Good morning, and welcome to Crown Holdings' Second Quarter 2025 Conference Call. Please be advised that the 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, El, and good morning. With me on today's call is Tim Donahue, President and Chief Executive Officer. If you don't already have the earnings release, it is available on our website at crowncork.com. On this call, as in the earnings release, we will be making a number of forward-looking statements. Actual results could vary materially from such statements. Additional information concerning factors that could cause actual results to vary is contained in the press release and in our SEC filings, including Form 10-K for 2024 and subsequent filings. Earnings for the quarter were $1.81 per share compared to $1.45 per share in the prior year quarter. Adjusted earnings per share were $2.15 compared to $1.81 in the prior year quarter. Net sales were up 3.6% compared to the prior year quarter, primarily reflecting 1% higher shipments in North American beverage, a 7% increase across European beverage and a 5% increase in North American food can volumes, the pass-through of higher raw material costs and the favorable foreign currency translation. Segment income was $476 million in the quarter compared to $437 million in the prior year, reflecting increased volumes noted previously and improved operations across the global manufacturing footprint. For the 6 months at June 30, free cash flow improved to $387 million from $178 million in the prior year, reflecting higher income and lower capital spending. The company returned $269 million to shareholders in the first 6 months. The company had a very strong quarter and first half with record segment income, adjusted EBITDA and free cash flow. We're mindful of the potential impacts that tariffs may have on the consumer and industrial activity. Considering the strong first half and the potential impacts from tariffs, we're raising our guidance for the full year adjusted EPS to $7.10 a share to $7.50 a share and project the third quarter adjusted EBITDA to be in the range of $1.95 a share to $2.05 per share. Our adjusted earnings guidance for the full year includes the following assumptions: We expect net interest expense of approximately $360 million; exchange rates assume the U.S. dollar at an average of $1.10 to the euro; full year tax rate of 25%; depreciation of approximately $310 million; noncontrolling interest to be approximately $160 million; dividends to noncontrolling interest are expected to be approximately $140 million. Our estimate for 2025 full year adjusted free cash flow is now approximately $900 million after $450 million of capital spending. And at the end of 2025, we expect net leverage to be approximately 2.5x. With that, I'll turn the call over to Tim.

Thank you, Kevin, and good morning to everyone. Some brief comments, and then we'll open the call to questions. As Kevin just summarized and is reflected in last night's earnings release, second quarter performance came in better than anticipated. Global Beverage segment income advanced 9% in the quarter after a 21% improvement in the prior year second quarter. Strong global beverage and North American food results, combined with lower capital expenditures resulted in higher second quarter free cash flow, driving net leverage below the first quarter level. Americas Beverage reported a 10% increase in segment income with shipment gains noted in both North America and Brazil. Shipments in North America advanced 1% as expected, following a 9% gain in the prior year second quarter, while in Brazil, demand led to 2% growth after a 12% increase last year. Volume growth continues to compound, leading to high utilization across a well-performing plant network. And as stated previously, we expect little direct tariff impact to this business. Across European Beverage, unit volumes advanced 6%, following 7% growth in the prior year, leading to another quarter of record income. Growth was noted throughout each region of the segment, that is Northern and Southern Europe and also across the Gulf states. As in the Americas, we expect little direct tariff impact to the business. Income in Asia Pacific declined as Southeast Asian market volumes were down high single digits to the prior year, the impact of tariffs on various Asian industries ultimately impacting consumer confidence and buying power. Despite weak end markets, the business continues to operate well with income exceeding 19% to net sales in the quarter. Increased shipments of steel and plastic strap combined with savings from ongoing cost programs almost entirely offset the impact of lower shipments in the equipment and tools business. Segment income remained relatively flat to the prior year despite continuing soft industrial demand. And within the transit business, we still remain cautious as to the impact that tariffs may have and update the potential tariff effect as follows: the potential exposure is estimated to be approximately $25 million with direct and indirect exposures of approximately $10 million and $15 million, respectively, and these estimates are included in the revised guidance that Kevin has provided. North American food demand increased 9% in the second quarter, principally a result of exceptionally strong vegetable volumes. And when combined with better results in closures, income in the other segment improved by 150% in the quarter. In summary, we had another very strong quarter. Segment income improved $39 million or 9% and for the 6 months is up $129 million. Trailing 12 months EBITDA is now approaching $2.1 billion. Combined Global Beverage segment income was up 8% in the second quarter. North American food volumes first led by pet foods in the first quarter and now vegetables in the second quarter reflects the diversity of our food business. As Kevin provided to you, the adjusted earnings per share guidance range now sits $0.50 a share above the initial guidance that we provided and free cash flow is now estimated at $900 million. The balance sheet is healthy, and it allows for continued return of cash to shareholders. Of course, none of this would be possible without the efforts of the entire Crown family, and we thank them for their dedication in fulfilling the company's mission of outstanding service to the brands we partner with. And with that, El, we are now ready to take questions.

The first question comes from Anthony Pettinari from Citigroup.

Your 3Q guidance implies EPS, I think, kind of flattish year-over-year. Can you talk about expectations for the segments for 3Q or trends at a high level? And I guess, specifically, Americas has driven kind of your growth year-to-date, but I think you have a pretty challenging comp maybe all-time high EBIT in 3Q. So just how you expect the segments to perform?

Yes, that's a great question. Last year's third quarter and the second half were exceptionally strong, with EBITDA of about $1.05 billion in that period. In the Americas Beverage segment, we reported $280 million in the third quarter and $275 million in the fourth quarter of last year. As you mentioned, the comparison is tough. Despite this challenging comparison, we hope to perform slightly better. We anticipate continued improvement in European beverage and North American food. The Americas beverage business might be around $5 million more or less than that figure from last year, but we will see how it develops. Looking at volume performance, North American volumes were up 5% in last year's third quarter. We indicated at the start of this year that we expect North American volumes after two years of strong performance to be in the 0% to 2% range this year. We recorded 1% growth in the second quarter and await the results for the third quarter. Despite the challenging comparisons, the businesses are doing well, the plants are operating effectively, and we have made significant strides in earnings and EBITDA over the past couple of years. Year-to-date, we're up about $130 million in EBITDA or segment income, following nearly $100 million the previous year. So we are managing to maintain this noteworthy change.

Got it. Got it. That's very helpful. And then just on nonreportable. I mean it's been up pretty significantly year-over-year for the last 3 quarters. You talked about the vegetable strength. Can you talk just maybe at a high level about the strength in nonreportable if there's any kind of pull forward around tariffs? And just second half, how you think about the comps?

There may be a slight pull forward in our results, but we're primarily observing the effects of the investments made in our North American food business over the past few years. Additionally, the comparisons to last year are relatively straightforward, especially in the third quarter, which is likely to remain an easy benchmark. However, the fourth quarter may pose more challenges. For the first three quarters of this year, we benefit from these easier comparisons and the positive outcome of our recent capital investments. It’s possible that we're entering a phase where consumers are being more cautious with their spending, opting to eat at home rather than dining out. On a different note, our beverage can equipment segment is performing well, as there's an increasing global demand for beverage cans, leading to a need for more manufacturing equipment. We're starting to see promising signs in that area.

Our next question will be from Chris Parkinson of Wolfe Research.

Tim, could you just talk a little bit about your conversations with customers just given some perhaps unexpected tightness in the markets, particularly in Europe and just how that's ultimately going to flow into your intermediate to long-term outlooks versus perhaps what were some prior concerns towards the end of 2024 and early '25?

Yes. Specifically regarding Europe, they continue to be optimistic about the demand for more cans in the intermediate and long term as their businesses expand. Additionally, European markets are adopting more sustainable packaging solutions and shifting their focus towards aluminum cans over other materials. This trend is ongoing, although there will be fluctuations, including potential soft spots and periods where shipments may fall short of expectations. There may also be times when the can industry lacks the capacity to meet customer demand. Overall, the outlook remains positive. Last year, each quarter saw growth rates of 7%, 6%, and 8%, with a full-year growth of 7%. This year, we're experiencing solid growth on top of those figures, leading to improved utilization. We have several projects in Europe, including a significant upgrade of a facility in Greece and plans for possibly adding a second line in Southern Europe. Overall, I feel very positive about Europe. Tom Fischer has mentioned that over a 15- or 20-year period, Europe has shown a compound annual growth rate of 3% to 5%, which is impressive for an industry as straightforward as the can industry. Consistent growth of 3% to 5% each year for 15 years is quite respectable.

That's helpful. And then just when we take a step back, if you could briefly just hit on how we should be thinking about your different businesses on the bev can side and the Americas, kind of the puts and takes for 2Q? And how we should be thinking about the growth by substrate into the second half. Just are we still in that the top end of that 1% to 3% range? Or I know 2Q is in line with your expectations, but just how should we be thinking about that just given the variance of your year-on-year comps versus '24? Any guidance there would be helpful.

For the second half of the year, we are projecting growth in North America between 0 to 1% and expect the situation in Brazil to remain relatively stable, while we anticipate a decline in Mexico. The Mexican market does seem to be experiencing a slowdown, possibly linked to tariffs and the overall economic sentiment affecting consumer confidence regarding their impact across various sectors. Our Americas Beverage segment is quite diverse, and we estimate segment income will exceed $1 billion this year, building on our near success from last year. While we acknowledge that not every aspect will see constant growth, we continue to operate efficiently in our plants, reducing spoilage and increasing productivity, which helps drive earnings regardless of market fluctuations.

Our next question comes from the line of George Staphos from Bank of America.

So 3 questions for you. I'll ask them in sequence just to make it easy for everybody else's time wise. So number one, can you give us a bit more color on what was behind the restructuring charge for the quarter? I think it was around $40 million. If you called it out and I missed it, I apologize, if not, if you could give us a bit more color there. Secondly, you did better than we were expecting in Signode and you gave us some good color there. What are the prospects that you can now hold that level of EBIT into 3Q into 4Q. In some ways, you weathered the worst of the challenges and you're performing at a little bit higher level than we would have expected either way. What's the outlook there? And then kind of the question from last quarter, the volumes in beverage can remain very strong, certainly into Europe. I know you said you're not seeing that much of an effect of it. But are you seeing any impact at all in terms of tariffs? And then at some point, with on the other side of the hill, maybe destocking after the aluminum risk maybe go away or the tire risk go away. So Signode restructuring and bev can any deceleration into 2H because of destocking things?

Yes. The restructuring charge was primarily due to two factors. The most significant was the reduction in the carrying value of the assets at one of our Chinese plants, which was necessary to comply with accounting standards based on the expected near-term cash flows from that business. The second major factor involved additional severance costs at Signode, focused on non-production roles, to further align the organization for the manufacturing operations we acquired a few years ago. George, could you remind me of your specific question regarding Signode?

And it ties pretty well to your comment just before. You're doing better than expected in Signode, can you carry that forward? And then within the restructuring you took, how much earnings improvement did you gain from that within Signode?

The restructuring we recently announced should begin to show benefits towards the end of this year and into next year. I hope we can maintain our performance in the third quarter. The second quarter is typically the strongest for Signode, followed by the third, fourth, and then the first quarter. I am optimistic about sustaining this performance into the third quarter, keeping in mind the impact of tariffs, which we have already accounted for. As for the fourth quarter, based on the guidance we've provided, this period has the greatest variability due to tariff uncertainty. While I hesitate to call it exposure, there is certainly uncertainty regarding tariffs in that part of the business, especially in the later part of the third quarter and the early part of the fourth quarter. Looking at the year-over-year comparison, I believe we can either match or slightly improve our performance in the third and fourth quarters, relative to last year, possibly within a range of 1 or 2. So, relatively speaking, I think we could do a bit better. And George, please remind me what your third question was, as I'm getting older.

Watch that, Tim. Watch that. So no, I was just saying, look, especially within Europe, your volumes are over mid-single digits. Is there anything, again, that you're gleaning from your customers' order patterns that suggest things are starting to decelerate now that we're going through the worst, fingers crossed of the tariff risks? Or what are your customers saying about their need to keep buying and what's the outlook into next year? Any destocking that you're seeing right now?

There is no destocking, and I don’t perceive any direct impact from tariffs in Europe. However, we continue to observe ongoing contraction in the industrial economies across Europe, particularly in major countries like Germany and France, where many jobs are tied to industrial production. This raises concerns that if the European Union does not address some fundamental economic issues, it may remain just below the line between contraction and expansion in terms of industrial production. We hope to see a rebound in industrial production. The difficulty arises when selling in contracting economies, leading consumers to worry about their financial situations and job security. Fortunately, this concern has not yet affected the can business. Our can business is well-positioned regarding the substrate mix for our end markets, and our customers are focused on their goals for net carbon reductions, whether for 2030 or 2040. We believe we can help them achieve those goals efficiently, and we remain attentive to the overall economic situation.

Our next question comes from the line of Phil Ng of Jefferies.

Strong quarter, a strong first half for sure. I guess I'm curious in terms of what your customers are saying in North America. Tough comps aside, certainly, a lot of your beverage customers are dealing with tariffs on the aluminum side, potentially sugarcane dynamics versus HFCS. How are they kind of behaving in this backdrop? Are they continuing to promote? What are they telling you in terms of how the order patterns are kind of shaping up? I'm most curious about North America and what you're seeing on Brazil just because there's a lot of noise with tariffs around that market as well.

Yes. If you consider the Midwest premium, the overall cost of aluminum per ton is likely at an all-time high. We, as an industry and at Crown, don't believe we can absorb any of that cost. Fortunately, our contracts allow for passing that cost through. Our customers likely feel the same way and can't absorb it either. Ultimately, the decisions made by governments are reflected in costs that consumers bear. So far, we haven't seen consumers reduce their purchases of beverage cans, regardless of the product. Consequently, beverage cans continue to perform better than other materials even as we anticipate some inflation. That said, our customers are promoting their products in an environment of rising costs. I am not fully aware of their hedging strategies or cost models at this moment, but they are bound to face higher costs unless the Midwest premium decreases. However, I want to emphasize that our outlook remains steady; we anticipated growth in the range of 0% to 2%. I believe the market may actually be performing better than that currently. If I had to estimate, the North American market might have grown by about 3% to 3.5% in the second quarter. While we no longer receive those exact figures, it appears that the market was strong in Q2, driven by can promotions and other indicators. We will see how Q3 unfolds, but companies are already reassessing their inventory levels as they move from the July 4 holiday into Labor Day. It seems like summer will be decent. Regardless of whether the market ends up minus 1 or plus 1 or between plus 2 and plus 3, the figures are off the much higher levels we've seen recently, which is a strong signal.

Tim, any color on how you're thinking about Brazil just given all the tariff noise there?

Yes. I believe that the situation in Brazil is not as favorable for consumers as it is in North America, and we will observe how the consumer behaves. More importantly, we will see how customers manage their business between different suppliers. Occasionally, one supplier may have an imbalance with certain customers. If we end up supplying more or less in the first half of the year, we might adjust our supply in the second half so that the customer can find balance, and we will monitor that. However, I would suggest that Q3 might be a softer quarter in Brazil, possibly experiencing a slight decline, and in Q4, which is crucial, we expect it to perform better than Q4 last year.

You're in a strong position with balance sheet leverage near your long-term target and generating significant free cash flow. How do you plan to prioritize capital deployment over the next few years? What do you consider the best opportunities when ranking buybacks, capital projects, or possibly larger mergers and acquisitions? Any insights would be appreciated.

Well, I think the #1 goal is obviously to increase the return to shareholders. But before you get there, you've got to service your customers and you've got to service your customer base, and you've got to take advantage of opportunities to grow your business. And so we're always going to look at the opportunities to grow our business subject to adequate returns project by project. So that would be number one. Beyond that, as you rightly point out, whether we can get below the 2.5x by the end of this year, Kevin gave you $900 million, we're at short of $400 million. So if you take that $500 million and reduce the debt with today's EBITDA, you get well below 2.5x. We don't really need to get there this year. So I do believe that over time, the long-term target is met with growth in EBITDA, and it leaves us a whole lot of money to consider what we're going to do with it. And I think right now, as we've been telling people for the last 6 months, the #1 and only priority we see is the return of cash to shareholders.

Our next question will be from Edlain Rodriguez of Mizuho.

Quick one for me, Tim. So there have been talks of demand softness in many categories here in the U.S. because of the immigration enforcement that's going on. Like what are you hearing from your customers in regards to volume being impacted by that? And how concerned are you with that?

We can get bogged down in every detail, such as the new Health Secretary's focus on reducing sugar. However, it's clear that despite the surrounding noise in the economy, whether political or economic, cans continue to perform remarkably well. While I don't have quarterly data to share, I do have data from the four weeks ending July 13, showing that total beverage units in cans have increased by 4.5%. Carbonated soft drinks are up 5%, beer is down, and energy drinks are on the rise. Cans are thriving in various markets, even in smaller categories like water, teas, and coffees, with ready-to-drink beverages up by 1%. We remain aware of our environment while recognizing that many factors are beyond our control. Thus, we focus on what we can manage, such as keeping costs low. We ensure we can meet customer needs, both in terms of availability and capacity. We've effectively navigated these challenges over the past couple of years. If we choose to scrutinize quarterly volumes or earnings, we can do that. However, if we take a more extended view of the can industry, the companies within it, our customer base, and the overall perception of cans as a product among consumers, we feel optimistic about our position. This is our current outlook.

Our next question will be from Arun Viswanathan of RBC Capital Markets.

Congratulations on the strong results. My question is about the margins for Americas Beverage, which was the main factor exceeding our expectations. You've now achieved over 19% in segment EBIT margin. While I recognize that percent margins may not always be the best measure, it seems your plants are operating efficiently. As your shipment growth year-on-year stabilizes, do you anticipate a similar pace in segment income growth? Is there still more to be done to enhance plant operations, or are we approaching the limits of what can be achieved in that area?

Thank you for the question. It gives me an opportunity to provide some insights. Most companies operate under the principle of continuous improvement, which means there's always room for enhancement. We've previously categorized our operations into three groups: As, Bs, and Cs. The aim is to improve the Cs and elevate them to the level of As, and this is an ongoing process. Regarding the issue of moderating growth, if you're implying that our growth has decreased from 5% last year to 1% this year, it shouldn't necessarily lead to lower earnings or margins. Without adding more capacity, you are using 1% more of your existing capacity, which means your productivity must increase to accommodate that growth from the same manufacturing base. Therefore, even with only 1% growth, margin growth would be expected, assuming all other factors remain constant. However, the percentage margins can fluctuate due to the contract mechanisms we have for raw materials. As aluminum prices rise and our customers' hedging contracts reflect those increases, we pass those costs onto them one-for-one, which can lead to lower margins. This is simply a result of a larger denominator. Conversely, if the denominator decreases, margins will increase. That's why I prefer focusing on absolute margins rather than percentage margins in the beverage can sector. In the transit business, we focus more on material margins, which refers to the profit after direct material costs. I hope this clarifies your question.

Yes, that's helpful. I would have a similar question for Europe. It seems like Europe might be heading in a different direction, as you still see considerable volume growth. Is there more to improve on the operations side to increase EBIT dollar margins over time? Also, how would you characterize your progress regarding margins in Europe?

I think we're just over 15% last year and this year in the second quarter, and we might be just short of that for the full year. I'm not sure how that compares historically, but it seems like it's one of the higher levels we've seen in Europe over the last 10 to 12 years. We're performing well. Significant improvements have been made to the platform and industrial infrastructure over the past several years, both in terms of expanding our footprint and enhancing the existing operations. As I mentioned earlier, there's always more to do and we're constantly looking for ways to improve each factory to maximize output. There may be slightly more excess capacity in some areas of Europe compared to the United States, but we're happy with the direction Europe is heading. As I said, we're always striving to do better. With growth at 5% or 6% every quarter, we're focused on finding ways to better support our customers with our current capacity rather than investing in more capital until we have greater confidence that any new investment will secure additional business.

Okay. And just one more quick one, if I can. Just on free cash flow, you increased the guide there. So are we right to assume that, that would likely go towards capital return as the first priority?

Yes. So Arun, it's Kevin. Look, yes, we're committed to a long-term leverage target of 2.5x. The additional cash flow we will look at it in context of the long-term leverage target, and we'll see where we go here. I do think we'll buy back a lot of stock over the next couple of years with free cash flow. So at this point, that's where we're at.

Yes. Arun, just to make it real clear because I think I answered it with Phil. What we see is cash flow that we have after supporting the business needs, debt reduction to a certain level and then return to shareholders. We don't see anything else.

Our next question will be from Ghansham Panjabi of R.W. Baird.

I guess stepping back and kind of thinking about 2025 as it relates to the beginning of the year, it seems like volumes, in particular, were better than your initial forecast. You called out mix in 2Q, et cetera. But how would you characterize inventory levels along the supply chain in context of the industry being pretty lean and then you have a little bit of better demand dynamics and all these other reasons with promos and hot summer, et cetera. So just give us a sense of inventory levels?

I can't comment on other can companies. Generally, our larger customers do not carry inventory; they utilize direct store delivery. The inventory is typically held by the can companies. I believe it's safe to say our inventory level is currently no higher than it was on January 1, which could be somewhat concerning depending on the strength of the third quarter. We are working vigorously, and we need our plants to operate as efficiently as possible. We are planning to build up inventory as we enter Q4 because we see a strong outlook for 2026. To answer your question differently, I would say we currently have a few hundred million fewer cans in inventory than we would prefer.

That's why I was asking. Okay. And then in terms of the 2026, you just made a comment on the strength expected next year. Can you just update us as it relates to contracts coming up, your share position, your expected share position in 2026 in North America? And then in terms of just, again, high-level drivers of earnings growth in 2026, is it fair to assume that capital allocation will feature more aggressively in terms of what drives earnings versus obviously very, very difficult comparisons, given strong operating results in 2025?

We have a larger customer currently working on renewing and extending their contract across the entire industry. However, as we look ahead, we understand the contracts we have secured for the next year and what our customers are expressing about their growth expectations. It seems that next year could be quite challenging for us. This is why I mentioned our intention to build some inventory in Q4 and indicated that we might be a bit low on inventory at the moment. We are committed to managing and increasing our inventory responsibly. Regarding earnings growth for next year, there are various factors to consider. As others benefit from improved capital allocation and their earnings trajectories, we expect to see similar trends moving forward. Our main focus is to ensure that the majority of our earnings growth is derived from our core business. Currently, we have a couple of areas, specifically Asia and transit, where volumes have remained low for an extended period. We have significantly reduced costs in these segments, and we are optimistic about future volume growth as it will positively impact our bottom line. Additionally, we expect continued growth in Europe, which will enhance our earnings. Brazil is also showing growth, while Mexico has been soft this year, but we anticipate some potential recovery there. In the Americas, we know we will be operating at full capacity next year. Any offsets will be related to various other factors that we usually do not address as they complicate the narrative of our business's strength. While there are potential offsets, next year has the promise of being quite favorable, though it's premature to draw definitive conclusions at this stage.

Our next question will be from Josh Spector of UBS.

I just had a follow-up specifically on CapEx. I guess as I look at the next few years and you maintain your conviction around kind of 1% to 3% volume growth, where does CapEx need to go in order for you to achieve that?

Well, Josh, we're sitting here with an estimate this year of $450 million and probably, I guess, we were similar to that number last year, plus or minus. But within that number, let's say that our maintenance capital is $250 million to $300 million, that still leaves you with a solid $150 million or $200 million for growth projects. And those growth projects would be centered almost entirely in the beverage can business globally. And I don't think we see any large growth needs in Asia given the footprint we have and the softness we've had there. So it's principally centered around the Americas and Europe. We did announce a third line in Ponta Grossa in Brazil that we're going to get underway soon. And that will account for a lot of the difference between this year's target of $450 million and where we sit through 6 months with a short of $100 million. We have a project where we're doing a significant modernization and upgrade to a facility in Greece, and that will be some of the other spending. But I think we have adequate, adequate room in the envelope of $450 million. Now let's be clear, if Kevin is going to sit here and tell us every year, we've got $800 million to $900 million of cash flow. If we needed to, to support our customers and grow our business, we can certainly afford to spend another $100 million from time to time to continue to grow the business. We'd like nothing more than that opportunity.

That's helpful. Just a quick follow-up on that. If you did have those opportunities and decided to invest an additional $100 million, would you expect to grow above the 1% to 3% range, or would that simply be a timing effect?

In the year when you invest, you may not see growth right away, but in the subsequent years, you might experience slightly more growth. However, keep in mind that we do not sell nearly 100 billion units; we are between 80 billion and 100 billion units. Therefore, when we add a facility and introduce a can line that produces between 1 billion to 1.2 billion units, that represents just a little over 1%. If we achieve that in a single year, it's still just 1%. So, it's important to temper your enthusiasm, as you are adding to a very large base right now.

Our next question will be from Jeff Zekauskas of JPMorgan Chase.

A lot of the free cash flow in the quarter came from a change in payables and accrued liabilities. Maybe you increased $350 million sequentially. What's behind that? And is that the level that you're going to stay at this $3.5 billion for the remainder of the year?

Well, Jeff, when you consider the increase in receivables and inventories, your trade working capital is approximately flat year-on-year. It's not a $300 million increase; it may only be around a $100 million rise when you factor in the trade working capital needed to operate the business. This residual $100 million is mainly due to the inflation of aluminum that we are currently managing.

Okay. Great. In terms of the $45 million in restructuring charges or nonrecurring charges taken in the first half, what do you expect that to be for the year? And how much of that will be cash for severance?

So the write-down of the assets in China is noncash, so maybe of the $45 million, maybe half of it.

$10 million to $15 million.

Kevin's saying $10 million to $15 million would be cash.

The cash will be included in our projections for the year. Some of it may be realized over the next couple of years as we implement our plans.

As we sit here today, we don't have any knowledge because if we did, we would have already booked it. So unless something happens or we get an opportunity to do something considerable, I can't even begin to estimate if there's any more to book at this point.

Our next question will be from Stefan Diaz of Morgan Stanley.

Maybe just in Asia. Maybe if you could just go into a little deeper what you're seeing there. I know you mentioned in the prepared remarks that you think tariffs are weighing on consumer confidence, but maybe if you could weigh that versus maybe some competitors that are expanding in the region? And maybe if you have an estimate of what the volumes for the region were this quarter?

Yes, I apologize for the statement I made in my prepared remarks. The market experienced a decline in the high single digits, while we likely faced a decline slightly more than that, in the double digits. Overall, the market significantly decreased in the second quarter. This decline affects all can makers, showing a substantial slowdown in the region, not just for can makers or consumer beverage companies, but across various industries.

That's helpful. And then maybe back to Americas margins. I know you answered a couple of questions on this already. But I think in the release, you mentioned favorable mix. Was there any like can end, can body shipment miss timing that also helped margins in 2Q? Or anything specific to call out there that led to this?

I don't think there was a mix between ends and cans, but I do think that our ongoing underweighting to U.S. domestic beer has been helpful in our mix. We have a significant position in beer in Canada and we have a very significant position in beer in Mexico as we do in Brazil. However, in the United States, we're significantly underweight to the market in beer. So again, we referenced mix because we're underweight to beer in the United States.

That's helpful. And then maybe if I could just slip in one last one. Any update on the 2026 business win that you hinted to a couple of quarters ago?

I prefer not to give you that update. So thank you.

Our next question will be from Mike Roxland of Truist Securities.

Congrats on a strong quarter. Just one quick question for me, Tim. You noticed that you mentioned that there's been a step change in earnings and EBITDA. And there are a number of questions on the sustainability of margins. So I'm just wondering, can you talk about the sustainability of margins at these levels in North America. I mean, one of your peers, I think, recently noted that margins in North America are in a high watermark. So given what the CPGs are facing, given the backdrop that they're in, could there be some potential for some margin degradation given just the overall climate. Any insights you could share in terms of the sustainability of EBITDA margins and risk that margins could decline given the backdrop?

Good question. I'd be cautious in my response. For the most part, our customers, particularly the large ones in the beverage industry, earn margins that are double or more than what we do. The capital we invest in our factories and the resources spent on hiring and training employees to operate cans at high efficiency is substantial. It's essential for us to achieve what we consider an adequate return on these investments. Despite current returns compared to the past, I would argue that returns were so poor previously that today's position is not as relevant. I might have a different perspective on my responsibility to shareholders than others, and while returns may now be higher, they might only be starting to approach what they should be.

Our last question will be from Gabe Hajde of Wells Fargo Securities.

Congrats on the Forbes award. I know you pride yourself on being a science-based organization as it relates to carbon and net zero. I had a question similar to what Mike was getting at, but just maybe short term, and I know there's vagaries in terms of customer order patterns and shipments and things like that. But I think you intimated North American growth of 3. You're at 1, inventories running a tick below where you'd like them to be. Is this just a simple function of kind of preparedness coming into the summer selling season and it was a little bit stronger than what you expected, undergrowing the market a little bit despite sort of categorically where things are shaken out, you guys would be performing better.

I'm not sure if we were fully ready for this year. At the beginning, we had a certain growth expectation, which we communicated in late January or early February. Overall, our growth has aligned with those expectations, possibly even slightly exceeded them, which explains our current inventory shortfall. However, the market seems to be performing a bit better than we anticipated at the start of the year, and if the market growth is between 2% and 3.5%, that figure is indeed higher than we initially thought. As business dynamics shift from one customer to another, some customers are performing better while others lag behind, suggesting that while the overall market is doing well, we may not fully grasp how other companies are faring in production. We are trying to analyze our situation thoroughly. Overall, we are largely where we expected to be, but the market appears to be slightly ahead of our estimates, possibly indicating that we underestimated its strength this year. Promotions around Memorial Day and July 4 seemed to be stronger than last year and what we had anticipated, reinforcing the idea that the market is performing better than expected.

Yes. Okay. Fair enough. If we strip out metal inflation, is there anything abnormal when you look at the other cost inputs and PPIs flowing into next year that we should be aware of? And I have one other one.

We did have a PPI increase this year. I don't know where it sits right now, probably a little close to flatter right now. Now what's going to happen over the next 6 months, I don't know. It feels like we could see a little inflation, but I don't know. But nothing abnormal that I want to talk about.

Can you discuss the performance of the European business compared to the Middle East in terms of volume and profitability? I'm not looking for specifics, but is there anything notable regarding profitability that you can share?

I believe that our factories in the Gulf states likely have a slightly higher return compared to those in Europe, mainly because many of them are fully depreciated or nearly so. The overall performance of the plants is quite similar since they operate effectively in both regions. Pricing is also comparable; the difference stems from the depreciation status of newer plants in Continental Europe versus the more fully depreciated plants in the Gulf states. This quarter, growth may have been slightly higher in the Middle East than in Continental Europe, but both regions are performing strongly. Year-to-date, I think their performance is more alike than different. El, I understand that was the last question. Thank you all for joining us, and we look forward to speaking with you again in October. Goodbye.

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