Good morning, and welcome to Crown Holdings Third Quarter 2024 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 Mr. Kevin Clothier, Senior Vice President and Chief Financial Officer. Sir, you may begin.

Thank you, Al, 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 and in our SEC filings, including our Form 10-K for 2023 and subsequent filings. Net sales in the quarter were level with the prior year at $3.1 billion, reflecting increases in global beverage can volumes and North American food can volumes, offset by lower volumes in most other businesses. Segment income was $472 million in the quarter compared to $430 million in the prior year, reflecting volume gains in both Americas and European Beverage and the benefits of cost reduction initiatives in Asia-Pacific, partially offset by demand softness across most other businesses. The company recorded a GAAP loss of $1.47 per share in the quarter, mainly due to a non-cash pension settlement charge of $4.33 per share compared to earnings of $1.33 per share in the prior year quarter. Adjusted earnings per diluted share were $1.99, up 15% compared to $1.73 in the prior quarter. Free cash flow remained strong at $668 million through nine months, driven by excellent operational performance and reduced capital spending. We took steps in the quarter to strengthen our balance sheet by transferring approximately $860 million of assets and liabilities of our Canadian and U.S. pension plans to highly rated insurance companies, which will reduce future cash flow and earnings risk. With this action, combined with the previous buyout in the U.K., the company has annuitized approximately $4 billion of pension liabilities since 2021. As part of the settlement, the company contributed $100 million into the U.S. pension plan. As announced during the quarter, Crown's Board of Directors authorized the repurchase of an aggregate amount of up to $2 billion of common stock through the end of 2027. During the quarter, we repurchased $110 million of common stock. We will continue to opportunistically pursue share repurchases through a disciplined approach. We are proactively managing our debt maturities with the issuance of EUR600 million of euro notes due 2023 and the repayment of EUR600 million of outstanding notes due in September. We finished the quarter with $1.7 billion of cash after taking the actions above, and net leverage was 3 times compared to 3.5 times for the same period last year. Before turning the call over to Tim, I want to discuss our expectations for the fourth quarter and full year. Our fourth quarter adjusted earnings per diluted share are projected to be in the range of $1.45 to $1.55 per share. In view of the strong performance year-to-date, we are increasing our full year guidance to $6.25 to $6.35 per share compared to the previous guidance range of $6 to $6.25 per diluted share. Key assumptions supporting the updated earnings guidance include interest expense of $380 million, average common shares outstanding of 120 million and exchange rates at current levels, full year tax rate of approximately 25%, depreciation of approximately $300 million, non-controlling interest between $140 million and $150 million and dividends to non-controlling interest of $125 million. We project 2024 full year adjusted free cash flow to be at least $750 million after making the previously mentioned $100 million pension contribution and no more than $450 million of capital spending. With the combination of free cash flow and the $300 million in proceeds from the previously announced Eviosys sale, we expect to end the year with net leverage below 3 times. As discussed in July, we are committed to our new long-term net leverage target of 2.5 times, which is expected to be achieved through a combination of debt reduction and EBITDA growth, while returning capital to shareholders through dividends and opportunistic share repurchases. With that, I'll turn the call over to Tim.

Thank you, Kevin, and good morning to everyone. I'll be brief and then we'll open the call to questions. As reflected in last night's earnings release and as Kevin just summarized, third quarter operating results were strong and ahead of earlier expectations. As has been the case throughout 2024, Global Beverage operations performed exceptionally well with combined Global Beverage segment income up 23% on the back of 5% global volume growth. Manufacturing performance, including higher efficiencies and lower spoilage was excellent. Additionally, a great effort by the Asian team to embrace and execute the capacity reduction program announced late last year, leading to the full realization of those benefits earlier than expected. Consolidated segment income margin advanced 140 basis points over the prior quarter. Importantly, through nine months, free cash flow is $450 million ahead of the prior year nine-month period due to lower capital expenditures and better working capital management. Net leverage at the end of September after giving effect to the pension contribution and share buyback was 3 times, a full half turn lower than at this time last year. And as Kevin just noted, we expect year-end net leverage to be below 3 times. Americas Beverage reported a 21% increase in segment income on the back of 10% volume growth, including a 5% increase in North America. Our full year volume growth estimates remain at 5% to 6% for North America and mid-to-high single digits in Brazil. Income performance in European Beverage advanced 18% over the prior year, primarily due to 6% shipment growth combined with the continuing benefits of our margin recovery program. Income through nine months this year has now equaled the full year 2021 level in the segment. Income in Asia-Pacific advanced 50% in the quarter as the combined benefits from actions to reduce capacity and improve revenue quality offset an 11% decline in unit volume sales. While demand weakness was noted throughout the segment, we remain well-positioned to benefit from our new lower cost structure when regional volume demand returns. As expected, Transit Packaging income was down compared to the prior year. Shipment volumes and results continue to be impacted by weakening global manufacturing conditions with activity likely to stay in contraction at least through year-end, leading to our cautious outlook at this time. The business continues to tightly control costs while generating significant cash. North American Tinplate operations performed well in the quarter with 5% higher food can volumes, while can-making equipment had lower activity as expected. And in summary, and as we said earlier, a strong quarter where the benefits of higher volumes and the efforts of a world-class manufacturing team were evident. Global beverage operations have been strong for nine months and are expected to remain so through year-end. Global manufacturing conditions remain in contraction, but the Transit business is well-positioned to grow when industrial market demand returns. A solid performance so far this year with margins and income up, EBITDA expected to exceed the record level posted last year, and strong cash flow with leverage down and expected to go lower. And with that, Al, I think we are ready to take questions.

Our first question comes from Ghansham Panjabi of Baird. Your line is now open.

Hi guys, good morning.

Good morning, Ghansham.

Good morning.

Good morning. Yes, I guess on the Americas segment, obviously, very, very strong margin conversion, much higher than our forecast and much better than the trendline for the first two quarters. Just give us some more color in terms of what drove that. And is there any benefits unique to 2024 in price cost or whatever else that may not repeat in 2025 for that segment?

I will address the second part of your question first. As mentioned earlier this year, we anticipate that the business growth we've experienced, specifically the market share gains and our growth outpacing the market this year, won’t occur again next year. We expect our growth to align with the market. In North America, we estimate the market has increased by 1% to 1.5% this year, whereas we are projecting our growth to be around 6% to 7%. If the market grows by 2% next year, we expect our growth to mirror that at 2%. Additionally, we had a remarkably strong performance in Brazil, which rebounded well over the summer. We've consistently expressed our optimism regarding the Brazilian market, despite occasional setbacks. Over time, it has shown a consistent upward trend. Furthermore, Mexico performed very well this year, and margins were notably high. This was partly due to lower aluminum costs, although those costs are beginning to rise again, which will affect percentage margins, but not absolute margins. Overall, our performance surpassed our forecasts, likely by about $15 million in the third quarter. The manufacturing team has been excelling, and we expect to see efficiencies in spoilage and asset utilization resulting in a benefit of $20 million to $25 million this year, particularly noticeable in a high-volume quarter like the third quarter.

Okay. And so just to clarify on that, so price cost in terms of PPI adjusters, etc., at this point, looking out to 2025, do you see any headwinds associated with that year-over-year?

I think PPI could be a small headwind next year, although I don't have the numbers in front of me. I think obviously, inflation has been coming down and the contracts are organized in such a way that you pass on those savings to customers if and when you have them. Now, PPI is not a perfect proxy for the costs in our business. And we've talked previously about, PPI does not seem to reflect what happens in the coating space, for example. Labor always goes up; labor never comes down. The labor content may come down, but the rate never comes down. So there are a lot of things that move around in our cost base that aren't perfectly reflected in PPI. But I would expect PPI, as we sit here today, to be an adjustment in the favor of the customers next year.

Okay. I'll just turn it over there. Congrats on the progress.

Thank you.

Thank you. Our next question comes from the line of Chris Parkinson of Wolfe Company Research. Your line is now open.

Hi guys, good morning.

Good morning, Chris.

Good morning, thank you. I want to delve a bit deeper into the progress being made operationally, not only in the Americas but also in Asia. Can you provide more details on your efforts there? You mentioned being ahead in Asia, so could you elaborate on your current status and your overall progression towards your goals? Additionally, how confident are you in the sustainability of this progress into 2025 and 2026? Thank you.

When I mentioned being ahead of expected progress, I was specifically talking about the capacity reduction program we implemented. This division is located far from our headquarters, and we only visit them a few times a year. Nevertheless, they have benefited from being part of a high-growth business for the past two decades, and now they're facing a slight growth setback, prompting us to reduce capacity. Initially, we were concerned about how willing they would be to accept cost reductions rather than pursue growth. However, we are very pleased with how well they have accepted the need to right-size their capacity. Currently, this business is generating segment income of around $45 million to $50 million per quarter, even without a return in volume growth in the region. We expect this range to continue going forward. The real advantage in that area will come when volume increases, as consumer confidence grows; working off a lower cost base, we anticipate significant benefits then.

Got it. And just as a quick follow-up, getting below 3 times leverage obviously shows a lot of progress. Can we just hit on just any preliminary thoughts and how we should be thinking about not only trending in the year end, but perhaps just into 2025, how the street should be thinking about working capital, cash interest expense, if there's an update there, and just how we should be thinking about cash conversion as we progress, and just any quick cost of capital allocation as a corollary of that? Thank you so much.

Thanks, Chris. So, Chris, in terms of working capital, look, we've done a great job in terms of driving down working capital this year. We expect it to be at least a $100 million benefit for us. I don't think there's much more to get out of working capital. So I think we're probably where we're going to be. I think when you look at interest expense, we clearly have an opportunity to have lower interest costs with interest rates coming down. I think it will be determined by how much the Fed decides to reduce rates. But interest expenses at down from $380 million to $350 million is definitely possible and probably kind of the baseline of where we would look at. And then as we think about capital allocation to buy back stock, I would fully expect us to be in the market next year to buy back stock. I think that our leverage target, we're committed to 2.5 times getting to it. And I think as Tim had said on the previous call, we could be there by the end of next year if we want to be. I think we want to stay below 3 times, but we are committed to also returning capital to shareholders through share repurchases. So I would expect us to be in the market next year buying back shares.

Thanks for the color. Thank you.

Thanks, Chris.

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

Thanks so much. Hope you guys can hear me okay. Congratulations on the progress so far guys.

Thank you, George.

How are you? My two questions. First of all, assuming that you grow with the market, recognizing the market growth is going to vary from year-to-year and you can't necessarily predict that. How much runway do you have in terms of capacity across beverage cans? If there's a way to shade that or discuss the color by region in terms of how much runway you might have between North America, Europe, and the like? That's question number one. Question number two, given our analysis, your EVA, your return on capital have all been trending up well, and congratulations on that. As we think about the next two years, not trying to get into an earnings forecast quarter-by-quarter, what do you think is going to be the biggest driver of your operating profit improvement assuming in the next couple of years? Will that be just pure volume? Will it be the improvement, say, in Signode or your non-beverage can operations? What are the headwinds? And do you think invested capital, what you invest between working capital CapEx will grow in tandem with operating profit or do you think you can actually keep that constrained relative to your operating profit growth? Thanks guys. Good luck in the quarters.

All right, that's a lot. So, George, don’t go anywhere because you might have to repeat some of that. In our business, which you know well, income growth is largely dependent over time on volume growth. We need volume. Our industrial platform relies on running continuously, 24/7. The more volume we achieve, the better our profits will be. As I sit here today, considering expected market growth for at least the next two years, we do not plan to install any new capacity to meet this growth. If there are changes among suppliers or if we wish to modernize a facility, there may be some capital expenditures. However, we do not foresee any necessary capital to meet anticipated market growth in the coming years across all sectors. I don’t know if Kevin mentioned it; we’ve set our capital expenses for this year at no more than $450 million, and we expect the same amount for next year. The other part of your question, George, was about the performance of non-beverage businesses. Until we see significant growth in global beverage can production across the industry, we expect the equipment business to remain consistent with this year’s performance. I don't anticipate substantial changes in the aerosol business; it should remain similar to this year. However, food cans in North America may perform slightly better, but overall, any gains will be modest. Food cans, aerosol cans, and equipment manufacturing together account for roughly 5% of our EBITDA on a consolidated basis. Therefore, even a small increase doesn't significantly impact that figure. On the Transit side, our cost base is in strong shape, and we remain competitively positioned. For those tracking global manufacturing or purchasing managers' indices, many countries are experiencing significant contraction; for instance, Germany is currently at 40, well below the threshold for growth. The global manufacturing sector is not performing well, but there are signs of recovery in North America and the construction industry that could lead to opportunities. There's potential for significant growth in the transit business if industrial markets improve. Did I cover everything, George?

Yes, Tim, you're correct. The market's growth will be the main factor. Additionally, having options with Signode provides added benefits and capital expenditures.

Just touching on your last point, which you rightly point out, off a much lower levered balance sheet and from an EVA perspective, an investing capital base that shouldn't expand so much, right.

Thank you so much, Tim.

Thank you.

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

Great. Thanks. Good morning, guys.

Good morning, Mike.

Tim, you said it a few times already about Global Beverage can this year continuing to exceed expectations. I guess bigger picture, when you go through the numbers internally, what do you think has been the biggest driver of the outperformance versus perhaps where you budgeted to start this year?

I think the key point is volume. Volume has improved and remains stable. There's always some skepticism when examining forecasts that show significant volume increases, particularly in a market where one might question consumer strength. Given the inflation affecting our products and the broader consumer landscape, along with the market growth of 1% to 2%, it’s valid to question these volume figures. However, I believe volume is crucial. It has been robust and consistently strong, which is encouraging. Furthermore, our manufacturing performance in the United States and Europe is making great strides, with Brazil consistently performing exceptionally well. This year, we have achieved significant financial gains due to our manufacturing performance.

Great. That's super helpful. And then, Kevin, on the pensions, just following the settlement and funding in 3Q, how does that change your go-forward pension expense and say the cash you need to fund it over the next one to two years?

Yes. So from a cash-funding perspective, we would not expect any U.S. pension funding over the next year or probably the following, maybe some minor amount. But....

Newer Canadian.

We still have various other pension plans that are still outstanding. So there will be some pension funding. I'm sorry, did you have another question there, Mike?

Yes, it was just around the cash funding and then also just the pension expense that flows through your P&L. Is there any change to that?

Yes. So look, I would expect, the pension actions probably give us about a $0.05 uptick after you consider the interest cost on the $100 million pension contribution that we had. So call it roughly $15 million of lower pension expense, $6 million of interest expense on the $100 million tax effect, it would probably give you right around $0.05.

Great. Thanks, guys.

You're welcome.

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

Hi, guys. Tim, you talked about the consumer making sure it's strong and healthy. I'm most curious about Europe, right. You guys put out a solid quarter again, certainly some restocking, you had the Euro Cup. So how are trends kind of shaping up and what you're seeing on that front? Because some of the European packaging companies have actually talked about perhaps the consumer being a little softer.

Yes, that doesn't surprise me. I believe the consumer in Europe is weaker than in the U.S. They have significantly less disposable income in Europe compared to the United States, which is influenced by various policies and factors. We share the sentiment that the European consumer might be weaker. As you mentioned, we have some restocking this year, along with events like the Olympics and the Euro Cup, and a relatively good tourism season. If you look at the airline sector, the tourism season has been robust, particularly in Southern Europe, where we are strongest. Last year, we experienced a very weak fourth quarter in Europe primarily due to destocking, which we do not expect to happen again. A significant portion of our outperformance in Q4 this year compared to last year can be attributed to the recovery in Europe. Overall, we are in a small pleasure business, and while the consumer is struggling in many areas, the beverage can sector is performing exceptionally well despite these challenges. We're seeing benefits not only in North America but also in Europe, alongside some ongoing substrate shifts in Europe. So, despite the weaker consumer, we feel fortunate to be operating in the can business.

Okay, super. When I look at the progress you guys have made on the margin front, whether it's Asia cost coming out and then recouping inflation in Europe, it's been pretty incredible. Margins have been up nicely, appreciating aluminum prices are going up. That will swing percent margins. But do you still have much to go here in terms of driving margins higher? You talked about some of the good things you're doing on the manufacturing side. So when we think about '25 and perhaps even 2026, how should we think about the margin profile and profitability going forward?

Yes, there shouldn't be a limit to the margin, but obviously you have customers and suppliers with their own margin aspirations. I compare it to golf. For those who play, it's relatively easy to improve from a 25 handicap to a 10. However, moving from a 10 to a scratch or better is much harder due to diminishing returns. The low-hanging fruit has mostly been taken, meaning we need to focus on refining what we have. There's always room for improvement. In the third quarter, we outperformed significantly, but why? Kevin and I discussed it, and we realized that everything went right. It wasn't perfect; transit was down, but everything else performed well. Even the food sector saw good volume. There's an awareness that there will be times ahead when things won't go as smoothly. Overall, we're satisfied with operations and our business team, who are delivering outstanding margins. I can't say for sure if we have the highest margins in the packaging industry, though we might have the top margins for cans. The question is how much further we can push these margins. We're committed to maintaining and growing them, but we'll need some market volume to achieve that. As we noted earlier, the North American market seems to be stabilizing over the next couple of years, so market growth will be essential. Additionally, it would be beneficial to see a rebound in the industrial side of the Transit business.

Okay. That's helpful. Thank you. Appreciate it.

Thank you.

Thank you. Our next question comes from the line of Jeff Zekauskas of JPMorgan. Your line is now open.

Thanks very much. When I look at the Transit margins by quarter, the decremental margins seem to be getting worse. Maybe they were 22% in the first quarter, 38% in the second, 68% in the third. Is that because volume continues to fall, or why does the margin progression seem to get more severely negative?

I'm not following you because I don't have all the data you're looking at, but you'll need to discuss this offline with the team for a clearer explanation. You just mentioned that our margins were down 60%, and I'm not quite understanding your point.

The incrementals. In other words, if you look at the change in sales and you look at the change in operating profits, it seems that there is a greater percentage decrement as you go through the year. But we can take it offline.

Yes, if I look at our third quarter margins compared to our nine-month margins, the third quarter margins are better than the nine-month margins. We see that with the benefit of expanding volume, we achieve even higher margins. The third quarter is a larger quarter, so it's more challenging to affect a larger number compared to a smaller one, but we can discuss this further later.

Sure.

This is a day of school I missed, so I'm not following it.

Sure. And also in terms of your beverage can volumes in the third quarter, overall, were they very different than they were in the second quarter that is sequentially, how much did your volumes change in beverage cans?

Absolute level of volume?

Yes.

I believe the total volume in Q3 is higher than in Q2. While I don't have the Q2 figures at hand, I noted that specifically in North America, we saw a 5% increase in the third quarter, which is slightly lower than earlier in the year. However, Q3 of '23 was up about 12% or 13% compared to Q3 of '22. So yes, volumes were higher in Q3 compared to Q2. The absolute volume levels are roughly the same when looking globally. The difference in absolute volume from Q3 to Q3 is similar to that of Q2 to Q2. Overall, Q3 volumes are indeed up compared to Q2 in both '23 and '24.

Okay, great. Thank you so much.

Thank you.

Thank you. Our next question comes from the line of Anthony Pettinari of Citigroup. Your line is now open.

Good morning.

Good morning.

Just following up on Europe. I think you closed the Helvetia acquisition about a year ago. And I'm just wondering, did that contribute at all or meaningfully to the kind of mid-single-digit growth you've seen in Europe? And can you just talk maybe about how that asset is operating or maybe kind of longer-term goals for Germany and that plant?

Yes. I want to highlight something that my competitors will also appreciate. We purchased the business about a year ago, and it has contributed approximately 1.5% to 2% of our growth this year, around 1% to 1.5%. We have invested significant time in retraining the workforce, and we are doing much more than just fine-tuning the equipment. What we learned after acquiring the company reflects what we’ve heard from others regarding smaller one-line operations globally. Many are poorly set up, the workforce is inadequately trained, and they are unlikely to succeed as single-line operators. Currently, there are some one-line operations in the U.S., with one individual selling their equipment to someone else and another operation whose future seems uncertain. However, there is a one-line operation in Texas being managed by a reputable can company from Mexico that is doing well, as they know how to produce cans. Newer one-line operators who entered the market thinking can-making would be straightforward have discovered that it’s more challenging than they anticipated. We are making enhancements to the plant, which we expect to benefit us as we move forward. We didn’t invest much in acquiring the asset; we acquired a building, a can line, and an end line for about $120 million, significantly less than what is typically spent to construct a proper plant. We are now dedicating time and effort to develop it into a well-functioning plant with a properly trained workforce.

Okay, that's very helpful. And then just after the pandemic boom and destocking, I mean, it seems like Bev cans are in a pretty good place from a supply-demand perspective. And I'm just wondering, have you seen any changes in pricing dynamics in any of your markets, either positive or negative? Are customers trying to extend or shorten the lengths of contracts? Or are there any kind of larger than usual contract cliffs coming up in any of your markets? I'm just wondering if you talk about pricing to the extent you're able to and to the extent there's really you're seeing anything kind of notable in the markets?

There's always competition, and some may look at our margins thinking they can underprice us from time to time. They observe our performance and try to figure out how to improve theirs. Markets are competitive, and both customers and we have our respective roles. It's always going to be competitive. Highlighting any specific items is just part of business. Competition will always exist, whether it's from natural competitors or margin competition from customers and suppliers trying to take from us. I don't see any significant volume drops coming in the next two years. In the North American market, we do expect some larger contracts to come up for renewal heading into 2027, but that's similar to previous periods. Conditions are good and could be better. As for new entrants, some will not last, which will return us to a market where customers will realize that if they want reliable quality cans, they should choose a reliable quality supplier. The large multinationals in our industry are both quality and reliable.

Okay, that's very helpful. I'll turn it over.

Thank you.

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

Thank you for taking my question. I hope everyone is doing well. To start, I would like to hear your thoughts on a preliminary framework for 2025. You mentioned that your volumes are following the market, but could low manufacturing activity potentially impact Signode or Transit? Assuming we see low single-digit top-line growth and some manufacturing efficiencies, do you anticipate mid-single-digit EBITDA growth? Additionally, considering refinancings and pension issues, could we expect mid to high single-digit EPS growth? How should we view EBITDA and EPS growth for 2025?

I think it's a bit early to make a definitive statement. One factor to consider is that with the Eviosys sale, we will experience a notable reduction in equity earnings, which will impact our overall earnings. However, I believe it's premature to draw conclusions. I don't want us to get ahead of our budgeting process, and I definitely want us to improve this year by aligning our expectations with what we think we can realistically achieve. We let that gap widen last year, and we want to avoid that situation again. I don't believe we're prepared to make those decisions yet.

Okay. Regarding the free cash flow, with capital expenditures around $450 million, how would you describe that? What portion is for maintenance versus sustaining growth? Should we expect these levels to remain low going forward, or are there factors that might cause them to increase as we look into 2025?

Well, I think the only way it goes higher is if there's a significant market shift somewhere in the world which would require us to add capacity in a location that we're not currently in.

Okay. And then just one last one if I could ask. We talked a lot about promotional activity earlier this year. It seems like, we haven't been speaking that much about it, but I know there has been some deflation. Do you think that the customers are appropriately promoting their product? And I guess, have there been any shift more to or away from towards favoring volume a little bit more? Or how do you think about the promotional activity levels? And are you guys encouraged maybe by the potential for some increase there? Thanks.

Yes, I mean, the first thing I would say is it's not for me to comment on what's appropriate that our customer set does with respect to their business. But listen, they have a business model. We need to adapt to their business model and run our business as best we can to adapt to their business model. We're only successful if they're successful, and we need them to be successful long term. So we support their needs. We hope we support their needs as best we can with quality and service at all times. Now, specifically on promotions in the North American marketplace, I would say we saw a little bit of an uptick in August. It looked like it backed off at the end of the quarter. Looks like it's first couple weeks of October. Things are going okay. So, but I would describe, if you're looking at promotions versus historical levels, you would describe last year and this year as lackluster. But that may well be the new norm. And as I said earlier, we need to adjust our business to adjust to their new business. And they have a business model and we're only successful if they're successful. So, we better find a way to be successful with our new business model if that indeed is it.

Great. Thanks a lot.

Thank you.

Thank you. Our next question comes from the line of Joshua Spector of UBS. Your line is now open.

Yes, hi, good morning. A question on adjusted free cash flow to clarify a couple of things quickly, is first, your guidance of greater than $750 million when you talk about the pension. Is that excluding the pension? So on a reported basis or adjusted reported basis, it would be greater than $650 million, or does the $750 million include that? And then if you could just comment on 3Q versus 4Q, it seems like free cash flow in 4Q is pretty minimal when normally that's a pretty highly cash-generative quarter. So if you could explain what's going on there? Thanks.

In terms of the free cash flow of $750 million, this figure accounts for the $100 million pension contribution we made. So it’s not $650 million plus $100 million; rather, it’s $750 million plus $100 million if you want to consider it that way. This clarification should address your question. If we look at Q4, we aim for at least $750 million, and currently, we are just under $670 million. We expect some earnings growth and improvement in working capital, but we also anticipate interest expenses nearing $100 million and taxes around $100 million, along with CapEx of about $200 million. If you do the calculations, we might do slightly better than the $750 million target. We always focus on minimizing working capital, so that will ultimately influence how much we exceed the $750 million figure.

Thanks. And just a kind of more philosophy follow-up here, just how you guys approach guidance. So you guys have done quite a deal, better versus your guidance the last couple of quarters. I think everyone likes to see some conservatism. But I guess when you're talking about the beats, it's a little bit of the cost savings maybe surprise, the volume surprise. So as you think about fourth quarter and maybe as you think about framing next year, are you trying to be conservative versus expectations? Or are you actually versus your plan seeing things coming in a lot better, which was I guess a surprise versus what you hope to achieve, if that hopefully makes sense to answer that?

Yes. If you look at our performance this year, we have excelled in the Beverage sectors across the Americas, Europe, and Asia. In the fourth quarter of last year, Asia generated $47 million in income, which aligns with the average for the first three quarters of this year. Therefore, a significant increase in Asia year-on-year is not anticipated. Additionally, in the previous year's fourth quarter, the Americas Beverage segment had a higher income than in the second quarter of this year, which is quite notable since we typically see a ranking of three, two, four, and one across the quarters. Thus, the possibility for the Americas beverage sector to significantly outperform last year's fourth quarter is lower this year compared to the first three quarters. However, we are confident that the European Beverage business will show improvement year-on-year in the fourth quarter, primarily due to the substantial de-stocking that took place in Q4 last year, which we do not project to happen again. The range we provided is reasonable, and we appreciate your question as we anticipated it, especially after exceeding expectations by 10%.

Okay. Thank you.

Thank you.

Thank you. Our next question comes from the line of Stefan Diaz of Morgan Stanley. Your line is now open.

Hello, good morning.

Good morning.

Thank you for taking my questions. And I hope everybody is okay with the hurricane down in Florida.

Thank you.

So one of your global customers mentioned a consumer preference shift into cans, specifically in Mexico. And I think they also mentioned not necessarily having all the capacity needed to meet the can demand in the short term. Maybe just what are you seeing in Mexico? And do you potentially see the need to expand capacity within the region? Maybe not a new line, but add some efficiencies within the region, etc.?

I'm aware of what you're mentioning. As I mentioned before, we've seen strong performance in the volume of Mexican cans this year, and our glass business has remained stable. I don't see a need to expand capacity anywhere in the world at this time, unless we get a new customer in a region where we currently don't operate, and that includes Mexico. Given our existing footprint and capacity, I believe we have some flexibility regarding market trends over the next couple of years, and I think we're in a good position.

Great. Thanks for that color. And I know you're expecting down volumes within Asia due to your footprint actions in the region and the related profit benefits. That said, can you give some color on what you saw in the market in 3Q and what you're expecting in the region into the end of the year? And maybe just a quick follow-on to that Asia question. During the summer, there was also a Chinese competitor that announced the construction of an additional line in Vietnam. Just given your bullish view on the region into the medium term, how do you assess the risk of potential new entrants into the region as well? Thanks.

Yes. It is a specific region by country. The Chinese competitor's expansion into Vietnam pertains to a multinational filler and not a Vietnamese filler. Regarding year-to-date volumes, we estimate that Southeast Asia is up about 5% for the full year, while we project our volumes will decline about 8%. This decrease is partly due to our capacity reduction and partly due to our decision to move away from significant business with two customers where the margins did not justify the risk. We are not here to produce for the sake of volume metrics; we need to receive fair compensation for the risks we take, which we did not believe we would get from that business. These two customers accounted for about 75% of the volume decline we are witnessing. However, I want to clarify that the capacity reductions we implemented were not directly related to moving away from those two customers. Overall, we believe we have a strong customer base and a good balance with our capacity. Like any region or business, growth is essential, and we are optimistic about future growth.

Great. Thank you.

You're welcome.

Thank you. Our next question comes from the line of Edlain Rodriguez of Mizuho. Your line is now open.

Thank you. Good morning, everyone. Tim, quick question for you on capital deployment and share buyback. So how do you balance the timing of any share buyback against an increasing share price? Or is the answer what I suspect you will say, that the stock is still undervalued and you'll continue to be aggressive buyers as you go forward regardless of the share price?

Well, I would say that the share price is undervalued. But the market doesn't say that. And so I think we will continue to use the term opportunistically buy back shares. I don't think we're going to be overly aggressive at any one point in time in the year because we're trying to prove a point that we're undervalued. If I look at our operating statistics, I look at our growth, I look at the businesses we operate in the portfolio, the percentage of the businesses within the portfolio, yes, I think we're undervalued. It doesn't matter what I think; the market's spoken, so we're going to be opportunistic with share repurchases.

Okay. And as a follow-up to CapEx spending, you keep ticking it down. I mean, last quarter, it was no more than $500 million. This quarter is like no more than $450 million. Like is there anything that's being deferred? Like why are you able to ratchet it down like that just on a quarter-to-quarter basis or year-to-year? Like what's going on there?

We continue to say no until they eventually understand. I know this sounds amusing, but it's a constant challenge to get the teams to achieve more with less. It's crucial for them to grasp the necessity of spending money and to justify any expenses without a return on investment. Therefore, it's about constantly refining a process that requires them to demonstrate the need for expenditure. I don’t believe we are postponing anything. We have invested significantly over the past few years, and the current focus is on reaping those returns.

Yes, perfect. Thank you.

Thank you.

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

Tim, Kevin, good morning.

Good morning, Gabe.

I want to try to revisit Anthony's question a little bit and just framework for thinking about volumes. You teased us a little bit with market growth of 2%, which I appreciate we don't know. But short-term....

Gabe, it could be zero; it could be 1%; it could be 3%. I just picked the number, right? It's just a....

No, I understand. But short-term, are there any, I guess, disruptions from weather in the Southeast for the U.S.? But more importantly, what is informing sort of how you're thinking about the business? I mean, we all know that you guys go through medium-term planning, and when I walk through a convenience store, I'm seeing more options to pick up a single-serve can. And so whether it's innovation, whether it's channel in which cans are being sold, maybe dialogue with customers and what's informing your view for an expectation of low single-digit growth in maybe North America? And then in Europe, as we do lap some of these sporting events, etc., restock this year, thinking about next year, I think sustainability has been a pretty big driver for growth. Are there other things that we should be thinking about in our models, in our forecast for growth?

I'll start with the hurricanes in the Southeast. We experienced some storms in the Upper Midwest in August, which caused delays in our fresh pack, but we expect to recover that in early October on the food side. The hurricanes in the Southeast haven't noticeably affected our Beverage can business. We did temporarily shut down our aerosol can plant in South Carolina for a few days, resulting in some sales loss, but that will be compensated for. There's nothing significant to report regarding our facilities aside from a brief power outage. However, some of our corporate employees are facing severe damage to their homes, and we're providing support to them as best we can. Regarding Europe, sustainability is indeed a major factor driving the growth of the European can market. We're seeing ongoing conversions from glass to cans in sectors like soft drinks and beer, which we believe will benefit us in Europe moving forward. One potential area of growth in Europe that hasn't fully developed yet, compared to the U.S., is the rise of non-beer alcoholic beverages. As these drinks become more popular and available in cans, they may start to take share from beer over time, which would be advantageous for the can market. In North America, it's noticeable that a wide variety of products are now available in cans, driven by changing demographics. Younger consumers tend to explore new products and show less brand loyalty, which is advantageous for the can, given its effectiveness in marketing through appealing designs. While I wouldn’t say we will constantly see a decline in beer consumption due to this trend, there has been some impact from non-alcoholic drinks on beer sales. In the third quarter, we believe the alcohol segment grew faster than the non-alcohol segment, possibly contributing to a recovery from previous mass beer declines we've seen over the last several quarters. In terms of consumer behavior, younger consumers tend to consume more and are more likely to try new things than older consumers, which is promising for cans. I want to clarify that I mentioned our growth potential in relation to the market only to indicate that if the market grows by 2% next year, we expect to match that growth. At this point, we aim to remain in line with market performance, neither outperforming nor underperforming.

Understood. I appreciate it. Two quick ones, hopefully. Maybe to re-ask the share repurchase question a little bit differently. I mean, you serve time as CFO. I suspect there is a framework behind your decisions to repurchase shares or at what value you think intrinsic is, and you'll be more or less aggressive in and around that. Maybe confirming that for us and then thinking about other alternatives that you may have per capital. I mean, I see almost $1.8 billion sitting on the balance sheet, and I appreciate we're talking about net debt versus gross debt and those types of targets, but just help us with that. And then really quickly, hopefully, any expectation for or early read for Tinplate pricing; it's been a little bit volatile. I know it tends to track normal steel prices, but just sometimes it impacts a little bit of volatility or impose a little bit of volatility or impose a little bit of volatility on your non-reportable segment.

On Tinplate, if you had asked me three months ago, I would have predicted an increase of 5% to 10%. A month ago, I would have told you it was likely to decrease. Now, it seems it will rise by a couple of percent, but we won't know for sure until January. There's some volatility in the Tinplate businesses. However, the non-reportables now account for about 5% of our EBITDA, so this shouldn't be a major part of the Crown narrative at this stage. Regarding our cash reserves, not all of it will be allocated for share buybacks or acquisitions; the primary use will be for debt reduction as we have several maturities approaching. We typically earn as much interest or more than we owe, so we're comfortable holding the cash and accruing interest while we pay down our debt. Most of the cash will be applied to upcoming bond maturities and some term loans in the future. As for share buybacks, having spent considerable time in finance, I believe that debt reduction offers a sense of certainty, which is reassuring. I anticipate a balanced approach of debt paydown and share buybacks over the next few years as we work towards 2.5. We don't feel the urgency to reach that point quickly. Not long ago, many analysts weren't overly concerned about companies in our sector operating with leverage levels between 3.5 to 4.5 times, given the strong cash flows we generate. That perspective has shifted somewhat with the current interest rates, but we remain comfortable with our position and aim to lower interest expenses so that more operating leverage contributes to our bottom line. We agree on that point, and while debt reduction is certain, we will maintain a balanced strategy.

Thank you, sir.

Thank you. That is all the time we have today for questions.

Thank you. Okay. I think you told me that was the last question. So thank you very much, Yale, and thank you everybody for joining us. That concludes the call today, and we'll speak to you again in February. Bye now.

Again, that concludes today's conference. Thank you everyone for joining. You may now disconnect and have a great day.