Greetings and welcome to the Ball Corporation 2Q 2020 Earnings Call. [Operator Instructions] As a reminder, this conference is being recorded, Thursday, Aug 6, 2020. I would now like to turn the conference over to John Hayes, CEO. Please go ahead.

Thank you, Kelly, and good morning, everyone. This is Ball Corporation's conference call regarding the company's second quarter 2020 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 the 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 don't already have our second 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 diluted earnings per share calculations. In addition, the press release financials include descriptions of new segment reporting for our EMEA and other non-reportable segments. Now joining me on the call today are Scott Morrison, our Senior Vice President and CFO; and Dan Fisher, our Senior Vice President and Chief Operating Officer of our Global Beverage. I'll provide some introductory remarks. Dan will discuss the global beverage packaging performance and trends. Scott will discuss key financial metrics, and then we will finish up with comments on our aerosol and aerospace businesses, as well as our outlook for the company. Second quarter results were strong and candidly came in stronger than we expected, which is just another proof point of the long-term resiliency of our various businesses. At a time that the world experienced the worst economic and social crises in our lifetimes, our second quarter and year to date comparable diluted earnings per share increased 2% and 12% respectively. And we're driven by our North and Central American…

Thanks, John. I also want to thank our employees, customers and supply chain for their collaboration to maintain our industry's ability to serve consumer demand. In addition, our HR leadership and our environmental health and safety professionals continue to keep our Ball family safe and vigilant about our well-being as communities. Offices and schools began to open up. Looking forward, and given the increasing demand for sustainable aluminum packaging, it is going to be an exciting beverage can market for the next several years. To bolster the growing demand for aluminum packaging and true circularity we recently published our peer reviewed lifecycle assessments and biennial sustainability report. Visit ball.com/sustainability, to learn more about what Ball is doing to advance the circular economy in its operations and across our industries, while also supporting diversity and inclusion initiatives. As we discussed on the first quarter call consumer behavior varies by region. In North America, consumers are able to access multiple shopping channels, stock up and store bulk packages of our products. In late-March, this led to a surge in beverage can demand as those occasions that occurred in the on-premise and convenience channels shifted to the at home or off-premise channels. Following March volumes being up 12% April slowed a bit, then returned to single-digit growth in May and June. Demand is continuing to outpace supply and inventory levels are low. In particular, year-to-date through July, we have seen IRI can demand in the non-alcoholic category growing 11% domestic beer of 4% that includes up 13% in the second quarter, craft growth of 20% and FMBs up in the range of 80% to 90%. As we look forward, we're thankful that our new line and Fort Worth started up a couple weeks ago, and that our new Rome, Georgia beverage can line…

Thanks, Dan. Comparable second quarter 2020 diluted earnings per share were $0.65 versus $0.64 in 2019. Second quarter comparable diluted earnings per share reflects strong North America beverage segment results a lower share count and lower corporate costs offset by lower EMEA, South America and aerospace results due to the short-term demand and supply chain impacts. Due to the pass through of lower aluminum costs and the 2019 sale of the Argentine steel aerosol business and Chinese beverage can assets and lower second quarter packaging demand outside of North America. Revenues for the second quarter were down. Ball's balance sheet is healthy and we have focused near term on maintaining ample liquidity and flexibility in the current environment. Year-to-date, we experienced our seasonal working capital build which was more sizeable than typical, due largely to the timing of metal payments. As a result of this timing and ongoing growth initiatives in raw materials supplied to support them, we anticipate the full year 2020 working capital investment to be used in the range of $300 million, which is slightly higher than previously anticipated due to accelerating growth conditions. As we sit here today some additional key metrics to keep in mind. Our full year effective tax rate on comparable earnings will be in the range of 18%. Full year interest expense will be in the range of $270 million and full year corporate undistributed cost recorded and other non-reportable are now expected to be in the range of $55 million. Our 2020 cash from operations will continue to be strong. We will be investing in working capital and even more growth CapEx to expand aerospace facilities, beverage can production capacity, while also completing construction on our first aluminum cups manufacturing facility. Contrary to past sizeable M&A deals, Ball is embarking on a multiyear phase of internal investments to serve organic growth for beverage cans, and support new contracted volumes. At this point, 2020 CapEx will likely exceed $900 million and 2020 free cash flow is expected to be in the range of $400 million. Ball has always been focused on being good stewards of our cash and prudently balancing real time growth opportunities with consistent return of value to our shareholders. Given our strong cash flow, we are managing the business appropriately for the long term, investing capital with an eye on EVA returns, managing our balance sheet effectively and consistently returning value to our long-term shareholders. With that, I'll turn it back to you, John.

Great. Thanks, Scott. Our aluminum aerosol business saw global volumes in the quarter decline 6% driven primarily by flat volumes in North America, single digit declines in Europe and strong double-digit declines in India as a result of multi-week country lockdowns and regional fillers downtime. Looking ahead, we're excited to expand our aluminum aerosol business’s geographic reach into South America and expect the acquisition of the Tubex facility to close in the third quarter. Our aerospace business reported approximately 16% revenue growth and lower than expected segment earnings due to its supply chain issue on a key fixed price project. Adjustments to testing schedules have been made, and the items necessary from the supplier are forthcoming. The team has done a good job managing the process with our customers despite difficult circumstances. Looking ahead, the growth trajectory of this business is even stronger, with won-not-booked backlog reaching $5.3 billion. In addition, our year-to-date aerospace headcount has increased by nearly 450 employees, and we anticipate hiring an additional 550 employees by year-end. Our HR team has done a great job onboarding these new employees and running our summer internship program remotely. In this business, we continue to enhance our infrastructure, build out testing and manufacturing facilities in 2020 and ensure all projects are on track and on budget. Current indications reflect that the business will be able to grow profitably in excess of 15% per year over the next several years given the scale and type of recent contract wins. In summary, Ball continues to be uniquely positioned to lead and invest in sustainable growth in global aluminum, packaging and aerospace while delivering significant value to our shareholders. As we sit here today, our ability to grow comparable diluted earnings per share in 2020 is higher than previously thought. Our teams will do everything possible to outperform while being keenly focused on working safely and executing capital investments. Beyond 2020 we look forward to driving our business to deliver long term diluted earnings per share growth of at least 10% to 15% and achieve our EVA dollar growth goals of 4% to 8% per year on our growing invested capital base. Especially during these times we're thankful for one another and the opportunities in front of Ball for an even brighter future. Lastly as a reminder Ball will host its Bi-Annual Investor Day on October 6th. We look forward to your attendance at this virtual events. And with that, Kelly, we're ready for questions.

Thank you. [Operator Instructions] Our first question comes from Anthony Pettinari with Citi. You may proceed with your question.

Good morning.

Good morning.

I think you indicated you’re sold out in all your major regions exiting the quarter. And I'm wondering if it's possible to quantify maybe how much volume you may have left on the table, either in 2Q or potentially for the year. And then just a related question. Is it possible to say what quantity of cans you might export-import cross region in 2020?

Yes, I think it's difficult to answer what did we leave on the table. I think clearly in Europe, negative, almost 8% growth that should have been in the 3% to 5% growth range. So I would steer you in that direction. And then for South America, again, we should have probably grown in the mid to high single digits for the quarter. And we were obviously a little shy due to the April decline. We're probably importing in terms of it's all North America support, I would expect for the year somewhere in the neighborhood of a 2 billion cans. One billion of that is coming from places that typically wouldn't be shipping from, Europe, India, Brazil, for instance. And then where we can get some relief and we benefited from that in the second quarter, specifically in Mexico, as kind of the brewery industry was deemed non-essential. We were able to use some of our excess capacity in Mexico to ship up. So that's sort of how I would frame where those imports are coming from.

Yes, but Anthony, and how many would we have been able to sell if we had capacity? That's a tough question to answer. We don't know. We -- Dan pointed out when you leave, here some of those IRI statistics and just in the second quarter alone, when you had carbonated soft drink cans, up 14%, big beer cans up 14%, total FMBs up nearly 150%. Those are very big categories and very strong. We obviously are not able to keep up with that because we had not anticipated that. And so our -- as Dan had mentioned our inventories are at all-time lows. We've been importing as many cans as possible. I know that doesn't answer your question, how many were left on the table. Because it just -- it's too difficult to know. What I do believe, though, it underpins many of these longer-term investments, because the growth we're seeing. Yes, some of it has to do with the stay at home rules, but a lot of it still has to do with sustainability that we've talked about over the past couple of years.

Okay, that's very helpful. And then you talked about some benefits from new contractual terms, and I'm wondering if it's possible to put any finer point on the contribution from that. Does that roll through over a number of years, if these are multiyear contracts? And understanding, you're probably limited in what you can say. Can you give any color in terms of how these terms are different than maybe conventional or legacy contracts?

This has been well described in the past. And I'm not going to say other than what we talked about. We normally don't talk about these things. But we did have a number of contracts renew at the end of 2019. And we had told people that the phasing on some of these new commercial terms would probably be multi-year. It's not just one year. And so that's about all we can say right now.

Okay, I'll turn it over.

Our next question comes from Neel Kumar with Morgan Stanley. You may proceed with your question.

Great, thanks for taking my question. You mentioned fully scaling out the North American capacity additions in Arizona and Northeastern U.S. Can you just give us a sense of how much incremental capacity is expected to be added in North America versus the six million units that was initially planned? How do you think about the ramp in this capacity from the start-up of the facilities in mid-2021?

Yes, it's all going to be dependent on executing contractual negotiations and we will continue to update that number for you as those things become more firm. And it's clearly reliant on execution, hiring employees and ramping up lines. But got to have contracts on the back of it and some of those contract negotiations are still ongoing.

But the two new facilities were built. And remember, we're scaling them that they have the capability of being the biggest in our system.

Okay, that's helpful. And then we recently saw an announcement that a new-entrant coming into the U.S. market. What impact any of you see two market dynamics from the announcement? And what level of demand growth you think is necessary over the next several years in the North American market, for it to remain, basically balanced, given all the new industry capacity that's been brought on?

Yes, we've talked about this in the past. And the long story short is, let's put this in context. The market is approximately 100 billion cans. We've been -- realistically this year, it's been growing well above the 4% to 6% we talked about. Whether it's been 8 or 10, it's unclear because we have left cans on the table as we were talking a few minutes ago. So, you're talking about upwards of 8 billion to 10 billion incremental cans in one year alone. Now this is a unique year. I get that. But we think as we go forward that 4% to 6%, based on what we see it's trending to the upper part of that range. So, that's in the range of approximately 6 billion cans a year. That's why we're accelerating our growth investments. And as we've discussed previously, this is a growing business. This is a scale business and this is a business if you run it right, you can generate decent economic returns. And so I'm not surprised people have been looking at it. But I think the overall market is more than -- the growth of the overall market is more than sufficient to absorb this capacity. And as a result, given our 20 plus plant network, we have many levers that we can pull relative to any other smaller competitors that just have one or two levers to pull.

Thanks. That’s helpful.

Our next question comes from George Staphos with Bank of America. You may proceed with your question.

Hi, everyone. Good morning. Thanks for taking my question. I want to piggyback on some of the questions from Neel and from Anthony to extent possible. Again, recognizing you're not going to be able to really quantify or maybe even enumerate, can you talk to whether with your customers in North America or anywhere else, given what they're seeing in terms of demand, and your need to supply more capacity or being willing to accept more creative terms, different terms and maybe what was even put into contracts and '19, any desire or willingness to maybe sharing some of the risks and costs to make sure that capacity is on the ground, when the demand is there anything that you can talk to on that question?

Yes, I believe that is an accurate depiction of where we are right now. There are a number of categories and a few customers, George, that are viewing this as a real opportunity to grow for the first time in years. And those customers and those categories are being aggressive. They want to move quickly. And yes, we are having any number of much more creative discussions with those folks. It's not everyone, but certainly you can imagine in the seltzer categories and when you see big beer and non-alcoholic categories growing at this rate that's a real opportunity for some of our customers to step into some growth profiles that they haven't seen in a while, and they're using the can and innovative packs to do that. And yes, different dialogues are certainly happening right now as a result. And George just to give you an example, we've talked about this in the past, but historically, at least in North America, many of these larger contracts are based on requirements that you'd have to fulfill 100% of the requirements of any given filling location. And over the last couple of years, we've re-jiggered that, because all the risk was then on us to the upside and the downside, quite honestly. So what we've re-jiggered that as think of it more of a fixed amount plus or minus window, call it a 5% window, 10% window, whatever is agreed to. And they've got to take those cans, and if they need more cans, then it's a separate discussion. And so the most important thing we're trying to do though, is make sure we can fulfill as much of the can demand our customers are seeing. And I think because of COVID it caught everyone off guard a little bit. People knew the growth. We've been talking about this growth for several years and there were some customers that were more understanding of it than others. But I think this overall shift of premise has been a great help for us. But it's also pointed out the fact that making sure that you have your supply chains in good order are important. So we're trying to keep up with our customers as best we can.

Okay, thanks for that guys. Two questions and I’ll turn it over. To the extent that the capital spending has continued to move higher, I mean we understand logic why, because of the demand that you see that you're trying to meet. Is there a way to I don't know quantify or qualitatively talk about return you expect to get on what these incremental spending numbers look like relative to what had been perhaps the base capital spending few years ago or whatever $500 million $600 million? And then on aerospace and correct my number there if it's wrong on what the base number had been. And then on aerospace if you could talk a bit further, I realize it was a project in the black. But can you talk a bit about what the issue was in terms of the subcontractor? Why you believe it's resolved and should we expect the earnings for aerospace to continue and what had been the trajectory you were expecting third quarter and beyond? Thank you, guys, good luck in the quarter.

Yeah George, let me take the first part on the returns and then I’ll turn it over to John on the aerospace one. We are still first and foremost an EVA company so any capital we’ll put in the work; we have to get 9% over within the first three years of putting that capital to work. These projects are better than average because they tend to be a higher percentage of specialty cans than standard containers. So we're going to like to returns on these projects over the course of the next several years. And so I would say, our return profile’s gotten better and compounded with the growth that we're seeing. So I think we're in a pretty good place and frankly spending $900 million, the faster we can get some of these assets up and running, the faster we can enjoy the returns on.

And George with respect to aerospace, we had a test failure of a key component from one of our sub-suppliers. It was late in the program's life. As you know that when you're building a program like this you assemble everything and at the tail end, you test everything. Well we had a failure of one of the key components there which pushed out the delivery date and therefore costs us money related to re-working the problem and getting a new part from the supplier as well as our marching army cost if you want to call it that, keeping the program team intact and moving it out in this case approximately six months or so. As I said in the prepared remarks, this was a one-time event. This is very few times the things like this happen but they do happen from time to time. But I think both our supplier as well as our program team have the issue isolated and under control. So even despite that, you would see even with that they had a pretty good quarter but without that they had a very good quarter and we expect, as I said as we march forward to have 15% or more earnings growth in that business.

All right. Thank you, guys, good luck in the quarter.

Thank you.

Our next question comes from Arun Viswanathan with RBC. You may proceed with your question.

Great, thanks. Good morning. I guess I just wanted to ask first off about Europe. Maybe you can just provide your thoughts on the business there, obviously is slightly different situation as far as the opportunity for pantry loading. So how are you thinking about kind of Europe global -- Europe, can volume in the second half as well as next year?

Yeah. We think that in the prepared comments we exited June as border started to open up and as folks were able to get out of their house, can consumption picked up and we were on the growth trajectory exiting June year over year. And we expect that to continue to build at this rate obviously, have to preface that with we don't know what's going to happen second wave of COVID etcetera. But right now, we're anticipating to end the year despite being down 8% in the second quarter with slight growth for the year. And that means that the second half has to be up fairly appreciably in the mid to high single digits.

You know, it's interesting, this might be helpful. These are for the second quarter. In beer in Europe, this is across Europe, beer cans grew 10%, but soft drink was down 17%. Soft drink is bigger. And it makes a lot of sense when you think about it, because all the pubs were closed, but people still drink beer. So they're drinking more beer at home. But much of the soft drink in cans is actually sold in the -- on the go convenience channels, whether it's a kiosk at beach or somewhere else like that, with all of those closed we saw a retrenchment there. And those are the types of things that are now opening up that Dan was referring to.

That's helpful. Thanks, John. And I guess maybe we can just ask a related question here. So have you thought about anything about changing consumption habits? It seems that as people are returning to on-premise consumption, looks like bars may be more up to hold bottles and cans rather than kegs just in -- because they're not sure what their take rates are going to be. So, I guess does that affect your business? And then similarly, you had talked a little bit about the new beverages going into cans moving from 35% several years ago, maybe to 70% a year ago. Have you seen continued growth in that trajectory? And, maybe you can just offer your thoughts longer term, just on new categories in beverage cans as well as maybe changing consumption habits amongst customers? Thanks.

Sure. Yeah. For the first part, this is when I really wish I had a sociology degree so I could really capture the changing behaviors and consumption patterns. But it is clear in conversation with a number of our customers that they believe that cans will certainly be least in the medium-term, a beneficiary of everything that's happening in the -- as it relates to folks working from home more. And those areas and how you -- in your dining, the food service experience, all of that tends to lead itself to more packaged products and more cans. So that -- and from there, we think that there's even potentially some upside on the growth rates that we shared six months ago. That's early indications. I think a lot of our customers are still working through what all of that means specifically, but at a 30,000 foot level, it certainly lends itself to more cans and more packaged goods. We are continuing to see, in your second question, we're continuing to see cans winning. I referenced what was happening in South America that was a substantial increase in pack mix in the beer category. But continue to see growth and movement into cans in North America, kind of North of that 70% rate. And I don't see that slowing down anytime soon. The innovations that we're hearing, the brands that are getting pushed in the cans, that rate seems to have some teeth to it, some staying power. And I could see it continuing to tick up modestly here over the next three to five years.

Thanks.

Our next question comes from Ghansham Panjabi with Baird. You may proceed with your question.

Hi, guys. Good morning.

Good morning.

So John, back to your favorite topic on North American capacity additions. If we total up the announcements by you and your peer groups over the next couple of years or so. It looks like capacity will be added in the mid-teens in terms of units up 100 billion base. And obviously, the industry is seeing very strong growth at current. But can you just give us a sense for how long the contracts typically are from a duration standpoint, specific to the new capacity you as the industry leader are kind of bringing on at this point?

It's, every customer and every conversation is different. But what I would say is, there's a tendency for us to think more long-term about these things because that's what we've always done. You followed us a very long time and I reflect back and the things we did in South America, when we were building new plants. That mindset is what kind of what we're doing here. So it's a long way out. Also remember that number you cited, that's not going to be all in place at one time. These are all ramp ups and they start over time. So, I wouldn't disagree with your number, but that's probably over the next three years type of number. And when you see the growth -- one of the things I think about is that even enough. I could make a very compelling argument right now, given the growth rates we're seeing that that will create a shortage in the can market in 2022, or 2023, as well. So it's a very dynamic environment right now. And we're very focused on making sure we're doing the right thing for the long term for our company and our shareholders and our customers.

Thanks for that perspective. And then second question on the beverage packaging segment for North America, North and Central America, I should say. Can you help us with the operating profit bridge between 2Q of this year versus last year? Were there any temporary savings that perhaps in play to that margin that could reverse as business normalizes, or is that not the case?

Well, the absence of the scrap that we had last year, but the business is operating better. The manufacturing performance is better. We're making every can that we can possibly sell. So absorption is good. But beyond that there's nothing that's that unusual year-over-year. I would say the scrap is probably the biggest absorption.

Yeah, Ghansham, remember, at the beginning of this year, we talked about the bridge year-over-year and we talked about. We needed -- where we're going to have the commercial terms, the benefits of new commercial terms. We talked about we needed to execute better. We talked about the absence of scrap, but then we also talked about headwinds related to startup costs of all those new things. All of those in general are happening as we anticipated. The only surprise to the positive in my mind is the operating performance is actually better. We are ahead of our plans for 2020. I think our manufacturing folks are doing a very good job. They've got a ton on their plate too. Because given the tightness of the market and then with all this new capital coming on, they're being spread stretched pretty thin. But despite that, they're performing candidly better than we expected.

What more startup in the back half of the year as these other plants are getting closer to fruition to. So I wouldn't take the second quarter as being kind of a normalized number. It was exceptionally good.

Thanks so much.

Our next question comes from Mike Leithead with Barclays. You may proceed with your question.

Great, thanks, guys. Good morning. Two on the imported cans in North America. You mentioned in the release about needing to ship cans in from Europe, which I can imagine isn't cheap. So I guess first, I know contract pricing is annual, so does that incremental cost fall on Ball or its customers? And second, how do you think this evolves as we head into '21 versus this year? Because I assume as you're starting up plants here in the U.S., you can get cans to customers for cheaper while transferring some of that value hopefully to your own P&L.

Yeah, the first part of your question is, I mean, essentially what we're doing is we're allowing the customer to take product at the facility. And they're basically on the hook for the trade. So we're not exposed on that. And as John referenced, we're stepping away with an awful lot of our contracts away from requirement contracts to more fixed volume. And then as a result of that, you're not on the hook for getting those cans shipped and absorbing the cost. It's a much more equitable contract and relationship. And right now, as you can imagine for the folks that don't have a revenue stream on premise. They're trying to buttress their revenue stream with product off premise. And they are happy to pay for that additional cost. Moving forward, this is the real -- the real challenge for us is when we look at our IRI data. We believe that the growth that we saw in the second quarter and year-to-date that still has some teeth regardless of whether we're in a COVID environment or not, sustainability continues to drive, new product launches and cans continue to drive that growth profile. And I think as the previous question was centered around a lot of capacity is going to be coming online. But as we all know, it's all related to how effectively you get it put up. And how you execute against those startup curves. And so for the next two to three years long story short, I think there will be a continued reliance on some level of imports, probably not to the extent we've seen this year, but 2021 is shaping up to be incredibly tight again. And I think you'll hear more reference to import cans at least for the next 12 to 18 months. Beyond that we'll have to -- we'll have to see.

Great, that was helpful. And then just one on the aluminum cups, particularly as you're shifting it more into a retail focus right now. Can you talk about the potential price point for your cups relative to a standard solo cup? And I'm assuming both you and your retail partners have done a bunch of consumer market analysis as you're preparing for this launch? So can you just talk about what your observations so far have been and their excitement around the product?

Yeah, why don't I take a first stab and then let Dan chime in. Just let me take a step back to because it's important to remember. Our strategy all along was kind of getting to the venues first create awareness and then follow-up through the retail because that's where the size of the prize is really on the retail side. The bad news is because of COVID, many of those venues were shut down. The good news is we did a tremendous amount of research and testing and we realized that the awareness is already there. In fact, many people when they have already seen them are very well versed of its attributes and its positive attributes. So as we go to the retail channels and sell it, there's two observations I’d point out. Observation number one is, we don't have to quote sell it, because we can feel the demand being there. And number two, I don't think it's as much of a relative to a plastic cup as we thought it was. This is a whole new product with a whole different proposition. And as a result, a whole different price point. And so I'm not going to get into right now about what the various price points are. You will see them in the near future when you see them on the shelf, but they are going to be a premium to what's out there today because consumers have told us they're willing to pay a premium for this product.

Some of the more specific conversations we've had in and around the cup that may help you at least on the retail side is almost universally the folks we're talking to view this as innovation and that in and of itself creates a very different discussion and dialogue in terms of the process to get it in the store, to get it on the shelf and the price point. And they're leaning, in many instances, these retailers are leaning on a lot of the research we've done to look to us to what the appropriate price is. So that's been very favorable. And the other thing that's been really exciting is some of the larger retailers have a real focus on reducing their plastic in store, and this is a wonderful opportunity for them to do that. And so those are the learnings, the biggest learnings and the biggest takeaways that might allow you to have a little perspective on maybe the success we may be having or are gearing up for as it relates to that product. The other thing, we're doing more and more and you'll see it as we go through 2020. But particularly in 2021 is more on the marketing side as well, creating awareness for this. I give our [indiscernible] Dan, the rest of his team a tremendous amount of credit. We're being very creative things that candidly we haven't done in the past, but creating awareness for that that's going to actually help maintain the price position we’re aiming for.

Our next question comes from Brian Maguire with Goldman Sachs. You may proceed with your question.

Good morning. Thanks for taking the question. Just put it up better understand the raise CapEx. Look, I don't think you were announcing any new lines or new locations or capacity with it. So is it just simply pulling forward some of the investments you would have otherwise made next year? And then as we think about looking into 2021, should we expect CapEx to decline meaningfully? And related to that the working capital build this year? Do you have any initial thoughts on where working capital might go next year more investments to support the growth or do you see it flattening out a little bit?

I think the pace of CapEx is really pulling forward as much as we can, because we see the demand is there now as Dan talked about being short can. So the faster we can get these assets up and running, the better. So some of that is pull forward. I think as you look into next year, I think these growth percentages, if they're going to continue at this kind of pace. We'll probably spend more capital than what we had originally anticipated in 2021. But we're also making a lot more money. On the working capital front, the growth from where I said previously for this year is due to that acceleration of the growth. I think next year it'll stabilize somewhat. But I could still see a small use of working capital next year, but it's too early to tell.

And Brian, the only thing I'd add to that is, well, on one hand, we didn't announce any new capital. In fact, we did, because what Dan said was, we are going to accelerate the build out the ultimate build out of our plants in Arizona and Northeast U.S.

Okay, so to interpret that initially there were a certain number of lines and then…

Correct.

Potential room to build more lines, and we're going to have those second phase plans at this point?

That's correct.

Makes sense. Just one additional question, if I could. Was there any impact on the U.S. margins from mix in the quarter? I know you talked about some shipping maybe the more the club stores in the multi packs does that have a material impact on mix. And then any thoughts on restarting the share repurchase program now that seems like the macro is kind of lifted a little bit of the thought for your ability to forecast the business.

I'll take the first part of those questions. It wasn't a material impact. But yes, we did have some dampening of margins because the convenience store channels with a higher specialty mix and higher price points for our customers. That was down a bit, especially in April and the first part of May. Not entirely sure that's all going to come back, just depending on return to work, at least for the next six months. And what folks are going to do in the U.S., the less frequently you’re driving, the less frequently you're stopping in and a convenience channel. And that was certainly a difference in terms of behavior pattern that dampened in our mix a bit in the second quarter.

Then on the share buyback front, we're going to continue to return significant value to shareholders with over $200 million in dividends this year. We bought some stock earlier in the year. And we'll see how the year progresses and are not ruling out buying some shares in the back half of the year.

Great, thanks very much.

Thank you.

Our next question comes from Phil Ing with Jefferies. You may proceed with your question.

Hi. This is actually John dialing in on for Phil. How are you guys doing?

Good.

Congrats on the strong performance. I just had one question, I guess related to some of Dan's comments on packs mix shift. Particularly you had noted the shift in grocery. I think you said 50% beer was in cans in 1Q and then it moved to 70% this quarter. I was just hoping you could talk about, kind of what caused that, was that mostly driven by people not wanting to go to the stores and get a reusable glass bottle. And what you think is the actual stickiness in the longer term for picking up that share of the shelf. And then in the release they've also talked about an acceleration of substrate mix towards cans in EMEA. Maybe you can also discuss what's driving that and how that is going to be held on to it in the longer term as well.

Sure. The first part of your question as relates to South America. There's a couple of things that you certainly have to pay attention. One we've seen for the last, I would say, three to five years has been the reluctance by the smaller retailers. And it's all throughout South America to carry returnable glass, the perishable nature of it. They don't have a lot of square footage. Buying behavior in those areas is smaller stores, its gas stations, it's much more in convenience channel. And those retailers are demanding cans. And so that has been certainly -- I would continue to see that moving forward. The other part is, lot of these South American markets, there's a dominant returnable glass player. And when they make a conscious decision or when they're losing share to cans, at some point in all the markets that we're participating in, they will make a conscious decision to move into cans. And I think the combination of those two things have happened in Brazil, and I would suspect that that would continue for the foreseeable future.

And do you just think that was also accelerated because of the pandemic, the users don't want to hold.

Absolutely.

On that actual returnable graph and now the big shift, particularly in 1Q outside of obviously the trend that you've been seeing for a while.

Yeah, when the on-premise is closed, the incumbent that is relying on returnable glass, they either fight with cans or they lose in share. And I would suspect that they have made such a conscious effort on that front and the retail movement is a lot bigger of an issue I think than what a lot of people have discussed previously. So I think that’s sort of here to stay, whether it's 70% this quarter or 65% next, it's appreciably going to be higher moving forward. Yeah in Europe, I think we're seeing as John referenced, we’re seeing and we will continue to see is pubs and on-premise is less and less open. There’ll be more cans pushed. And typically I think because of the sustainable nature of the package and I spoke to move into filling those cans. And if they have success with that, I think it'll be a boon to what level and what extent in the medium and long term that's yet to be determined. But it I would certainly assume that it will be a lift for us moving forward.

Yeah. And just to put a finer point on that, on the beer side in Europe that's not -- it hasn't been the issue at all. It's really been on the soft drinks, the non-alcoholic and without going into any particular names, whether it's energy, whether it's soft drink, because those are typically sold in the immediate consumption channel that's what's been soft. It's gotten better. But it will continue to be soft just because the tourist trade in Europe is down year-over-year this summer for the reasons we all know.

Understood, thank you and good luck in the quarter.

Thanks.

Our next question comes from Mark Wilde with Bank of Montreal. You may proceed with your question.

Thanks, I've got just a couple of them real quickly. Can you talk about any bottlenecks that you may be encountering either from co-vendor from just equipment suppliers being scratched as you ramp up, because there are a lot of can projects around the world? And the other one, John, we've seen some different numbers out there for kind of recycling and recovering rates on aluminum beverage cans. And I wondered if you could just share your perspective on those rates in the different regions around the world.

Yeah, so let me try to quickly take both of them and maybe Dan can chime in. Let me talk about not only just beverage can, let me talk aerospace as well. All of our projects, our folks have done a herculean job to make sure that they're all on track. There's a couple of Europe that we slowed down. There's one in particular down Brazil that we consciously slowed down, just because the volatility of those markets we restarted them up. But kudos to our folks here in North America, whether it’s that cups filled out, whether it's Fort Worth, whether it's room, whether it's all the building we're doing up or we are here in aerospace, all of them have been doing extremely well. And that requires very close collaboration and communication with the very supply chain, whether its equipment suppliers, whether it’s construction companies, etcetera. So no impact on that for us other than the things that we consciously chose to slow down and have now restarted. Second with recycling, we can spend hours on this. What I might refer you to and we can be happy to take it offline because we had addressed this very directly, because it varies by country, it varies by region and the salts for each of the countries and regions are different. But if you go to our new sustainability report at, and I think Dan mentioned ball.com/sustainability it will all be laid out there in a very transparent way and we'd be happy to engage with anyone on this, because I think that's what continued success of the beverage can means. We have to continue improving the already good recycling rates because from an LCA perspective, it positions the can even stronger relative to PET and relative to glass.

Okay. Just one other one for me on the capital spending. So I think Dan mentioned this that the practical size of these two new plants may be bigger than anything else you've got here in the states, I think now typically we think of kind of four lines is about the biggest beverage can plants out there. Is there any kind of practical limit size of a beverage can plant that you would want to put in? I mean could it be six or seven?

It could, but remember then you've got to factor in shipping. And you could make it all in one place and ship it thousands of miles and lose all that money to the freight company. So there's a balance. But theoretically, you could build something as big as you want, just because you've got to look at where you're supplying.

So what is the practical limit, do you think, John?

It depends by region. In the Northeast, for example, Northeast and Southwest, where we're talking about doing this, a population that's where the biggest and/or growing the fastest. So it makes sense if you were to say to do it in Iowa wouldn't make sense. So it very much depends.

Okay, I'll turn it over. Good luck.

And our final question is from Gabe Hajde with Wells Fargo Securities. You may proceed with your question.

Good morning, gentlemen. I hope everyone is doing well.

Yes. Thank you. You too.

Thank you. I want to come out the U.S. question from a little bit of a different angle. I know you guys don't typically talk about utilization rates, but I've heard the term fallout from virtually everyone. So I'm assuming that somewhere in the upper 90s. And I think maybe safe utilization you guys have talked about before where you feel comfortable is something more 95%. And so if I take a differential of 3% that implies that maybe you guys have already made 3 billion cans more than you otherwise would from higher utilization rates. And if you're bringing in as an industry 2.5 billion unit, you're actually short 5.5 billion such that this 15 billion, 16 billion units of capacity coming to the market is actually not that big of a deal. Is that what you were trying to get out John before in terms of building a case?

Yes, as an industry, I tend to -- don't forget there's been new capacity by some of our competitors over the last 18 months. So they've been benefiting from that. But you're absolutely right. We are running full out. And as a result, the way you're thinking about strategically, I think is the right way to think about it.

The only other lever that you did not indicate is working with our customers on lowering safety stock levels. So that's the other lever where you can get more volume up.

Okay. And then I guess transitioning over to Europe, you mentioned in the release that you're adding multiple lines to support market recovery as well as a capacity for North American market. And I'm assuming that wasn't the intent necessarily when these lines were planned. So I guess does that imply sort of a protracted recovery in Europe? And I'm trying to marry that up. I thought I heard you say Dan, kind of mid to high single digit volume growth in the back half of the year. And then as a quick follow up to that, as I guess energy production migrates across different parts of the globe, does that free up some capacity for you guys next year as that ramps up?

Yes, I think, yes, the 5% to 8% on the back half of the year in Europe is correct. You heard that right. It's yet to be determined on the bounce back of energy drink or through the convenience channel. I think that's more or less where you were headed with that question. Some of those companies will be -- they'll go to where they can sell their products. So you might see more multipack. Right. You might see that showing up in retail different than the convenience store channel there.

Yes, but on your capital, say, I just want to clarify. We're not putting capital in Europe to export into the U.S., this is for the long-term growth in Europe. And whether it's the growth we've seen in the U.K. or in Russia or parts of Eastern Europe, that's where that's going. And we will -- I think you are also referencing in terms of energy, it's not as if certain customers are moving, filling from Europe to other places. They're actually adding in other places and keeping what they have in Europe because they see the growth opportunity in front of them.

Thank you, guys. Good luck.

Okay, Kelly, do we have any final questions?

No, we have no further questions at this time, sir.

Okay, great. Well, thank you, Kelly, and thank you everyone for your participation. Everyone, stay safe, stay well. And we look forward to hopefully seeing many of you virtually at least on our Investor Day on October six. Take care.

That does conclude the conference call for today. We thank you for your participation and we ask that you please disconnect your lines.