Greetings, and welcome to the Ball Corporation First Quarter 2021 Earnings Call. [Operator Instructions] As a reminder, this conference is being recorded today, Thursday, May 6, 2021. It is now my I would now like to turn the conference over to John Hayes, Chief Executive Officer. Please go-ahead Mr. Hayes.

Great. Thank you, France. And good morning everyone. This is Ball Corporation's conference call regarding the company's first quarter 2021 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 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. Now joining me on the call today are Dan Fisher, our President; and Scott Morrison, our Executive Vice President and Chief Financial Officer. I'll provide some introductory remarks; Dan will discuss packaging and aerospace performance and trends; Scott will discuss key financial metrics; and then I'll finish up with comments on the outlook for the company. First, let me begin by thanking our employees. Together we are working safely and executing at a high level in preparation for even more growth. Thank you for taking care of one another and living the Ball culture day in and day out. I also want to thank our customers, suppliers and their employees. Collectively, we are successfully navigating pandemic-related restrictions in certain regions, post vaccine re-openings in other regions supplies, supply shortages and disruptions across the entirety of our supply chains and investing in growth brands, sustainable aluminum packaging and scientific discovery. The past 15 months have further showcased the resiliency of our industries, as well…

Thanks, John. I echo your thanks to our employees, customers, and suppliers, our global HR, environmental health and safety professionals, and our own personal actions continue to keep our team safe and vigilant. As John mentioned, it was a very rewarding start to the year. The teams are doing a great job managing accelerated growth, large scale capacity additions, and a few curve balls along the way. We're exiting the first quarter with a lot of momentum and we'll continue to see strong performance throughout 2021. In addition to global beverage volumes being up 8%, specialty mix increased above 49%, up from 46% at year-end 2020. An ongoing strength in EMEA and South America beverage more than offset the winter storm impact to North America beverage, accelerated marketing investments for our retail cup launch and COVID-induced subcontractor costs in aerospace. Demand for aluminum beverage cans continues to outstrip supply around the globe. Despite Ball exiting 2020, with seven billion units of additional installed capacity, we continue to be sold out and look forward to bringing more projects online. Our global engineering and operations teams are executing at a high level. And we anticipate exiting 2021 with an additional 12 billion units of new installed capacity. All of which underscores our Investor Day commentary cans are in high demand, contracts are in place and Ball is well on its way to installing at least 25 billion units of global capacity by year end 2023. That's off of a base of 100 billion in 2019. Our focus on speed to market, talent, training, systems, supply chain and operational readiness is paying off as we continue to ramp up new capacity on time and on budget. To all the teams listening, our time is now, and you are making this happen. Keep up…

Thanks, Dan. Comparable first quarter 2021 diluted earnings per share was $0.72 versus $0.61 in 2020, an increase of 18%. First quarter comparable diluted earnings per share reflects strong global beverage results, favorable FX, lower interest expense, and a lower effective tax rate offset by previously discussed higher year-over-year corporate, labor, and startup costs to support business growth and marketing costs to drive the aluminum cup launch. Ball's balance sheet is very healthy with ample liquidity and flexibility. As we sit here today, some additional key metrics to keep in mind for 2021. Our full year effective tax rate on comparable earnings will now be in the range of 18%. Full year interest expense will be in the range of $275 million and full year corporate undistributed costs recorded in other non-reportable are now expected to be in the range of $90 million. We continue to see a path to doubling our cash from operations by 2025. Our 2021 cash from operations will grow in line with the earnings trajectory and be aided by a source in working capital. We expect 2021 total CapEx to exceed $1.5 billion and returns on capital beyond our 9% after tax hurdle rate will follow through as new growth capital projects become operational later in the year and in the years to come. Ball continues to be good stewards of our cash and as fellow owners and in alignment with our EVA discipline will proudly balance real-time growth opportunities with consistent return of value to our shareholders via dividends and share repurchases. Given the first quarter strength and approaching our net leverage target range as we progress through 2021, I see returning that value in a more meaningful way sooner, rather than later. With that, I'll turn it back to you, John.

Great. Thanks Scott, and thanks Dan. In summary, our Drive for 10 vision serves us very well, whether it be broadening our geographic expansion, developing new customers, markets, and products, and doing so with a commitment to being close to our customers and with uncompromising integrity. Following our strong first quarter results and outlook for the remainder of the year, we're even better positioned to exceed our comparable diluted earnings per share long-term goal of 10% to 15% and exceed our EVA dollar growth goals of 4% to 8% per year in 2021 and beyond. We will work together to do everything possible to work safely, execute on capital investments, drive the circular economy and generate significant earnings, cash, EVA, and value for our shareholders. And with that, France, we're ready for questions.

Thank you. [Operator Instructions] Our first question from the line of Adam Samuelson with Goldman Sachs. Please go ahead.

Yes. Thank you. Good morning, everyone.

Good morning.

Good morning.

Good morning.

I was hoping maybe a little bit more color on some of the capacity additions. I believe in the prepared remarks you alluded to a 12 billion unit incremental capacity ending 2021 versus 2020. I'm just trying to make sure we can think about the phasing properly of that in terms of how much it actually benefits 2021 volume growth versus how much has carryover and incremental growth in 2022. And you can just think, help us think about incremental capacity that you're looking at for how commuting by [ph] exiting 2022 into 2023, just from the phasing of the incremental projects that you're looking at?

Sure. maybe just to restate where we ended 2020, obviously sold out – sold 105 billion cans, exited 2020 with installing an additional 7 billion referenced in the script today that we plan on exiting 2021 with an additional 12 on top of that. So you're getting to, obviously that 19 billion range on top of the 105. And then we clearly are thinking about additional plan projects in the 2022. It's a little early for me to speculate on the speed and the rate with which we're adding in 2022. There's still an awful lot of challenges, as you can imagine in South America with COVID and in Central Europe with COVID. We've got line of sight, as I've indicated to add 25 billion off of a base in 2019 by 2023. We can still execute against that. It's just timing as it relates to what we've already put in place and what we're executing on that. I will continue to inform you as we get further along in the year and as we are able to get our engineers transported from location to location.

Got it. That's really helpful. And then I can have a quick follow-up just on the quarter, some of the discrete items in terms of startup costs or winter storm impact, or some of the supply chain items in aerospace anyway, to specifically quantify those, and if we think about those not necessarily repeating in 2022?

Yes. The north – this is Scott. North and Central America businesses where we felt most of that. The store costs were 10 million plus and startup costs of about 12 million in the quarter. And then we spent an additional incremental, probably $4 million over what we were planning to spend in cups as we wrap up that national retail launch. And then the aerospace impact was probably in the range of $7 million in total.

Perfect. That's really helpful. Thank you. I'll pass it on.

Our next question is from Kyle White with Deutsche Bank. Please go ahead with your question.

Hey, good morning. Thanks for the question or thanks for taking my question. After the Glendale and Pittston plants are up and running, do you envision still needed to kind of import cans into the U.S. and meet this kind of elevated demand that we're seeing?

I do for 2022, it looks like latest forecast, what we're seeing. There'll be a modicum of import cans still for our customers if they continue to – if demand profiles continue in line with our expectations nowhere near the size and the scale that we dealt with here over the last couple of years. But there was still be an oversold element heading into 2022, even with all the capacity that I indicated.

Got it. And then just going to Brazil and South America, you touched on it a little bit. EMEA seems healthy there despite only 80% to 85% of the retail channels being open. Are you seeing any impacts at all from the kind of rise in COVID cases down there, any impact on operations or volumes, and then maybe just touch on kind of your capacity situation there, understanding that you have the new plant coming on later this year, but just given the growth profile there. I imagine you're still be constrained even after that comes up.

Yes, we're running at, I mean, I'll answer the back half of those questions first. We're running at extraordinarily low inventory levels. Can penetration in the market for Q1 was actually lower than on average what it was all of last year and even the year before. And that's because there's just not enough cans. And so even with the capacity adds that I'm talking about in South America, we're going to be incredibly tight in that region for the foreseeable future. A lot of it is underpinned by returnable glass shifting into cans. So if you reference back to my comments in the script, we were definitely looking into a series of further investments across that region as long as the demand profiles and the contracts look right. We have not had a lot of disruption and I give our teams a tremendous amount of credit. This time a year ago was challenging in kind of the Amazon region. But since then we haven't lost much in terms of production. And we've had some – it's the stories are incredible, as you can imagine in terms of what's happening with extended families and loved ones. And that has been the mental aspect of our employee base has been probably more challenging and getting people physically to work in an healthy environment. Obviously, these things can change with new variants showing up, but it's been a pretty resilient bunch down there and we really haven't seen much of an impact and knock on wood. We'll continue to manage this incredibly effective moving forward.

Got it. Thank you. Good luck in the quarter.

Thank you.

Our next question is from the line of Anthony Pettinari with Citi. Please go ahead.

Good morning.

Good morning.

In North America, understanding that you're running full and sold out, we saw this massive consumer stockpiling in the U.S. in March, April last year, as we went into lock down, as you anniversary those comps, did you see any impact or any change in terms of customer behavior or mix or offsets from recovery, and on-premise, I'm just trying to understand how, a summer reopening in the U.S. this year impacts your North American business?

Yes, there's a lot to unwrap there. A lot of open-ended questions too, that we're trying to pay attention to if I just take the on-premise, off-premise. One thing that we've seen over the last 15 months is there's been a number of customers that have really leaned into the direct channel, the e-commerce channel that certainly benefited us. I don't think that's going to suddenly turn off. Folks are going to continue to everyone's dealing with comprehending flex schedules. So a couple of days more a week at home versus in the office that all benefits cans. So there's room for optimism, at least with our substrate that there's been a shift – a secular shift for the long-term. I think that's here – and I think that is here for the long term. I do think though in the month of April, it was kind of interesting because that was the month of a year-over-year comparables. And what we saw was overall liquid volume on the alcohol side was down a little bit and cans were actually up a smidge in that. Meaning, cans were taking share, and on the soft drink side or the non-alcoholic side, non-alcoholic liquid volume was up and the cans were up as well. So not by huge amounts, but people I think were expecting a big decline. And obviously when you look week-to-week, there's big swings. But if you look over the past month, so to speak, those are the kind of trends we've been seeing.

Okay. And that's very helpful color. And then, you talked about COVID protocols hindering aerospace, I think in 4Q as well, has aerospace been impacted more by COVID and COVID protocols more than bev and aerosol, relative to your expectations, is that fair to say? And then, does that sort of temper growth expectations for aerospace over the next couple of quarters? Or maybe things are easing just any additional detail you can give there?

Sure. I can give you a little color here. I think moving forward, I think we're in a far better place than can that we've experienced the last six to nine months. Keep in mind that historically and the type of work we do, much of it being classified. Folks need to be onsite in order to do the work. And so our aerospace business of roughly 5,000 employees today, you would see 80% of those folks would be onsite. And if you go back to the end of the Q3, beginning of Q4, it was more in the 35% to 40% range. We've begun to transition now. In the last couple of weeks, we've seen north of 60% onsite and that's continuing to build as folks get vaccinated and CDC guidelines are allowing us to bring more folks. And have so we should see productivity benefits not just for us, but the entire supply chain, which has been disrupted because of this. So we're feeling bullish about this quarter and the back half of the year and returning to some sense of normalcy for that business and increasing productivity and efficiency. So now hopefully that gives you some additional color on kind of what we've been up against.

No. That's very helpful. I'll turn it over.

Our next question is from Ghansham Panjabi with Baird. Please go ahead.

Thank you. Good morning, everybody.

Good morning.

Maybe then just following up on the earlier questions, with the Texas weather disruption from February, and you're running quite lean on inventories to begin with just given the nature of the growth in the U.S. over the past few quarters, how you've kind of managed to flex your production as you gear up for the summer season from an inventory standpoint in the U.S.?

Yes, you're hitting on a great point and something that we're going to candidly have to figure out and grind through. There's – we're in peak season. We've been oversold for two years. We're at historically low inventory levels. We have an incredibly tight supply chain. Our teams are doing things and trying things and trying to be as transparent as we possibly can with customers. The one thing we can do is try to lock in candidly, a production plan for the balance of the year and try to stick with it as best we can that gives our plants the best chance of success, any alterations, any changes to that are going to put us in a very close to a – make the order environment, which it will be challenging. I think our teams are up for it. We do have capacity coming online, which I've commented on. Those are coming online, right in line with our expectations that will give us some modicum of relief. But yes, our customers are gearing up for a big peak season. They're taking every can we can possibly get. There's a lot of importation happening right now. And it's just going to be tight for the summer. The first quarter did not set us up for the most optimal scenario heading into the second quarter in North America.

For sure. And then, almost every inflation cycle over the years, the beverage can industry has found some level of weakness in their contracts, whether it's freight pass-through or aluminum premiums or whatever else there was just given the nature of this particular inflation cycle, just how ferocious things have been in terms of cost increases, and maybe even wages at this point. How are your contracts holding up? And is there any risk in terms of incremental margins that we should be thinking about as we progress in the next few quarters specific to the ferocity, the inflation curve right now?

The contracts are, if you look three years ago to today, we've commented on it several times. You've been following us for a while, but they're much better. We're in a much better space. The downside is the downside that's always been in our business and it's the self-induced inefficiencies in our distribution channels. So where we – the more touch points we have in the supply chain that's not embedded in the cost to serve and the cost to deliver to our customers. Those are past three elements. It's a minimal amount, but as you said, the amount of inflation that we're experiencing, especially on freight there could be some dollars tied up in there that are tied to pass through.

Got it. Thanks so much.

Our next question is from the line of Mike Leithead with Barclays. Please go ahead.

Great. Thanks. Good morning, guys.

Good morning.

First question, just on the growth investment, I think you move forward the expected timing of the ends [ph] plant in North America this quarter, and it seems like broadly your growth projects are coming at a larger accelerated clip versus maybe what you laid out for us six months ago at your Investor Day. So I'm just curious what you'd attribute that to, whether it's greater customer demand, better project, win rate, better execution, maybe it's all the above, but just trying to get a sense of what's driving the real acceleration and growth investment there.

Well, I think all, all of the above really. I mean, the customer demand is not waning in any way. In fact, it continues to firm up. I think our execution has gotten better. I think, you look at North America, the wrap-up of these two new facilities has been better than expected. So I think we're getting better at all of that. And the opportunities, frankly, if we can pull them forward and get these things running faster we'll like it better.

Yes, just a case in point on that is talk about that the new hires we've had over the last 18 months or so. We probably in the beverage can business, I'll put aerospace aside. We probably hired over 3,000 people that is unprecedented in our business relative to what we have done in the past. We've talked a lot about these “startup costs.” It's really training costs at the end of the day. If you recall, three, four or five years ago, as a lessons learned where some of the footfalls we had in terms of our startups is we didn't bring people on early enough, and we didn't give them a chance to succeed from day one. We've been accelerating the hiring and training and development of those people six months prior to what we would have done a couple of years ago. And I think to Scott's point, we've been executing quite well as we're starting up these plants. And I think we're giving them a better shot at success.

Maybe one additional comment I did indicate that the end plant in Bowling Green, we were thinking, earmarking a Q1 startup. What we're talking about is three, four weeks earlier that it falls into the Q4. Scott hasn't come off and we haven't come up or startup costs. There's negligible change, or our capital spend for the year. So this is really, we've already had those costs and the capital outlays embedded. This is just recognition that the teams are executing. They're executing a little better than we anticipated, moves inside the fiscal year. And hopefully that that means candidly fewer imports on ends heading into next year.

Great. That's really helpful color. And then your second question, when you talk about Glendale and the Pittston facilities, I think you've highlighted that they're both going to have four operational lines by the end of this year, which – by the end of next year, which is already quite large. But you also noted that they are able to add incremental capacity from there. So I guess, could you maybe just touch on how much further you're able to scale these facilities is another one line, two lines, and just given the way you've structured these facilities. Would the incremental line costs be relatively similar or better versus, I don't know, say a Ball plant five years ago where you might've added a second or third line? Thanks.

Yes, I would look at it in terms of incremental output on kind of a mega line concept. So you would get additional capacity on the existing infrastructure, but we can scale the lines and within the footprint. And so we can do it much faster and much cheaper than had we taken a historical approach to it.

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

Great. Thanks for taking my question. I was hoping we could maybe put a finer point on the EBITDA progression or EBIT, however, you want to look at it. But a couple of years ago you had called out $2 billion of EBITDA on an annual basis. You're now at 475 in Q1, admittedly that had some startup costs in there and some storm impacts. So as you progress forward, could you potentially lay out some mile markers of, you have a lot of capacity growth coming, so would you be exiting kind of 2021 at a much higher rates than that, 475. And if so, I guess would most of the growth becoming in North America and South America, or how should we think about kind of the EBITDA progression from here? Thanks.

Yes, I think, well, on the first half of the year, we'll have – we have more startup costs than what we had last year, obviously. And then we'll start to get the benefit of that in the third quarter, we'll exit in the fourth quarter with much more strength. So I think it's more backend weighted. I think the performance in South America and Europe in particular continue to be very strong throughout the rest of the year. I mean, they've really surprised to the upside. And I think North America will be in the first half year, again, more heavily with startup costs and then start to accelerate in the back half of the year.

Yes. And let's not forget also the first quarters are seasonally slowest quarter too.

Right. And as a follow-up then for aerospace also given, some COVID impact. I imagine that would also be better, as you moved through the learning curve with some of those new employees as well and your projects actually start to come online. So are you still thinking about kind of 15% EBIT growth in aerospace on an annualized basis?

Yes, I think that what we experienced in the first quarter, hopefully doesn't repeat as we go forward to Dan's comment about having more people onsite, the supply chain, getting better, COVID issues reducing that should accelerate their improvement in as we move through the rest of the year.

And when we initiated those – the $2 billion EBITDA number, we also weren't contemplating a cups business, which clearly we're forward investing in right now. So that should give us a whole another revenue stream moving forward.

Okay. Thanks.

Our next question is from the line of George Staphos with Bank of America. Please go ahead.

Hi everyone. Good morning. Hope you're doing well. Thanks for the details.

Good morning.

I wanted to dig a little bit into Europe. The volume growth for the quarter was certainly in line with what you had guided to in the fourth quarter, but it was sequentially down from the fourth quarter, which you had said it was going to be a – was a stronger than expected quarter. Was there anything, as you looked under the hood in terms of the European trends in 1Q that were surprising perhaps a little bit less pass than expected, it doesn't seem like a given the margin trend, but just want to have more color on your on what we saw on 1Q and what it means for the rest of the year relative to 4Q?

George. I don't, it was in line with our expectations may be a little better that, that is an area where we are adding capacity. And we were allocating every single customer. So I wouldn't read too much in the growth rates right now in the year-on-year comparables. I mean, we're converting our France steel to aluminum facility. We're continuing to add capacity in multiple locations in Europe and the demand trends if we had cans and could serve them, we would have exceeded, I think fairly significantly these growth rates.

All right. Thanks for that again. Appreciate that commentary. Second question I had is around innovation. So we've talked a lot about this, all of us on these calls going back a number of years, and it's been great to see alcohol, the alcoholic category pickup with spike seltzers over the last couple of years. Can you give us an update on kind of the bleeding edge? And the next categories again, to the extent that you can comment on mix cocktails, things like that, and how sizable, how significant they might or might not be in a relative spike seltzers and some of the other products we've seen really drive your growth the last couple of years.

That is the million dollar question. That's a great question, George. I can tell you there are more innovations that are being pent up right now. That we unfortunately can't help our customers launch. And it's – it would be difficult to prognosticate. I think our customers over the last three to four years in North America in particular have really learned to develop products that the end consumer wants, they're pricing it, they're putting it in cans. What's going to win, I can tell you it's probably – it's probably got some alcohol in it and if it doesn't have alcohol in its low calorie, it's a different stimulant on waters. And I still think there's still an underpinning for still water. That's just an area where I still – and bullish on, it gives the retailers an opportunity to improve their CO2 footprint within their retail shelves and without having cans or allowing folks to step into those cans. That feels like a market that could be sizable in the future.

Hey, George, this is John. I may just add two things and amplify what Dan said. Number one, don't forget over the last 12 months. Innovation has really been on the sidelines particularly because the retail side of it they were just trying to fill up their stores with the basic needs. And so there was a lot of innovation that's pent up right now and to Dan's point, we're seeing it. The other thing is it gets to this real circularity that we talked about in our prepared remarks. It's real, it's here, there is a number of various anti-plastic at the state level laws that are either being enacted or being debated right now at a level that historically we haven't seen. And so, I think, that momentum continues. And I think there is increasingly by the consumer into a degree, our customers, a recognition that when you have the aluminum beverage can, which is the most sustainable package in the world, that there is an alternative to this. And as people are trying to reach their 2030 CO2 reduction goals, and sometimes even 2025, let alone net neutrality by 2040 or 2050, this is going to play an important role. And so, this isn't measured quarter-over-quarter, but it is a long-term secular thing that we continue to see playing out that benefits the aluminum beverage cans.

Yes, that's a great point. George, on that, it's like our biggest growth category is plastic. That's our biggest category.

Okay. Appreciating that, and I don't want to take up too much time. Is there a way for us to maybe think about the capacity that you are adding this year or through 2023? And how much of that you think is going to new categories? And then Scott, it sounds like the value return is perhaps more likely to happen sooner than later versus your prior expectations given what I heard you say on the call, could you give us, I mean, I know you're not going to time price a month or whatever, but can you tell us what is actually behind those comments? And what opportunity and flexibility you have to do more value return as the year progresses? Thanks guys. Good luck in the quarter.

Thanks. I'll answer the first question. I would say 80% to 90% of what we're putting in place is simply existing categories. We're earmarking some additional capacity, so our customers can step into some of these innovations and trial them, but the fact of the matter is we're just – we're so darn oversold, I think, it's just stepping into the existing categories in the space, the shift to cans. So unfortunately, not a lot of room to disrupt ourselves. So that's why we're so bullish on the medium- to long-term in this area.

And on the return of value to shareholders, George, we performed better in the first quarter than our expectations. So, we think that momentum continues looking through the remainder of the year. So, as we sit here today, we think we can accelerate, bring forward the return of value to shareholders while still investing a $1.5 billion of capital. So, I would target kind of buybacks in the $0.5 billion range for the remainder of the year, for this year. And then I think it accelerates into next year.

Thank you very much.

Thank you.

The next question is from the line of Silke Kueck with the JPMorgan, please go ahead.

Hi, good morning. How are you?

Good, thanks.

I have a question regarding your U.S. American can business. So, you said that the business in the quarter grew about like 6% in terms of volumes and some of your competitors thought the volumes North America grew 12% and another competitor said may be 8%. And so, I was wondering whether you had a view what was American beverage can growth really was for the industry in the first quarter? And if you had a view as to how the beer category grew versus soft drinks?

Yes, I mean, we're 45% of the U.S. market. So, you can probably take our growth rate and take the others and divide back to you, I'd say it's north of 6%, it's probably in the 8% to 9% range. And keep in mind for us, it would have been more. We had one significant customer who had a disruption in the quarter pretty significant from a volume perspective. And so, beer was approaching 1% growth. Our beer volume was down 8%. So, if we were more in line with flat to slight growth on our major beer customer, you would have seen double digit growth in the first quarter. I think there was an anomaly built in there. And I'm excluding the winter storm altogether. And even with that let's not forget we were short cans for the market. We could be selling more than we have. And so right now it's capacity constraint. And that's why we're so focused on getting this new capacity up and running.

But I'd be careful quarter-to-quarter volume growth because it depends on who is bringing on capacity at what particular time. So, you can kind of get distorted in a quarter.

That's helpful. And my follow-up, again on the North American business, if I look at your capacity which are like 50 billion cans plus, or minus. What is like the normal rate of like the bottlenecking or efficiency you can achieve, is it like 2%? Can we get like a billion cans out of the existing production every year?

Yes, it's a good question. Combination of how many additional conversions, how many additional label changes, et cetera. We're trying to earmark something in that kind of one to three productivity improvements. But when you look at the level of complexity as an end consumer, that's showing up the number of new products, the number of new labels, the number of new cans sizes, all of that meets against the productivity. So, if you can fundamentally stay flat, you are doing pretty darn good. You just need to be able to make sure you can charge for that.

I see. Okay, thanks very much.

Our next question is from Salvator Tiano with Seaport Global. Please go ahead.

Yes, hi. Thanks for taking the questions. So first of all, you just mentioned that a major customer that since it was a pretty significant impact on your volumes in Q1. And I think what they've said is they expect to pretty much make up the entire production loss in the balance of the year. So hardly thinking about any tailwinds from recovering this loss in Q2 or later?

Yes, I don't know that there are tailwinds because we're oversold. And every single can – even in the first quarter, every single cam we could make, we can sell. I was just talking about the categories and the shift relative to that. So, the winter storm had an impact. I don't know how you can recover. The only way we could step up volume versus what we've characterized here is have our new facilities and new investments come online faster, add more efficient rates than we've seen historically. We've got a pretty impressive startup curve. That's already built-in place that's in here, but I wouldn't underestimate our people to do better. But at this point in the year, it's premature to characterize that there's a lot more on the table that we could see recovery in the back half of the year versus what we gave up in the first.

Okay, great. [Indiscernible] just, the operating leverage in Europe and South America, your earnings growth was pretty good, especially in Europe, relative to the volume expansion, you saw 5%. So did you see any other specific tailwinds that would help boost your incremental margins? And how should we think about your incremental margins, absent start-up goals going forward?

Now we've historically said, whatever we grow on the top line, we should double that in terms of a percentage growth on the operating earnings line, exclude startup costs and some of the inefficiencies with the storm. I think we're more or less there across the Board globally. The things that can impact and influence it are hopefully what we're continuing to see is strengthening of the contracts. Supply demand tightness allows you to improve your terms and conditions. That gives us a better chance for success in our plants. And there's just a more predictable nature to that flow through moving forward, I believe, as we get capacity put online. Yes. And also mix plays an important part of that as well.

Okay, perfect. So, I guess the recent opportunity for some quarters, or even a couple of years to be above normalized two times earnings growth over top line growth.

There's an opportunity nothing's linear, as you indicated is the preface there.

Yes. Okay, perfect. Thank you very much.

Our next question is from the line of Mark Wilde with Bank of Montreal. Please go ahead

Hi. Good morning, Dan, John, Scott.

Good morning.

Good morning.

I wonder Dan, can you just give us some sense about the impact of these kind of global freight and logistics issues on both the flow of can sheet, but also just how it's affecting your ability to ship cans around markets this year?

Yes, the challenge is any – we're extraordinarily tight. So, we haven't seen much of what you're describing, but there is always the potential as we continue to grow, as we have tightness in these domestic markets, as the supply chains in every industry are getting extended. The challenge will be if we had to dip into-non domestic aluminum, if we had to dip into China, where the overwhelming majority of excess metal is in the world, we know those freight costs are much higher than they were a year ago, 18 months ago, two years ago. And the real risk though is probably more our ability to potentially pass through that cost. It's just getting it hung up in the ports right now. So, I would see the risk being more on being able to fill demand profiles if we had to go that route, then not being able to potentially pass through the inflationary pressures on the delivered metal. But that's an area that we're paying attention to.

Okay. And then just in terms of your own shipping around of cans this year and bringing them into North America in particular.

Yes, it, it's got more to do with the consistency of the delivery and the predictability of when we can get those LTL carriers. Our team has done a really nice job of managing it, but anything that we have to do that’s spot price related, that doesn't fall within the bounds of contracts that we previously negotiated. Those are accelerated and those at times can be challenge for us to pass those through.

Okay. Dan, just for my follow-on, you mentioned contracts and terms and in your commentary. And I wonder, particularly with regard to Europe, if you can just perhaps put a little more color around that.

Yes, I think, we indicated this briefly in our Q1 comments. Europe, if you look back over the last three years, North America and South America have felt the supply constraints and the tightness faster with much more conviction, if you will. And so that has enabled a very different seat at the table, if you will, of negotiations. The first quarter and the tail and a Q4 in Europe have shown up in a very similar way. And so, I would say moving forward, Europe if you look at our gross profit or contribution margin, it's as good as anywhere in the world. So I wouldn't indicate there's a whole lot to be gained there, but in terms of terms and conditions maybe longer-term contractual opportunities, those things I could see those moving in a different way than what we've experienced historically and stepping into this moving forward if the market continues to be as tight as it is.

Okay. That's helpful. I'll turn it over. Thanks very much.

Our next question is from the line of Gabe Hajde with Wells Fargo. Please go ahead.

Good morning guys. Thanks for taking the question. Two maybe quick ones. Dan, you mentioned importing into the U.S. until this end modules in Kentucky. And I'm kind of piggybacking off the sales question in terms of contribution down in South America. I mean, by my calculations the 14% volume growth gets you 12 to 15 million of incremental contribution. So, I'm curious if it was the ends that you're producing down there and maybe bringing them into the U.S. that will help aid that? I guess that's question number one. And then when that goes away, perhaps the profitability stays down there as you ramp up this capacity, there and you sell the [indiscernible] as opposed to into the U.S.

Yes, that's a good question. There's a bit of that happening. Yes, we're shipping some ends. It's not going to be material to those results. It was just a damn good quarter in South America, good mix, good volume. There was a modicum of shipments up from South America into North America on ends, and we're doing a little bit out of Europe. And to your point as that will require less capital investment in the aggregate package moving forward as we free up that capacity back into those regions. So, it should be as you indicated, a win-win-win for multiple regions as it relates to standing up bowl in green [ph].

Okay. And I think in the press release, you guys mentioned favorable price mix down in South America. I thought the specialty mix as a portion of cans was pretty high already. So, I'm kind of interpreting that as maybe a little a price comment. I expect that would persist through the balance of the year. I guess, can you confirm that? And then kind of a secondary question, I read an interesting article talking about Canadian craft brewers, importing cans from places like South Korea and even China. It strikes me number one, kind of interesting from a logistics standpoint; and number two, how do you guys strike a balance from a commercial standpoint with not enticing unwanted capacity or investment versus obviously, getting paid for what you guys have talked about in terms of complexity and stuff like that?

Yes, I think, the first part of your question, I think, about it more in terms of customer mix, favorable customer mix, as opposed to – you draw such a fine line, we talk about price and customer mix almost simultaneously. We can add a bunch of accountants to segment that stuff out, but the reality is you got on average higher price for the same product family, and it can be driven simply by customer mix. And the second question was about the kind of small Canadian brewers. This is a very delicate balance because Dan has said repeatedly, we're oversold, number one. Number two, we have long-term contractual commitments to the larger customers. And so, some of this innovation that typically comes from these smaller, I don't want to call them startups, those smaller regional customers, typically they are the more of the list price type of customer that Dan was referring to in the prepared remarks. And when you don't have capacity they're looking somewhere to get them. And so, you are right, that the supply chain complexity of bringing cans in from across the world is intense, not only from a cost perspective, but just a complexity of the supply chain perspective. This is why, again, we're trying to get our capacity ramped up as quickly as we can because, I think, it's going to open the door in terms of innovation by not only the large customers, but the small customers as well. And there's a number of small customers that we're in contact with that they put new can lines in, but they didn't really order ahead in terms of cans. And so we're trying to help them out as best we can, given the constraints that we have in our system right now.

Thank you, guys for the detail. Good luck.

Our next question is from the line of Jake Bleicher with Carson Wealth. Please go ahead.

Hi guys. Thanks for taking the time. I was wondering on the previous call, you talked about some of the innovation that we had seen over the last couple of years in North America, starting to spread to Europe. And I was wondering if you could give us any update on that as far as the innovation you are seeing over there? And also is any of that spreading to South America, or is that still a conversion from glass to aluminum phenomenon?

Yes, good question. I think we were talking specifically about the seltzer movement. There were countless questions on that. Well we see that in other parts of the world. By everything we're seeing and hearing it will show up in Europe, in Western Europe first. I know capacity is being added. I'll go back to my comments that everyone is on allocation over there, we're oversold. So, I think, innovations are – it will be a longer supply chain and a longer pipeline for those to show up in a meaningful way. But they are out, they are in the market, specifically in the UK. In South America we are seeing innovation. I don't think you can underestimate within beer, the beer category, there has been a huge shift into different ingredients, craft beer, hops from Europe, all of that has been transitory in the last three to four years and it has now changed the landscape altogether. Those disruptors in the marketplace that started there all came out in cans. And that was really the tipping point for the incumbents that had returnable glass to kind of wake up to the fact that we probably need to match what's happening because we're losing share. And so, your comment is right, it is returnable glass, but the returnable glass shift, I could probably characterize it, it came as a result of innovation and innovation in the cans. And we see that there's still plenty of room for that to grow. I think I indicated in my prepared remarks, only 51% can penetration in the first quarter. And that's down from north of 60% in the third quarter last year. And that's just a function of tight supply from cans in the marketplace.

France, we're past the top of the hour. We'll take one more question if there is one.

Okay. Our last question then will be from the line of still with Philip Ng with Jefferies. Please go ahead.

Hey guys, thanks for squeezing me in. The last few quarters you've seen really strong performance out of Europe and that's during period when you are seasonally slower. So what's driving the strong results? And can you build on this in the coming quarters when you kind of factor in seasonality?

Yes, overwhelmingly it's been beer. I think some of the customers have had success. There is an underpinning, that's a heavy on-premise market. There may be some underpinnings that there's been a shift and a little fervor in moving to cans. But even as things start to open up over in Europe, we're still seeing that continued strength. We have got a heavy presence, as you know, in Russia. Russia continues to bear fruit. We have a heavy presence in the energy category, and that's doing well. And the UK has just been on fire. And it's a combination of anti-plastic sentiment there and additional fillers coming into the UK. And so, a number of those are factoring in, but we still believe in Europe, it's got the lowest can penetration of any major region in the world. It's really underserved. I think the folks that have been so heavily weighted to on-premise are starting to wake up to the fact that we need to divest our supply chain. And I think cans are going to do really well there for the foreseeable future. And I'll just finish up from a longer view. Since we acquired that business in 2016, our folks have done an amazing job on the cost side of the business. So, from a financial results perspective, I think, in addition to all the mix and other growth opportunities, Dan was just talking about from a cost perspective, I think, we're in such a better spot today than we were three, four, five years ago in that business.

Got it. That's really helpful. And I guess a competitor of yours called out higher inflation that could impact your margins, I think, particularly in North America and they called out coatings. Is that something we should be mindful of in having more of an impact on your profitability in the coming quarters?

Yes, I mean, inflation is absolutely something we're keeping our eye on it's happening in every industry, specific to that particular area. We have password mechanisms in place. We've got longstanding contracts. Based on what we're seeing and what we're hearing from our supply base right now it's not overly concerning. I think we can manage that. Scott is there anything you have to add on.

Yes, so just one thing on the margins, just be careful on margin percentage, because if you look at metal costs year-over-year, there's going to be huge variations. There was a 24% difference in the first quarter of this year versus last year higher. It will be even more dramatic than that in the second quarter. So, you are going to see weird things from a margin percentage standpoint, but to Dan's point, I think, we have good passthrough mechanism, but it shouldn't impact our earnings dollars.

Got it. So just outside of the aluminum impact sounds like you are managing inflation pretty well. That's great. Thanks a lot, guys.

Okay. Well, thank you all. France, thanks for your guidance on the call. I appreciate everyone's input and we'll be speaking to you soon. See you all.

You are very welcome, sir. That does conclude the conference call for today. We thank you all for your participation and kindly ask that you please disconnect your lines. Have a great day.