So I think, first and foremost, George, that is a non-comparable compensation component associated with the aerospace sale. Part of the variable performance-based compensation plan for Ball employees. I think the way we think of it is the magnitude of the impact of this disposition causes the expense to be not normal. And so we've recognized approximately a $4.7 billion gain on this disposition which is unprecedented, of course, and not likely to ever recur. And so for that reason, we're treating that as a non-comparable compensation component associated with that.

Our next question comes from the line of Edlain Rodriguez with Mizuho.

Congratulations to Brandon, Miranda, and Ann; we will miss you. A quick question about Europe. It's clear that the year has started off better than expected. Are you noticing any fundamental improvement in consumer spending? We've heard that things are improving considerably. What surprised you, and what are your observations?

I believe the situation is twofold. I wouldn't say that consumers are spending more. There’s a dynamic at play between inflation and payroll that is affecting volume, along with the promotional activities for our customers. Additionally, at the end of Q4, many retailers and customers had to deal with an unnatural inventory level, which they have since begun to adjust. This means that some of what we are seeing from Q4 to Q1 is inventory being restocked to a more standard level. Moreover, certain customers in Europe have adopted more aggressive strategies that have helped increase volume slightly. While the situation is not particularly thrilling, it is better than we had expected at the beginning of the year. However, I would not describe it as an increase in spending in these categories. Instead, there seems to be a shift in preferences, particularly in favor of cans over other substrates. This trend has been more pronounced in Europe compared to other regions, resulting in a significant move away from glass and plastic. We are benefiting from this shift, but I wouldn’t attribute it to increased spending; rather, it’s a favorable mix we are experiencing.

Okay. Makes sense. And another one, in terms of the share repurchase, I mean then, like how do you balance the pace of that share repurchase? Like with your commitment to buy back shares versus like a higher and higher share price. I mean, of course, it's a high-class problem to have, but how do you balance the pace of that?

Yes, Edlain, I think we're committed to getting back to it. I mean, we had, I think, had a pause for a few years as it relates to share buyback, and I think that we've consistently heard from our shareholders as well that returning that in some measurable fashion and on a consistent basis is important. And so we're just starting in this program, right? I think we've mentioned that we bought about $350 million worth of shares here. And we'll be thoughtful, clearly, as to how the stock price is going. And even as it relates to what vehicles we use to buy back some of that share. We do have a long history of utilizing different instruments. I mean the 10b-18 when the blackout is not there and the 10b-51 when the blackout is there, and then we'll look at things like smaller ASRs as well if the volatility and the economics work for us. And so we're looking at all those things holistically in conjunction with the board and we're being thoughtful about them. What we do believe that for this year, we'll spend about $1.3 billion worth of share buyback. Combined with our dividend policy, that will return about $1.5 billion back to the shareholders.

Regarding the elevated stock price, we are quite comfortable buying back our shares at this level. This is something we regularly discuss with our finance committee and our board, and we conduct internal modeling on it. We feel confident in returning value to our shareholders at current levels and even if the stock rises further. It's certainly something we will continue to evaluate. The current trading price makes us comfortable with our buyback strategy. It’s a good inquiry, and we plan to monitor our situation over the next three to six months. We believe it’s our responsibility to provide value to shareholders at the levels we're considering for the foreseeable future. This is a beneficial approach, as we are generating more free cash flow and earnings, and we have sufficient resources to explore opportunities such as bolt-on mergers and acquisitions. We are optimistic that we can manage all of these aspects effectively.

Our next question comes from the line of Adam Samuelson with Goldman Sachs.

Let me extend my congratulations to Ann on her retirement and addition to the family. I wanted to return to the cash flow side. Howard, I would like to clarify that you mentioned $2.8 billion of debt in the quarter, which I believe is higher than what was initially targeted; perhaps there is a timing component to that. Did you also reduce the factoring programs on receivables, or is that a cash outflow that is still pending? There are clearly many moving parts on the balance sheet, and I want to ensure we understand what has occurred and what has not regarding cash flow.

Yes, we retired $2.8 billion of debt, which was higher than the initially targeted amount of about $2 billion. This change was due to the expectation of the sale of aerospace after March 15. On March 15, we retired approximately EUR 750 million in denominated debt, leading to an additional USD 800 million that brings the total to $2.8 billion for the quarter. Regarding factoring, with the cash we had available, we proceeded with it significantly. We executed more of the unwinding in the first quarter than we expect for the whole year, approximately $1.1 billion. However, by the end of the year, we aim to unwind about $0.5 billion of accounts receivable factoring. You will observe some movement throughout the year, especially since we have a $1 billion tax payment due in the second quarter and into the second half of the year.

That's very helpful. If I could follow up by taking a step back, there's a lot going on with the comparable EPS growth from $2.90 last year, which included aerospace earnings. We have debt repayment, interest income, lower factoring expenses, share repurchases, and a slight increase in the tax rate. If we consider the three main beverage can operating units globally, Dan mentioned low to mid-single-digit volume growth. What can we expect regarding operating profit growth in those core business units given that level of growth? In the first quarter, particularly in North America, there was some favorable movement, so please help us understand what the core operating leverage looks like with that kind of volume growth this year.

Overall, we expect to see continued operating leverage, and you will notice this. In terms of EPS, we anticipate mid-single-digit growth year-over-year. The aerospace sale will essentially have a neutral impact on our EPS due to the operating earnings loss associated with aerospace; however, there will be a positive effect from increased cash flow, whether from interest income or reduced interest expenses, as we have retired debt. Additionally, we expect to enhance some of our factoring programs. For the full year, we believe EPS will be neutral regarding the aerospace sales, which we consider in the context of a 2x leverage. This aligns with our modeling and is consistent with what we project for the entirety of 2024.

Yes. I believe the core beverage business is significantly above the historical 2x leverage when excluding the nearly $40 million from the one-time purchase power agreement. It remains over the 2x leverage, with operating earnings from the beverage segment expected to be around $100 million, showing improvement year-over-year, despite the effect of the one-time benefit of $30 million to $40 million.

Our next question comes from the line of Phil Ng with Jefferies.

Congrats on the strong quarter. And like everyone else, I wanted to thank Ann for all her help over the years, and congratulations to Brandon and Miranda as well. I guess my first question is really the free cash flow power of the business, certainly noisy with the aerospace sale this year. Can it be helpful, Howard, perhaps to give us a little more perspective on how you think about CapEx as we look out to 2025 and beyond, maybe 2026? It's been a big growth CapEx cycle. So just give us a little more context on how to think about that, the free cash flow and certainly a high-class problem to have, but how should we think about buyback as well? Pretty steady dose every quarter, more opportunistic if the pullback? Just kind of give us a little playbook and how you're thinking about the pace of buybacks.

Yes, Phil. Let me elaborate a bit. Regarding free cash flow, we anticipate a normalized range of about $900 million to $1 billion. This figure excludes some effects of the factoring unwind, which we previously discussed as being around $0.5 billion. We expect to maintain this level consistently moving forward. Dan has mentioned the strong operating cash generation of the business, which we believe will support share buybacks even in the years you've mentioned. In terms of capital expenditures, our goal is to align CapEx with GAAP depreciation and amortization regularly. I acknowledge that in recent years, CapEx has exceeded this target, but we are returning to a more disciplined approach. We expect this alignment to continue over the next few years. Concerning share buybacks, as Dan noted, we feel confident about the current pricing and will remain active in buying back shares. If opportunities arise due to favorable pricing, we will certainly consider them. Our main message is that we are committed to consistently buying back shares, a practice we had paused for a few years, and we will resume that in 2024 and 2025, with no reason to believe we would stop beyond that.

Yes, Phil, I would say in the simplest manner that we are running our business with the expectation that net income equals free cash flow. I don't want you to think of us as being locked in at $900 million of free cash flow. As our margins improve, we will manage the working capital increase that comes with growth. If you're in that 2%, 3%, or 4% range, you should be able to handle that. We have the capacity to do so. We will experience fluctuations in GAAP depreciation and amortization levels from year to year. However, we should be generating a consistent amount of free cash flow and returning that to our shareholders regularly. Regarding your point, there may be opportunities for us to be more strategic during a market pullback, but you can expect that a significant portion of our free cash flow will be returned to you through dividends and share buybacks, with over $1 billion allocated for share buybacks in the foreseeable future.

Okay. That's great. And Dan, you gave a little more perspective on Europe. It sounds like still kind of a choppy environment, but good to see some restocking. How are your customers gearing up for the busy summer months? Certainly, there are some big sporting events like the Olympics and the Euros and stuff of that nature. Are they gearing up for that? And then I think on your prepared remarks, you made some comment about perhaps Europe's recovery would be more back half-weighted. Give us a little more perspective why perhaps the back half is a little better than the front half?

Entering the year, our focus was primarily on macro factors and the strength of the end consumer. We experienced some benefits from restocking and observed more favorable purchasing behavior from our customers, which helped boost volume. We expected inflation to resurface and anticipated regasification projects coming online, which led us to believe there would be more optimism in the latter half of the year. This sentiment was echoed by our customers. I find the Euro Cup more promising in terms of consumer engagement than the Olympics, as it tends to drive sales more significantly. Our larger beer customers, particularly in Western Europe, have expressed similar views. Overall, the situation remains macro-driven, with positive trends unfolding, though we remain cautious about potential developments in the Middle East that could affect energy prices and the end consumer. Currently, nothing that would negatively influence our outlook is on the horizon. We are seeing stable conditions and beginning to experience better pricing behaviors, along with a stronger end consumer. The shift from glass to cans continues to progress favorably for us. All these small factors collectively suggest a more optimistic perspective for the second half of the year, with no negative influences apparent at this time, and possibly even incremental improvements.

Got it. And then just one more for me. On North America, if I heard you correctly, you had some pull forward earnings from 2Q to 1Q. Do you still expect North America earnings to be up year-over-year in 2Q? And then give us a little update. I think there's been some movement in North America as well with the shelf space reset on the beer side. And one of your larger peer customers, I believe, is still dealing with some ongoing labor issues, I think, down in Texas. Any update on that front and how you're kind of managing that?

Yes. I think that's right, Phil. I do think that year-over-year earnings will still increment upwards here in the second quarter despite some of the pull-in from Q2 to Q1. I think as Dan said, it's probably $10 million to $15 million that improved the first quarter. But despite that, we still anticipate that we'll have some reasonable growth as it relates to operating earnings in the second quarter as well.

Yes. I believe the shelf resets have been communicated effectively. There have been a few companies that have performed significantly better, which we expected in our projections. There hasn't been any major change in our numbers. Even with the shelf reset, the beer category is still declining. It's not just about the category reset; it's more related to beer and how promotional activities are handled during the peak season and whether they will increase volume. We are in contact with our plants in Texas and that particular brewer is managing the situation well, although it is still ongoing. We are collaborating with our partner to maximize our operations and ensure it's managed effectively. This reflects the current environment regarding the strength of unions and the manufacturing sector in general. We also had to coordinate with another major brewer this quarter to address any potential supply chain issues. It seems we are all coming to terms with this being the new normal, and everyone is aligning to have more meaningful discussions regarding contract renewals across the industry to manage them collectively.

Our next question comes from the line of Pamela Kaufman with Morgan Stanley.

This is actually Stefan Diaz sitting in for Pam. And just to echo my colleagues, congratulations to Ann and Brandon and Miranda for the increased responsibility. Now that the aerospace deal is closed and proceeds are in hand. Can you give any details around the potential innovation investments?

Yes, that's a good question. We have a consistent mindset of ongoing investment. This involves a mix of research and development and transitioning that into commercial innovation projects. The opportunities we see vary by region, but a key aspect of our innovation is developing effective packaging and vehicles to tackle plastic waste. Resealability will be crucial, and significant progress is being made by the industry and our customers in this area. These advancements will be major breakthroughs. Additionally, we have some exciting new products in the pipeline, particularly those that leverage substrate shifts. The focus of our innovation is less about unique graphics and more on creating packages that can easily transition to the advantages offered by different substrates, leading to more circular and sustainable solutions. In terms of new products, there's a lot of activity in the carbonated soft drink segment, with trends towards healthier options, such as lower calorie and sugar content. We're also exploring new categories in the alcohol market and how substrate applications can fit into that. This is where our innovation efforts are concentrated. However, I want to emphasize that our spending behavior won't significantly change just because we have a stronger balance sheet. We continue to collaborate with our partners on these initiatives, and as they become feasible for large-scale commercialization, we believe we are well-positioned to lead in those areas. That encapsulates our current approach to innovation.

Great. And I believe your initial volume guide was for low single digits globally, and now you expect low single digit to mid-single digits. Is the raise at the top end based on strong 1Q? Or do you expect better demand throughout the year now? And maybe what do you need to see to hit the top end of that guide?

Yes, it depends on the peak season. To be completely transparent, if I'm comparing 3.4% growth to 3.3%, the 3.3% starts to seem like the mid-range. We got off to a strong start, with a favorable mix in South America, and we’re slightly ahead in Europe. Scanner data in North America is trailing a bit. Overall, this looks somewhat favorable. Until we get through the peak season for 70% of our business, I believe I have estimated appropriately. Whether it’s low single digits or mid-single digits, you can expect cash flow generation and EPS in the mid-single digits along with a share buyback of nearly $1.3 billion. We are very confident in the underlying performance and behavior of the business. We'll see how the peak season unfolds.

Great. And maybe if I could sneak one more quick one in here. Can you just go through how April trends are benchmarking versus your expectations?

Yes, April is generally in line, slightly softer than March, but still aligns with our expectations. As you know, Easter dates were different this year compared to last year, which has an impact. So it's roughly where we anticipated. The period right before Memorial Day is when we usually see a significant uptick, making the latter half of the second quarter the most critical.

This ends the question-and-answer session. I would now like to turn the floor back over to management for closing comments.

Yes, thank you. I want to remind everyone that June 18 is our Investor Day at the New York Stock Exchange. I would like to express my gratitude to Ann for her outstanding service to the company and echo the kind words towards Brandon and Miranda. I also want to thank all of our employees. We look forward to speaking with you again at the end of the next quarter, or possibly earlier during Investor Day. Thank you.

Ladies and gentlemen, this does conclude today's teleconference. You may disconnect your lines at this time. Thank you for your participation, and have a wonderful day.