Ladies and gentlemen, thank you for standing by, and welcome to the Ball Corporation First Quarter Earnings Conference Call. During the presentation, all participants will be in a listen-only mode. Afterwards, we will have a question-and-answer session. As a reminder, this conference is being recorded today, Thursday, May 3, 2018. And now, it's my pleasure to turn the conference over to John Hayes, CEO of Ball Corporation. Please go ahead.

Thank you, Mladen, and good morning, everyone. This is Ball Corporation's conference call regarding the company's first quarter 2018 results. The information provided during this call will contain forward-looking statements, including estimates related to the impact of the U.S. Tax Cuts and Job (sic) [Jobs] (00:47) Act. Actual results or outcomes may differ materially from those that may be expressed or implied. Some factors that could cause the results or outcomes to differ are in the company's latest 10-K and in other company SEC filings, as well as the company news releases. If you don't already have our first quarter earnings release, it's available on our website at ball.com. Information regarding the use of non-GAAP financial measures may also be found in the Notes section of today's earnings release. The release also includes a table summarizing business consolidation and other activities, as well as a reconciliation of comparable operating earnings and diluting earnings per share calculations. And joining me on the call today are Scott Morrison, Senior Vice President and CFO; and Dan Fisher, Senior Vice President and COO of Global Beverage. I'll provide some introductory remarks, Dan will discuss the global beverage packaging performance, Scott will discuss key financial metrics. And then, we'll finish up with comments on our aerospace business as well as our outlook for the company. Needless to say, we are pleased with our strong start to the year. Comparable operating earnings were up 26% year-over-year and comparable dilutive EPS were up 32%, as we continue to execute on our cost-out and value-in strategies in each of our businesses. Beverage cans continue to win with consumers, and our aerospace team has started to ramp up our new contracts. Our LTM comparable EBITDA through March 31, 2018 was $1.83 billion. And while we are well on our…

Thanks, John. Our global beverage business operating earnings were up 13% year-over-year. Our team is incredibly busy executing on plans to maximize the value in each of our regions including the North America plant network optimization and European process transformation projects to further improve our cost structure and supply/demand balance in advance of upcoming contract renewals. Broadening our geographic footprint with mid-2018 plant startups outside Madrid, Spain, and in Goodyear, Arizona, specialty can line extensions in Argentina and Texas as well as a 2019 plant startup in Paraguay, aligning with the right customers and markets with expanding into new products and capabilities via our ever expanding offering on specialty can sizes. Leveraging our technical knowhow around predictive maintenance, light-weighting and process improvement, and positioning our products as the most sustainable in the world. I'm incredibly proud of our global teams. They're right on track with numerous growth projects, network optimization and cost-out efforts. The superior product protection that the can provides the beverage and its efficiency from a freight, distribution, warehousing and retail shelf perspective is vitally important. The economic value creation the can brings our customers is real and growing. Moving to the individual segments. Ball's North America segment volumes were slightly below industry levels largely due to our disciplined value over volume approach to standard 12-ounce packaging in select U.S. locations and the key U.S. megabeer brand's underperformance. Ball's position with growing Mexican imports, craft, sparkling water and brands using specialty containers is very healthy. In short, cans continue to win share versus glass and other substrates. Anticipated plant network disruptions to install specialty capacity in existing plants, startup costs related to our new Goodyear plant and associated higher freight cost coupled with our disciplined decisions around volume were the reasons for a year-over-year decline in the quarter.…

Thanks, Dan. Comparable first quarter 2018 earnings were $0.50 versus $0.38 in 2017, a 32% improvement. First quarter diluted earnings per share reflects solid operational performance across every product line and lower corporate costs, offset by higher taxes and a slightly higher interest expense. Details are provided in the Notes section of today's earnings release and additional information will also be provided in our 10-Q. Net debt ended the quarter at $7 billion, reflecting the normal seasonal working capital build in our business. For 2018, while it's only May, we feel good about where we're at and more importantly about where we're headed. Free cash flow is expected to be in the range of $900 million after spending at least $600 million with CapEx. Full-year 2018 interest expense is now expected to be in the range of $300 million, following the $750 million senior note issuance completed in March. Full-year effective tax rate on comparable earnings will be approximately 24% based on our current estimates of the impact of U.S. tax reform, and corporate undistributed should run under $110 million for full-year 2018. Keep in mind that the first quarter corporate undistributed was favorably impacted by lower pension expense and the FX impacts of hedges on intercompany loans which will be paid down throughout 2018, which will reduce the FX impact. As I have mentioned before, the corporate undistributable cost will move around as we progress on various transformation efforts. So, we'll give you an update as appropriate on these items. Cash flow is strong and we started buying back stock during the quarter. Year-to-date through yesterday, we've repurchased over 2.7 million shares or just north of $107 million. By year-end, we expect to buy at least $350 million of stock in addition to paying out roughly $150 million in dividends. We are at the cusp of returning significantly more value to shareholders in 2019 and beyond, and the team is really pleased that that time is here. Before I turn it back to John, we've had a number of questions on a new revenue recognition rules. For Ball, the impact for full year is expected to be nominal. And in the first quarter, the impact was less than $0.01 or $2 million of operating earnings of our $300 million, so not much to talk about. John?

Great. Thanks, Scott. Our aerospace business reported improved first quarter results driven by solid contract performance and the continuing ramp-up on new contracts. Our staffing levels continued to increase. And year-to-date, we have hired close to 300 new employees. The aerospace team has done an excellent job managing this large onboarding process from recruitment through retention without taking their eyes off the execution of our business. We continued to leverage our unique capabilities, world-class technology and the best talent in the industry to further grow our aerospace business in 2018 and beyond. Now, as we look forward for our corporation, we are on track to achieve our 2019 targets. And longer term, we believe that we have a once-in-a-generation opportunities in front of us right now. The strategic rationale of the beverage can acquisition are being realized, and we are truly leaning into our efforts to ensure that the world understands with great clarity that aluminum beverage cans are indeed the most sustainable package in the beverage world. Our aerospace business is very well positioned as technological shifts and resiliency play a more important role for our intelligent communities as well as our war fighters. Our aluminum aerosol business is well positioned for continued growth. And as Scott mentioned, we've begun to deliver on our promise to return significant amounts of capital back to our partners in the form of dividends and share repurchases. And with that Mladen, we are ready for questions.

Thank you very much. Ladies and gentlemen, we will now have the question-and-answer session. And our first question is from Scott Gaffner with Barclays. Please go ahead.

Thanks. Good morning, John. Good morning, Scott and Dan.

Good morning.

Good morning

Hey.

Hey, John, I know you don't want to update synergies on the acquisition at this point, but you are 21 months into I think the 42 months' timeframe that you outlined in the long-term incentive plan around the acquisition and you had an $832 million EVA goal associated with that, if I have the numbers correct.

Yeah.

Could you maybe talk to us about where you are sort of halfway through that performance period around EVA generation?

Yeah. I think we're in good shape. We don't track EVAs and report it externally on a quarterly basis. But you can see in the year-end 2017 where we ended up and it was quite strong. In terms of synergies, as we said from the get go, we're really not going to talk specifically about synergies because we don't want to get into accounting discussion about what's a synergy and what's not a synergy. We just said focus on the EBITDA as a corporation. And we started at $1.53 billion at the mid-2016 and we said we were going to get to $2 billion by the end of 2019. And on an LTM basis, as I said in my prepared remarks, we're at $1.83 billion. I think that just speaks for itself that we're right on that track of getting there.

Okay. And one quick follow-up on metals. I mean, Dan, thanks for the comments on Russia and obviously, North America and Europe. But it sounds like no way she's passing that through to the customers based on contractual obligations, but maybe that's misunderstood a little bit in the market. But the impact on working capital, how should we think about that in a rising metals environment and specifically since you're so focused on free cash flow?

Yes, Scott, this is John. Let me first just reiterate home what you're talking about on the pass-through nature because the issue – we call for everyone, our business is a pass-through model. With the tariffs people have asked us many questions about it, but here in the U.S. over 90% of our metal volume is actually controlled by the customer with the remainder being a straight pass-through. In other parts of the world, we control the metal, but we never sign a contract without having a matched book, meaning the sales price is either linked to a floating aluminum price where the risk is borne by the customer or the metals hedged at the contracted price. We're not in the business of taking risk on aluminum, so all these changes in aluminum are truly a pass-through for us.

And on the working capital front, Scott, there shouldn't be much impact, because things that we're doing on the payable side will offset any of the increases on the receivable and inventory side.

Okay. And one last one on that, just for Dan. Given the rise in metal prices, are you seeing any signs from any of your customers that they're switching away from cans to potentially other alternatives? I mean, there's been a lot from your customers around using the can as their value driver, so I wouldn't think so. But just any thoughts around that would be appreciated. Thanks.

No, I think you read that right. I mean, it's such a valuable piece of the economic equation, especially on the beer side that they're not going to move away. And historically, we've seen prices at this level and we didn't see any substrate change as a result of aluminum prices or raw material prices. So, we're not seeing that.

Yeah. Scott, one last thing, remember in the first quarter, the industry in the United States was roughly flat. I think it was down three tenths of a point or something like that. Beer and megabeer is well known, that has been soft. But soft drink was actually up 2.5%. And so, I think that just further reinforces that prices will go up and down, but we have seen no demand destruction.

And our next question is from Tyler Langton, JPMorgan. Please go ahead.

Yeah. Good morning. Thank you. Just with South America, I think last quarter you were kind of looking for maybe, sort of 3% to 4% growth, I guess more so in Brazil. And obviously, it sort of did well this quarter. I mean is – do you think consumption in Brazil is going to be sort of better than your previous outlook or was the first quarter just a little bit stronger than expected? Just any details there would be helpful.

Sure. I can't really predict the back half of the year. But I would say, first quarter, peak season. And I think Brazil was roughly from a market standpoint in the 9% growth that was certainly a little bit ahead of where we thought it would be, heading into the year. We certainly benefited from that. I think a lot is going to play out here in the back half of the 2018 relative to – it won't be peak season, but relative to World Cup and I think also the presidential elections and heading into 2019, we'll be watching that, but we're certainly off to a really nice start and the teams performed really well. And then, other parts of South America are also trending ahead of where we thought and ahead of where even our customers thought. So, I think a lot of that has to do with the can versus substrate mix. And then also, as I said in my opening comments, the economic landscape in Brazil, I think, is a little better than even our customers thought at this point.

That's helpful. And then, just so – just sticking with growth just with Europe. I think you mentioned volumes were up 6% on strength in Russia and the Iberian Peninsula, I mean is – just within Russia, I mean is that – I don't know if you can tell, yeah, from like the World Cup or if you can just kind of talk a little bit about what's driving those gains and sort of how sustainable you think they are?

Yeah. I think – well, first of all, our footprint is really strong in those two areas, so we benefited from the strength in those smaller regional aspects of Europe. Some of it is absolutely from World Cup pre-build, but there's also certainly a conscious movement away from plastic in that part of the world, Russia in particular. And we're benefiting from new can sizes and really the strength of our customers winning from a substrate standpoint in that particular area of the world.

All right. Great. Thanks so much.

And our next question is from Mark Wilde, BMO Capital Markets. Please go ahead.

Good morning.

Good morning.

Good morning.

Scott, I wondered if you could just help us in the first quarter by giving us a sense of how large both the startup costs and the increased freight costs were.

Yeah. I think there are – if you look at the charge (24:16) from last year, it's really tied to those things at the volume. I mean, it's – there's not that much of a difference from last year. But we said going into the quarter, we'd have some headwinds from startup costs. But as Dan said, we expect to overcome those as we move through the year and improve performance throughout the rest of the year.

Is it possible for you to kind of help us just cadence those startup costs as we move through the year, you're going to have Goodrich, you're going to have Spain?

Well, Goodyear should reduce as we get in the first quarter, we're already started making cans there, so that should come down, they come – should be operational here in May. And in Europe, more of that – more of the startup costs will hit the second quarter than in the first quarter.

Okay. And then, Dan, I wondered, you accelerated that Argentinean project, it sounds like maybe the market is shifting to kind of cans a little more rapidly than expected. Can you put a little color around that?

Sure. That's exactly what's happening. I think it's – there was a conscious effort by one of the key market players down in South America to push cans more aggressively against an incumbent returnable glass player and that has created some nice tailwinds in that marketplace. And it's continuing to build in terms of the can's penetration just from a overall substrate mix. And we're continuing to make incremental investments just to keep pace with the market. So, we'll – and we'll continue to do that as the can continues to win.

And what would that penetration rate be in a country like Argentina right now?

Right now, it's in the kind of somewhere in between the – north of 30%.

Okay.

And that trends versus kind of high-single digits two and a half years ago.

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

The next question is from Anthony Pettinari, Citigroup. Please go ahead.

Good morning.

Good morning.

In the North American segment, is it possible to say how much volumes were down in the U.S. and maybe up in Mexico? And then, in terms of the value over volume approach, is it possible to quantify how much of a drag that was on volumes in 1Q? And if there's any way to think about if that's an appreciable drag on volumes for 2Q or maybe even the full year?

Yeah. Let me – I don't have the exact numbers in front of me, but let me give you some direction here. As an industry, the alcoholic segment, beer, was down almost 5% here in the United States. And given that we overweight to that, that's a fair kind of baseline from where you want to think about what we did on the beer side here in North America. In addition to that, as I said in my prepared remarks, soft drinks on the specialty side because of the launch of some rebranding of existing brands, as well as just growth on the specialty side, that specialty growth was quite nice, but we did purposely choose not to move forward with supplying some standard 12-ounce containers. So, overall in that, we were down just a little bit. And then, so we were down in North America, a little bit more than that 3%. But then, the Mexican imports offset that to get to the down 3%.

Okay. Okay, that's helpful. And then, Dan, you talked about upcoming contract renewals, for North America and Europe, is it possible to say what percentage of your sales or volumes is up for renewal in the next 12 months? Or is the percentage of your business that's up for renewal, is it significantly higher or lower than maybe a normal year or are there maybe legacy Rexam contracts that roll off? Can you give us any kind of color on the, I guess, the tenor of contract renewals?

I would say, on average, we're turning over contracts 15% to 25%, in our aggregate portfolio and there's really no significant variations to that.

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

Thank you.

And the next question is from Brian Maguire, Goldman Sachs. Please go ahead. Brian Maguire - Goldman Sachs & Co. LLC: Oh, hey. Good morning, guys.

Hey. Brian Maguire - Goldman Sachs & Co. LLC: John, appreciate the comments about the European competitiveness investigation, I know it's early stages here. But should we just assume based on those comments that you view it as limited to the food can market at this point and no real impact on the beverage business there from what you can tell?

Absolutely. Brian Maguire - Goldman Sachs & Co. LLC: Okay. Thanks for that clarification. And then, just as it relates to RussOil and Russia, I guess glad to hear no – it sounds like no disruptions to the supply chain. Is that – are there any changes to the timing of some of the sanctions that's driving that or any concerns that you might have some supply disruptions down the road or are you guys pretty confident that regardless of the outcome of all this, you'll be able to continue to process local aluminum?

Yeah. Based on what we know today, we feel very confident that we won't have any disruptions in supply chain or impacts to the supply chain. Brian Maguire - Goldman Sachs & Co. LLC: Okay. And then, could you just remind me about the currency there? Do you have a lot of ruble exposure either translational or transactional that we should be aware of?

Yeah, it's most of that. We do have some ruble exposure, but it's really a dollar-based business. And then, it's invoiced in rubles, but we hedge – you can hedge some of that. So, there's really not that big of an impact. Brian Maguire - Goldman Sachs & Co. LLC: Okay. Great. Just one last one for me. Any way you can kind of quantify the dollar impact from freight and weather in the quarter?

Upper-single million dollars in North America. Brian Maguire - Goldman Sachs & Co. LLC: Okay. Thanks very much.

And our next question is from Ghansham Panjabi with Baird. Please go ahead. Matthew T. Krueger - Robert W. Baird & Co., Inc.: Hi, good morning. This is actually Matt Krueger sitting in for Ghansham.

Hey, Matt. Matthew T. Krueger - Robert W. Baird & Co., Inc.: Can you provide – hey. Can you provide some of the key elements to the year-over-year operating profit bridge for the North and Central America segment in terms of freight, startup costs, price/cost volumes or any other major factors that we should be aware of? Just trying to get a sense as to the bridge there.

Yeah. For the full year? Matthew T. Krueger - Robert W. Baird & Co., Inc.: Yeah, for the full year would be great.

Yeah. Maybe I'll take a quick step and then I'll turn it over to Dan. But year-over-year, remember we had in the third quarter last year that we had the big hurricanes that was in excess of $30 million, that alone. And then, we've also said with the Goodyear project that in the second half of this year, and it's probably going to be more late third quarter or early fourth quarter. Nothing has changed in terms of our expectations there. But we're going to start to realize the beginnings of that net annualized $50 million of savings. So, those two things alone gets you kind of the upper 40s. And then, we have – really the – then, the plusses and minuses are the continued efficiencies that Dan talked about in terms of predictive maintenance and other things like that, the push on our specialty, the push on our value over volume, but – and then, the biggest unknown as we sit here right now is we're going into what is our strongest selling season in the summer, in the second quarter and third quarter. And so, that's to be seen. The weather has not been helpful to-date, as we all know. Dan referenced that. But as we get into the summer, I do think that can is winning. It's just a function of how our customers ultimately start to position their products. And we feel good, as I said before, on the CSD side there's some – been some tailwinds there. It's just the megabeer here in the United States has been a headwind.

Yeah. I think the only thing I'd add to those comments is that we talked quite a bit last year that we weren't as effective in the pre-build inventory. Heading into peak season last year we've made a conscious effort on the supply chain to manage that with our customers. So, if the sales show up, we should have a much more efficient supply chain cost to delivering those products. Matthew T. Krueger - Robert W. Baird & Co., Inc.: That's very helpful. And then, maybe a question for Dan. Given that you've seen CSDs and other beverages experimenting with alternative can sizes, have you seen or do you expect to see similar dynamics develop with a number of your beer customers?

Yeah. That's a great question. I think, on one hand, you're seeing the traditional beer products and brands maybe not doing as well, so rest assured that our major megabeer customers are – they have a lot of queue of innovative products that they're leading with can, sleek cans, different channels. We're in those discussions. You've started to see some, I mean you could reference things like Michelob ULTRA, that was a conscious decision on how they branded that and that's done exceedingly well. But I would expect to see more and more of those things rolling out here over the next 18 months and we should – we should benefit from some of those discussions.

Yeah. And it's not just the traditional beer, it's also SpikedSeltzers and other products like that that are extension, alcohol extensions from their core beer business.

Correct. Matthew T. Krueger - Robert W. Baird & Co., Inc.: That's very helpful. Thanks.

And our next question is from Edlain Rodriguez, UBS. Go ahead.

Hi, good morning. This is (34:10) for Edlain.

Good morning.

In the food and aerosol business, do you believe we're done with the inventory restocking or destocking in food or is there more of that going on?

No, that was – that was largely a first quarter because that carried over year-over-year because that's how the pricing works.

Okay. And then, regarding the value of a volume approach, how long do you expect to continue doing that or is that the long-term strategy there?

It's part of our long-term strategy.

And then, last one on – you spoke considerably on the environmental concerns of plastic and why metal is favorable. Are you seeing that translate into direct – I guess the can taking away share from beverages that are typically in plastic and any products that you...

Well...

(34:57)?

Yeah, absolutely. As I said, CSD can – CSD here in the United States was up 2.5% in the first quarter. Dan mentioned in Europe that plastic has been on the hit list, not only in UK which is ground zero today, but even in Russia where they're banning larger-sizes PET. Dan also talked about the beverage can taking share from glass in the beer categories down, not only in Brazil, but also Argentina and other adjacent countries. So, those are just a couple of quick proof points of what we're doing. Based on our analysis, we believe as we sit here right now that the beverage can is the fastest-growing substrate in carbonation beverages. I separate still water because PET is still growing in there. But in carbonated beverages, both on the alcoholic and non-alcoholic side, the beverage – aluminum beverage can is the fastest-growing substrate in the world.

Okay. Great. Thank you.

And our next question is from George Staphos, Bank of America Merrill Lynch. Go ahead.

Hi, thanks for taking my questions. Hi, everyone. Thanks for all the details. I want to come back to the beer question. So, I've asked on custom can, so I've asked that for a while. Have you been surprised with the sort of longer tail in terms of some of these innovations showing up in can package in alcoholic beverages or is this what you'd – normally would have expected if you go back to two years ago when some of this was initially being trialed?

Well, maybe I'll take a first stab and then turn it over to Dan. Let's not forget that it's not just canned megabeer in the United States, it's all megabeer in the United States. And we look at the glass side as well and it's equally soft there. Their supply chains are built on longer-cycle issues, so it does take longer than we would like. But having said that, maybe I'll turn it over Dan, we have seen a lot of activity going on.

Okay...

Yeah. I think George, the other thing just to keep in mind why I think you probably know this, but in the megabeer category in the U.S., you've also got vertically integrated assets from the two major players that they're going to leverage those as long as they can. And I think they're kind of waking up to – they need to be putting out new products that differ from the traditional beer category and they need to do it in different channels with different packages.

And I recognize this is more of a comment and one that maybe you necessarily can't piggyback on. But again, I'm a little bit surprised that we haven't seen more only because the volume trend of mega has been negative for a long time. And the example that you've seen in sparkling beverages that are non-alcoholic in terms of stimulating growth from non-traditional packaging is pretty apparent. So, anyway, but you're saying it's on the calm. And when will you start to see more of that in your volume, do you think? You said 18, 24 months, but that's a long time. Is that something that shows up this year or is it really more of a 2019 and 2020 phenomenon?

Yeah. There will definitely be stuff that comes out this summer. Then, the million-dollar question is at the magnitude of how does the end consumer believe in that product and purchase that product will be whether or not we have a significant volume lift or not.

Turning to Europe, the performance was – it sounds like from your expectation, may be a bit better than expected. You obviously had strong volume growth. On the cost side, can you give us some view in terms of how costs – the program that you've had underway performed over the course of the quarter? Was it a little bit ahead of your expectation? I'm not asking for mark-to-market on synergies. But if it was better than expected, what was driving that? And then, I seem to remember there was a comment about SG&A reductions being more or less completed by 2019. I just wanted to confirm that's what you said and obviously as part of the Rexam program.

Yeah. I think Europe, on the cost side, is doing a very good job. They've had a multi-year program to get cost out and they're tracking to that. There's more things to do. But they've had success. They're also benefiting from some other synergies. The original synergies that we baked into the deals. So, I would say, they're performing pretty well.

Yes, Dan?

Yeah. I would just say just on the operational side, one of the things that we've been really pleased with via the acquisition has been kind of the lean mentality that we acquired in really from the Rexam operational folks. And I think we've got two to three new Shingo certified facilities over there. We're installing new supply chain software that's helping us kind of manage our freight and our supply chain better. And then, the lean programs are slightly ahead. I mean, this is not – each of those aren't significant. But all of them added together, they're – I think like to Scott's point, Europe is really doing a nice job across the board on working all these efficiency programs.

And George, on the SG&A, as we've done in 2019, I don't think we'll be done. I think we'll have completed a lot of what we wanted to do. But as you go through these things, you always find new opportunities, so they'll be more after 2019.

Yeah. I agree. Nothing has changed, said it another way in that, George, nothing has changed on our expectations about as we continue to drive SG&A. We are benefiting a little bit from pension this year and a couple of other little things. But we're also in the midst of transitioning to this global shared service concept and nothing has changed relative to what we've spoken about in the past.

And maybe one last one here and I'll turn it over. And I recognize Europe is a more seasonally peaked region than even North America, but – and it's only the first quarter. Is Europe, at this juncture, tracking better than you would have expected back in February when you last gave guidance? And then, my last question, sorry about that, just can you remind us what kind of cash outlays might you entail or put out for the Rexam integration this year? Thank you, guys. Good luck on the quarter.

Yeah, the – for Europe, I would say, George, that we saw some favorable mix just because of our regional positioning and footprint. So, those benefits, I'm not entirely sure they'll continue for the balance of the year, I think more. We expect to be kind of in line with where we thought for Europe. But certainly, the significantly or improved performance in Russia coming out of the gate was a little better than we anticipated.

Yeah.

And for the cash outlays on the Rexam integration there, we're not really looking at it that way, George. This is one integrated business now. So, we're going to spend north of $600 million in CapEx. We've got some severance things that are going to get paid for some of the closures that we've already announced – or disclosure that we announced in Europe. This is one business now. We're not looking at that as synergy capture, spending like that. It's just it's Ball.

And our next question is from Chris Manuel, Wells Fargo. Please go ahead.

Good morning, gentlemen. And congratulations to a strong start to the year.

Thank you.

I wanted to ask you a question here. Look, you talked about in your press release 40% of your mix now as specialty can. Could you maybe give us a sense as to how that is different by geographies? And as you think about – I think you've long talked about doing better with some of the specialty products in the margin or profitability versus others. And you also referenced some contract negotiations and things that will be upcoming. Is that something you think could continue or do you anticipate perhaps some convergence there? Or how might we think about that in relation to the mix and stuff as well?

Yeah. This is John. Why don't I take the first part of it? And then, Dan can talk about it because I think it's core – this whole push of specialty is a core part of our strategy and that you have to understand that. So, it flows through everything we're doing from contract renegotiations to our footprint to the supply chain optimization Dan was talking about. When you go by region, when you think about it, North America, it's in the mid to upper 30s. It was a little bit less in the first quarter. But don't read into that too much because it's such a seasonally slow. But generally speaking, in North America, it's kind of upper 30s and it's growing quite nicely off a big base. Europe is about the same. And we think we probably have little bit more incremental opportunity because a lot of our specialty in Europe is with a very important energy drink customer. And we think the other parts of the market have greater ability. South America is probably right around 50%, and we've seen a lot of growth there. Argentina isn't nearly as far along with that and the other countries outside of Brazil. But I think they're catching up quickly, so the growth of that is moving very quickly. And then, you go into places in like China which it's probably close to 10%, but it's growing quite quickly. And then, you go to EMEA where it's 75-plus percent. So, in total, it's in that range of approximately 40%. And we think – the question we often get asked is do you think you can get to 50%. And the short answer is yes, we do. It's just a function of time. And that function of time is partially dependent, as Dan said, on some of these new products and the receptivity of these new products and the push by our customers. But rest assured, this is core part and parcel of our strategy.

And our next question is from Adam Josephson with KeyBanc. Please go ahead.

Thanks. Good morning, everyone.

Good morning.

(44:57).

Dan, just one question on Brazil. I think you mentioned the market was up about 9%. And presumably that's a function of consumption growing and cans taking share. What I'm a bit just confused by is one of your glass competitors was up 30% in Brazil, and they said they were up 35% in beer. So, it doesn't seem obvious that they're losing share to can. So, can you just kind of help me understand what you think is going on from a market share perspective there, what you think actual beer consumption was up in the quarter and then what your expectations for the Brazilian bev can market are relative – for the year, relative to the 9% up in 1Q?

Yeah. Actual beer consumption was slightly down, so that's probably not going to help your calculation there if you reverse engineering this.

Okay.

But the problem with – the problem with returnable glass is, I mean are they restocking inventory? I mean that ultimate – I can't answer that question, I don't know what that is. For us, it's all incremental sales. And from what we've seen, this is not just on the megabeer or the big players in the market. There's an awful lot of craft beer now. There's an awful lot of 100% – or different European malt-based products. All of those are coming in 100% cans, and they're taking share and they're taking share from glass. I think that's where the genesis of my comments are coming from. I can't comment though, Adam, on the returnable glass mix or the restocking of inventory or the breakage or any of that in the supply chain for some of the beer folks.

So, if consumption was slightly down, it doesn't sound like the economy is recovering that robust at least based on that. I mean would you think otherwise or – I'm just trying to make sense of that because everyone's talking about the improving economy, but that wouldn't seem supportive of that notion.

Well, yeah, it is an improving economy, but it's not a healthy economy. The GDP 18 months ago was down 3%, 4%. And now, it's flat. Flat's a heck of a lot better than down 3% or 4%, but it's not like it's growing 3% or 4%. So, you got to think of it in those terms.

And just one last one on Brazil, John or Dan. Just – so, if the bev can market was up 9% in the quarter, any rough expectations for the year compared to that 9% in 1Q?

I think Dan alluded to it earlier. It's – we're entering now a seasonally slow period. And the visibility towards the second half – in the second half of this year, particularly in the fourth quarter, that is the further you go out in these more emerging and developing economies, more difficult it is, and that's our only hesitation. We continue to think that can is going to do very well. But the – we have the elections coming up in the fall in Brazil, and that will play an important part to the overall economic mood of the country.

Sure. Thanks. And just one on the value over volume approach that you mentioned earlier. I don't think you've been quite as explicit about this on previous calls. So, can you just kind of help me with any kind of change in approach or at least why you're speaking more explicitly about this than you have on previous occasions in the U.S. obviously?

Well, it's specific to Q1 results year-over-year for North America, why we're down 3% versus the market being flat, that was a callout that was required for this call.

Yeah. But, Adam, I think ever since we've closed on the acquisition, we've talked about value over volume. And I remember talking about it isn't just price. It's about tighter order call-offs. It's about helping our customers becoming more efficient using cans on their line. It's about mix. The 12-ounce is very competitive. And where we compete with others, we're trying to be a leader. But you got to be realistic in terms of your customer alternatives. And what we've tried to do over the past couple of years and continue to do is actually help our customers expand their profit pool in their products, so that they can win. Whether it's better graphics on the craft beer segment, different can sizes that we talked about, the CSD, new can formats, sparkling water, energy drink or even on the beer side that we talked 10 minutes ago and bottles play a part of that. If we can help our customers grow their profit pools, it will help us also.

Thanks a lot, John.

And next question is from Chip Dillon with Vertical. Please go ahead.

Yes. And good morning. Thanks for all the details this morning. First question has to do with the very small but volatile business that we can sort of back into which is EMEA. And it looked like it had really fallen off a lot in the first quarter. Should we expect the next – I get to $3 million in EBIT. Should it stay in that ballpark for any or – or change much for the rest of the year quarterly?

I would say, from a year-over-year standpoint you'll have a more normal pattern in Q2. As you may recall and we mentioned this last year, the Saudi carbonation tax took place in Q2 of last year. And so, that hurdle continued all the way through Q1. But we will see a normalized pattern in the back half of the year. We saw a little bit weaker volumes in Egypt versus our expectations like coming out of the gate. But those are trending back to more in line with our expectations and our guidance. So, I mean it's still a tough market. The macro environment's not great there and the carbonation taxes obviously have increased the price, the end consumer. But we still like that region. It's profitable. And we think over the next two to three years, we'll return back to kind of a more normal demand profile versus what we acquired.

Okay, that's helpful. And looking at the South American segment, you mentioned some of the volume shifts that will make the second half comps a lot tougher. And when we look at, again, the income that you expect from that region, whether its EBIT or EBITDA, do you think that that will still be above on a year-over-year basis in the second half? I just want to get a view of sort of how much compression you see after what was obviously a really great first quarter.

No, that's right. Remember that we said on the last conference call, we expected it to be down year-over-year. We did have a first quarter that was much stronger. We expected it to be strong. Not as strong as it was, so it exceeded our expectations. But again, the greatest uncertainty we have is the second half of the year. As we go into the second quarter, it's going to slow down. We had a strong second quarter in South America last year, so relatively flattish is probably what we expect right now. But it's really the second half of the year which we don't have enough visibility into because, as Dan mentioned, the World Cup which is an off-season event down there, that could be a plus or a minus depending on who's in – how far do the South American teams go in it. And then, we've got this election coming up. And as we all know, when you have elections, in Brazil in particular, the government spending that happens before and after, it'd play a meaningful impact to the overall economic health.

And we also have the benefit of the INS deal from the sale of the business in the first half of the year that goes away in the second half.

Okay. And then, just a last one. As we're thinking about the free cash flow, both this year and next year, Scott, can you just update us as to where we expect the net working capital either source or investment to be in that calculation?

Well, there's still a bit of a benefit this year that we'll experience to get to the $900 million. We're going to spend more capital this year. And then, in 2019, I think we'll probably spend less capital because we got a couple big projects that we're doing that will end this year. And we expect a nice pop in earnings. And so, it's really too early to call how much working capital will be part of that $1 billion of free cash flow in 2019.

Okay. Thank you.

Thanks.

And our next question is from Arun Viswanathan from RBC Capital Markets. Please go ahead.

Great. Thanks. Good morning.

Good morning.

Just curious about the competitive landscape. There's been some issues with the volumes, I guess, in developed markets. Are you guys seeing any issues with customer behavior as far as raising prices – or I mean, not raising prices, but pushback against prices that you're charging for metal? Thanks.

Well, remember metal is a complete pass-through, and so that we don't really control that metal. And so, every customer is different. Some have hedged long term, some have done it at the spot rate and everything in between. So, I don't think, number one, we can generalize anything. And number two, all I can tell you is that really that is we work with our customers to optimize that. But the metal fluctuations both positive and negative, when they occur, accrued to the benefit or detriment of the customer.

Yeah. I didn't really characterize it correctly. I meant more on the conversion side, I guess, is – there've been any pushback as far as you increase your penetration in specialty that rates are going down or changing in mix, i.e., non-12 ounce commanding any difference on premium?

No, nothing has changed from what we've talked about in the past. As I mentioned earlier though, it is what we're trying to do is actually help our customers margin up their business by using specialty. And I think relaunch of a certain soft drink in the first quarter this year is a great proof point to that. When you look at the average retail selling price of the cans that they're using now versus the cans they're using before, it's been a great benefit to them.

And then, lastly as a follow-up, maybe you can just comment on category growth in non-beer, water, tea, specialty areas, energy drinks and so on, have those kind of remained relatively robust or any changes you've noticed in those categories? Thanks.

No fundamental changes. Obviously, the star in the group is the sparkling water category. I think tea is this kind of a nominal growth opportunity. You see most of that through the peak season in the summer months. But craft beer, really good growth, continues in that 20% to 30% range and that's mostly a substrate penetration. But also end consumers shifting their preference to that. But yeah, we haven't seen any changes to the very positive trends in those categories, and we're still bullish on those for the foreseeable future.

And we have a follow up question from Chris Manuel, Wells Fargo. Please go ahead.

Good morning. I just wanted to follow up on a couple different things. One, I think, actually what part of what I was trying to get at is you addressed the changes in mix for specialty. But thoughts about potential profitability, each of those converging through time. Could you maybe go back and address that as well?

Please – I'm not sure I follow. Can you please elaborate a little bit more?

Yeah, sure. I mean I think historically you guys have talked about the specialty cans having better profitability or conversion margin or what have you than do more standard cans and the thoughts that through time is if that becomes a bigger piece that potentially converging?

Well, the short answer is no. We've seen nothing and we don't necessarily expect for the reasons I said before. We're helping our customers grow. One of the things that we need to do a better job of, it makes it – we make it sound like there's two cans, there's just a standard can and there's specialty can. We make over 32 different sizes here in North America alone. Each one of those has a different contribution margin profile having to do with volume, having to do with line loading, having to do with a whole host of things that partially are in our control about how we leverage our footprint and the ability to make multiple sizes, in multiple locations, in multiple geographies, combine that with the volume demand that we have from customers both on a regional and national basis. You put all that together and it does create more complexity in our system. And given that we have a footprint that we can line load that much more effectively than we believe anyone else can, we're going to continue to do that and we're going to continue to push for another 32 different can sizes if it helps our customers grow their profitability. So, yes, you will always see compression as volume grows and you have more competition in any given size. But when you're making over 30 different sizes, it's a very difficult question to answer.

Okay. You did a good job. Thank you. The second question, I wanted to switch gears a second and come back to the earlier comments regarding recycling and the value proposition of a can versus glass or versus plastic. Have you seen or have had discussions with customers in particular regarding their change of preference for filling capacity, meaning that they're investing more in filling capacity for cans or specifically even abandoning or disinvesting in filling capacity for other substrates?

In – for example, in the United States and Europe, we really haven't. In the United States, we have not. There is excess filling capacity for all types of products here in the United States. In Europe, yes, we do have it, but at a small level. But to Dan's point, down in South America, off the top of my head, I can think of four or five new can filling lines going in some of these regions that we've been experiencing very strong growth. So, we have seen a – I don't know if you want to call it a shift, but the incremental investment from the filling side has been going in the can.

Okay. That's very helpful. And then, last question I had, on the aerospace side, look terrific growth in the backlog. It wasn't that long ago that it was well under $1 billion. How do we see that beginning to monetize over the next couple years? So, how should we think about both revenue growth and profitability growth in that segment?

Well, I think, number one, profits will follow revenue. So, I wouldn't expect any material margin expansion or contraction. And I think this past quarter was a good representative. I think the margins were relatively same. On the revenue line, we grew double digits, low-double digits, I think. I think that's a good way to be thinking about it. One of the things that gives us confidence is that's a long-cycle business, so the visibility we have into that literally we can go up three, four, sometimes even five years and look at the visibility. Our won, not booked which is those projects that we have won but we have not booked in the backlog because they haven't been funded yet is at record highs as well. And that's what gives us comfort. As we – that – as those programs get funded and move into our contracted backlog, that's going to extend out this growth pattern that we see.

Okay. Thank you very much.

And gentlemen, those are all the questions we have.

Terrific. Well, we appreciate all the help here and we appreciate all the questions. We look forward to speaking to you at the end of our second quarter. And as a reminder, we are going to have a Investor Day out here in Colorado in the very beginning of October. And if you have any questions, feel free to reach out to Ann Scott on that. Thanks, everyone.

And ladies and gentlemen, that does conclude our call for today. We thank you for your participation. Everyone, have a great rest of your day. And you may disconnect your line.