Good morning. And welcome to Crown Holdings Second Quarter 2023 Conference Call. Your lines will be placed in a listen-only mode until the Q&A session of today’s call and please be advised that this call is being recorded. I would now like to turn the call over to your host, Mr. Kevin Clothier, Senior Vice President and Chief Financial Officer. Sir, you may begin.

Thank you, Jackie, and good morning, everyone. Joining me on today’s call is Tim Donahue, President and Chief Executive Officer. If you don't have the earnings release, it's available on our website at crowncork.com. We will be making several forward-looking statements during this call. Actual results may differ significantly from these statements. Additional details regarding factors that could affect actual results can be found in the press release and our SEC filings, including our Form 10-K for 2022 and subsequent documents. In the second quarter, diluted earnings were $1.31 per share, down from $2.43 in the same quarter last year, which included $0.60 per share from the sale of our Kiwi business. Adjusted earnings per share were $1.68 for the quarter, compared to $2.10 in 2022. Net sales decreased by 11% from the previous year, mainly due to higher sales volumes in Americas Beverage, offset by approximately $300 million in lower raw material costs, reduced unit volumes in other businesses, and a $25 million impact from a stronger U.S. dollar. Segment income was $414 million for the quarter, compared to $432 million last year, benefiting from contractual recoveries of prior inflationary costs in European Beverage and cost-cutting initiatives in Transit Packaging, but affected by lower overall net volumes. Operating cash flow reached $293 million for the first six months of 2023, compared to $196 million last year, marking the highest cash flow for this period in the last decade. This $100 million increase in operating cash flow reflects our efforts to lower elevated inventory levels from year-end. The results for the second quarter aligned with our expectations. We anticipate third quarter adjusted EPS will be between $1.70 and $1.80 per share. For the full year, we expect EBITDA to grow between 8% and 12%. Our anticipated full year adjusted EPS is projected to be between $6.10 and $6.30 per share, affected by higher transactional foreign exchange expenses and lower equity earnings compared to previous guidance. Our full year adjusted earnings incorporate net interest expense of $400 million in 2023, up from $270 million in 2022, an increase of $0.40 in non-cash pension and postretirement costs, approximately 120 million average common shares outstanding, and a tax rate between 24% and 25%. We project depreciation of around $345 million, compared to $301 million last year, with non-controlling interest expense expected to be about $135 million and dividends to non-controlling interest around $120 million. Free cash flow is estimated at $500 million, with capital expenditures of $900 million. We plan for most of our free cash flow to go towards debt reduction until we achieve our target leverage ratio range of 3 to 3.5 times. With that, I will turn the call over to Tim.

Kevin, thank you, and good morning to everyone. Trends were similar to the first quarter, so our prepared remarks will be limited before we open the call to questions. As reflected in last night’s earnings release, and as Kevin just summarized, second quarter performance was in line with expectations. As beverage in the Americas and Europe and Transit Packaging continue to perform well, offsetting below-the-line foreign exchange losses and lower equity earnings. Kevin also briefly noted our efforts to reduce raw and finished beverage inventories from year-end levels. The initial results of which are evident on the cash flow statement. And as important, inventory carrying risk that we experienced in the second half of 2022 has been mitigated this year. In Americas Beverage, unit volume growth was 1.5% in the quarter, with North America up 2.5% and Latin America flat versus the prior year. After a weak April, promotional activity in North America accelerated in May and June, and we remain optimistic about the prospects for improved volumes in the back half of the year, and while still very early in the third quarter, volumes to date in July are also strong versus the prior year. Based on customer commentary, we estimate that the North American market was down in the 3% to 5% range for both the second quarter and for the six-month period. Accordingly, we revised the volume growth assumption for the full year to approximately 7% given the market decline in the first half. Income performance was strong in the quarter with volume growth and the April 1st PPI increases almost fully offsetting Bowling Green insurance recoveries of $20 million in the 2022 second quarter and the impact of lower activity levels designed to bring down inventory levels. Construction on the Mesquite, Nevada facility is nearing completion with commercial startup scheduled for late August. Unit volumes in European Beverage declined 5% in the second quarter, with weakness in Greece, Italy and Spain, offsetting growth in France, Turkey and the U.K. More importantly, we have made significant progress in restoring investment-justifying margins to this segment, which you will continue to see in second half performance. The construction of the Peterborough plant in the U.K. is nearing completion, with commercial shipments expected in August and October from Lines 1 and 2, respectively. Similar to the first quarter, beverage can volumes in Asia-Pacific declined double digits. We did see recovery in Cambodia, but Vietnam remains soft. The cumulative effects of inflation, combined with slowing economies are contributing to lower consumption across Southeast Asia. We do expect second half income performance to improve over the prior year albeit against easy comps and be weighted more towards the fourth quarter. Transit Packaging had another solid quarter with income up 20% over the prior year, with margins improving across all product lines as reductions to overheads and SKUs combined with price cost management have more than offset the impact of lower volumes. With 2023 income performance expected to be the highest ever, the business is well positioned to deliver even more as industrial activity improves in future years. In summary, performance in the second quarter was on plan, a solid first half with improvement expected in most businesses in the second half leading to significant year-over-year improvement in segment income and EBITDA in the third quarters and fourth quarters. Turning to the balance sheet. At the midpoint of the year, leverage is just under 4 times, with improved EBITDA expected in the second half, again, against easy year-over-year comps, we expect to close 2023 leverage well within our stated range of 3 times to 3.5 times. And just before we open the call, we ask that you limit yourselves to two questions so that as many of you as possible will have an opportunity. And with that, Jackie, we are now ready to take questions please.

Thank you. Our first question is from George Staphos of Bank of America. Your line is open.

Yeah. Hi. Good morning. This is actually Kash sitting in for George. We had conflicting calls this morning. So, firstly, I guess, why do you expect volumes to ultimately recover here, and I guess, what are your customers telling you right now? And relatedly, is there anything or an underlying trend that worries them or you about the longer-term volume outlook from here?

What region are you asking about? I assume you are referring to North America.

Yeah. I guess North America would be helpful. Yeah.

I understand you are asking when volume will recover. For us, volume was up 2.5% while the market overall was down. April was particularly weak, with our volume down in the high single digits. However, we experienced growth in the high single digits in May and June, and we're already seeing similar growth in July. This indicates a positive trend over three consecutive months. I expect to see continued high single-digit growth for the remainder of the year. As we've mentioned before, our customers are currently adopting a new model focused on delivering value through pricing instead of volume, and this approach seems to be effective for them. While we don't control their business decisions, they are performing quite well. We are also seeing growth and anticipate further increases in the latter half of the year. I'm not convinced that a decline of 3% to 5% is the new normal in this business. I expect the overall market to be flatter in the second half of the year, but as I mentioned, we will continue to see growth.

Got it. Thank you for that. And just, secondly, could you view just Europe, what your profit target is there for this year and for 2024. Are you guys still on track to get back to 2021 levels in Europe by the end of 2024?

Yeah. So as we said last year, I mean, as we said a few calls ago, we thought we would be 50% of the way back to 2024 this year. I think what we said on the last call is, we would be 75% of the way back this year. I think if you were to look at six months to date here in June 2023, it’s probably very close to 2021 levels through six months even with currency such weaker than where we were a couple of years ago. So we are well on our way back to 2021 levels this year. So I think the trend is in the performance to date and we feel really good about the second half of the year. We are not coming off of that estimate. We are going to be well on our way back this year, at least 75% and really, as we sit here today, it’s pretty early, but we are pretty confident in getting all the way back, if not even more next year.

Great. Thanks.

Thank you.

Thank you. Our next question is from Christopher Parkinson of Mizuho. Your line is open.

Can we just dissect the second half in North America, specifically the U.S. volume growth outlook as well? Just in terms of what you are thinking about how your outlook changes with promotional activity in CSD, no promotional activity in CSD, as well as the momentum, which I believe you are benefiting from in the energy drink platform, as well as some pretty lucrative ready-to-drink ramps. So just any color on how the market should be thinking about your growth target would be very, very helpful? Thank you so much.

The first quarter was a bit lighter than anticipated. While we didn’t achieve significant numbers then, April was disappointing. However, May and June performed quite well, and July is off to a strong start as well, even though we are only 20 days in. Looking ahead to the second half of the year, especially with new capacity coming online, we expect to see about a 10% increase compared to the latter half of last year, which was also weak. This backdrop will provide easier comparisons. The business is well-positioned, and we’re beginning to see more promotional efforts, particularly in carbonated soft drinks, teas, and energy drinks, as well as enhanced waters, which are growing rapidly but from a smaller base. The volume growth largely comes from carbonated soft drinks, and to a lesser extent from alcohol, since we are not heavily involved in that category in the U.S., and sparkling water. Promotions are starting to appear, although not as aggressively as we would prefer.

Got it. And just for my second question, shifting down hemispheres. Could you just talk a little bit more about the Brazilian market, I mean, presumably, there’s going to be some easier comps, but at the same time, it still seems like the market challenging and the other dynamics, customer dynamics, which you mentioned on your last call, glass recycling trends, so on and so forth. Can you just give us the kind of updated thought process on that market, how you see it evolving in the second half, and probably more importantly, your view of it in the intermediate to long-term as we head into 2024 and onwards? Thank you.

You are welcome. We have previously stated that we and others have a favorable view of the Brazilian market in the medium to long term. We do not want to get overly enthusiastic about volume performance in any single month, three-month, or six-month period. If you analyze periods of three to five years, you'll notice substantial growth in that market. The market is significantly larger now than in the past, so while the growth percentages may not seem as impressive, the volume growth remains substantial and is important for the beverage can business. When considering the need for capacity to accommodate the delivery of 1 billion or 2 billion units to the market, it's crucial to assess how many production lines and equipment are required. Additionally, the latter half of the year has more favorable comparisons in Brazil compared to last year. Brazil showed slight growth in the second quarter and had substantial growth in the first quarter, although the first quarter of 2022 was quite weak. We expect a solid performance in Q4 as they approach their carnival season. Regarding the customer situation mentioned in Q1, the customer is currently in a bankruptcy process, but they are actively pulling and delivering cans, maintaining strong volumes and paying for them within a relatively short timeframe, without losing any market share in the near term. Overall, we remain optimistic about Brazil at this time.

Helpful color. Thank you.

Thank you.

Thank you. Our next question is from Mike Leithead with Barclays. Your line is open.

Great. Thanks. Good morning, guys. First question on Transit Packaging, I think, this is one of the best earnings quarters since you have acquired the business and I assume demand isn’t that great, so I assume it’s mostly cost. So can you just give us some sort of thoughts around what you think this business’ earnings potential is now or just kind of how much operating leverage it should have to a volume or economic improvement?

That’s a good question. If we look at volume in the second quarter, it's probably down by about 12% or 13%. It's important to note that the business is quite diverse. Some commodity lines may be down 15%, while tooling remained relatively unchanged during the quarter, and tooling generates more profit than the commodity lines. Additionally, as I mentioned in the first quarter, about a third of that volume decline is due to us stepping away from unprofitable customers and SKUs, which we do not favor. The business we exited had no effect on profitability. By simplifying the business and restructuring costs, we’re reducing unprofitable lines. As you rightly point out, profit has grown this quarter and year-to-date, primarily due to cost management and effective pricing strategies concerning indexed hot-rolled steel and paper, so the team is performing very well. Looking ahead, I'm not going to make specific predictions regarding business leverage as industrial activity picks up, but I believe that the new management team’s approach to managing costs gives us more confidence in that leverage. If we consider potential volume growth of 5% or 10% with the rebound in industrial activity, there’s reason to think this could substantially benefit our bottom line, although I'm not ready to provide any bold figures at this time. I agree, however, that there is potential leverage in the business moving forward.

Fair enough. And then second, Tim, just in the release, you talked about using increased cash flow next year to pay down some debt and return to shareholders. Could you maybe just give us a bit more of your updated thoughts on where you think leverage ends this year and just where you still want to get to into next year?

So I think we will be well within the range. If you want a much closer number, I’d say we are depending on where the euro finishes the year, because we do have euro debt that translates the debt a little bit. Think about us ending this year at about 3.2 times or 3.25 times. We feel pretty safe in saying that as we sit here today. We have always described our range as 3 times to 3.5 times. In the last couple of calls, we mentioned that given where the financing markets are and the cost of debt, we would feel more comfortable, and some of our larger shareholders have expressed they would feel more comfortable, if we were at the lower end of that range or even slightly below it before we begin to return excess cash to shareholders. Having said that, next year, capital expenditures will no doubt be far lower than they are this year, and free cash flow should be higher, which will allow us to achieve both reducing the leverage to 3 times or even slightly below that and contemplating returning the excess to shareholders at that point. However, as I mentioned on the last call, due to the current borrowing rates, the differential in value accretion to shareholders between paying down debt and buying back stock is much narrower today than it has been over the last several years.

Thanks, Tim. Thank you.

Thank you. Jackie, do we have any more questions? We lost the Operator, Tom. Give us a moment, we will see if we can find the Operator for you.

Hello.

Hello.

Our next question is from Michael Roxland from Truist Securities. Your line is open.

Thank you, Tim, Kevin, Tom, for taking my questions. Last call, you said you expected to see some type of recovery in Vietnam in 2Q and 3Q as well. I guess what’s been driving the persistent weakness there?

I believe the economy has significantly slowed down in Vietnam. Historically, GDP has ranged between 7% and 10% over the past several years, but this year, it’s now estimated to be closer to 1%, along with a very stretched consumer base. The introduction of strict drunk driving laws has contributed to this situation, and our customers are trying to navigate these changing dynamics in the market. It will eventually rebound, but there is currently excess inventory carried over from Chinese New Year that wasn't entirely absorbed in February and March, and they are working through that. However, it remains a large and growing market. As I mentioned regarding Brazil, we don’t usually get overly enthusiastic about investments in a market with significant potential when there are volume disruptions over any three to six-month period.

Got it. And then just quickly, I think, in the last call you also mentioned you are seeing some customers defer or trying to purchase cans is closer to the summer and to better manage their working capital and to try to minimize their own interest costs. Has there been any improvement on that, that was referencing, obviously, I think, the U.K. Has there been any improvement in that?

So I think the reference there was Europe specifically or Europe, in general, the U.K. specifically, you are right. A little bit of improvement in the U.K., but I think, what I would say is that, we have been exceptionally focused on improving margins in that region and we are not chasing volume at lower margins and that’s probably how I should say it and leave it at that.

Got it. Thanks very much.

Thank you.

Thank you. Our next question is from Ghansham Panjabi of Baird. Your line is open.

Good morning, everyone. Thank you, Operator.

Hi, Ghansham.

Good morning, Tim. Could you perhaps going back to the promotional question in North America, just sort of frame the level of activity you are seeing now versus maybe last year and what’s typical, just given the warmer months, et cetera, relative to the history. I am just trying to get a sense as to how sensitive your earnings outlook for the back half of the year would be to the expectation that promotional activity would be higher, what’s the best way for us to think about that?

That's a good question. I will answer the last part of that question later because I'm going to try to think while I talk, which can be risky. As we have mentioned before, promotional activity in carbonated soft drinks has historically focused on the March to August or September timeframe, with discounts like four 12-packs for $10 or five for $10. Last year, however, there were almost no promotions, and they charged $9 for a 12-pack in the third and fourth quarters. This year, promotions include buy one get one on some sparkling water brands, which are priced at $6 for a 12-pack, making it effectively $3 per 12-pack, which isn't terrible. For carbonated soft drinks, the non-discounted prices remain around $8.79 to $9.29 per 12-pack, and now there's a buy two get one free offer, reducing the price to about $6 per 12-pack. This is definitely higher than what we are used to historically. How much volume that will generate is uncertain; it may indeed drive more volume, but if they continue with this pricing strategy, it could be their new model due to elevated input costs. They may be banking on consumers accepting these prices of $6 per 12-pack rather than the $2.50 they've been accustomed to, hoping that volume will return at these higher price points. We're also preparing for this change within our set. We have observed significantly more consumer activity in the past several months, indicated by the increased number of cans our customers are purchasing. April was particularly weak, but May showed mid-single digits, June high single digits, and so far in July, we've also seen high single digits. We are seeing some resurgence in activity and customer demand. Regarding how sensitive our earnings may be in the second half of the year, if volume doesn't improve, our forecast puts us in the EBITDA range of 8% to 12%. We are currently comfortable in that range but if volume doesn't materialize, we would likely end up at the lower end, which is still a significant figure but not outside our expected range.

Okay. Perfect. That’s helpful. And then if we switch to Europe, I mean, there’s a ton of indications that European consumer spending has weakened sequentially and so on this year in particular. What’s the backdrop in terms of how your customers are responding to that dynamic and are they making any adjustments as they look out to the back half of the year? I assume tourism is positive in Europe this summer, but it looks like the core consumer there is very, very weak?

Certainly. Europe is undoubtedly experiencing a recession. The purchasing manager indexes for several countries are significantly low, falling between 42 and 44. This is particularly concerning for some of the larger economies. The core consumer in regions like the U.K. and France is very weak; they are not poor, but they are struggling to manage essential expenses like food and energy. However, our cans remain a cost-effective solution for delivering beverages and food, and our business is performing reasonably well. Although we saw a 5% decline in the quarter, I believe the overall market is not faring as poorly as we are. We mainly operate in the U.K., Spain, Italy, Greece, and Turkey, with only a small presence in central Europe, such as Germany and the Scandinavian countries. I expect the market will perform better than our results and, as I mentioned earlier, we are not focused on chasing volume at the moment but are prioritizing margin improvement. While consumer sentiment is weak and our customers are adapting their purchasing behavior in response, I do not believe the market for beverage cans is as weak as it may appear. Our strategy currently is different from others, concentrating on enhancing margins.

Yeah. Thank you.

Thank you.

Thank you. Our next question is from Arun Viswanathan of RBC Capital Markets. Your line is open.

Thank you for taking my questions. Regarding the volume in North America, I believe you mentioned that you are up 2% to 3% for the quarter. Despite this, the overall market is still down this year, largely due to some weaknesses in the alcohol segment, though there have been improvements in carbonated soft drinks and water. Looking ahead to next year, do you see the market potentially returning to a growth rate of 2% to 4%? I understand you can't influence beverage companies directly, but what steps can we take to reach that growth level?

I believe that's a really good question. In the latter half of this year, particularly in the fourth quarter, we have an easier comparison than we did last year. If we were to project a decline, and keep in mind these are just my estimates without published data, I expect a decline in the range of 3% to 5%. I'm basing this on our customers' public statements. Only one major CSD company has reported so far, with a decline of about 4% to 4.5%, and I'm also considering other anecdotal information available. I feel confident that this decline will be smaller in the latter part of the year and may even stabilize or slightly increase, given that last year's fourth quarter numbers were not strong. Last quarter, we adjusted our guidance from a 2% to 4% decline to a 1% to 3% decline moving forward. For a beverage can company, being successful doesn't require 3% growth; we can thrive with 1% or 2% growth, especially considering the larger base we have as an industry today compared to the past. We always consider share of stomach and how much growth in that area will come from shifting to cans from other substrates. The can is well positioned environmentally, and the key question is how long it will take for consumers to feel confident enough to spend a bit more on enjoyable treats. This relates to consumer confidence and our customers' pricing strategies, but they have a successful model in place now. As I mentioned, we don't need to achieve 3% to 4% growth to be successful; we can be very successful at 1%. There are some market share shifts occurring, and while we are participating to some extent, it’s not as much as others. However, I believe we will have a solid year this year and an even better year next year. It might be early to discuss next year in detail, but as of now, we feel optimistic about the next 18 months.

Okay. Thanks for that. And yeah, no, I would agree that there is definitely a robust outcome even at a low single-digit growth rate. So I guess on that note, right now you are guiding 8% to 12% EBITDA growth for 2023. Is that really the target that you think is possible, I mean, given that you are able to achieve that with maybe even more muted volume growth than you thought. I know some of it is coming from restructuring at Transit and some other drivers’ recovery in Europe. But should we expect kind of 8% to 12% EBITDA growth rate as your internal targets and what you are trying to achieve on an annual basis, because right now, the consensus for next year is up maybe 5% or 6%, which may be a little conservative. So I just want to get your thoughts on that?

If you were in Kevin Clothier’s office and looked at the papers, you would see a projection for EBITDA growth this year that falls comfortably within the 8% to 12% range. Initially, we based the high end of our range on a 10% growth in North American Beverage, which was expected to be in a flat market, but we have revised that to 7%. However, both the Transit and European beverage sectors are performing better than we anticipated after six months, and we are confident they will continue to surpass our initial plans for the year. This will help us stay within that 8% to 12% range. It's still a bit early to discuss next year's figures, and I don’t want to speculate whether the growth will be 5%, 6%, or remain in the 8% to 12% bracket. Additionally, we are doing well across most of our businesses, though challenges can arise. We've made significant adjustments in Transit Packaging, including resetting our cost structure and sales strategies, positioning that business to thrive from a lower cost base and a more efficient manufacturing approach, particularly as industrial activity improves in the future. We have also reestablished appropriate margins that justify further investments in our European beverage can business, which is progressing towards our targets. Across the Americas Beverage sector, whether in the U.S., Mexico, or Brazil, the businesses are well positioned to perform well, supported by a strong cost base and manufacturing capabilities that can deliver value as we serve our customers. Southeast Asia remains a market we believe will grow, despite current fluctuations. We acknowledge the uncertainty surrounding currency and potential economic shifts, but we prefer not to delve into predictions for next year just yet. What I can share is that we’ve made substantial changes to our industrial infrastructure and cost management that should enable us to navigate challenges and benefit as markets stabilize and consumers increase their purchasing.

Okay.

Thank you. Our next question is Phil Ng of Jefferies. Your line is open.

Phil?

Yes. I can hear you. Can you hear me?

Yeah. We can hear you, Phil. Go ahead, sorry.

Hey, Tim. I missed parts of the call. Can you provide more details on Europe, specifically how the startups are progressing and if you anticipate any contributions in the second half of the year? I ask this because of your earlier comment about the decrease in customers given the current economic situation. I would like to understand more about your outlook for the second half and the impact of the new capacity.

In response to Ghansham’s question, we discussed the volumes in Europe amidst a relatively weak core consumer. This year, tourism has increased in Europe, which may be balancing out the weaker core consumer. We are primarily focused on margin recovery rather than chasing every last sale, and this strategy will continue. We believe it's crucial to achieve appropriate margins before considering further investments in that market. Regarding the second half of last year, the comparisons are quite easy. We will focus on replicating the performance from the latter half of last year, so Q3 and Q4 this year will significantly exceed Q3 and Q4 from last year. This improvement will partly result from better price and cost management, as well as additional sales from Italy and Spain with the new capacity coming online. We will also manage the startup costs in Peterborough while transitioning from Brownstone to Peterborough. Therefore, the latter half of this year in Europe will look drastically different from last year, showing substantial improvements over our previous performance.

Okay. So you feel pretty good about the capacity coming on at a timely backdrop, just given some of the macro challenges in Europe?

Investing is fundamentally about long-term gains. If I were focused solely on the next three to six months, spending hundreds of millions on a beverage can plant wouldn't make sense. These are investments intended to last 50 years, and we have confidence in the product's sustainability. We trust in the markets and regions where we're investing, and we believe in our customers to effectively connect their products with consumers. This forms the basis of our investment strategy. As I've mentioned before, we're not overly preoccupied with short-term fluctuations. Our focus is on the long-term, and we manage our costs in a way that helps us navigate short-term disruptions. While I can't predict consumer behavior over a three to six-month period, I can assure you that we are optimistic about our investments and the future of the business.

Got you. Makes sense, Tim. And then from an Asia perspective, you kind of pointed out how the background has been choppy. The earnings profile has been pretty steady here. Can you give us a little perspective on how you are thinking about the back half and how that progression will look, it sounds like you are expecting some sort of a pickup in the fourth quarter?

Yeah. The only thing I’d correct you, you said the earnings profile has been steady. It has not been steady in Asia. We are down significantly, not only in Q2 but year-to-date.

But I am just talking about sequentially, right, we brought down for the last few quarters, it’s been relatively steady from these drop levels under the…

I think. I think… Q3 will mirror last year's Q3, and Q4 is expected to outperform last year's Q4. However, for the full year, we anticipate a decline, particularly in Asia, due to Q2 underperforming our expectations. While the second half of this year presents easier comparisons to the latter half of last year, as mentioned, Q3 will be similar to last year, and Q4 is expected to be better.

Okay. All right. Thanks a lot. Appreciate the color.

Thank you.

Thank you. Our next question is from Anthony Pettinari of Citi. Your line is open.

Good morning. This is actually Bryan Burgmeier sitting in for Anthony. Thanks for taking the question. You are talking about outperforming U.S. can industry by like 10% on volume growth. I think the first half has been a little bit below the 10% mark, which is maybe a little surprising given the weakness of U.S. beer. Do you think once Mesquite is online, that outperformance can expand in the second half and then also was the Mesquite startup delayed a little bit? Thanks.

Mesquite has been delayed. We had initially hoped to be operational by now, but we faced delays with some electrical component panels from suppliers. We are now targeting a late August startup as we receive the necessary components, which has been somewhat disappointing. The supply chain for these components is starting to improve, but there are still some outstanding issues. We anticipate growth in the latter half of the year, driven in part by the startup of Mesquite, the acceleration of Martinsville as it progresses through its learning curve, and largely due to the promotional activities our customers began in May, June, and here in July. We expect this trend to continue through the end of the third quarter in relation to the business we have under contract and the capacity we have available to meet that demand.

Got it. Thanks for the detail. Last question for me, we don’t talk about non-reportable too much, but was a bit weaker than we expected in the quarter. Can you maybe remind us why non-reportable is kind of unwinding so much this year and do you think maybe on an EBIT basis, do we start to get back to the 2021 levels? Thanks. I will turn it over.

The significant difference that you observed in Q1 was due to the inventory carrying gains we experienced from 2021 into 2022 because of higher tinplate prices, which won't be repeated this year. Additionally, there are two main issues we've been transparent about. First, aerosol can volumes are exceptionally weak in the entire North American market, and I assume in Europe as well, although we're no longer operating there. We're seeing well over a 10% volume decline year-on-year across most aerosol can products, indicating broader economic trends. Historically, we’ve determined that by monitoring our aerosol can volumes, we can forecast the economy’s outlook for the next six to eight months. Unfortunately, aerosol volumes have been weak for the last six to eight months. Secondly, as we mentioned at the end of the first quarter, we implemented a headcount reduction in our global Beverage Can Making Equipment business. This segment is currently slower than it has been in several years as companies adjust and start utilizing much of the new capacity they have developed. Therefore, the Equipment Supply business is performing below previous levels. While I don’t have the figures from 2021 available, I think that the back half of this year will resemble the performance from the same period last year in that business.

Got it. Thanks for all the detail.

You are welcome, Bryan.

Thank you. Our next question is from Kyle White of Deutsche Bank. Your line is open.

Hi. Good morning. Thanks for taking the question. In the U.S., now that you have Martinsville ramping up in Mesquite about to start, are you happy with your current footprint in the U.S., is there room for improvement here to drive operating rates higher or I think in a good spot, just given the current demand backdrop?

I need to be careful in saying this, but it's not my position to comment on what others do. We may not have announced as much capacity as everyone wanted us to a couple of years ago. However, we took a measured approach to our expansion, and we are content with our footprint considering this strategy over recent years compared to the broader market. Today, with our infrastructure in North America and the market share gains we expect over the next 18 months, we are pleased with our geographical and size footprint. It's important to note that we are not just producing 12-ounce cans anymore; we offer a variety of sizes and operate in different regions, and we are quite satisfied with our platform.

Got it. That makes sense. And then on Transit, I think you said volumes in the quarter were down 12% to 13%, which is relatively expected given the global backdrop. Just curious how that progressed throughout the quarter, are you seeing any deceleration in demand as you go into the second half? I know you will start lapping some easier comps, but just curious how things are progressing going into the back half?

I understand your question because I share your perspective. I would have anticipated a decline in volumes throughout the second quarter, but that didn’t occur. Our Transit team is approaching the second half of the year with caution regarding volume expectations. However, I believe they will perform better than expected. The comparisons for the latter half of the year are somewhat easier, although not as simple as other sectors. Overall, the business is holding up better than anticipated. Your inquiry suggests that our business is performing better than we feared and is currently doing better than the Transit team had predicted, likely because they have approached it with caution, which was probably justified given the uncertainty ahead. Nevertheless, the business is demonstrating resilience. We have discussed before that the nature of our business today is quite different from 10 or 15 years ago. It has become much more diversified, serving a wider range of end markets and is less reliant on metals inventory. While some of the markets we operate in are inherently cyclical, the overall stability of the business is bolstered by this diversity in supply and customer base. I understand your point and we too are awaiting a significant slowdown, but it appears the business is holding up quite well.

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

Thank you.

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

Tim, Kevin, Tom, good morning.

Good morning, Gabe.

Good morning, Gabe.

Tim, there was a presentation out on the investor part of your website detailing out quite a bit of the cash flow characteristics of the Transit business and maybe even, I think, the North American food can business and talking about some of the dynamics in there. I am just curious, I know it’s tough in this forum to maybe go into a lot of detail, but just maybe the intent of that presentation or what you are trying to let investors understand with that presentation. And then the cash flow characteristics of Transit specifically, is there anything unique about it in terms of, I guess, repatriating that cash or where it generates a lot of its cash flow relative to the rest of your business?

The second part of the question is straightforward. There are almost no complications in bringing cash back from Transit, much less than in other businesses. We don’t have significant minority interest positions in Transit, so all the cash is ours, and over 50% of the business is in the United States, with most operations in countries where we face no restrictions. It's been some time since we had a comprehensive investor presentation, so we decided to create one and post it on our website for investors to access, whether for conferences or private review. The key takeaway is that cash flow is crucial for running a business. Even though we've been labeled a growth company over the past few years, I find it concerning when investors say not to worry about cash flow, as that indicates a lack of prudence. Cash flow remains vital. Both the food and aerosol can businesses, along with Transit Packaging, have established industrial footprints that require minimal capital to maintain while generating significant cash flow. In the food sector, especially, we have shifted some investments toward pet food, where we are a major supplier in the North American market. In terms of Transit, we need only about 1.5% of sales annually for maintenance or modest growth, and as we highlighted during the acquisition of that business, its capital needs are low, with any growth expected from small acquisitions. It's not a capital-intensive sector, and if you check our annual report, you'll see that the ratio of long-lived assets to revenue for that segment is quite low. This business functions more like a service operation than some of our other businesses, though it still includes elements of manufacturing. Overall, we believe it's essential for everyone to understand our cash generation sources.

Understood. Right. I think it’s a good business.

And so, just...

Second one, two-part, I apologize. One of the things that I am sort of scratching my head on a little bit and we saw this play out, obviously, over the past, I don’t pick a number 24 months in terms of where inventories were at. But from your perspective, is there anything that you can tell us as it relates to your customer’s inventory or maybe finished stock inventory. The reason why I am asking is, because, obviously, there’s I don’t want to say a disconnect, but a timing difference between sell-in and sell-through for the beverage can business, specifically talking about North America. So we are looking at Nielsen data and I appreciate again on the beer side, it’s not as big for Crown. But it seems like I said, there’s this growing CASM in there, and again, I know there are some share shifts. So anything that you can tell us in terms of where you think inventories might be for the system? And then the second part is, obviously, with some of the noise going around with North American beer customer, Mexico has been the beneficiary, can you talk about your ability to participate in that, I think, Modelo has been called out as a pretty big winner, but just anything around Mexican beer.

I would say that in both North America and Europe, our customers do not have any excess inventory. In North America, they almost carry no inventory at all. We deliver just in time, with cans arriving every 15 minutes. They go into the can washer, are filled, and then shipped out. Our customers do not maintain a lot of inventory. In Southeast Asia, particularly after the Chinese New Year, and in Brazil, post-Carnival, we have noticed that customer inventories are a bit higher than usual, which may have led to reduced demand as they work through those inventories. However, in North America, there are no inventory issues on the customer level. Regarding the beer situation, we have a significant Mexican beer can business and serve a diverse range of customers, including those in the beer sector. I would note that the beer customer you're referring to that ships into the United States is not one of our larger clients; it is a more prominent customer for another company.

Got it. Thank you. Good luck.

Thank you.

Thank you, speakers. At this time, we don’t have any questions on queue.

Okay. Then, Jackie, thank you very much. I guess that concludes the call today. Thank all of you for joining us and we look forward to speaking with you again in October. Bye now.

Thank you, everyone. That concludes today’s call. Thank you for joining. You may now disconnect.