Crown Holdings, Inc. Q3 FY2023 Earnings Call

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

Thank you, Elmer, 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 are contained in the press release and in our SEC filings, including our Form 10-K for 2022 and subsequent filings. Third quarter earnings were $1.33 a share compared to $1.06 in the prior third quarter. Adjusted earnings per share were $1.73 per share in the quarter compared to $1.46 in 2022. Net sales in the quarter were down 6% from the prior year, as higher sales unit volumes in Americas Beverage and a $60 million positive impact from foreign currency translation were offset by the pass through of $187 million of lower raw material costs and lower unit volumes in most other businesses. Segment income at $430 million in the quarter compared to $336 million in the prior year and reflects the benefit of higher unit volumes in North America, the contractual recovery of prior year's inflationary cost increases in European beverage, and the cost reduction initiatives in Transit Packaging. Cash flow of $832 million for the first nine months of '23 compared to $134 million in the prior year, the result of better working capital management. Net leverage improved to 3.5 times, a half-turn improvement from the second quarter, driven by higher third quarter operating income and better operating cash flow. Fourth quarter adjusted EPS is projected to be in the range of $1.40 to $1.50 per share with a full year adjusted EPS of $6 to $6.10 per share. Our guidance includes the following: net interest expense of approximately $390 million, a $0.40 incremental non-cash pension and post-retirement costs, average common shares outstanding of approximately 120 million, and a full year tax rate of approximately 24%, depreciation of approximately $340 million compared to $301 million in '22, non-controlling interest expense to be approximately $135 million, dividends and non-controlling interests, approximately $120 million. After capital spending of $900 million, free cash flow is projected at $500 million, and we currently expect year-end leverage to be 3.25 times. With that, I'll turn the call over to Tim.

Thank you, Kevin, and good morning to everyone. Kevin just provided a sea of numbers, so I'll be brief, and then we'll open the call for questions. As reflected in last night's earnings release and as Kevin just summarized, third quarter performance was in line with expectations as each of our three larger businesses, that is Americas Beverage, European Beverage, and Transit Packaging, all continued to perform well, offsetting softness in North American aerosols and Asia. For the quarter, total company segment income improved by 28% from a challenging prior year third quarter, and we expect similar improvement in the fourth quarter. Importantly, through nine months, and as Kevin just noted, free cash is $700 million ahead of the prior year nine-month period due to an improved working capital position with net leverage being reduced by a full one-half turn in the quarter. As Kevin noted, we estimate year-end net leverage to be around 3.25 times after giving effect to the Helvetia Packaging acquisition completed in early October. North American volumes advanced 12.6% in the third quarter, helping to advance income in the Americas Beverage segment by 25% over the prior year. Through nine months, unit volumes in North America are up more than 6% over the prior year. And while we are still early in the fourth quarter, demand remains firm, and we maintain our estimate of 7% growth for the full year. Earlier this month, commercial shipments commenced from line one at the company's new plant in Mesquite, Nevada, with the startup of line two scheduled before the end of the year. Post-pandemic economic conditions appear to be improving in Brazil, and we remain positive as we enter the busy summer selling season. Income performance in European Beverage was up significantly over the prior year as inflationary pass-throughs helped the business recover margin from the challenging prior year third quarter. Our unit volumes in the quarter were down 5% across the segment as our regional mix, which is weighted more towards Southern Europe, caused our volumes to underperform a flattish market. More important than volumes, acceptable operating margins have been restored to the business. Unit volumes across Asia Pacific were down 9%, with continued weakness in Vietnam as fillers across that country look to adjust their filled goods inventory into weakening economic conditions. Volumes across Cambodia and China remained firm in the quarter. Income in Transit Packaging was up almost 20% in the quarter, as continued positive price/cost management, combined with reduced overhead costs and higher equipment deliveries, more than offset lower consumables volumes. A solid performance through nine months with income at 15% of net sales, tracking for another very strong full-year cash flow performance. With a more streamlined cost structure, the business is well-positioned to benefit further as industrial activity improves in the future. Performance across North American tinplate and can-making equipment continued to be impacted by a very soft aerosol can demand, with aerosol volumes in the quarter down 15% from the prior year. So in summary, and as we said earlier, third quarter performance was on plan, income up, leverage down, and our expectation is that fourth quarter EBITDA should improve by a similar percentage as the third quarter, delivering further debt and leverage reduction. And before we open the call to questions, we again would ask that you limit yourselves to two questions, so that as many of you as possible will have an opportunity. And with that, Elmer, we are now ready to take questions, please.

Thank you, speakers. We'll now begin our question-and-answer session. Our first question is from Mr. Mike Leithead from Barclays. Your line is open. You may begin.

Great. Thanks. Good morning, guys.

Good morning, Mike.

I know the world is a bit uncertain right now, but can you maybe speak to any early thoughts about Crown's 2024 earnings potential or company-specific drivers?

Let's hold off on that until February. I wouldn't say we're at the very beginning of the budget process, but we haven't finished it yet. There are still some moving parts, and I believe it would be more effective to wait until we complete the process.

Fair enough. Regarding North America, you have reaffirmed your outlook for volumes for the full year. Can you talk about your conversations with your customers regarding demand in the North America market today?

Yes. So our mix, perhaps a little different than some of the others, but weighted more towards CSD, nutraceuticals, light energy drinks, carbonated water. Our customers continue to push cans. They see cans as an important element in their sustainability journey. And we're going to continue to benefit as long as they can continue to promote the can. So as we sit here today, I would say very positive on the volume outlook for Q4. And obviously, we've got a higher base, but the absolute number of can growth that we see in '24 is probably similar to the absolute level of can growth we saw in '23. So significant can growth again.

Great. Thank you.

You're welcome.

Thank you. Next question is from the line of George Staphos from Bank of America. Your line is open. You may begin.

Yes. Hi, good morning. This is actually Cashen Keeler on for George. We had conflicting calls this morning. So, I guess, just first on the revised guidance, what segments saw the biggest change in your forecast relative to prior expectations? Was that primarily Asia and aerosol? And I guess is it possible to put any numbers around changes in expectations there?

Yes. As we mentioned in last night's release and in our prepared comments, the aerosol business in North America and Asia has seen a decline, which is partially offset by stronger performance in the Americas and in Transit. Overall, if you compare those two businesses, we are expecting a decrease of about $15 million to $20 million for the third and fourth quarters compared to what we anticipated when we spoke to you in July.

Got it. Okay. And then just quickly in terms of the Helvetia acquisition, is there a way to think about the impact from an earnings or revenue standpoint from here?

Yes, it's a high-speed one-line can plant with an end line. I can tell you that we paid around $125 million for it. If you've been following the costs to build a can plant, particularly a high-speed line with an end line, you'll realize that this is a good deal for the company, significantly below what we and others are paying for similar can plants. The plant is currently down because we are in the fourth quarter, which is a slower time, and we are using this opportunity to carry out necessary preventative maintenance and restore the plant to our standards. This will help improve all key performance indicators, including efficiency and spoilage, for next year. We also need to evaluate their depreciation rates, but it's reasonable to estimate segment income in the range of $5 million to $10 million.

Great. Thanks. I'll turn over.

Thank you.

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

Great. Thanks for taking my question. I guess, yes, so overall, North American volumes have been quite strong, in line with your expectations. Obviously, promotional activity does appear to be in line with your expectations as well. Maybe you could just comment on that. And then as it relates to Europe, it looks like you are ahead a little bit on your profit recovery there. So how do you see that trending into next year? I guess, specifically, do you expect low single-digit volume growth for North America and then expect maybe Europe to improve on the profitability that you've seen before that $259 million in EBIT? Thanks.

Yes, Arun, please stay on the call as I might forget one of these questions. First, I want to highlight that North American volumes have increased by 12.6%. This is in contrast to last year's third quarter, where we experienced a decline of 6%, while the market was likely down by 5% or 6% during that same period. Historically, for a market as significant and stable as North America, that was the worst quarter I've seen in over 30 years in the North American can market. We do have other emerging markets that may show considerable fluctuations, but nothing compares to the decline we experienced in North America last year during the third quarter. Approximately half of this year's increase is a recovery from that extremely weak performance last year. Additionally, customers began ramping up their promotions around May, as we mentioned during the second quarter call, and have continued to do so into the third quarter. Currently, in October, the promotional activity remains significantly higher than what we observed last year. Regarding Europe, we initially projected that by 2023, we would be halfway back to our 2021 income levels. However, it looks like we are now closer to 75% recovery, and our aim is to fully return to the 2021 income level by the end of next year, barring any significant currency fluctuations, which are always difficult to predict. Have I addressed all your questions?

Yes. That was great. If I could have one follow-up. Just on capital return, you are seeing that inflection point on free cash flow next year with the lower capex. So how do you expect to kind of use those extra free cash flow dollars? Would they be allocated more towards share repurchase potentially? Thanks.

Historically, in the packaging and can industry, we have generated significant cash flow in low growth scenarios, using that cash to reduce debt and repurchase stock, resulting in annual EPS growth of 5% to 12%. Recently, many shareholders have indicated that given the current and expected interest rates, they would prefer a reduction in our leverage from the current 3 to 3.5 times. We will consider this as we approach upcoming maturities, not only our own but also those across the high-yield bond market, many of which will be refinanced at higher rates than we currently have. Therefore, it's becoming less obvious that stock buybacks are more beneficial than paying down debt at this time. We are paying close attention to our shareholders, particularly the larger ones, who are advocating for a more conservative approach to leverage than we might have favored in the past.

Thanks.

Thank you.

Thank you. Our next question is from Anthony Pettinari from Citi. Your line is open. You may begin.

Good morning. I'm wondering if you can talk about kind of operating rates maybe broadly by region. And you've given preliminary capex guidance for '24 and '25. Assuming this capex guidance doesn't include big greenfields, just wondering if you could talk about where you think you may be able to grow volumes over the next couple of years without adding kind of big projects?

Yes. We can grow in every market without needing additional capital. This year, we launched two large can plants in the United States, in Virginia and Nevada. As they progress through their learning phase and enhance productivity, we will see an increase in the output of marketable cans. Operating rates in North America are reasonably strong. In the second quarter, and a bit better in the third, we are operating at about 90% to 92%. There is no supply/demand imbalance in North America. As demand for cans continues, we have some spare capacity to meet that need, and I expect the conditions will remain stable and improve over time. Although some other markets might have some excess capacity, they are not unhealthy. For instance, Brazil is beginning to show economic improvement with decreasing interest rates and unemployment, alongside a slight uptick in consumer spending and positive GDP growth. Over the next few years, we and others can effectively meet the growth in the Brazilian market, as we have done for the past two decades. On the other hand, the Vietnamese market has been very weak this year, with beer fillings down about 25% compared to last year. However, we are ready to grow as that market recovers. In Europe, we're currently establishing a large two-line can plant in the UK, which will replace an existing facility and also add some new capacity. Along with the capacity we added in Italy and Spain earlier this year, we are positioned to grow without requiring any investment beyond the $500 million we've discussed for the next few years.

Okay. That's very helpful. And then just switching gears, can you help us understand kind of what's going on with aerosol and maybe outlook moving forward? If this is destocking, maybe where are we in that process? And just any additional color you can give on aerosol?

Yes. As we mentioned earlier, aerosol products are quite sensitive to economic conditions. The aerosol can is a very convenient and clean way to dispense products, but it tends to be more expensive for consumers. When budgets tighten, people cut back on purchases like air fresheners and bug sprays. Additionally, fewer men are shaving compared to before, leading to decreased sales of shaving cream as some opt for using bar soap instead. While it may be less comfortable, if consumers can avoid spending, they will. Currently, the market for steel aerosol cans is struggling, and I expect others in the industry will report similar challenges. We are also seeing a gradual shift from steel aerosol to aluminum for certain products, specifically those associated with women and suntan lotions, but this transition is slow and primarily driven by economic factors.

Okay. That's very helpful. I'll turn it over.

Thank you.

Thank you. Our next question is from Ghansham Panjabi from Baird. Your line is open. You may begin.

So, I guess, going back to the North American Beverage for 3Q, up 12.6%. Was that in line with your internal plan or was it better? And if so, what drove that? Was it promotional spending, maybe a very hot summer, etc.? And then what do you estimate the market itself in North America grew in the third quarter?

I would say it was a bit better than we expected. When we were sitting here in July, no one believed us when we said we would see significant growth in Q3. We had a decent estimate, thinking we would be up between 11% and 11.5%. It seems we ended up about 1 to 1.5 points higher than our initial expectations. This increase can be attributed to a rise in promotions from several large carbonated soft drink companies and some well-known national and regional sparkling water brands. As for the market, we no longer receive data from CMI, but I would assume that at least for domestic producers, we grew by a few percent. If you consider the overall market, taking into account lower imports this year compared to last year, which are virtually negligible now, it might have been flat or up by about 1%. For domestic producers, I would estimate we are up a few percent, though this is just my guess.

Okay. That makes sense. And then you made some constructive comments on supply/demand, specific to North America. But there are new players. Your customers are dealing with persistency of inflation. The consumer is resetting purchasing patterns and being much more price-conscious, etc. As we kind of think about contract renewals for the industry going forward, should we expect a paradigm where maybe volumes are very lumpy between the different players as contracts come up for renewal? I'm just trying to think this out as it relates to the next couple of years, assuming we have the current operating environment we do over the next two years.

I believe the current operating environment shows that, based on the capacity installed today, it seems that no additional capacity will be added beyond the Mesquite project and possibly one line entering the Midwest from a new competitor. I am not aware of any other capacity entering the market. Given the installed capacity and the absence of competing imports, we now have a domestic market supported by our entire manufacturing presence. Our customers are backing can production as they focus on meeting their sustainability goals, which they cannot achieve without cans. Therefore, I believe that the supply and demand situation is currently stable and will likely improve. While I can't speak for everyone, we don't have any contracts expiring until around late 2026, putting us a couple of years ahead. If there is any growth or increased volumes outside of existing contracts, there may be a competition for that growth. However, I don't see any reason for concern looking ahead two to two and a half years from now, though anything is possible.

Thank you.

Thank you.

Thank you. Our next question is from Gabe Hajde from Wells Fargo. Your line is open. You may begin.

Tim, good morning.

Gabe, hold on a second. Hey, Elmer, you've got a connection problem, just be careful of that. Go ahead, Gabe.

Is there any better?

You're better, yes.

Thank you. I wanted to talk about Europe again and ask about the market, which you've indicated is somewhat flat. I recognize this varies by player. There’s a Chinese competitor planning to open a second plant there. It seems to be influenced by specific customers at this stage, but I wonder if this market could see increased competitive activity since contracts tend to be shorter there. It looks like you are well-prepared for 2024, and you have expressed confidence about next year. I'm interested in revisiting the topic of utilization. Are there particular regions or areas where you are noticing competitive activity?

Yes. Regarding the Chinese competitor, they established their first plant in Belgium tailored to specific customers. While they benefit from advantages in China, such as government-sponsored aluminum reductions and low labor costs, those advantages do not apply in Europe where they are subject to Belgian labor rates. They are either importing inexpensive Chinese metal or sourcing from Europe. Therefore, the competitive challenges in China differ significantly from those in Europe or other markets. At Crown, we focus more on the perimeter regions, including the UK, Spain, Italy, Greece, Turkey, and we also have a plant in France. Following the Helvetia acquisition, we now have operations in Germany and Slovakia. Although we experienced a slight decline, the market appears to be stable, possibly showing slight growth. This growth is expected to be more concentrated in Northern or North Central Europe where our presence is limited. However, as we discuss our outlook, I see no reason not to expect another increase next year, albeit not as significant as this year's growth. We anticipate returning to our 2021 levels, supported by our capacity footprint and new high-speed efficient lines that will benefit the company in the long term. The sustainability narrative is also strong in Europe, paralleling our efforts in North America, and may be even stronger.

I apologize for asking this, but I need to squeeze in two more questions. First, could you comment on the situation in the Middle East? I know you have been operating there for a long time, and the current events might be somewhat disruptive. Secondly, there has been a lot of attention on obesity drugs in the headlines. Are you hearing anything from your customers or in your conversations regarding the potential impact on sugary drinks?

Yes. Regarding the situation in the Middle East, we have not seen any impact as we have no operations in Palestine or Israel, and I am not aware of any shipments to Palestine. I am unsure if there are any fillers in Palestine. In Israel, we occasionally import a small number of cans. Our presence in the Middle East includes Saudi Arabia, Tunisia, North Africa, the Emirates, Dubai, and Jordan. Jordan, being closer to the region, has remained insulated from the conflict between Israel and Palestine, so there has been no effect there. In relation to Ozempic, Wegovy, and other drugs, I acknowledge the comments made by a major retailer. I would have preferred to provide more context before many hedge funds reacted. When they mention that the customers obtaining these drugs at Walmart Pharmacy are buying less food, I don't believe they are buying fewer beverages. They may be purchasing less of certain food items like macaroni and cheese and frozen pizza, which people tend to avoid while on these medications. People still need some treats. We have not observed any impact, and I expect that major multinational and regional beverage fillers in the U.S. would support this view, confirming there has been no effect at all. It is astonishing that, given the low take-up rate at this time, projections suggest some significant calorie reduction that Americans may experience in the future. Even when considering those projections, it's remarkable that someone thought they could effectively measure that impact. I do not see this as posing any risk to our business or our customers' businesses in the foreseeable future, especially with the growing reports on side effects.

Thank you.

Thank you.

Thank you. Our next question is from Jeff Zekauskas from J.P. Morgan. Your line is open.

Your capital expenditures are expected to decrease to $500 million next year. Is that just for maintenance, or does it include any growth aspects? If it does have a growth component, what is it?

I would estimate that $250 million to $300 million will be for maintenance, with the remainder for minor growth and product replacement. Product replacement is a key factor; if it isn't done, it can lead to negative growth. For example, transitioning from standard cans to slim cans falls under product maintenance. So, consider the $300 million and $200 million accordingly.

Great. And I mean, is it easy to forecast when Asia Pacific turns around?

I'm not sure, Jeff. You work for the largest bank in the U.S., and you must have people there who know more about Asian economies than I do. I don't mean to sound sarcastic, and I apologize for that. The region has seen significant growth across various industries, particularly in the beverage can sector, as beer sales have increased. For additional beer sales, consumers have shifted from bottles to cans. If you've visited Asia, you know there's a growing middle class. Their disposable income may not be as high as ours, but they enjoy small treats, especially beer, and value social gatherings. However, I can't confidently project when this will pan out. The population is very young, which suggests there is potential for growth over the next decade. But I can't commit to when we will see Vietnam bounce back. I don't believe it will stay stagnant throughout next year. Will it recover by this time next year? I'm uncertain.

Thank you so much.

Thank you.

Thank you. And we have a question on the line from Phil Ng from Jefferies. Your line is open.

Hey, Tim.

Hi, Phil.

I'm shocked it took half an hour to get a GLP-1 question so far, but I appreciate the insights you offer, Tim, on the subject matter.

Well, Phil, I just find it hard to believe that anyone who has observed American consumption levels of food thinks that any drug will change people's desire to eat and drink what they enjoy and socialize. Sure, occasionally someone may want to lose 10 pounds, and there are those who need to reduce weight due to diabetes or other health issues. However, we're discussing a $120 billion market here. This seems like a small aspect of the overall market. It's impressive to me that we've gotten to this point.

Well, I guess, more importantly, if I heard you correctly, Tim, you're expecting North America, your business to be up 7%, and you're calling for a similar growth profile in 2024. So help us...

Phil, what I said was that the absolute level of cans would be up by the same amount next year, the percentages are down because the base is higher, right?

Okay. So can you help size what that percent would imply then, I guess? And what's driving that? Are you assuming a flattish market or are you seeing share gains like you've seen this year as well?

We will provide specific details in early February, but I want to highlight that we are experiencing share growth alongside a belief that the market will continue to expand. We anticipate that customers will keep supporting cans to enhance their sustainability initiatives, as well as for the distinct advantages our cans offer, such as stackability, filling speed, transportation, and more. The can is truly an outstanding product, and that is undeniably clear.

I mean, I guess the great thing is it sounds like you've locked up pricing. So you got a good line of sight there too as well. I guess pivoting to your two more economically sensitive businesses, and to be clear, you've managed Transit exceptionally well this year. But from a volume standpoint and quoting and bidding activity, how has that progressed for aerosol and Transit so far this year?

Aerosol is down across the board. We have some segments of our aerosol business that are doing well, such as automotive and some DOT-sensitive products, but for the most part, categories like air fresheners, bug sprays, and shave creams are declining. Regarding Transit, we have struggled to get the investor and analyst community to recognize the benefits of a business that generates between 13% and 16% in the third quarter, requires minimal capital, and has a cash conversion rate exceeding 85%. Year after year, it generates unlevered cash flow over $300 million. This year, we have effectively managed the business; the team is exceptional, and it serves a wide range of industries. To put it simply, whenever you see a truck on the highway, there is a 60% chance it contains a Signode product. The transportation industry relies on Signode, making it a more stable business. While it is economically sensitive, we do not invest heavily in capital, so our growth is somewhat tied to GDP. Even during a downturn in the consumables market, we still provide high-margin equipment and automation for customers looking to reduce costs in their processes. Overall, it's a very good business.

Tim, I asked the question incorrectly. I'm just trying to gauge, are you getting to the point where demand and your quoting activity is getting less bad in stabilizing for either aerosol or Transit?

I'm sorry for any confusion. I may have reacted defensively to your question. Regarding aerosol, we haven't noticed any improvement in quoting activity. At the beginning of September, I would have said the same for Transit. However, I felt September was better in some markets, particularly in equipment. I currently have a preliminary budget for Transit and I feel more optimistic about it now than I did a few weeks ago. The market cannot remain down for too long, and as I've mentioned, the transportation industry is reliant on Signode. We will see consumables returning, but in the short term, we are beginning to observe some improvement in equipment and automation.

Okay. Appreciate the color.

Yes.

Thank you. Next one is from Michael Roxland from Truist Securities. Your line is open. You may begin.

Yes. Hi, guys. This is actually Nico Pacini on for Mike Roxland today. I was hoping you could just talk about the cadence of shipments in North America during the quarter from month to month?

I don't have the exact figures in front of me, but if you look back at our July transcript, you'll find that April was particularly weak. We experienced mid-single digit growth, possibly around 6% or 7%, in May and June. I can tell you that each month in the third quarter improved, with July and August seeing about 8% to 9% growth, and September was particularly strong, leading to a growth rate of 12.5% to 12.6%.

Perfect. Thank you. And then a follow-up. Just you spoke on it briefly earlier about your start-up in the UK, Peterborough, when you said line one in August and was line two starting in October?

Yes. That's been delayed. We're probably starting line one now, and line two will start in a month or two. We've had some electrical and other delays, components and contractor issues. So we're getting there.

Got it. Perfect. Thank you. That's it from me.

Thank you very much.

Thank you. Our next one is from Adam Samuelson from Goldman Sachs. Your line is open. You may begin.

Yes. Thank you. Good morning, everyone. There's been a lot of ground covered, but maybe coming back to Brazil and the demand environment there, obviously, you're getting into their peak season. Does seem like a more favorable consumer backdrop there than in the last couple of years going into their summer. Any kind of additional color on what you're seeing from your customer base and order patterns there would be helpful?

It's interesting to note that in the third and fourth quarters of last year, the market was quite strong. Volumes were up by about 6% or 7% in the third quarter and possibly 8% or 9% in the fourth quarter. Unlike the easier comparisons we had in North America, Brazil presents a firmer comparison. The market seems to be stabilizing. One major customer is nearing the completion of their reorganization process, and we believe they will operate successfully moving forward. We are well positioned with them in terms of supply capability, coverage of our receivables, and their asset situation. Overall, we feel optimistic about this. The market is slowly recovering from the pandemic, and it may take a couple of years for the excess capacity to be absorbed. However, we anticipate continued improvement for beverage can companies in the future.

Okay. That's helpful. And then just quickly for the fourth quarter, there's the allusion to some kind of production downtime in aerosol can in Asia and in Transit. Any way to just quantify kind of the volume impact and/or any specific kind of unallocated overhead that will flow through the P&L as a result of that?

Yes. We have expressed our goal to reduce working capital, generate more free cash flow, lower leverage, and decrease debt levels. Interest rates are no longer at 2%; they're around 7%, making it essential for us to minimize debt. We made significant efforts in the third quarter to achieve this and plan to continue in the fourth quarter to start the new year with a more favorable balance sheet. However, aerosol can shipments dropped 15% in the third quarter, following a weak performance in the same quarter last year. The overall aerosol market has been soft this year. In transit, volumes and equipment are up, but consumables are down in the mid to high single digits. We can manage this without significantly impacting margins, but we want to avoid carrying excess inventory. In Asia, particularly Vietnam, the situation is quite weak, with an estimated volume decline of 15% to 17% in the quarter, making it our largest market in Southeast Asia. Cambodia and China are slightly better, and we aim to align inventory accordingly. I want to be cautious when discussing absorption; there may have been some in the third quarter, and we're prepared to handle any additional absorption losses in the fourth quarter while reducing debt as much as possible moving forward. I can suggest a figure like $10 million or $12 million, similar to the earlier $15 million estimate for Asia and aerosol, reflecting a decrease from our position in July when we last updated you.

That's all. That's all very helpful. I appreciate. I'll pass it on.

Thank you.

Thank you. We don't have any further questions. I'd like to hand the floor back to our speakers.

Okay. Elmer, thank you very much. That will conclude today's call. We'll look forward to speaking with you again in the New Year, I think early February. Bye now.

Thank you, speakers, and that concludes today's conference, and thank you all for joining. You may now disconnect. Thank you very much.