Good morning and welcome to Crown Holdings Second Quarter 2021 Conference Call. Please be advised that this conference is being recorded. I would now like to turn the call over to Mr. Thomas Kelly, Senior Vice President and Chief Financial Officer. Sir, you may begin.

Thank you, Harley, and good morning. With me on today's call is Tim Donahue, President and Chief Executive Officer. If you don't already have the earnings release, it is available on our website at crowncork.com. On this call, as in the earnings release, we will be making a number of forward-looking statements. Actual results could vary materially from such statements. Additional information concerning factors that could cause actual results to vary is contained in the press release and in our SEC filings, including in our Form 10-K 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, favorable foreign currency translation, and the pass-through of higher material costs. Segment income improved to $395 million in the quarter compared to $250 million in the prior year, primarily due to higher sales unit volumes, including recovery in many locations affected by COVID in last year's second quarter. As outlined in the release, we currently estimate third quarter 2021 adjusted earnings of between $1.90 and $2 per share. This estimate includes the results of the European Tinplate 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, again assuming the sale of the European Tinplate 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, and thank you for joining us this morning and our continued best wishes for the continued health and safety of you and your families. As reflected in last night's earnings release, the company recorded another strong quarter for the three months ended June 30, 2021. And 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. Demand remained strong across all product lines and geographies; and importantly, the company continues to convert this growth into record earnings. Average segment income from continuing operations over the last four quarters or the last 12 months, June 2021 is approximately $100 million per quarter higher than the average of the four preceding quarters or LTM June 2020, with approximately $60 million of that income growth found in the Americas Beverage segment, clearly a step change in our earnings output. 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 results of the European Tinplate operations are now shown as discontinued. Had the business been included in continuing operations, LTM June EBITDA would have approximated $2.1 billion. Before reviewing the operating segments, we remind you that delivered aluminum in North America is approximately 65% higher today than at this time last year. LME and delivery premium are contractual pass-throughs, so reported beverage revenues reflected both the volume increase and the higher aluminum cost. As last year's second quarter was the so-called COVID quarter, we will also provide beverage growth percentages for the first half of 2021 versus the first half of 2019 to give a bit more information, perhaps relevance, related to our beverage can unit volume growth. In Americas Beverage, demand remained strong across all the markets we serve with overall segment volumes up 18% compared to the second quarter of 2020. First half '21 versus first half '19 volumes advanced 19%. 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 third line in Olympia, Washington and the second line in Rio Verde, Brazil are now scheduled for an early fourth quarter start-up. As previously announced, the company will commercialize 5 new can lines in 2022, new 2-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. Additionally, the company announces today that it will construct a new two-line beverage can plant in the Southwestern United States with commercial shipments commencing late second quarter of 2023. Customer commitments have already been secured for the plant's production capacity. Unit volumes in European Beverage advanced 28% over the prior year second quarter and 14% for the first half compared to the first half of 2019. 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 2019, 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 to 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 last year and in line with our expectations as strong demand for transit products and solutions mirrored the surge in overall industrial activity. 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 approximate first half growth. Demand remained firm across North American food and aerosols along with the beverage can equipment-making businesses. In summary, a record first half for the company. New capacity was commercialized during the quarter and significant new capacity will be commissioned over 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 3.6x after repurchasing $300 million of company common stock is ahead of plan. As Tom discussed, we have raised full year guidance and the expected closing of the Tinplate sales still remains in the third quarter. And with that, Harley, we are now ready to take questions. Thank you.

The first question is from Mike Leithead from Barclays.

Great. Congrats on the quarter. Tim, I think you touched on some of the supply chain disruptions that you overcame in the quarter. I was hoping you could talk 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 third quarter or just any way to kind of help us think through that?

Yes, I would say you are likely aware that there are global container shortages, making it challenging for suppliers to deliver containers for product transport. With the rapid recovery of the economy both here and in Europe, component manufacturers are overwhelmed, leading to delays in manufacturing components for our beverage can and transit businesses. High demand for construction materials like steel, lumber, cement, and drywall is also causing delays. While I don’t want to put a specific label on it, the most significant impact on earnings came from the transit business, possibly around $5 million or $6 million, which will likely affect the next few quarters, not just the latter half of this year. Even if we received everything we’re waiting for tomorrow, there is still a limit to how much our teams can handle at once. It will take some time to manage that. However, based on the performance and trends of the overall company and each business, I am not overly concerned. Our focus remains on providing quality service to our customers, whether through high-quality products or services. It’s never easy to inform customers that they may need to wait or to turn them away, but they are generally experiencing similar issues with all their suppliers, and we are hearing similar from many of our own suppliers, as I expect many companies are.

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-through 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.

Yes. I don't have that in front of me, Mike. I can follow up post call on that.

The next question is from Arun Viswanathan of RBC Capital Markets.

Congratulations on the strong results. I wanted to gain your insights on some of the scanner data, as we've noticed conflicting reports on volumes, particularly against tough comparisons. Given your beverage can volumes are up year-over-year, where do you anticipate those volumes will land over the next couple of quarters? Do you expect to see similar percentage gains within your system? Additionally, could you share your perspective on the scanner declines we've been observing?

Yes. We provided you with the second quarter volumes compared to the second quarter of last year. While these comparisons are straightforward, last year's second quarter included an unexpected large event, making it easier to share the data. That's why we also provided the first half of 2021 compared to the first half of 2019, which offers a clearer view of growth over a two-year span. This is particularly important for a packaging business. We anticipate ongoing growth across all our businesses, although the Asia segment may experience slower progress due to some COVID-related lockdowns. However, we expect substantial growth in the latter half of the year. This growth will not match the levels of the second quarter, as last year's second quarter was notably low in some markets, but it will be significant. We are still declining customer requests, unfortunately, in Europe and the Americas. We're still onboarding cans in the United States, close to last year's level, and demand remains high. I understand some of the scanner data might raise concerns. However, that data may not account for all retailers, especially the largest ones in the country, making it necessary to find alternative ways to assess the situation. I can assure you that within our company and the industry, customers are urgently seeking cans, and we are eager to enhance our capacity as quickly as possible. Thus, our growth outlook continues to be very strong.

Okay. Great. 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 your Investor Day, you kind of laid out a plan and outlook for capital from here on, but you also have some new 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?

We aim to maintain our leverage within the range of 3x to 3.5x. Our capital requirements will influence where we land within that range, and we expect to be comfortably within it by the end of this year, which will enable us to buy back a significant amount of stock. We have initiated a dividend and plan to continue paying it. Depending on future capital needs, we anticipate our leverage will be in the desired range by year-end, especially after the tinplate sale. The variable factor will be how much stock we repurchase each year. Essentially, most of our free cash flow will be allocated for dividends and stock buybacks. Some investors, particularly newer ones, may be more wary of higher debt levels in packaging companies like ours, but we have always managed our leverage effectively without issues. Even after buying $300 million of stock before the tinplate proceeds, our leverage stands at 3.6x. Therefore, we do not see leverage as a concern for a metal packaging company. Although the timeline for achieving our goals may not suit everyone, we have confidence that we will reach our targets and generate sufficient cash flow to repurchase a substantial amount of stock.

The next question is from Kyle White of Deutsche Bank.

Tim, Tom, congrats on the quarter. I just wanted to walk through the guidance for the full year. The raise, specifically on the back half, kind of get to about a 26% EPS raise for the back half. Just wondering how much of that is driven by having the European Tinplate results for July and August, 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?

Yes. I mean so the European Tinplate business, the two months, is worth about $0.20. So then the residual is effectively everything else you mentioned, improvements in the underlying business net of anything going the other way.

Got you. I want to discuss Europe. You recently announced new capacity in the U.S., but you haven't disclosed any new capacity in Europe, unlike many of your competitors. Are you concerned that you might be losing market share in that region? Is this primarily due to the markets you're operating in and the growth rate of your customers, or do you prefer to invest your resources in more promising markets like the Americas and Asia Pacific?

No, I don't think it's just a matter of timing, so please stay engaged with us. With the exception of one market in which we don't participate, we are active in the rest of the Western European market. Crown will make decisions and announcements at the right time. However, we remain fully confident in our platform in Europe and its capacity to deliver ongoing growth for the company.

The next question is from George Staphos of Bank of America Merrill Lynch.

Congratulations on your progress so far. I wanted to revisit some comments from last quarter to see if we should consider any effects for the remainder of 2022 based on your insights. Last quarter, you mentioned some concerns about a potential pull forward of volume and accelerating volumes, which led you to expect a decline in the second quarter compared to the first. However, that did not happen, and you actually had a stronger sequential quarter. Should we still be concerned about that pull forward, or are you now less worried about it for the latter half of the year? Additionally, even though we're not in the fourth quarter yet, do you believe that based on what you're observing from customers, along with your capacity plans and capital allocation abilities, you should still be able to grow despite the dilution in 2022, considering that the European Tinplate won't be part of the portfolio?

I think we had a similar discussion last quarter, and I understand your question, George. We sometimes feel just as puzzled by the outperformance as you do. As I mentioned previously, the reason you're not completely thrilled with it is that things could shift the other way, leading to tougher conversations. Looking ahead to the second half of the year, our available capacity for potential earning surprises is significantly more restricted compared to the first quarter or even late in the first quarter. The COVID situation in several Asian countries is also a factor. There were some lockdowns in Q2, but they were less severe than we expected. We foresee more lockdowns occurring across Asia and some markets, and currently, we have lockdowns in two areas for the next three weeks, which will affect us. Additionally, we have transitory inflation impacting the business. We expect to incorporate that inflation into our formulas next year, but there is some inflation now. Nonetheless, we are navigating through it well with the growth we have. As we look toward the fourth quarter and next year, the question remains whether we have sufficient growth to offset the dilution from tinplate. One way to manage that dilution is by repurchasing a significant amount of stock. It’s not clear to me that our trading reflects an appropriate P/E multiple, so whether we report $7.50 or $7 doesn't seem to matter much, and I will leave it at that.

Fair enough. Fair enough, Tim. And for the record, not that it 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 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 spiked seltzers? What's your view on that on next categories, if there are any? Or do we have to worry just about or expect just new flavors out of spiked seltzers to be the driver of can growth over the next couple of years?

I know of one idea that I prefer not to mention to protect the concept, which relates to a specific customer or possibly a group of customers. However, I believe we can expect marketers to keep trying to innovate. While not every attempt will be successful, they will continue to develop new products and flavors, including mixed cocktails that may use real alcohol or be blended with different flavors, whether they are considered healthy or not. Although it may not be the right term, we will leave it at that. I don’t see any shortage of new ideas from them. In the past, we might have been concerned about additional costs for artwork on labels, but with the current strong market, we can charge for that artwork. Therefore, I'm not too worried if a product doesn't succeed. As we've mentioned, we continue to have a very positive outlook. Given the volume of imports coming into North America this year, I feel more optimistic about the next 24 months than I did previously, as the market has not slowed down like I anticipated it would.

My last question is about the portfolio, specifically regarding transit and North American tinplate. Can you share your insights on their relevance and importance within the portfolio? Additionally, what do you foresee for the trajectory of transit over the next couple of years?

Sure. The first thing I'd like to mention is that we've set August 31 as the target date for the tinplate sale in today's discussion, but we hope it will finalize sooner. I don't expect it to close by July 31. Regarding our portfolio, specifically the non-beverage businesses, they require minimal capital. These businesses yield high returns on investment and generate significant cash flow. Therefore, when an organization faces various cash demands, whether for growth capital in one area or for share buybacks, dividends, or returning capital to shareholders, it's crucial to maintain a balanced approach. We prefer businesses that produce substantial cash flow, allowing us to manage them effectively without needing to invest heavily in new growth. For now, we are managing those businesses as efficiently as possible. At some point, I would like to discuss our progress with you. We have demonstrated the potential upside of a business like Transit Packaging, but for now, our focus will be on managing our existing operations.

The next question is from Gabe Hajde of Wells Fargo Securities.

Tim, Tom, I hope that you and 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 it difficult 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 that the industry doesn't find itself kind of in a meaningful oversupply situation in 18 to 24 months? And part of it is obviously predicting consumer behavior, but more talking about potential for substrate gains or maybe the multiplier effect of premixed cocktails that maybe were underappreciating similar to kind of what we're observing in Brazil that's happened over time with returnable glass.

Yes. We discussed this briefly last time, Gabe. Even as we recover from the pandemic, spiked seltzers and mixed cocktails represent different trends. For bar owners, the focus will be on customers returning to bars and the convenience of being served drinks from a can rather than mixed by bartenders. This approach allows for better inventory control, reduced waste, and minimized theft compared to traditional bottles that require mixing. Therefore, we aren't particularly concerned about the reopening. The future looks promising for canned products given these dynamics. However, we acknowledge the unpredictability of consumer behavior. A significant portion of the population, both in the United States and especially in Europe, has adjusted its habits since the pandemic, which may delay the return to what we consider historical norms longer than we expect. While an industry overbuild is always a possibility, I don't foresee that happening in the next two to three years. Demand will significantly exceed supply for the coming years. Despite any concerns others may raise, we are currently receiving strong demand from customers seeking more supply, and we are committed to fulfilling that demand.

Okay. Early indications from on-premise and factory openings suggest that the supply chain is quite different, especially with pipeline fill leading up to the July 4 holiday. Our research shows that it was quite strong. Do you have any insights or details regarding the current inventory levels? I understand that the timing of reopening across the country may have impacted the Memorial Day holiday.

Yes, it's an interesting question because when there is a shortage of cans, customers typically do not stockpile a lot of cans or filled products. However, due to the can shortage, I am unsure if they are purchasing in advance and storing empty or filled cans for the remainder of the summer and Labor Day because they are concerned about supply. I cannot provide a definitive answer on that. What I can confirm is that the demands placed on us have only increased since our conversations three or six months ago.

The next question is from Ghansham Panjabi of RW Baird.

Tim, what do you think is realistic in terms of the growth rates for the industry specific to the U.S. in '21 versus '20? And then the new plant that you just announced, the 2-line plant, is that for existing product categories, new categories that we just don't know about at this point or a combination of the 2?

I would say it's existing and new customers, but existing categories, Ghansham. I'm sorry, what was the first part of the question?

Just the industry growth rate.

The issue is that the COVID quarter complicates things. Last year, we had about 97 billion units, and with imports, we're looking at around 108 to 110 billion.

112.

Is it reasonable to say that this year, you could have 10% of 112? That seems like a big number. I think it depends on the suppliers' initiation of capacity output. If we were comparing directly, I would say that Crown is comfortable with 10% on its base. It could well be that we have 10% this year, but I would feel more comfortable in the 5% to 7% range as an industry.

Got it. And then in terms of the obvious, the Delta variant and the impact on lockdowns, et cetera, what are you seeing across the regions real time? 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 for the back half of the year versus an extraordinary last year. Just your outlook for the back half of the year specific to Brazil as well.

Yes, we will remain sold out in Brazil. The main challenge we face there is ramping up the second line in Rio Verde. The comparisons are significantly higher in Brazil, and if we had more capacity, it wouldn’t be an issue. We will use up all this new capacity quickly, and customers will take every can we produce. Regarding the Delta variant and other variants globally, we've discussed Asia, where governments are actively trying to limit new cases. Large Asian cities with millions of residents are very sensitive to even a small number of new cases, which is why their restrictions are more stringent. Additionally, the availability and quality of vaccines are much lower in many Asian areas compared to Europe and the United States. As for Europe, I can't comment since we haven't been there recently. However, I believe governors in the United States do not want to return to lockdowns. If they had any political reasons for implementing lockdowns previously, they have likely achieved those goals and aren’t planning to reinstate lockdowns now. In larger cities like Philadelphia, around 60% to 65% of residents are fully vaccinated. At this point, I must say that if people choose not to get vaccinated, they shouldn't complain about negative outcomes. There's a clear opportunity for vaccination to protect themselves and their families. If someone refuses to take the vaccine, it's their responsibility, and others shouldn't have to face restrictions on their lives because of personal beliefs about vaccination. The intent of pharmaceutical companies is to extend our lives, not harm us. I haven’t seen convincing reasons for avoiding vaccination, so despite any variants, I don't anticipate the U.S. returning to shutdowns anytime soon.

The next question is from Jeffrey Zekauskas of JPMorgan.

You spoke about your year-over-year can growth. What was your sequential can growth in beverage?

Oh, from Q1 to Q2?

Yes.

Oh, boy. Hold on.

So Q1 was up 8%.

No, that's not accurate. I understand it increased by 8%, but that's not a significant figure because it includes the COVID impacted quarter from last year. What you really need to know is the increase in can sales in the second quarter compared to the first quarter.

19.5% in the first quarter.

Yes. I can tell you that globally, we are slightly above 20%. Tom mentioned 19.5%, but I believe it could be around 20%, not just 19.5%. We had 19.9% in the second quarter. For the full year, we might be around 13.5%, something like that. Does that help?

Okay. I'll take what you're giving. In the quarter, what was EPS from continuing operations? What was...

Sorry. What was the question again, Jeff?

Sure. In the second quarter, what was EPS from continuing operations? And what was EBITDA from continuing operations and pro forma if you didn't discontinue the tinplate business?

So the EPS is on the schedule, right?

Yes.

The $2.14?

No. But exclusive of discounts.

So the earnings per share from continuing operations was $0.97, while discontinued operations resulted in a loss of $0.02.

No. Adjusted.

Yes. It's $2.14.

No. Does the $2.14 consist of $0.50 in discontinued operations and $1.64 in continuing operations? Is that about right?

Yes, you need to be cautious with that because the pro forma for discontinued operations does not reflect the actual loss. You need to consider interest and other components when making that assessment.

Yes. The income statement for discontinued operations does not include any deductions for interest expense. All interest expenses are accounted for in continuing operations as required. Your second question was about EBITDA for the second quarter from continuing operations?

Right. And pro forma.

So I don't have the first quarter press release. So pro forma 12 months June...

I know pro forma 12 months, but the...

Yes. So if you had the prior press release, if you backed out...

So it's $559 million for pro forma if you look at the prior numbers. But I don't know if that's correct. Is that the right number? Is it $559 million for the quarter pro forma?

No. What I was trying to convey, Jeff, is that if we examine the first quarter, the last twelve months ending in March EBITDA was $1.917 billion, which includes food as continued operations. There were no discontinued operations. The pro forma for the twelve months ending in June is $2.081 billion. In the second quarter, if we exclude discontinued operations, it is $164 million higher than the second quarter of last year. This is the best information I can provide on this call without taking more time to delve deeper into other expenditures.

The next question is from Mark Wilde of Bank of Montreal.

First of all, Tim, did you provide a capacity number for that new Southern U.S. plant?

I would tell you to think about $2.5 billion, very similar to Bowling Green and/or Martinsville.

Okay. All right. That's helpful. Then in Transit Packaging, when you acquired the business, I think you were pointing to about $85 million or $90 million 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. I believe that when we consider segment income plus depreciation, we anticipate reaching $90 million, translating to $360 million annually. We expect to exceed $360 million this year without question. We will monitor industrial activity for the remainder of this year and into next year and 2023, but there is every reason to expect that number to continue growing at least at GDP rates until we decide on a different approach to expanding 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 up and running full?

So there's nothing cyclically weak. What is a little depressed is the equipment business just because we're having issues on the supply side from our suppliers getting components and other items. And I estimated that maybe at about $5 million earlier during the call. Demand is exceptionally strong. 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 last one from me. Can you provide an overview of what Crown is doing to enhance the recycling rate for beverage cans in North America? Currently, it's around 50%. Given the energy intensity of aluminum cans, I'm concerned that if we continue to landfill 50% of them, it might jeopardize the sustainability argument for cans unless this rate improves over time.

Mark, I thought about our previous conversation, and it occurred to me that you might be promoting the interests of the paper industry. So I'm... One thing I feel really good about is that paper companies will never find a way to package carbonated beverages. Your question is a valid one, and we've had differing views on who is responsible. Without a doubt, the government will impose this responsibility on either us or our customers, as individuals are the ones who vote in elections. If consumers do not start handling or disposing of products properly, particularly those like aluminum that hold real value, we may have to look for alternative solutions. We have previously discussed how recycling rates are higher in states with deposits compared to those without. I prefer not to take a side in that debate, as some of our customers have strong opinions on the matter. Nevertheless, I believe that if we are going to impose deposits on aluminum cans, we should apply the same principle to all materials that enter the waste stream. It’s unfair to single out one type of substrate.

The next question is from Neel Kumar of Morgan Stanley.

In terms of the 18% segment volume growth year-over-year in Americas Beverage, can you just break down the volume growth in North America, Brazil and Mexico? And then...

Yes, I could. I believe you will see excellent numbers in Mexico and Brazil because those markets were significantly impacted last year due to COVID, when many of our alcohol customers were closed. While a lot of cans were produced, they were primarily sold in North America. I would estimate North American growth in the high single digits, while Mexico and Brazil are expected to see high double-digit growth. When I mention high double digits, I really mean it. As I mentioned earlier, I don't want to dismiss some of the growth rates in the second quarter as insignificant. However, when we begin to see numbers like these, they can feel somewhat inconsequential due to the unique circumstances of last year's COVID quarter.

Right. That makes sense. And...

We analyzed the first half of 2021 compared to the first half of 2019, and found that Mexico and Brazil experienced growth in the high single to mid-double digits during this period. North America grew by more than 20% in the same timeframe. This is a more meaningful comparison than looking at the second quarter of last year, as discussing extraordinary growth rates from that time can be misleading since they are difficult to project into the future.

Right. That makes sense. And then just in terms of beverage can imports, I know you mentioned that Crown's beverage can imports are a bit lower than last year, but it seems that imports for the overall industry are up significantly year-to-date. So I was wondering if you've got an estimate of how many cans potentially imported this year versus 7 billion to 8 billion cans in the quarter of last year. And are you seeing any evidence of beverage customers having independently import cans from abroad as you and the other large businesses are generally sold out?

Yes. I didn't mean to suggest that we're importing significantly fewer cans. We're actually importing a substantial number of cans this year, just slightly below last year's figures. I’m not aware of the industry-wide imports last year, but if the figure was around $8 billion, we likely imported about 25% of that. I can’t speak for what others did, but we are still importing a remarkable volume of cans this year. Some customers are attempting to negotiate their own deals to import cans since we and other global manufacturers have limited capacity.

The next question is from Alton Stump of Longbow Research.

You all exceeded expectations in nearly every segment, but the biggest surprise for me was the European beverage can volume, particularly how the first half of this year compares to the first half of 2019, which is almost as strong as the Americas. Can you explain what contributed to the significant growth in that region, particularly given the mid-teens increase compared to two years ago?

There is growth in the market. Even before the current excitement around beverage cans, Europe has seen consistent growth of 3% to 5% and 4% to 6% each year for the past decade or so. Additionally, we have installed new capacity across our European operations, with a new two-line can plant in Valencia, Spain, and a new one-line can plant in Parma, Italy since 2019. This new capacity is a key reason why our growth numbers are significantly higher compared to the first half of 2019.

Great. Makes sense. And then just as you just referenced, you have announced new capacity. I guess how soon might that be coming? Or how big is the need over the next 12 to 18 months to add capacity in Europe in your view?

I don't want to discuss that right now. We'll let you know in due time.

The next question is from Anthony Pettinari of Citigroup.

At the Analyst Day, you talked about expectations to grow global beverage can volumes I think by 10% in 2021. I think in your response to Jeff, you talked about maybe being able to grow 13% plus, if I heard that right. And 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 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?

What we mentioned was that the second quarter saw a growth of about 20% compared to the first quarter. Year-to-date in June, we are up approximately 13% to 13.5%. Clearly, the second quarter experienced higher growth than the first quarter, partly due to COVID. I anticipate growth in the third and fourth quarters, but those growth rates will not reach the levels seen in the second quarter because of the comparison to COVID. On a global scale, a growth expectation of around 10% or 11% seems reasonable.

That's helpful. We've seen increases in construction costs, including materials, steel, and labor. When you compare the cost of building and staffing a greenfield beverage can plant to a couple of years ago, is it up by 10% or 15%? Can you provide any rough estimates? Additionally, how do rising construction costs impact your CapEx guidance and the long-term CapEx goals you discussed at the Analyst Day? Any insights on that?

As of now, plant costs are specific to each facility. We anticipate that some construction costs may still be rising, particularly in the steel sector, which might be at its peak. Currently, if I were to compare the estimated cost of building a plant today to our estimates from two or three years ago, it could be 20% to 25% higher. However, I do not believe these elevated costs will persist over the coming years, so we do not foresee the need to adjust our long-term capital planning. I expect there will be some normalization in costs. When considering the risk of spending an additional $30 million to $40 million to construct a factory today compared to a few years back, it's important to evaluate that risk over a 40 to 50-year horizon. Building a beverage can factory is a long-term commitment, and it's not viable to relocate such a facility easily. Therefore, while we are not pleased with the current cost situation, we won't let it disrupt our strategy or the way we service our customers.

The next question is from Adam Samuelson of Goldman Sachs.

A lot of ground has been covered. I just want to clarify the guidance. You mentioned that about 20 cents of the 25 cents increase in the implied second half guidance reflects the treatment of the divestiture and the timing impact. Separately, in May, you thought global can volumes for the year would be up 10%, and you still consider that a good estimate, possibly 10% to 11%. I'm trying to ensure I'm capturing that correctly, especially in light of the significant outperformance in the second quarter. Have you adjusted your second half volume expectations since you've exceeded the full year range so much in the second quarter? I want to make sure I'm comparing apples to apples here.

No. But the comparisons in the second half are much different than the comparisons in the first half, specifically the second quarter, right? You've got growth rates in some of the locations that were severely impacted by COVID last year in the second quarter. 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 while there's still going to be a very good growth in the second half, you just can't have another COVID quarter nor do we want another COVID quarter.

I understand. Let me frame it a bit differently. In the guidance you provided for both the second quarter and the first quarter, which you significantly exceeded, did you leave a considerable amount of volume contingency out of your formal guidance because of uncertainties in the macro environment? Ultimately, since mobility was good, demand was strong, and operations were efficient, were you able to surpass your initial expectations in both the first and second quarters?

Yes, I think we're doing our best to bring capacity on as quickly and efficiently as possible. If we're up 13.5% through six months, perhaps for the full year, we might be up around 11.5% to 13%. As I sit here today, I would say around 10% or 11%. It really depends on how quickly we can get the capacity operational and how efficient the factory is when it starts running. We have a lot of capacity coming online in the second half, and I have no doubt that whatever we introduce to the market, we will fully sell out. It's simply a matter of how quickly we can get it up and running.

The next question is from Adam Josephson of KeyBanc.

Tim and Tom, hope you're well. Just a couple of guidance questions. Tom, just on the buyback, can you clarify what you're expecting to buy back this year? Is it just the $379 million or an amount significantly greater than that as part of your full year guidance?

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. We'll buy back stock such that we're about 3.25. So the $379 million, there will be more to come as we go through the last 6 months.

Got it. Okay. Tim, regarding the guidance for the third quarter, I have a similar question as last time. Typically, your earnings in the third quarter are higher than in the second quarter. I understand you might lose a few cents in September due to the expected absence of European Tinplate. Can you remind me why there is an implied sequential earnings decline? You mentioned potential production constraints, which you also anticipated for the second quarter. You talked about inflation, and you had expectations for it last quarter, but ultimately you exceeded your guidance significantly.

We've created a forecast based on the assumption that we will maintain European Tinplate through August. For those of you who have been following us for a while, you know that the European Food business has a significant concentration in the third quarter, especially in September. Therefore, this represents a considerable figure. At this point, it’s clear that there are areas affected by inflation in the business, and we will need to wait until next year when we have the contract risers to recover that. I hope we are being somewhat cautious, but we will find out. One major point to consider, Adam, is that the available capacity in the third quarter looks lower than what you or I might forecast, as you’ve already factored in that you will sell everything you can produce and possibly more in Q3.

Got it. I appreciate that, Tim. And just longer term, one on CapEx. So I think you talked about $900 million this year and obviously, you just announced new plants come '23-ish. Is there any reason to expect a decline in CapEx from this year's presumed levels of $900 million over the next, call it, 2, 3 years?

I believe that as I speak to you today, I can confidently say that we anticipate spending similar amounts or possibly more next year. Beyond that, I can't predict with certainty. We'll have to wait and see.

And Tim, just one last one on the cash flow issue. Just given the new assumed closing date 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 cash flow is lower because you lose the earnings from the business for the last 4 months. Not only that, but 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. 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 next question is from Phil Ng of Jefferies.

I guess you mentioned, Tim, your outlook for the next 24 months a bit more bullish than you previously thought. It sounds like maybe you're a little less worried about the reversal from a reopening dynamic. But any more color on why you're a little more upbeat than you were, call it, 3 to 6 months ago on the demand side?

Well, there are two reasons. First, customer requests for cans have not decreased; in fact, they are on the rise. Additionally, the level of imports that we and others are bringing in is also not declining. As we converse with customers and consider what a reopening, or a delayed reopening, might entail, it instills more confidence that even with a full reopening, the growth rates will significantly surpass any effects from the reopening.

Got it. Were there any areas that showed stronger performance or contributed more significantly? Are there any of the new products that we may not be fully aware of? Spiked seltzer seems to have moderated a bit, possibly due to the reopening. I'm just trying to understand if there are any factors or aspects of your customer base where you've noticed stronger demand than you initially anticipated.

Yes, clearly they won't experience the same growth rates as they have in the past. While they have seen incredible growth, they are now starting from a much larger foundation. From the company's perspective, there is still considerable unit volume growth. Sometimes we focus too much on growth rates and overlook the absolute unit volume growth and its contributions. The demand has been strong across all products. Without saying too much, I'll leave it at that. We continue to maintain that the outlook is very strong. Given the amount of imports coming into North America this year, I feel more optimistic about the next 24 months than I did before, as things haven't slowed down from last year as I had expected.

Our last question is from Salvator Tiano of Seaport Research Partners.

Just wanted to check a little bit on the new start-ups. Firstly, I was under the impression that some of them were scheduled for Q3. So I want to confirm that they are being delayed by a few months as most of the start-ups are now in Q4. And secondly, as we think about the start-up expenses, 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, could Q3 include a lot more start-up costs than Q4? How should we think about that?

So you are correct in saying that there's been a small slippage in bringing some of the factories up maybe a month or 2 from late Q3 into early Q4. Some of that has to do with raw material supply, building supply, somewhat frankly, has to do with the fact that we're right in the middle of the season, and we're trying not to disrupt the plant from running at the highest efficiency it can possibly run at. On start-up costs, the only thing I'm going to tell you is we don't talk about the impact of start-up costs. We've been building plants, greenfield plants for well over 20 years. We've added significant greenfield capacity to our platform globally in every market. It's something we do and it's just something that's embedded in the forecast that Tom has 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 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've mentioned also that you do not provide an explicit dollar number. My question here would 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 start-ups that a lot of the start-up costs will happen in Q3? Or should we think that no, it's going to be in Q4 regardless of what amount?

If you're planning for Q4, anticipate some training and other expenses in Q3. As the plant progresses through the learning curve, you'll face considerable costs in Q1 and Q2 before reaching breakeven. That's all part of the financial picture. Feel free to model it as you see fit. Harley, I believe you've mentioned this was our last call. Thank you, Harley. To everyone else, this concludes our call today. We appreciate your participation and look forward to speaking with you again in October. Goodbye for now.

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