Ball Corporation (BALL) Q4 2013 Earnings Report, Transcript and Summary

Ladies and gentlemen, thank you for standing by. Welcome to the Ball Corporation Fourth Quarter and Full Year 2013 Earnings Conference Call. [Operator Instructions] As a reminder, this conference is being recorded Thursday, January 30, 2014. I would now like to turn the conference over to John Hayes, Chairman, President and CEO. Please go ahead, sir.

Thank you, Reynaldo, and good morning, everyone. This is Ball Corporation's conference call regarding the company's fourth quarter and full year 2013 results. The information provided during this call will contain forward-looking statements. Actual results or outcomes may differ materially from those that may be expressed or implied. Some factors that could cause results or outcomes to differ are in the company's latest 10-K and in other company SEC filings, as well as company news releases. If you do not already have our earnings release, it's available on our website at ball.com. Information regarding the use of non-GAAP financial measures may also be found on our website. Now joining me on the call today is Scott Morrison, our Senior Vice President and Chief Financial Officer. I'll provide a brief overview of the company's performance, Scott will discuss financial and global packaging metrics, and then I'll finish up with comments on our aerospace business and the outlook for 2014. Our fourth quarter results came in ahead of expectations, and full year cash flow was right on track. As we mentioned in our third quarter conference call, we've seen momentum in our business from a financial perspective. And as we move into 2014, we are well positioned from a capacity utilization and product mix perspective, and we remain excited about our prospects. Excellent cost management across our global packaging businesses; volume growth in Europe, Brazil and our specialty can portfolio in North America; key aerospace program deliveries and our disciplined returns-oriented capital allocation strategy all drove results. 2013 was truly a tale of 2 halves. The first half with stronger-than-anticipated market and economic headwinds and the second half filled with additional cost optimization project rollouts, line startups and a return to more normalized demand for our food and beverage containers all helped contribute to this improved performance. Now during the first -- fourth quarter, we continued to see double-digit growth for specialty cans in the Americas. We further improved our operating costs in our European segment, with the administrative office relocation on track for completion at the end of the first quarter 2014. We started up the second line in our Alagoinhas, Brazil, beverage can manufacturing plant, which contributed favorably to results and is ready to meet our customers' needs for specialty cans in the 2014 World Cup. We ramped up production at our existing Foshan, China plant after the relocation of our Shenzhen equipment. We continued down the path of further optimizing our steel food and household manufacturing footprint in North America. And lastly in the quarter, we announced the redemption of our 2019 senior notes that will lower interest expense in 2014, which Scott will discuss shortly. Our focused efforts to identify pockets of growth and manage our cost structure are bearing fruit and will drive EVA dollar and cash flow generation in 2014 and beyond. And with that, I'll turn it over to Scott for a review of our full year and fourth quarter numbers. Scott?

Thanks, John. Ball's comparable diluted earnings per share for 2013 were $3.28 versus last year's $3.06. And in the fourth quarter, comparable diluted earnings per share were $0.86 versus last year's $0.64, a 34% increase. For the full year, the following factors contributed to improved results: excellent cost management across the businesses; a full year contribution from line 1 at the Alagoinhas, Brazil plant and the Mexican extruded aluminum facility acquisition; a lower effective tax rate; and a lower share count. Also, FX translation related to European operations positively impacted full year 2013 EPS by $0.03. Turning to free cash flow, Ball generated $461 million in 2013. Again, we returned every free cash flow dollar and more to shareholders via net share buyback of approximately $400 million and dividends of more than $75 million. Net balance sheet debt at the end of the year was approximately $3.2 billion. Credit quality and liquidity of the company remains solid, with a 2013 comparable EBIT-to-interest coverage of 4.8x and net debt-to-comparable EBITDA at 2.7x. Cash was higher than usual at year end due to the planned redemption of the 2019 senior notes, which was completed on January 10, 2014. Committed credit and available liquidity at year end was in excess of $1 billion. For a complete summary of the full year and fourth quarter results on a GAAP and non-GAAP basis, please refer to the Notes section of today's earnings release. Moving to operations, our metal beverage Americas and Asia segment comparable earnings were down roughly $11 million for the full year and up $9 million in the fourth quarter. Year-over-year benefit from the 12-ounce can and end plant rationalizations, cost containment programs, excellent operating performance at the plant level and continued double-digit specialty can growth in the Americas all contributed to better segment results. In the quarter, North America volumes continued to be sluggish for standard cans in the carbonated soft drink category. However, Brazil volumes were up double digits and our China volumes were flat, as we continue to run at very high utilization rates, and we continue to make disciplined decisions to not add capacity in an oversupplied market. European segment profit was flat for the full year and increased almost $10 million in the fourth quarter due to mid-single-digit volume growth and initial benefits of reduced labor costs, which will continue to flow through the segment in 2014 and into '15. Food and household comparable segment earnings were flat in the quarter due to mid-single-digit volume declines for steel food cans in North America. And for the full year, earnings improved roughly $10 million due to the contribution from last year's December's Mexico extruded aluminum plant acquisition and excellent operating performance at our remaining global manufacturing locations. As John mentioned earlier, our global manufacturing operations are starting to be rewarded for their incredible efforts to improve their cost structure and cash flow. Moving on to financial metrics for the full year 2014, interest expense will be in the range of $163 million. Full year effective tax rate on comparable earnings is expected to be approximately 27% to 28%. And for modeling purposes, remember that the first quarter of 2013 benefited from 2 R&D tax credits. We expect full year corporate expense to be approximately $73 million. CapEx should be in the range of $375 million, and free cash flow will be in the range of $550 million. And the majority of our free cash flow is expected to be returned to shareholders via share repurchases and dividends. Yesterday, the board increased the share repurchase authorization by 20 million shares, so we have plenty of room and expect to buy around $500 million net shares in 2014. With that, I'll turn it back to you, John.

Great. Thanks, Scott. Our aerospace business performed very well in the quarter and full year against a difficult comp. Solid execution on existing programs and some early deliveries drove performance, quite an accomplishment given the disruptive U.S. government circumstances in the first and second half of 2013. Contracted backlog ended the year at $938 million versus $942 million a quarter earlier and approximately $1 billion at the end of 2012. During the quarter, the STPSat-3 satellite for the U.S. Air Force was successfully launched from NASA's Wallops Flight Center. The final 3 mirror segments for the James Webb Space Telescope arrived at Goddard Space Flight Center, and the Ball-built GMI instrument arrived in Japan for the upcoming launch onboard NASA's Global Precipitation Measurement satellite. The GPM satellite and GMI instruments are part of an international satellite constellation that will capture next-generation observations of rain and snow worldwide every 3 hours, as well as 3D views of hurricanes and snowstorms, aiding weather prediction. With the recent 2-year budget agreement, we are starting to see things in Washington have a bit more visibility than we have had in the past several years. Our aerospace team is awaiting decisions later in 2014 on several key program awards so that they can move forward with what they do best, providing affordable solutions for scientific discovery and national security. Now looking out across our company today, we will generate positive returns in 2014 on the growth capital invested in 2013. In Europe beverage, operating margins are improving as volume has recovered, and our ongoing cost optimization programs will provide further upside. In our global food and household products packaging business, we are laser-focused on maximizing returns across our steel product lines and positioning our extruded aluminum manufacturing capabilities to serve our global customers' filling locations. And most of all, we are proud of our employees and their resolve to execute on projects and programs to improve our company's performance. Truly exceptional. Given our operational momentum, excellent working capital management and reduced capital expenditures, as Scott mentioned, we expect 2014 free cash flow generation to be in the range of $550 million. In summary, we believe, at this time, we are on track to grow our EVA dollars and achieve our long-term diluted EPS growth goal of 10% to 15% in 2014 and beyond. And with that, Reynaldo, we are ready for questions.

[Operator Instructions] And our first question comes from the line of Adam Josephson from KeyBanc.

John, can you talk about what's driving the strength in European beverage volume? I know you said it was mid-single digits. It was up, I think, 7% last quarter. I know you're levered to beer in that segment, and SABMiller recently talked about sluggish trends. So just trying to understand what's happening in your business that might be different from what some of your customers might be experiencing.

Well, I think a couple of things. I do think the can is improving its share of the overall package mix, not only with beer but even on the soft drinks side. So that's one big factor. I think the other one is geography. And as you all know, we're a bit more weighted to Western Europe, obviously, some presence in Eastern Europe, but where we don't have presence, really, in much of Southern Europe. And when you look as an industry where the growth has been coming from, it's really been coming from France, from Germany, from the U.K., from those places that I talked about in the third quarter. The first half of the year, recall, the weather was very terrible, and so volume was actually down in those regions. But in the second half of the year, it rebounded and it proved to be quite nice for us.

That's helpful. In terms of EBIT this year, John, do you expect European beverage to be up more than Americas and Asia beverage? And can you quantify the potential benefit from the cost savings in Europe that you've discussed in '14 and going into '15?

Yes, well, we've talked in prior conference calls about our -- we expect to get back to the 2010, 2011 margin profile that we had in the European business. We actually had a very good second half of the year, but we still have opportunities, as Scott had mentioned, on the cost-out programs. So as we go into 2014, I think with normalized volumes, and that, obviously, we're sitting here in January so that's always a question mark, but with normalized volume, we continue to see progression in the EBIT growth of that business, largely through the cost-out programs and just maintaining our share of the European beverage can market.

And just one last one, just on the LME aluminum premium situation in Europe. Can you just discuss your exposure to that issue?

Yes, the way we contract our business here, we don't really have any exposure in North America. And in Europe, I think I mentioned on the third quarter call, it had been a headwind for a while in Europe through '13. And if it stays elevated at these levels, we probably have some exposure to the tune of maybe EUR 5 million, but more on the back half of the year if it stayed at these levels for all year.

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

I guess, first question I had is regarding China now. Obviously, your operating rates are quite high because of what you've been doing with capacity relative to demand. Is it possible from where you sit right now to discuss when you think the industry will be in a better state of balance, say, above 90%?

I think, George, let's start with the demand side and then we'll go to the supply side. On the demand side, overall industry volume growth continues to grow strongly, mid-single digits. We did not participate this year because we're pretty tight. And remember, we had -- in the second half of the year, we were moving some of our capacity from Shenzhen to Foshan, and so we were a bit short relative to that. And so we'll be able to capture our fair share of the growth this year. On the supply side, that's really the question mark. And I think over the -- there continues to be some of the smaller players adding capacity in. I think from a cost perspective, we feel like we're in pretty good shape, and so -- to ride out this wave. But if -- to give you an exact time or date on when the industry may get to 90%, I honestly think it's premature, and I would be speculating on it. I think we continue to expect the market to be growing mid-double digits. I'm sorry. I might have said mid-single digits in China growth, I meant mid-double digits. And so the volume side, demand side is growing quite strong. It's just when do people take a pause in terms of the capital growth so the supply can catch up with demand -- or demand can catch up with supply, I mean.

Okay. But that in itself is saying something because the market is still growing mid-double digits and you're not sure when you get back to 90%, not blaming you guys here, nonetheless it tells you that there's still a fairly large amount of excess capacity to be absorbed. You would agree with that, correct?

I would agree. This time last year, George, we thought that there's arguably 25% overcapacity. And as -- despite the mid-teens growth in 2013, I don't think that changed materially, which, by definition, means some of the people kept adding capacity.

Okay. Same question. In Europe, where would you say operating rates are for you or for the industry, to the extent that you can comment? And then I had a follow-on on North America, and I'll turn it over after that question.

I think for us, we are sold out. We are full. And I think for the industry, it's pretty full as well. Obviously, on a regional side, you have pockets here and there. And, of course, even we may have very small pockets, depending on what the regional geographies are. But overall, I think the industry is reasonably tight, and we certainly are tight.

The last question, John, in North America. Is there a volume decline in standard cans in the next couple of years that would either, on one hand, create diseconomies for you in terms of managing the remaining 12-ounce demand in the market from your existing network of plants, or one of the things you've been obviously doing is converting your 12-ounce to custom cans and that seems to be working well, that to absorb whatever level of decline might happen in 12-ounce would then risk saturating the custom can market from capacity standpoint? I know there isn't perhaps a single number, but how would you have us think about what the rates of decline might need to be to get to that point?

Yes, I think the answer to your question largely hinges on what happens with soft drink. CSD has really been the softness in terms of not only the can business, but I think the overall liquid consumption business. And we have -- we expect to have continued declines on the CSD side. I think 2014 is going to be real important to help answer that question because you're going to see natural sweeteners start to come out. And the question is, can the soft drink industry really strive to arrest these declines they've been having. To answer your question specifically, I think it's much more complicated than just having the numbers saying at what decline rate do you -- the oversaturation. I think we've been pretty disciplined over the last few years, and we've been doing it in our own economic best interest. Just looking at the past 12 years, we closed Columbus, we closed the Gainesville end plant, then we closed Milwaukee. That was in part. But at the same time, we also took some existing 12-ounce and converted. So I think that model, you can't do that forever, obviously, and we're very cognizant of that. But we're also cognizant of maintaining a tight supply/demand, at least in our system.

The next question comes from the line of Ghansham Panjabi with Robert W. Baird & Co. Mehul M. Dalia - Robert W. Baird & Co. Incorporated, Research Division: It's actually Mehul Dalia sitting in for Ghansham. In European bev cans, just wondering if you could parse out demand trends in Western Europe versus Eastern Europe during the quarter?

We typically don't go into that level of granularity. But what I will tell you is Western Europe, the growth in Western Europe, the overall industry was up low- to mid-single digits, and there's a little bit more on Western Europe and a little bit less in Eastern Europe. Mehul M. Dalia - Robert W. Baird & Co. Incorporated, Research Division: Great. And I'm just curious as to any progress on the BPA-free coatings for the food can market. Can you just kind of update us as to what your customers are thinking there?

Yes, I think it's been relatively quiet on that. From a technical perspective, we have solutions is the most important thing to say. There is a cost implication to that, and I don't believe our customers have felt the need to convert and look at the relative costs of that without any real either legislative reason or economic business reason. And so right now, it's more in a holding pattern. Mehul M. Dalia - Robert W. Baird & Co. Incorporated, Research Division: Okay. And just one last one. Was there any benefit from the World Cup in 4Q for you guys? And if so, could you quantify the impact?

Well, other than America being qualified, I don't think we have any benefit. But I do expect that, certainly, in the second quarter, that's when we would expect to -- late second quarter and third quarter, expect to see the benefit.

Our next question comes from the line of Philip Ng with Jefferies.

Your EBIT margin for Americas and Asia was up pretty dramatically. Can you parse out how much of that was Brazil, China, or just better mix in North America? And going forward, is that sustainable? I do understand there's some seasonality in the business.

Yes, Phil, this is Scott. We're coming off relatively easier comps from last year's fourth quarter, yet metal down year-over-year, which will help margin percentage. You had volume growth in Brazil, and you had volume in China and great cost controls in North America and China, and specialty growth in North America. All those things kind of played into why the margins were where they're at. And that's about as specific as I'm going to get.

And the only other thing that -- in North America, we had a decline of 12-ounce, which is a low-margin product.

True.

Okay. That's helpful. And then can you give us some color on North America food on pricing for this year? I understand one of your customers is in bankruptcy. That could actually get sold off to a self-manufacturer. There's some noise in the marketplace with new capacity coming on in 2015.

Well, let me address the customer bankruptcy issue, because we took a charge in the third quarter for a portion of the receivable that we had owing from that customer. There's going to be an auction for that company that will occur next week, and we'll see the outcome of that, what the outcome of that auction is, if we have to make any changes to what we've already taken from a reserve standpoint. And if we have to change anything, we'll either do that in the 10-K or sooner. And in terms of the pricing environment overall, I'd say it's relatively stable.

Yes. There really -- there's no appreciable change in pricing in our customer base. And largely, we often look at the metal side of the business, and there's really no significant change we're talking about on the metal side. So I don't -- we don't see any big changes one way or the other right now.

Okay. And then just lastly, on Europe bev, from what I understand, some of your competitors saw a modest lift, at least, on pricing last year, and the market appears to be still pretty tight. Is that going to be a positive tailwind in '14 or is it going to be pretty flat as well?

I think reasonably flat. The reality is Europe is -- the economic declines experienced over the past few years in Europe are -- have flattened out. But the economy is not strong. I do think that this whole supply chain of virtually every industry has continued to be under cost pressure and trying to take costs out of the system. And so I would not expect any appreciable change relative to the pricing environment.

The next question comes from the line of Scott Gaffner with Barclays.

I wanted to talk a little bit about capital allocation. If I look at your early-on comments of $461 million of cash flow from 2013, almost all of it returned to shareholders. And it looks like, if I heard the commentary correctly, that the plan for 2014 is very similar. And so I'm wondering, is that a comment indirectly on the outlook for the M&A environment and the ability for you to grow via acquisition?

Not necessarily. What I would say is we're always spending a fair amount of time on acquisition. And you often aren't given credit for the things either you pass on, but that doesn't mean there isn't a lot of activity going on. As you know, we are a very disciplined company when it comes to capital allocation. And when interest rates are very low, we buy things for the long term. And when interest rates are low, you have to compete with private equity and other firms like that. And so we haven't found anything, at least in the recent past, that has met our return requirements. And absent finding good return projects, we're going to return our value back to our shareholders either through share repurchase and/or dividends, and that is one reason why our board authorized a 20 million share repurchase authorization yesterday. Scott, anything to add?

No, I think that's right. The cash machine has kind of grown to a point where we can do a lot of things at the same time. So we're able to still invest. We still have some growth capital in the 2014 budget. And John talked about some of the growth capital that we spent in '13, that we'll start getting the returns on in '14. And we're still able to buy back a lot of stock. And so we'll still be able to do both of those things. And hopefully, acquisitions will come along that have good value, where we could get the kind of returns we want. But we don't need to be stretching for anything. And so we'll continue to be disciplined.

Okay. And the competitive environment within the acquisition market, specifically versus private equity, I guess I've heard some commentary that in this environment, they're not able to lever up as much as they used to on some acquisitions. Are you -- and, therefore, strategics are not as disadvantaged when it comes to acquisitions. Is that something you've been running into as well?

I guess, on the margin, but it's -- in this environment, capital is still quite available, and interest rates remain quite low. And so I think it's just you have a much broader set of competition. But I don't think there's any -- been significant change over the last, call it, 6 months or so, no.

Okay. And just last question on the CapEx, $375 million. I mean, it looks like maybe you underspent a little bit versus plan in 2013. Is that just a rollover or is there something in that $375 million -- it was about $50 million more than what we forecast, not you, but our forecast. Is there something in there that we're not aware of?

There are some things in there that you're probably not aware of, but we're not ready to talk about them in total yet. I mean, part of it is carrying capital from last year, because we underspent what we thought we would spend. So a little bit shifted to the right. But there's still some growth projects that we're going after that we're just not ready to talk about at this point.

Okay. And those are growth projects meant to fill the gap in 2015. Is that how we should kind of think about that?

No, they're growth projects that have good long-term returns to them. It has nothing to do with what year they're in. It's just the opportunity that's coming. It's getting to maturity. And we think we have good contracts to support the capital that we would spend.

The next question comes from the line of Chip Dillon with Vertical Research Partners.

I noticed, and I don't know if you addressed this, John, the aerospace margins were sort of the highest I'd ever seen, or at least in a very long time. Was that sort of a onetime wonder getting the 20 -- the 12 percentage-type margins that I think you made close to $25 million last quarter?

Yes, don't think that's sustainable. I do think we had some early deliveries and some other things, including some execution on existing programs, that made it really more of a onetime bump in the margin. I think as we look out into '14, margins for the full year '14 should be comparable to the full year '13.

Got you. And then I don't know if, Scott, you've specifically mentioned it, but what is the change in the cash pension contribution rate in '14 versus '13? So, I guess, what were those numbers? And how does that compare to the book expense for both years?

Well, the expense from '13 to '14 will be down $15 million to $20 million because of interest rates and a variety of things. The cash funding will be down considerably because we did fund up -- in the fourth quarter, we did fund up our pension more. And so it will be down considerably.

Like 50 or...

More than 50.

Okay. Got you. And then last question. I don't think this was asked, but -- or maybe I missed it, but you mentioned the specialty can volumes were sluggish in 12-ounce in North America. I don't know if you gave a more specific number and/or if you could tell us what specialty can volumes did in North America in the fourth quarter year-over-year.

Yes, the 12-ounce was sluggish, and I think -- I don't have the numbers in front of me, but they were certainly down as an industry mid-single digits, if not a little touch more than that. Specialty volumes, for us, we've said for the full year -- I think the fourth quarter and the full year were about the same, which was kind of mid-teens.

Up mid-teens. Got you.

Yes.

And the next question comes from the line of Chris Manuel with Wells Fargo.

A couple of questions for you here. First, when we look -- one of the businesses that you didn't particularly highlight in here was the extruded aluminum. Can you talk about maybe what you're seeing there with respect to opportunities? I know that in the past, it's been an area you've targeted for some growth and, in particular, potentially some more lines. Can you maybe give us an update as to how that business is progressing?

Yes. Chris, that's a good question. It's -- we have, over the past few years, really put some focus on that in terms of growing that business, both organically and inorganically, via acquisition. I think our European business continues to grow well. Volume has slowed down a little bit in Europe over the past few years because of the economy. We were up slightly. And I think the folks over there are doing a great job. As you all know, in December, 13 months ago, we acquired the Mexican plant, and that facility has -- the volumes are still growing double digits, kind of mid -- low- to mid-teens. We wish they were growing a little bit higher, to be quite frank, but I think that's going well. And from an acquisition, as well as a greenfield perspective, we still have opportunities to expand our footprint. And we've been looking at serving our customers, whether it's here in North America or whether it's in Europe or other parts of the world. We continue to be focused on that. I think there's going to be some opportunities as we move forward into '14 and even beyond.

That's helpful. And that's kind of a good segue to -- when I think about the $175 million this year of growth capital that you've got chartered in there, and I also appreciate you don't want to get too granular at this juncture on what you're doing, I anticipate you'll probably give us more color as the year progresses. But when I think about the -- I said growth capital, I meant return-oriented capital. Give us maybe a sense of what the balance is between growth-oriented projects and what might be more cost takeout or other efficiency projects as we think about those.

Yes, of the -- so let's break this down. Of the $375 million of capital that Scott mentioned, our maintenance capital, if you will, is in the range $175 million to $200 million. And within that maintenance, there's always a level of cost-out in that, whether it's getting more efficient on the energy side or other things like that. But the additional, call it, $175 million of what we call is growth capital, not too much of that is in terms of just pure cost-out. It really is growth. I just mentioned impact extruded. There are some opportunities in there of broadening our geographic reach on the impact extruded side from a greenfield perspective. On the beverage can side, there's opportunities in there. I don't think on the aerospace side, over a couple of years ago, we significantly expanded our ability to manufacture satellites in our Boulder facility, so there's not a lot in there. So it really is beverage cans and impact extruded. And I focused it in broadening our geographic reach and in terms of new products and new capabilities.

Okay, that's very helpful. Last quick one I had was, in the past, we've talked about -- you've given some color about what's happening in China with respect to the growth and that you anticipate being able to capitalize a little better on it this year. Could you give us some color as to what the pricing environment has been like in relation to the capacity that's still there? Has it stabilized, been more constructive, continued to be more challenging? How would you maybe give us some thoughts there?

There hasn't -- I think I said on the third quarter, that China remains difficult. I don't -- it's not going down appreciably, but there have been pockets of softening -- continued softness on the pricing side and -- which is challenging. And it gets to the question I think George asked earlier about supply/demand dynamics. Until supply dynamics become more in favor, I just -- we're not anticipating upside in pricing.

So we're focused a lot on the cost side. Our guys are doing a great job on the cost side, which is helping the business, but prices aren't getting any better right now.

Next question comes from the line of Anthony Pettinari with Citi.

You referenced can demand improving in Europe, or rather can's share of the overall package market in Europe improving in both beer and CSD. And I'm wondering if it's possible to quantify that. Is it something that's happening more at the margin? And then what is driving that from your perspective? Is it economic pressures, consumer preference? Is it something your customers are driving?

Well, I think the answer is yes to all of that. Just a little context. I think for the full year, the market grew 3%, 3.5% over in Europe. And again, Europe is a big place with many different geographies, so I'll generalize here. But Europe grew kind of low- to mid-single digits. I know that liquid consumption did not grow that much. And so by definition, the can took a little bit of share. Reasons why cans took a little bit of share, I think there are changing consumer preferences for one-way packaging over returnable bottles, and we've talked about that in the past. I do think that in some of the more mature economies, people are staying home a bit more and the can is more of a home package. So I think that has been helping. I think those are the 2 things that are probably driving this can share mix the most. It's not seismic. It's over time and gradual. And recall that relative to at least the United States, for example, the can as a share of the package mix is much smaller in Europe, writ large, than it is in the U.S. The U.S. on the beer side, it's over 50% of beer is consumed out of cans in North America. In Europe, writ large, it's in the low- to mid-20s.

Sure. Sure. And just as a follow-up. I mean, you're coming up on a very easy comp for Europe in the first quarter. I think January demand last year was reasonably strong, and then things really kind of melted down in March. I think there was some weather issues, and you had some other cost issues as well. But I'm just wondering, did the experience of first quarter 2013, in any way, change the way that you kind of forecast the full year? Did it make you more cautious? Or was that really just sort of a freak event from your perspective?

Well, I don't know if weather is a freak event. But demand, as we said this in the past, we had 2 quarters, the first and second last year, that were down year-over-year, and that hasn't happened too often in the decade we've been operating in Europe. In fact, it 2 out of 3 times happened last year, and it was both in the first half. I do think it was soft demand. Recall also, we talked about in mid to late 2012, we actually had moved our European headquarters from Germany into Switzerland, and we knew we had some redundant costs. And we were -- 2013 was an act to try and get after those costs. I think the lessons learned from the first half of last year was you can't rely on volume all the time, so you ought to be proactive and aggressive at all times about the cost side of the business. And I think our folks have responded very well. And that's why as we go into 2014, our cost programs are really executing well, while at the same time, if the volume is normalized, it provides a little bit of upside. And that's why I said earlier on, it is only January. If we could get through the first half of the year and volumes are normalized, we feel pretty good, but it's just too early to predict what the weather is going to do.

The next question comes from the line of Debbie Jones with Deutsche Bank.

I realize you guys don't have a crystal ball for Brazil, but what is [indiscernible] Ball assuming for the next year, if you could give some sort of range? And I believe the expectation is for one-way containers to outpace returnable glass next year. But looking out beyond that, do you think that a shift in the pack mix towards cans is still sustainable?

It's a good question, Debbie. And I think we're -- we expect 2014, because of the "2 summer effect" we've talked about, it to be positive. And with the World Cup being there, the can is a great one-way package. The can as a share of the package mix is approaching, at least on beer side, 40%. And I've mentioned a couple of minutes ago, in the U.S., it's over 50%. So there's probably some marginal improvement on that, but not wholesale improvement. And so as we go past 2014, we expect overall volumes to more closely reflect the overall beer growth. But in 2014, we do expect some nice growth.

Okay. And then has your customer mix shifted materially over the last 6 months in Brazil at all with your new capacity?

No.

Okay. And then just a final question. What is your outlook for can demand in North America? And are you happy with your standard and specialty can footprint?

Well, on the standard 12-ounce containers, we expect continued declines on the soft drinks side. We expect flat to slight declines on the beer side. And we expect to continue the growth that we've seen on the specialty side. From a footprint perspective, as we sit here now, we feel good about our footprint. And we wish that 12-ounce was a bit stronger, but that's as much reliant upon consumer demand. And as we have shown over the years, we will do what's necessary and in our economic best interest to make sure we're maximizing the value of what we do.

The next question comes from the line of Al Kabili with Macquarie.

Just wanted to dig in Europe bev on the -- on your market share. Has there been any change throughout the year in '13? And so far, what's the outlook for '14 in that regard?

No is the short answer. We just give you -- for the full year in 2013, as I said, the market was up 3%, 4%. We were up slightly less in that. A lot of it had to do with just timing and geography. As I mentioned, the first year was -- the first half was softer, the second half was a bit stronger. But there has been no appreciable change in that. In any given year, different things are happening with different customers, but no, there hasn't been any meaningful change.

Okay. And then I just wanted to clarify on China as well. With the cost savings and optimization you're doing there, how are you -- but yet pricing still under some pressure. How are you thinking about overall profits in China in '14 versus '13?

I think that will get a little bit better. I mean, it's not going to be wholesale. But we took a big price hit last year, and I think we'll do a little bit better in '14, both from a volume standpoint and a cost-out standpoint.

Okay. Got it. And from a pricing perspective in the market, how would you characterize '14 versus '13? Is the magnitudes of the declines lessening there or similar? I know we're not fully wrapped up there yet, but in terms of contract renewals, how -- so far how's the tenor there?

I mean, we're not seeing anywhere near the price declines that we saw from '12 to '13 going into '14, but the environment is still soft. It's still weak, and there's isolated things going on in different places. But there's still -- as John talked about, there's still way too much capacity. And so we're doing what's in our control in terms of cost-out. And we're growing with -- a little bit with the market. And all those things should help us, but the pricing environment is not getting better yet.

Okay. And then on the food can side, we heard from of one of your peers yesterday, and they had talked about extending some contract lengths. And I was wondering if you could sort of update us on how you're doing on the food can side and any changes to your contract length structures, et cetera.

The short answer is nothing out of the ordinary. We have a variety of different customers and a variety of different customer contracts, and nothing really has changed appreciably in that. We have -- our focus on is -- everyone knows at the end of '14, we expect to lose some business from a customer, and we've talked about that for the last 6 months. I think 2014, we have plans in place, and the timing of the execution will occur throughout 2014 as we move towards that date. We have a hole to fill, we recognize that, but I'll bet our people against anyone else any time.

Okay. I appreciate it. Final question is just a clarification on pension, tailwind of $15 million to $20 million. Can you help us just with where that flows through in the segments? I imagine most of that is going to be in the U.S. And could we assume, say, 75% of that in U.S. bev and maybe 25% or so in food can? Or help us kind of parse out where that will flow through.

It does hit the U.S., but remember, we got a big aerospace business, too. So you look at where the percentage of employees are. Food has a bigger impact than what you'd think the size of the business, but it's an older business. Let me get to the detail, I don't want to tell you off the top of my head, but I do have that detail. But it kind of runs across the businesses.

We have a follow-up question from the line of George Staphos with Bank of America.

A couple of things. One, so if we look to '14 and could see your expectations for European profitability, would we see more of the profit growth that you expect coming from a pickup in volume or would it come more from the cost-out? If you had mentioned that earlier, I apologize, I had missed it.

Yes, well, as you know, George, it's difficult to parse it out because it's a fixed-cost business. So when you get a little bit more volume, is that because of volume or because of cost? I will tell you this, all things being equal, our guys are doing -- our folks are doing a very good job on the cost side of the business. And so we're going to continue to put our shoulder into that throughout '14. And as I mentioned, we're closing our German regional headquarters, and that should happen late first quarter. And we have a bunch of other cost-out opportunities that we have been executing on, and so that's a big focus on that.

Okay. Related question and segueing a little bit on, I guess, Al's last question. Again, one of your peers yesterday was talking about some of the other things that they're working on to, one, make the food can more viable; and from our vantage point, two, secure their position with their customers and in their market, along with plant realignment and looking at new markets. Are you doing any kind of co-investing with your customers on a longer-term basis, more so now than perhaps had been the case? Can you share any more details on the plan that you're executing in '14?

No appreciable difference in terms of what you described as co-investing with our customers relative to what we've done in the past.

Okay. And the last question, and I'll turn it over, there's been some discussion in the trade that maybe not right now, but over time, there's going to be more and more usage of aluminum sheet in auto manufacturing. And if that, in fact, does occur, how do you think that might affect the availability of can sheet in the market? Obviously, something that's very important to you. What if your suppliers told you about that and the likelihood of supply shortages, again, not now but maybe down the road?

Yes, I'm not sure I'd worry about supply shortages. I think that beverage can has been pretty steady, so it's a nice steady business. But the automotive business, historically, has a little bit more volatility toward it. And I think there's a question of how much auto converts to aluminum and is that a stepping stone to another type of material, some kind of composite material. So I think all this is going to take some time to play out. So we'll see.

The only other thing, George, I'd add to that is it really is -- what you're talking about is more of a North American phenomena than anything else. And because of the pass-through nature of the business, it's not a huge impact.

And, I guess, for that matter, too, to the extent you'd rather the other -- the reverse be true, to the extent that can demand isn't growing by leaps and bounds, that makes more availability, I guess, of can sheet as well. But it sounds like your suppliers aren't telling you to worry about this anytime soon.

Well, I think to be honest, they're excited about the automotive opportunity. And -- but Scott raised an excellent point. They're doing it because of EPA guidelines in terms of miles per gallon for cars. It is a lighter-weight material than steel, but it is much more difficult to handle relative to steel in terms of welding and other things like that. The question is, is it a conversion to aluminum or is aluminum a migration to another form of composites or other things like that.

We have one final follow-up question from the line of Adam Josephson with KeyBanc.

John, Scott, how do you factor the recent fluctuations in emerging markets into your CapEx plans? And I know you're strategy is to follow your customers, but are you any less inclined to expand in emerging markets than perhaps you were a year or 2 ago?

Not really. I mean, it all dependent on the right opportunity. These things kind of come and go. I don't get too caught up in where currencies trade in a particular day. When we put assets in the ground, we're going to be there for a long time. And so if the long-term economic value proposition is there, we would still do it.

Okay. In Brazil, how would you characterize the capacity situation at the moment? And based on our industry growth expectations, do you think more capacity will be necessary over the next couple of years?

It will be interesting to see. I think it's reasonably tight for '14 because of the World Cup. I think after that, the biggest question is, given the economic situation, given the political situation and given the growth of the middle-class in Brazil, what happens after '14 in terms of liquid consumption, in terms of can growth, in terms of the overall economic profile. And so we're looking at that very closely, but first and foremost, we're saying, "Let's put our head down and get through '14, and then we'll evaluate it a little bit more."

Just one last one. Scott, forgive me if you mentioned this earlier, but interest expense, how much of a benefit do you expect it to be this year?

I said that we expect full year interest expense in '14 to be around $163 million. So the bonds that we issued last year and the redemption of the notes in January, it's kind of -- the mix of that will help interest by quite a bit.

And we have no more questions at this time.

Okay, great. Thank you very much for participating. And we look forward to what we think could be a strong 2014. And we'll speak to you in April. Thanks, everyone.

Ladies and gentlemen, that does conclude the conference call for today. We thank you for your participation and ask that you please disconnect your lines.