Good morning. And welcome to Crown Holdings First Quarter 2023 Conference Call. Your lines have been placed on a listen-only until the question-and-answer session. Please be advised this conference is being recorded. I would now like to turn the call over to Mr. Kevin Clothier, Senior Vice President and Chief Financial Officer. Sir, you may begin.

Thank you, Marcia, and good morning. With me on today’s call is Tim Donahue, President and Chief Executive Officer. If you do not already have the earnings release, 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, in our SEC filings, our Form 10-K for 2022 and subsequent filings. First quarter earnings were $0.85 a share, compared to $1.74 a share in the prior first quarter. Adjusted earnings per share were $1.20 in the quarter, compared to $2.01 in 2022. Net sales in the quarter were down 6% from the prior year, reflecting higher unit sales volumes in Americas Beverage, offset by lower unit volumes in most other businesses. The pass-through of approximately $100 million of lower raw material costs and $36 million from the impact of a stronger U.S. dollar. Segment income at $320 million in the quarter, compared to $383 million in the prior year and reflects the benefit of contractual recovery of prior year’s inflationary cost increases in European Beverage. Cost reduction initiatives in Transit Packaging were offset by $60 million of year-over-year steel repricing in North America in the North American Tinplate businesses. That is $48 million of gains in Q1 of 2022 versus $12 million of losses in Q1 of 2023. We have better than expected first quarter and we remain optimistic for 2023. We reaffirm full year guidance as follows. We expect EBITDA to grow 8% to 12% and we expect full year adjusted EPS to be in the range of $6.20 and $6.40. Second quarter adjusted EPS is expected to be in a range of $1.60 per share to $1.70 per share. Our full year adjusted EBITDA guidance includes the following, which remains unchanged from our previous guidance. Net interest expense of $400 million in 2023, compared to $270 million in 2022, $0.40 of incremental non-cash pension and post-retirement costs, average common shares outstanding to be approximately $120 million and the full year tax rate to be between 24% and 25%. Depreciation of approximately $350 million, compared to $301 million in 2022, non-controlling interest to be approximately $140 million and dividends to non-controlling interest are expected to be around $110 million. Free cash flow is projected to be $500 million, with capital spending of $900 million. We expect the majority of free cash flow to go to debt reduction until we get within our target leverage ratio range of 3 times to 3.5 times. With that, I will turn the call over to Tim.

Thank you, Kevin, and good morning to everybody. I will be brief and then we will open the call for questions. As reflected in last night’s earnings release, and as Kevin just summarized, first quarter performance was better than expected on the back of stronger results in European Beverage and Transit Packaging. Compared to the prior year, net results were impacted by prior year steel repricing and higher interest and retirement benefit expenses. Global beverage can volumes were down 2.5% to the prior year and reflect the impact of an inflation-weary consumer, as well as economic slowdowns in some markets. From 2019 through the end of 2023, we will have added more than 25 billion units or 30% plus of annualized beverage can capacity globally, from which to serve local and regional customers. Our Americas and European Beverage can platforms are well positioned to continue to serve our customers' diverse and growing needs. As discussed with you in February, and as Kevin just reiterated, we expect capital expenditures to approximate $500 million in 2024, with resulting incremental cash flows being used to deleverage and return cash to shareholders. In Americas Beverage, unit volume growth was 6% in the quarter, with North America up 4% and Brazil up 23% off an easy comp from Q1 of 2022. While promotional activity was lighter than anticipated in North America, we remain optimistic that summer selling season promotions will begin during the second quarter. We estimate the North American market was down 2% during the quarter, with the entirety of the decline found in imported cans; that is, domestic producers were flat in total. Importantly, from April 1st, the formulaic PPI increases are reflected in our selling prices, beginning the recovery of cost increases experienced over the past year. During the quarter, the second line at our new plant in Martinsville, Virginia, began commercial shipments and we expect the first line in Mesquite, Nevada to commence shipments in July, followed by the second line in October. During the first quarter, our Brazilian beverage can customers filed for bankruptcy protection and we have adjusted our Brazilian sales outlook for the balance of the year to reflect this specific customer situation. We believe the registered collateral provides adequate security for our receivable balance. Income in the segment is still expected to improve meaningfully for the full year, and as discussed previously, will be weighted towards the back half. Unit volumes in European Beverage declined high-single digits during the quarter, with notable weakness experienced in Spain, Turkey, and the U.K., primarily due to the impact of the earthquake in Turkey, retail price increases, as well as customers managing their working capital by deferring their purchases of cans closer to the summer selling season. Importantly, our efforts to restore margin with more appropriate contractual recovery mechanisms are underway, with the first quarter registering notable sequential improvement from the second half of 2022. We expect the business to continue to perform well with improvement expected year-over-year in each of the remaining three quarters of the year. Beverage can volumes in Asia-Pacific declined double digits, with declines noted in almost each market. The impact of higher retail prices, inflation in general and slowing economies all contributed to lower overall demand. We do expect the segment’s income to approach prior year levels, albeit weighted towards the back half of the year. Income in Transit Packaging improved almost 30% over the prior year, as benefits from the overhead reduction program initiated last year, coupled with the mix benefit of selective pruning of lower-margin SKUs and accounts more than offset like-for-like volume declines. Margins were improved across commodity product lines and in equipment. As expected, headwinds from prior year inventory repricing gains, coupled with weak aerosol demand offset the benefit of higher food can sales driving income and other well below the prior year. During the quarter, we made provision to right-size headcounts in our U.K. can-making equipment business to reflect lower expected activity. So, in summary, a solid start to the year and overall ahead of plan. Looking ahead, we expect the second quarter will continue to reflect improving results in European Beverage and Transit with Americas Beverage beginning to show improvement by the third quarter. It’s still early in the year, so we maintain our earlier guidance range of 8% to 12% EBITDA growth despite the outperformance in the first quarter. And with that, Marcia, I think we are now ready to take questions.

Thank you. We have the first question coming from Christopher Parkinson from Mizuho. Your line is now open.

Great. Thank you so much. Could you just hit a little bit more on your specific performance in North America? I appreciate the market-driven remarks. But in terms of just what you are seeing in various substrates across energy, seltzer, non-alcoholic to be clear, CSD versus beer, as well as the ready-to-drink launches. If you could just break things down and articulate how you see those substrates developing throughout the year and what that means for Crown, specifically? That would be greatly appreciated. Thank you so much.

You are welcome. So I think that, in North America specifically, we are not very big in beer. We have a significant craft beer presence in Canada, but in the United States, not very big in beer. We do supply some beer. So I am going to stay away from beer for the time being. I think you are going to continue to see ready-to-drink energy drinks. Those new launches, those new lines continue to grow, albeit off smaller bases than the bigger products that move volume. So for example, carbonated soft drinks, teas, sparkling water. I think we will see sparkling water do okay. Carbonated soft drinks, I think, is going to be largely centered around the level of promotional activity we see over the balance of the year. And as Kevin said, we remain optimistic and albeit a little ahead of our earlier forecast here in Q1, but not adjusting our full year estimate only because until we see some sign of larger promotional activity, it’s really hard to step out and adjust the full year. We will get a chance to do that again in July if we need to. But I think everything revolves around CSD promotions and we better start seeing that by the middle of May before the Memorial Day holiday and straight through to the middle of June ahead of the July 4th holiday.

That’s helpful. And just turning over to the Asian market. One of what I presume to be one of your regional customers has been citing the fact that underlying demand growth has been very, very healthy, but obviously, there’s a bit of a destock going on between the fourth quarter and the first quarter. So if you could just hit on the underlying demand trends in that marketplace. What that meant for the first quarter versus what it means for the remainder of the year would also be incredibly helpful? Thank you so much.

Yeah. So I think we have two different issues in Asia. One, as we described for you in February, the Cambodian market is exceptionally weak. A big part of their economy relates to the textile industry, with exports to Europe and elsewhere around the world and that industry is struggling and as the Cambodian consumer and certain industries in Cambodia struggle, can sales are down. The issue you referred to, with the one customer you are referring to has to do with the inventory, the filled good inventory that was built ahead of Chinese New Year. The sell-through at Chinese New Year was not as strong as they and others had hoped. So there still is a fair amount of filled inventory in the system that has to be cleared out. The slowness of the Chinese New Year and the wedding season in certain countries in Asia is largely a result of a stressed consumer, so we will see where that takes us. But I think we will see, as we get into the back half of the second quarter into the third quarter, we will start to see some recovery in most of those markets, specifically Vietnam.

Thank you.

You are welcome.

Thank you. We have the next question coming from the line of Ghansham Panjabi from Baird. Your line is now open.

Hey, guys. Good morning.

Good morning, Ghansham.

Good morning.

Yeah. Good morning. I guess, first off, maybe you can give us a sense as to beverage can volumes in Europe as an industry. I know you broke that out for yourself, your geographic mix is a little bit different with Turkey, et cetera. So just give us some color in Continental Europe in terms of what you have seen? And then some of your customers that have been reporting have pointed towards the consumer there just being increasingly cautious in terms of spending and so on and so forth, trading down, et cetera., how do you see the year unfolding for that region for you?

So, I think, I agree with everything you just said, Ghansham. I think beer has been exceptionally weak to start the year in Europe. Let’s put the earthquake in Turkey aside. Let’s just deal with the balance of Europe and for the most part, we are on the perimeter. We are not really up through the center of the heart of Europe. So when we say the perimeter, we mean U.K., Spain, Italy, Greece, etc. So, but beer has been exceptionally weak. I think the consumer, specifically the U.K. consumer, is struggling with food inflation; the rate of inflation and the size of inflation over the last couple of years for food in the U.K. is exceptionally high. And then, lastly, as I pointed out, we are seeing customers trying to defer their purchases of cans as long as they can closer to the summer to manage their own working capital and their own interest costs. But so putting all that aside, I do think we are going to have a reasonable summer. We will cycle through this working capital issue and we will have a reasonable summer. We will see if we have enough. If they try to buy all the cans in the summer that they should have bought some in February, March, and April, but wait to buy them all, we will see if we have enough hands for all of them. It should be a reasonable summer through the end of the third quarter. We are going to do, let’s be clear. The most important thing that we were looking to accomplish this year in Europe was to adjust the contracts to appropriately recover our costs and derisk our position in the contract. We don’t sell to the consumer. We do not have any pricing power with the consumer. We need to get it from our customers or we don’t get it, and I think we have accomplished that. So the first goal is to make money. Well, the first goal is obviously to serve your customers. The second goal is to make money. And if we don’t make money, we are not going to be good with the first goal. So I think we have accomplished adjusting the contracts. We are going to have a good year despite whatever the volume happens here, so.

Okay. Got it. For my second question, regarding North America, the first quarter is quite small and there is considerable complexity ahead concerning the outlook for the consumer in the U.S. Have customers adjusted their expectations for volumes based on your discussions with them for 2023 compared to their initial plans, or do they perceive the year progressing largely as expected at this stage?

I believe that if they were truthful, they might admit to having over-sourced cans with both Crown and other suppliers. We have a general idea of their situation, but it largely hinges on promotions. While there have been some promotions, they are infrequent and not substantial enough to encourage consumers to stock up on cans or buy more of our customers' products. They are experiencing lower volumes and higher profits, similar to last year, and this seems to be an effective strategy for them. We recognized this trend as the previous year progressed, and we have a clearer understanding of where we stand today. We need to navigate this changing dynamic in our markets.

Got it. Thanks so much, Tim.

Thank you.

Thank you. The next question comes from the line of Mike Leithead from Barclays. Your line is now open.

Great. Thanks. Good morning, guys.

Good morning.

First question, Tim, just two real quick on North American Beverage. First, can you talk about what gives you confidence in the summer promotional activity hopefully occurring this year versus not really occurring last year? And second, do you still expect to be up 10% in North America this year?

Well, I think what we said, Mike, was that if the market is flat, we will be up 10%, and I think we were pretty clear that if the market is down, we probably don’t make 10%. If the market’s up, we are probably a little better than 10%. So let’s see where the market takes us. We were always more heavily weighted in volume growth towards the second and third quarters as more capacity came up. So I don’t think we are behind our original expectations with 4% in Q1, although we are going to need to see some promotions to drive more sales at the retail level.

Okay. And your confidence in promotional activity or maybe it’s from customer conversion you have…

I am not confident because they have their own business model, and I cannot fully describe it as well as they can. They have a better understanding of their model and the consumers than I do. So while I wouldn't say I am confident, I am optimistic that they will aim to increase volume. However, there is a difference between being optimistic and confident.

Fair enough. Thank you.

Thank you.

Thank you. The next question comes from the line of George Staphos from Bank of America. Your line is now open.

Yeah. Hi. Thank you. This is actually Kash sitting in for George this morning. Just going off some of the prior questions. I guess, is there a way to discuss the exit rate on volume and margin coming out of 1Q, particularly in the regions where you have some pricing resets?

In North America, January and February performed better than March, and as we evaluate April, it's not showing strong results either. This indicates that we will need to implement some promotions during the initial weeks of May through early June. In Europe, we saw a notably weak start in January and February, but March improved, and we anticipate continued improvement in Europe month by month. Brazil is entering its winter season, which typically leads to a softer market. However, considering that Brazil's market was down about 25% in the first quarter of 2022, the comparison is easier this time. In Asia, the markets vary significantly, and aside from Cambodia, we expect most markets to regain some strength by the end of the second quarter.

Got it. Appreciate that color. And then just, I guess, given you exceeded the top end of your guidance for the first quarter, I mean, ultimately, why are you keeping kind of the full year EPS guide here and what ultimately gives you confidence on that?

Well, I think, you put a forecast together for the full year, there’s a lot of moving parts, and we are more than just one business in one geography, right? We have a number of businesses which we believe serve the company and the shareholders well in terms of balancing out risk and generating significant cash flow as opposed to being too reliant on one product, which may be too up or too down in any one period. Having said that, we have just spent the last 20 minutes discussing our expectation, now our confidence level in promotional activity in the largest market we are in, and it would be a little early in the year to really step out and raise the forecast. So as I said, until we see some indication of larger promotional activity in the North American market, it’s just too early to adjust the forecast. We will get a chance to do that again in July if we have to.

Great. Thank you.

Thank you.

Thank you. The next question comes from the line of Phil Ng from Jefferies. Your line is now open.

Hey, guys. Hey, Tim. Sorry, I missed the part of the first part of the call; I had some technical issues. But did you give us an update on your outlook for volumes for the various markets for 2023? You sound optimistic, but obviously, volumes are a little softer to start the year. How do you manage that risk, I know 3Q last year was a big surprise in terms of how demand kind of fell off and you had excess inventory and costs, like how are you kind of better managing that in a very choppy demand backdrop?

I want to clarify that while volumes in the third quarter decreased, this decline was experienced across the entire industry and not just for Crown. It's important to acknowledge that we are not the only ones who misread the situation. I feel optimistic because maintaining that outlook is essential for running a successful business. Our team comprises many dedicated individuals doing excellent work, and our customers are also committed to promoting their products positively. I believe that we will find the right balance between price and volume, which will ultimately benefit our business as customers navigate their own pricing and volume challenges. However, we must recognize that the year is still fraught with risks, which is why we haven't raised guidance yet. Looking ahead, I anticipate that the market in Asia will begin to recover late in the second quarter into the third quarter. In Brazil, the timing of a recent customer bankruptcy is fortunate as it occurred at the end of March, allowing for the typically slower winter months to address their issues before the more demanding fourth quarter, especially ahead of Carnival. Our portfolio in Brazil is well-diversified, reducing dependency on any single customer, so I remain confident that we will see year-over-year growth there. In Europe, I expect to see a gradual recovery in volumes after a weak start to the year, with improvements noted in March. As we approach the summer tourism season, customer demand should increase. Focusing on North America, where there is considerable interest, I previously mentioned that we are up 10% in a flat market condition. However, if the market shifts, we may not maintain that growth rate. Our objective is to outperform the market, yet I would prefer to see some promotional activity to support that goal. It’s too early to predict how promotions will unfold, but we should have more clarity in a few weeks.

Okay. That’s really helpful. And then from a cost standpoint, you called out $60 million are still headwind in 1Q. Is that largely flexed out by 2Q, and I know late last year you had some high cost inventory in the international markets for loans? I just want to make sure if that’s listed out at this point in the year as well?

Yeah. So, I mean, obviously, anything that was left in Europe got flushed through with the repricing of contracts and you saw those numbers looking better than Q3 and Q4 last year. Asia probably had a handful in the first quarter, but that’s done. And then we still probably have a handful in the other businesses, the North American Tinplate businesses, which will come through here in the second quarter, and that will be behind us.

Okay. Thank you. Appreciate it.

Thank you.

Thank you. The next question comes from the line of Gabe Hajde from Wells Fargo Securities. Your line is now open.

Tim, Kevin, good morning.

Good morning, Gabe.

Good morning.

I wanted to dial in to Brazil, I guess, first. You mentioned up 23% versus down 25% last year. So let’s call it, you are kind of back to flattish?

Well, I said the market was down 25%. I think we were down 20% last year, up 23% this year. So more or less in line with two years ago. You are right.

It seems that most of your customers are still able to maintain a reasonable price, at least based on what we can observe, and the consumer appears to be somewhat pressured. However, I wasn't clear on your expectations for the market there. Do you see any potential changes? I understand we are discussing the September and October summer selling season and the choices your customers will make. Is there a chance we might see two consecutive years of declining demand in Brazil?

Sure. Anything is possible. We are in an environment with high unemployment, high inflation, and high interest rates. Our estimate for Brazil indicates an increase of a couple of percentage points for the full year, which suggests that, as we progress through the year, they will see a decrease following a substantial rise in Q1. In Q1, our growth was significantly higher than the market, which can be attributed to our customer mix rather than being heavily reliant on one or two clients like others. Overall, we still anticipate growth in Brazil. We believe the market will grow by about 2% to 3% at this point, and we expect our growth to exceed that. However, anything can happen. It is a growing and significant market where we and others have consistently performed well, and we remain committed to it, expecting positive performance in the future.

Understood. But is there anything you need to Crown’s system, again, depending on whatever the outcome is with this one specific customer that would make you advantageous or disadvantageous to service other customers down in Brazil to capture that growth?

No. I think most of our business in Brazil is secured by contracts. I prefer not to comment on other companies. However, we have a very well-diversified customer portfolio in Brazil. If the customer that went bankrupt loses some volume, it will likely be taken up by other customers, and we will gain some of that share. We will lose some of the volume from the bankrupt customer but will acquire a portion of what others gain. In our forecast, we adjusted our full year sales and income projections in Brazil to reflect the bankruptcy and to allow for a reasonable time for that customer to resolve their issues. We expect to lose a bit but also to gain some share. Specifically regarding that customer, we might be slightly at a disadvantage, but we still anticipate our growth will exceed the market overall for the year.

Okay. On Transit, you talked about having other diversified businesses. You guys crossed it relative to our model. The $60 million of cost out that you talked about, you are still on track for that apparently or are you ahead of that pace a little bit here to start the year? And then could you be a little more specific on the volumes, I think you talked about pruning some lower margin business and something to the effect of volumes were down commensurate with that? I wasn’t that clear.

I think we realized about $10 million to $12 million of the $60 million last year. We're expecting to achieve another $40 million this year, with a small portion, around $5 million, possibly extending into next year. Overall, we’re significantly ahead of our target for the full $60 million, and things are progressing exceptionally well. Additionally, we undertook a reorganization of our products, focusing on the ones we intended to sell rather than trying to cater to everyone. I would estimate that a decline of 10% to 12% in volumes during Q1 can be attributed to a third from the pruning of customers and SKUs, while two-thirds were impacted by market conditions.

Thank you.

Thank you.

Thank you. The next question comes from the line of Anthony Pettinari from Citi Group. Your line is now open.

Hi. It’s actually Bryan Burgmeier filling in for Anthony. Thanks for taking the question. Yeah. Maybe just big picture, it seems like the theme of this call has been volume is a little bit worse than expected. You called out the customer issue in Brazil. Maybe what are some of the better than expected items that have allowed you to reiterate the guide for the full year? Is it solely the 1Q, is there maybe a little bit of upside to Europe, if you can just maybe hit out some of those big picture things that allow you to keep the guidance?

Thank you for the question, Bryan. I apologize if we haven't clearly communicated this so far, but we are seeing significantly better performance in Europe in Transit, not just in the first quarter, but also in our outlook for the entire year. This is an improvement compared to what we initially expected when we set the budget and shared it with you in February. We've made some adjustments to our sales forecast for Brazil and accounted for a larger slowdown in Asia than anticipated, which serve as offsets. Additionally, we've altered our internal guidance regarding promotional activity in North America. Overall, despite some challenges, including lingering COVID effects, we believe that the positives from Europe in Transit more than compensate for the negatives, and we expect to discuss this further in July.

Got it. Yeah. Thanks. That’s really helpful. And maybe just zooming in on Europe a little bit. You mentioned volumes have been firming up. I think on the last call, you said margins for 2023 could get back to half of the 2021 level? Is there a new target that we should have in mind, is it maybe just too early in the year to update that?

No, it’s not too early, and I expected this question to come up. Instead of saying we are halfway back, let’s say we are 75% of the way back. We are performing much better in Europe than we initially thought. The team has done an outstanding job. As I mentioned earlier, our main goal is to make money, and the only way to achieve that is through proper pricing. The team has done an excellent job restructuring the contracts, which was essential. We are investing significantly in Europe and the Americas to meet our customers' growing needs in the future. It’s crucial that we maintain our health to support this, and I believe the team has excelled in this regard.

Got it. Thanks, Tim. I will turn it over. Stay safe.

Thanks, Bryan.

Thank you. The next question comes from the line of Mike Roxland from Truist Securities. Your line is now open.

Thank you, Tim and Kevin. Tim, I hope you are wearing mask appropriately. Just one quick question, Tim, for you. Can you mind talking about the competitive landscape and have you seen any increased pricing actions, maybe discounting, maybe from some of your larger private peers, particularly as their balance sheets have become increasingly stretched?

I believe you are referring to one specific competitor, though another could also be considered a private company despite being public. One company is accustomed to operating with leverage, while the other, which you mentioned, operates with much less leverage and has indicated a desire to reduce it. As we mentioned in February, a significant portion of our contracts and business is secured for the next several years, and we do not anticipate significant pricing risks in the near term. However, the marginal business is likely to become more competitive as the market has slowed compared to two years ago. We'll see how this evolves.

Got you. Can you quantify what you mean by the marginal business becoming more competitive? How much of your overall book falls under that marginal business? Just to get a sense, is it roughly 85% to 90% of the contracts with 10% qualifying as marginal business that could become more competitive?

Yeah, I think that's not unreasonable.

Okay. Got you. Appreciate that. And just one quick follow-up on the bankruptcy issue in Brazil. Just can you provide some more color on that customer and what gives you the confidence that you should be able to recoup most of the receivables that you have outstanding with them?

So we have registered collateral in one of their large new breweries, land, and building. So I don’t really want to talk about what the customer is going to do. They haven’t filed their plan yet. But a variety of things can happen when they file their plan. They can try to run the business as is going concern. They can sell one or two breweries. They can sell the whole company. There’s a variety of things they can do. We believe that large new brewery where we have collateral is a brewery that they or somebody else will be more than happy to run and make beer in. So our hope is that they remain an independent going concern and we have a broader customer base that we continue to supply in the market, we will see where it goes. But I think from a collateral standpoint, as I said, we have comfort where we sit right now.

Got it. Thanks very much and good luck for the balance of the year.

Thank you.

Thank you. The next question comes from the line of Angel Castillo from Morgan Stanley. Your line is now open.

Hi. Thank you for answering my question. I wanted to follow up on the strong performance you're experiencing in Transit. Specifically, could you provide an update regarding the situation in Europe and how it has influenced your outlook for Transit? You mentioned a mid- to single-digit improvement in earnings year-over-year. Can you share more details about what that looks like based on the strength you anticipate for 2023?

You are talking about Transit in total or specific to Europe?

Transit in total, sorry.

I apologize. I wanted to mention that Europe is a smaller segment of the business. Currently, we are observing slightly softer commodity volumes, but we anticipate these will improve as we move into Q3 and Q4 with easier comparisons. Equipment volumes remain strong, and our order book is healthy, reflecting more than a year’s worth of sales in the backlog. While tool volumes are soft at the moment, we expect an uptick as well. Overall, we are significantly ahead of our cost reduction plan, and we are effectively managing raw material costs and pricing for customers. The business, as some have described, tends to be cyclical, particularly in certain end markets it serves. However, due to its diversity, it remains remarkably stable. Apart from the disruptions caused by COVID in 2020, and if we account for currency adjustments, this business has demonstrated impressive stability with minimal capital investment each year since our acquisition. We expect to perform well this year. By adjusting for currency and accounting for last year's divestiture, we project that our income by the end of this year will exceed that of two years ago. While currency fluctuations have an impact, the business remains stable and generates significant cash flow relative to the capital invested. This stability contributes to the company’s overall performance, aids in reducing debt, and allows for returning cash to shareholders. We are optimistic about the current state of the business. Since last year's third quarter, we've implemented a new management team and made numerous changes, and I believe there is still more potential for improvement.

Very helpful. Thank you. And then I just wanted to touch on capital allocation, given the amount of uncertainty and how much maybe edges on what happens in time half, I recognize there may be some limitations as to what you can say. But I think in the past, you have talked about revenue and perhaps returning cash to shareholders once you get into that 3 turns to 3.5 turns kind of net leverage range. Given the uncertainty, would you want to be more solidly kind of at the lower end of that or once we reach the 3.5 turns, should we anticipate that free cash flow will start to flow through to buybacks and returning cash to shareholders? How are you kind of thinking about that from a risk standpoint?

I believe that considering the current state of the financing markets and the costs associated with refinancing, along with the significant number of issuers needing to refinance in the coming years, it would be wise for us to stay at the lower end of the previously discussed range. Kevin mentioned in his prepared remarks that we plan to use this year's cash generation to reduce debt, and we'll reassess next year. We have a bond maturing in September 2024, which we can cover with our internal cash flow. However, given the refinancing pressures we and others will face over the next few years, maintaining a position at the lower end of that range seems prudent. Additionally, with current interest rates, the analysis of the benefits of paying down debt versus buying back stock is now much closer than it was when rates were significantly lower than historical levels.

Very helpful. Thank you.

Thank you.

Thank you. The next question comes from the line of Kyle White from Deutsche Bank. Your line is now open.

Thank you. Good morning. Thanks for taking the question. I think last quarter the beverage cans business, you were cycling through some lower cost absorption in some of the regions given planned inventory reductions, I think it was mostly in Europe and Asia-Pacific. Is this behind you or do you have inventory as well as now where you would like?

I think with the exception of Asia, we are where we would like to be. As we described earlier, Asia came out of Chinese New Year. The customers came out with far too much filled good inventory and we still have a little bit too much inventory in Asia that we are working aggressively to bring down. So there will be some absorption and shortfall in Q2. That’s why I earlier said that Asia, we expect to be more or less, well, I don’t want to say on top of, but more or less close to last year in total for the year, but weighted towards the back half of the year.

Got it. That makes sense. And then in North America, just how is the ramp-up of Martinsville going and then, as well as the expected startup for the Nevada plant? And then, more importantly, how should we think about absorption cost of utilization after those plants are fully ramped? Do you have the volume throughput for these plans in your overall network or do you need to see some underlying market growth in the United States to fully absorb it?

We had an excellent startup in Martinsville. Historically, aside from the start-ups we have had in Brazil, this might be one of the better start-ups we have experienced. Mesquite is still on track to start up Line 1 in July. It is important for Mesquite to start up smoothly because we have significant customer commitments in the Southwest, and we prefer not to transport cans excessively to meet those commitments. We currently have some slack in the system, and as is our practice, we adjust where we produce cans based on costs and customer needs. As mentioned earlier, we are well positioned to meet our customers' demands, which remains our top priority. In past years, we operated too tightly, leaving us vulnerable to any issues that could prevent us from fulfilling customer requirements. Currently, we are fortunate to have some slack like others in the industry. Our primary objective is to ensure we are ready to meet customer needs throughout the summer months, and I believe we are in a good position for that.

Got it. Thank you. I will turn it over.

Thank you.

Thank you. The next question comes from the line of Arun Viswanathan from RBC Capital Markets. Your line is now open.

Hey. Thanks for taking my question. I guess first question is just on volumes, when you think about, say, being maybe up 10% this year in a flat market. When you look out, I guess, in the beverage can markets in general, do you now view them back to historical levels, say, 1% to 3% growth or is it 2% to 4%? And considering it would be maybe 2% to 4%, do you expect that your volumes in 2024 would be kind of within that range or would you be down just given the tough 10% comp that you face in 2024? Thanks.

Starting with the idea that the market is flat this year while we are up 10%, I believe we will continue to grow. I have been saying for the past couple of years that we will eventually return to historical growth rates. A market of around 120 billion that grows 1% to 3% annually suits us well. We are experienced in managing a business like that and can keep costs low to create more value. This business model doesn't require exceptional growth or significant capital investment. We generate a lot of cash, pay down debt, and return value to our shareholders. It’s a reliable approach that works effectively. If we see a return to 1% to 3% growth in the market in 2024, I believe our growth will exceed that due to the Mesquite plant and some new ventures in the Southwest. I will stop here, as I am uncertain about our end-of-year performance or the nature of upcoming promotions and any feedback from customers regarding their plans for 2024.

Okay. Thanks. And just also another longer term question on free cash flow then. So assuming that you are in a kind of more modest growth environment 1% to 3% going forward, what does your CapEx kind of revert to normalize, does the $900 million come down to, say, $700 million and then...

We have already said in February and we reiterated it today that we believe CapEx next year is $500 million and in a market with 1%, 2%, 3% in North America and maybe the same in Europe. We have a platform that we believe is sufficient right now to support their growing and diverse needs over the next couple of years. The only growth capital we would see in the system would be some smaller expansion projects in Asia if they are warranted. So $500 million would be next year’s number and as we sit here today, I would expect $500 million way too early to give you a number for 2025, but it’s hard to understand how it would be more than that in 2025.

Sure. But just to clarify that, that would imply that free cash flow is closer to $900 million and plus as you move forward, is that right?

All else being equal. Yes.

Hey, Arun. One thing is, we have $100 million of inflow in this year’s number from working capital. So, clearly, that’s not something we will get over here, but your number is not far off.

Okay. Got it. Thank you.

Thank you.

Thank you. The next question comes from the line of Adam Samuelson from Goldman Sachs. Your line is now open.

Yes. Thank you. Good morning. And I wanted maybe a follow-up on that last question on market growth. I think previously you talked about a potential for a mid-single-digit global market growth this year. It sounds like you might be airing kind of lower on that at this juncture, but could you help just frame kind of how you think about the global market at this point?

Yeah. I think that, given the challenges we see in one of the specific Asian markets, Cambodia, and Asia getting off to a much slower start than we had initially anticipated, we probably bring our overall growth, even if we hit, let’s say, the U.S. market is flat and we are up to 10%, even if we hit 10% in North America, we are going to be closer to flat to 2% for the full year based on some of the slowness we have seen starting in Asia and even the early slowness in Europe. That’s correct.

Okay. That’s helpful. And then maybe just following up. In Transit, you obviously see a strong start to the year and cost-driven, kind of offsetting some of the volume and market issues that you talked about. How do we think about as you get through some of these kind of more significant cost actions and they layer through the system this year, backlog on the equipment side and visibility to volumes kind of returning to growth in 2024, just what are you seeing in the forward-leading indicators in that business, don’t think about the growth trajectories where some of the more significant cost actions aren’t just big of a tailwind again?

Yeah. So, as I said earlier, the business is far more diverse than most people understand. It’s not as cyclical as want to discuss. The end markets might be, but the business is not. But I think we will have a cost structure. Now that I think we have got some proper management, manufacturing management techniques into the business, we have got a cost structure it’s exceptionally competitive. And as the economy is going to make the turn at some point, whether that’s early 2024 or mid-2024, I am not an economist, but the business is exceptionally well positioned to benefit from the economic turn. And I think that one of the benefits we are seeing in that business right now is with things slowing down a little. Some of the supply chain issues that we have struggled with in the equipment business over the last couple of years are starting to ease which is allowing us to do a couple of things, obviously, complete orders and get them out the door, but reassess our own supply chain to further protect ourselves from stresses in the future. So as I said earlier, for a business where we invest no money, we are exceptionally positive on the outlook for the business.

Okay. I appreciate all the color. I will hop back. Thank you.

Thank you.

Thank you. The next question comes from the line of Jeff Zekauskas from J.P. Morgan. Your line is now open.

Thanks very much. Your accounts payable dropped $450 million sequentially, which is unusual for the first quarter. What’s behind that? And are your payables and accrued liabilities higher by the end of the year year-over-year or lower? Can you talk about that line?

There are two main reasons for that. First, the cost of raw materials is currently lower than it was last year. Hence, as we procure materials to prepare our inventories for the season, they are cheaper, which results in lower payables. Secondly, we've been focused on reducing inventory levels, ordering less than we did last year. We are more cautious about the outlook based on what our customers are communicating compared to this time last year. Consequently, both the cost and inventory levels are lower as we aim to further reduce them compared to where we ended December. Looking ahead to the end of this year, some of this will depend on raw material pricing and our outlook for 2024, particularly with events like Chinese New Year in Asia and Carnival in Brazil, since those markets are more aligned with our winter months than the typical Northern Hemisphere markets.

So what I should take away from your comments is that, that’s a representative number for the year. Maybe it’s a little bit higher, maybe it’s a little bit lower, but given where raw materials are, that’s where your payables and liabilities are running?

Yeah. I mean it might tick up a little bit. We are trying to drive inventory values down to take risk out of our system. We and others carried far too much risk into the third and fourth quarters last year as sales did not materialize and we are very focused on not carrying that risk anymore in the future. So we are going to be a little bit more cautious as to how much we carry.

Okay. Thank you so much.

Thank you.

Thank you. The next question comes from the line of Cleve Rueckert from UBS. Your line is now open.

Hey. Good morning. Thanks for getting me in here at the end of the call. I appreciate it. I just have two questions. I will ask them separately, because they are not really related. But just to start off, I want to be a little bit more direct about the guidance and all the discussion that we have had around promotional activity. If that promotional activity does not materialize, is the guidance range still achievable?

The range is achievable. It's quite a wide range, and there's probably about $70 million of fluctuation between the top and bottom ends. As I mentioned earlier, even if we are optimistic rather than extremely confident about promotional activity, the outperformance in Europe in Transit will more than make up for some of the internal caution we have regarding what we perceive as possibly reduced or delayed promotional activity compared to our expectations at the start of the year. So, yes, the range is achievable.

Yeah. Thanks for that. I just wanted to make sure that was clear. I mean I sort of got some tidbits of conservatism, but it’s pretty clear that promotional activity would represent upside to the plan for the balance of the year, okay?

Well, it would present, it may…

Higher…

I wanted to be more direct about this. Looking at the longer term, I've heard questions from the industry and investors recently. I'm curious whether your customers are making the necessary capacity investments to keep up with the 30% capacity increase you mentioned over the last three to four years. Or is some of the investment needed to accommodate that capacity being postponed? This delay might not be intentional, but it could affect your investment strategy, leading to a longer growth period to manage the current slack in the system.

No, I don't want to go into too much detail about our customers. However, our customers have more than enough capacity installed to meet the needs of the North American beverage can market, which has a capacity of approximately 130 billion to 135 billion cans. Our customers have sufficient can filling capacity in their plants to handle that demand. While can companies operate around the clock, most of our customers do not; they generally run five days a week. If they needed to increase production, they could easily ramp up operations to fill more product. That's not the challenge we are facing.

Yeah. Okay. All right. So it’s really more of a market question than anything structural or investor.

Yeah.

Got it. Thank you very much. Appreciate it.

You are welcome. Thank you. Marcia, do you have any more questions or is that it?

That’s all for the questions. Okay. Well…

Thank you, Marcia. That will conclude the call today. Thank you all for joining us, and we will talk to you again in July. Goodbye.

Thank you.

Thank you. That concludes today’s conference. Thank you for participating. You may now disconnect.