Crown Holdings, Inc. (CCK) Q3 2013 Earnings Report, Transcript and Summary

Good morning, and welcome to the Crown Holdings Third Quarter 2013 Earnings Conference Call. [Operator Instructions] Please be advised that this conference is being recorded. I would now like to turn the call over to Mr. John Conway, Chairman of the Board and Chief Executive Officer. Sir, you may begin.

Thank you very much, Shirley, and good morning, everyone. With me on the call are Tim Donahue, President and Chief Operating Officer; and Tom Kelly, Senior Vice President and Chief Financial Officer. I will make some brief introductory comments regarding the company's performance in the third quarter and then turn it over to Tom, who will take you through the numbers and give you some additional detail. Tim Donahue will review carefully the performance of the various businesses in the quarter and discuss our views about how the business is developing for the year. Let me remind you that, on this call, as in the earnings release, we will be making a number of forward-looking statements. Actual results could vary materially from such statements. Additional information concerning factors that could cause actual results to vary is contained in the press release and in our SEC filings, including comments in the section titled Management's Discussion and Analysis of Financial Condition and Results of Operations in Form 10-K for 2012 and in subsequent filings. Overall, the company had another strong quarter. Our comparable diluted earnings per share of $1.13 for the third quarter were ahead of last year's results of $1 per share and somewhat ahead of our revised guidance. Our strategy has been to carefully improve Crown's businesses in the large markets of North America and Western Europe by investing where customer demand calls for it, reducing costs, very carefully allocating capital and adjusting capacity to market demand. At the same time, we have and will continue to expend effort and deploy capital to develop and grow in emerging markets such as Eastern Europe, Turkey, the Middle East, North Africa, Colombia, Brazil, Mexico, China and Southeast Asia. This strategy, as we have executed it, generates growth in sales and earnings while still generating significant free cash that we can return to our shareholders. Although the third quarter was not as strong as we expected, overall performance was still quite good. In fact, we believe our performance validates our strategy and gives us confidence in Crown's long-term growth and profitability. And with that, I'll turn it over to Tom.

Thank you, John. And good morning. Diluted earnings per share for the third quarter of 2013 were $0.81 compared to $2.20 in 2012. Diluted earnings per share on a comparable basis were $1.13 versus $1 last year. Net sales for the quarter were up just over 1% due to higher global beverage can volumes and favorable currency translation, partially offset by the pass-through of lower material costs. Global beverage can volumes increased 6% in the quarter, with food can volumes in Europe down 1.4%. Overall segment income at $299 million improved $22 million from prior year primarily due to the increased beverage can volumes and lower depreciation expense. During the quarter, we announced restructuring -- a restructuring action to eliminate certain positions in our European division. We expect to spend about half of the $32 million total cost in 2013, and the remainder in 2014. We expect to realize approximately $17 million of the $25 million in annual savings by the end of '14, and the balance in '15. During the quarter, we purchased approximately 2.5 million shares of our stock for a total of $106 million and now have spent $300 million on share repurchases for the year. We ended the quarter with almost $1 billion of cash and availability under our revolving credit facility. At this time, we are updating our guidance for fourth quarter 2000 [ph] in comparable earnings per share to be in the range of $0.46 to $0.51 per diluted share. We expect our full year of free cash flow to be approximately $500 million, which currently includes approximately $275 million in capital spending. And with that, I'll turn it over to Tim.

Thanks, Tom. Good morning to everyone. As Tom noted, we again saw solid global beverage can volume growth in the quarter. Segment income performance increased almost 8% in the quarter on the back of lower costs and a higher beverage can sales, offsetting volume softness in European food, the result of pressured consumers continuing to cut their overall spending and temporarily muted beverage can demand in Cambodia caused by a public protest following its national elections. In Americas Beverage, sales volumes rose 1.6% as strong performances across Central and South America, including a 10% increase in Brazil, a 7.5% increase in Colombia and a 6.5% increase in Mexico, all more than offset our decline in North America, that is the United States and Canada, in which we mirrored industry performance at down 0.5%. Our North American year-to-date volumes are off 0.8% to 2012 compared to industry volumes, which were off almost 3% to the prior year, reflecting our balanced portfolio and the importance of the can in the overall beverage packaging mix. Demand in Brazil remained strong, and we're on plan to open a new beverage can plant in Teresina, with commercial shipments scheduled to begin in the first quarter of 2014. North American food can and closure volumes and segment income were level to the prior year as the business continues to execute well with stable demand and exceptional operating performance. Sales volumes in European beverage were up more than 5% in the quarter due to increased demand throughout the division, notably from our new Turkish plant. The increased volumes and improved manufacturing performance led to another strong quarter of operating results for the business. European food can unit sales declined 1.4% in the quarter due principally to lower demand in the U.K. and Germany, more than offsetting a very strong performance in Italy. Segment income in the quarter reflected the lower volumes. Coming out of a strong Q2 volume performance, which was up 3.6%, we had not expected the Q3 sluggishness, which is a reflection of the continued pressure on the European consumer. Beverage can unit sales in Asia Pacific were up 19% in the quarter compared to 2012. Segment income performance in the quarter reflects higher start-up costs and lower food can sales, which offset the increase in beverage volume. With new plants in Bangkok and Danang starting up in late Q2 and Sihanoukville starting in July, much of the beverage volume increase is coming from these new plants which are in the very early stages of their learning curves. With all of our announced capacity additions now in production and the plants progressing through their startups, we are confident that we will experience further volume and profit growth into the future. Our equipment business in the United Kingdom and our global aerosols businesses all had another good quarter, offsetting the impact that the continued European economic weakness has had on our Specialty Packaging business. As part of our ongoing effort to lower our cost structure, we announced a restructuring action during the third quarter to significantly reduce European overhead costs. Tom previously described the details, with full year annual savings anticipated at $25 million. Overall, the businesses have performed well in an environment in which the consumer continues to be challenged and lacks confidence. While overall volume was positive in the quarter compared to the prior year, demand here was lower than our expectations in some businesses. Combined -- a combination of improved manufacturing performance and cost reductions drove overall performance. I will now turn the call back over to John.

Thank you, Tim. And Shirley, with that, I think we're ready to take questions.

[Operator Instructions] Our first question comes from Ghansham Panjabi with Robert W. Baird. Ghansham Panjabi - Robert W. Baird & Co. Incorporated, Research Division: Tim, you mentioned beverage can volumes up 5% for Crown on -- in Europe. Can you just give us commentary on what the market looked like, Europe specifically, and then also what you saw specifically in the Middle East as well?

I think the numbers that we got from the equivalent of the CMI in Europe has Europe up about 6.5%. Ghansham Panjabi - Robert W. Baird & Co. Incorporated, Research Division: Okay. And the Middle East for you guys?

The Middle East, we would have been up more in Europe than the Middle East. Our Middle East would have been up 2% to 2.5% and we would have been up similar to the market, 6.5% to 6.6%, in Europe. Ghansham Panjabi - Robert W. Baird & Co. Incorporated, Research Division: Okay, so that -- in terms of the European food can then, you talked about the potential for cyclicality there, but it seems like your other businesses in Europe seem to be doing okay. So how do you separate between sort of cyclical uptick in European food, which I think what we expected for a couple of years now, versus what could just be a secular decline? Any parameters you can point to specifically?

I think there are 2 things. This is John. I think there are 2 things, at least, and I'm sure Tim and Tom will have more, but there are 2 things, at least, you need to keep in mind. First of all, with regard to beer in Europe, we continue to see a change in package mix from returnable glass to cans. That continues. And that's very positive for the beverage cans throughout Europe. The other thing is that, in Europe, on the soft drinks side, per caps -- compared to many other places in the world, the United States and Mexico, for example, but other places as well, our -- per capita consumption is still relatively low. So there are certain markets, a number of markets, a couple, were a little soft this year for the soft drink companies. But generally speaking, bottling [ph] soft drinks has continued to grow throughout the recession, and I think it's because of per caps and there's a lot of opportunity for our customers in Europe. So you see that. So that's the situation. The other is you need to remember can food in Europe, generally speaking, is very high quality; the cans are fully -- many of them are fully lithographed, so beautiful billboard effect; full pull-out convenience ends, nobody has can openers in Europe; and the food contained in the cans is of high quality, and as consequence, a little higher -- quite a bit higher pricewise than it is in North America. It's a different container and a different product, almost. So we've seen this now throughout the recession, consumers reducing expenditures with regard to processed food, particularly in a place -- places that have unemployment that range from, say, 24% to 28%. Our customers are telling us people are buying rice, potatoes, tomato sauce, et cetera in bulk and they are reluctant to buy processed food at higher price points. So that's how we explain it. I don't know, Tim, if you want to add anything to that.

Well, the only thing I would add is, obviously, we're down 1-4, 1.4% in the third quarter. Year-to-date, we're flat. It's just that we had expected an increase in the third quarter and an increase this year coming off of a couple of years ago when we had the big downturn.

Well, that's right. But you'd asked about the contrast between beverage and food, and that's -- the explanation I gave was really that's our view of the contrast.

And we're going to go ahead with the next question, it comes from George Staphos with Bank of America Merrill Lynch.

I guess the first question I had, given the volume growth, given what certainly is some volume decline in Europe in food but not a disaster, all things considered, why are you guiding lower in the fourth quarter versus the fourth quarter last year considering all of the capacity that you've added which, in theory, should be adding to earnings? The related question is, which of those -- which of your segments do you actually expect to be down in earnings year-on-year versus the fourth quarter? And then I had a follow-on.

I think, first, George, and Tom will talk to specifics about income or not quarter by -- fourth quarter to last year and so on. Let me say something, first of all. Our food issue in Europe is not simply volume. Tim's right, the overall unit volume is not very much down, but we're suffering in Europe from a mix, adverse mix. We've been selling here in the third quarter and early in the year, but in the third, and hence [ph] quarter was market. We're selling more smaller cans, fish cans, et cetera in Spain, right through Southern Europe, North Africa. And we are selling fewer big cans, peas, corn, soup, ready meals, in Northern Europe. We've seen this now for several quarters. It's been apparent in France, Germany, Benelux, U.K. And that mix change, we're just carrying a lot more margin dollars and a lot -- higher prices and higher absolute margin dollars with the big cans and the small cans. So that mix change is a fair bit of our issue in Europe. We're not alone in this. I know you follow the industry, and others will have said the same thing. Now Tim will comment on what -- your questions regarding beverage can volumes and capacity in fourth quarter and so on.

Yes. George, I think we still continue to expect European beverage to perform very well in Q4. We expect further growth and we expect further profit improvement. I think, as you -- as we look at the North American beverage situation -- we also expect continued growth in both units and profitability in Brazil. But as we look at the North American situation, which is a very large market for us and for the industry, we're not in a position right now to project healthy growth statistics in North American beverage. So that is offsetting some of the growth we're seeing in other areas. A very small decline in North America, it can offset very large declines in Brazil and elsewhere.

Okay. Well, then I had a follow-on. European food has been down fairly sharply over the last several years. This is not just a 3Q event. And I know the company has been trying to restructure, but so far, given the longer-term, again not just one-quarter, trends that you're seeing in mix, it hasn't yet led to...

[indiscernible] we can not hear you. [Technical Difficulty]

The whole thing was...

It looks like George's line has disconnected. We'll go ahead with the next person, and that comes from Phil Ng with Jefferies.

I know your free cash flow generation's typically very back-end loaded, but it would seem like you would have to generate pretty strong Q4, record 4Q, to hit that $500 million target. Can you kind of help us understand, what are the main drivers to achieve that target?

Yes, Phil. It's Tom. We do expect to hit the number. And there will be a large element, as you say, from working capital, but we think it's real, sustainable working capital improvement. At the same time, some of the numbers that we had in the fourth quarter last year compared to this year, we're getting a favorable look. For example, CapEx should be a little lower in the fourth quarter than last year, things like interest and taxes could also be lower. So the combination of working capital as well as the non-working capital items is how we get to $500 million.

So are you guys drawing down production? And is that probably why your 4Q guidance, at least from an EPS standpoint, is a little lighter than what we were expecting?

I wouldn't say anything dramatic, but yes, certainly there will be some amount of lower production. And any effect on the EPS is included in our numbers.

Got you. And then just picking on Europe food, you guys have done a lot of cost takeout. Assuming volumes do stabilize and factoring this mix dynamic, how should we be thinking about the margin profile going forward? It's been down a few hundred basis points. Have margins pretty much bottomed out here? Or could we see a little more deceleration? Or could we actually see it turn a bit going to '14 and '15?

Yes, I think we're anticipating that margins will be improving in Europe as a consequence of the cost-reduction activities; restructurings in terms of plant closings and consolidations over the last several years now; the overhead reduction, which is principally focused on food. And we're anticipating, we're seeing European economies are beginning to turn up pretty much throughout. And we're anticipating that, as a consequence, consumer spending is going to improve, unemployment slowly is going to improve. So we believe we're at the bottom of the cycle here with our food can business in Europe.

Got you. And just one last question: CapEx for '14, is that $250 million to $275 million still a good number? Because I know you guys were anticipating some growth projects. We really haven't heard too much on that front.

Yes, so we're probably -- yes, I think that's a good range. Maybe a little closer to the higher end of the $250 million to $275 million is about right at this point.

And we'll go back to George Staphos.

So European food, this is not a one-quarter event. And I realized, I listened to your answer, I guess, to Phil's question, that you think you're at the bottom of the cycle, but why not -- and I recognize there are lots of issues around this, why not more aggressively consider whether you have too much capacity and perhaps restructure? Because the last 3 years of efforts, while I know a lot went into it, has yet to deliver earnings that are commensurate with where you were several years ago. My follow-on question, and then I'll turn it over, is, again I understand your strategy, and longer term, it's worked, but if I look at your invested capital over the last 4 years from 2009 through '13, it's up $1 billion. Your EBITDA is flat. And so help us understand why, next year, your return on capital will improve and why you need to spend upwards of $275 million on CapEx.

Yes, George, just a couple of things. And I know Tom and Tim will want to chime in. First of all, we don't have too much capacity in Europe, so we don't view further restructurings in the form of reducing factories and taking capacity out as appropriate. So that's that. We do think, though, of course, we can take more cost out from all of our European businesses, and that's really what the most recent restructuring is aimed at, and we'll be doing more things of that type. But we don't see any further major restructurings of our food business in Europe. There are always going to be little things here and there. When we think of the footprint, where we are, what we've done in the food can plants, we're in really good shape. We're a low-cost producer, in the context of Europe. We're going to get lower cost. As to your question about beverage, and Tim to Tom can talk about this more, but I was reflecting on it this morning, frankly, after I read your comments: We could have had the same conversation on a regional basis 15, 16 years ago in the Middle East when we were adding capacity. Initially, return on invested capital in Middle East declined. We were building new plants, or organic growth. As you fill up a beverage can plant, and I know you know the industry almost as well as I, perhaps better than I do, it takes you about 2 to 3 years to be running as well in your new plants as you are in your mature plants. Then as you add additional lines in the new plants, at times, you'll have a downturn in productivity, and then you come back up to over -- your absorbing overhead extremely well and throwing off a tremendous amount of cash. So we could have had the same conversation about your concerns about when is return on invested capital will get better in the Middle East. It's one of the best regions we have. We could have then moved on and we could have had the same conversation, and maybe we did, you and I have been talking to each other for a long time, same conversation about Brazil. We started out in Brazil somewhat early with a fairly large plant in the state of São Paulo. First couple of years were a little bit tough. It took us awhile to fill it up, took us a little while to run better. We now have 3 big plants in Brazil. We are the lowest-cost producer in Brazil. We're gaining share in Brazil. And I think we're the leading -- the industry leader from in terms of profitability and return on invested capital in Brazil. Now when we put the new plant into production, Teresina, there's going to be probably a little bit of a downturn year-on-year in ROIC, then will come back up as we fill the plant up. Now we can move over to China and Southeast Asia, I -- we could have this conversation every single time. So it's all about your conviction as to whether or not you've picked the right growth markets, that -- and do you still think that the rate of growth is strong and do you still think supply-demand's in relatively good balance. We do. So make that [ph] strong, strong belief in the strategy. But I agree, I agree, we can do an alternative strategy, George: Stop all capital investment, buy back stock. You could say that our return on invested capital is going up, and I could tell you that, in about 5 years, you'd be extremely unhappy with what was left. But maybe Tim could add to that.

John, if I could, and I respect what you're saying. I'm not telling you to undo or rip up what you've done over the last 4 years, but the scale of the investment is on a much larger company now, and therefore, you're incurring much more in the way of startup, I think, correct me if I'm wrong, than what you would have done 15 years ago. And so my comment's more about, what are the puts and takes in absorbing what you've already done as opposed to undoing? But anyway, thanks for your thoughts.

Yes, yes. [indiscernible] explain [ph]. I think, proportionally, our investing activity in the last 3 years has been quite large. We -- I would agree with that. We've got a lot of new plants. I think we said we got 9 new beverage can plants within the last 3 years, we're going to start a 10th here this year. So that's a fair point. And we intend to pause now in terms of organic growth capacity additions, but we don't want to discontinue it altogether.

Okay, understood.

Yes, okay. Thanks, George.

Our next question comes from Al Kabili with Macquarie.

I just wanted to drill a little bit into Asia Pacific. Your earnings are down year-on-year. I know you mentioned some start-up costs and some weakness in the food can business in Thailand, but I mean, the food can piece is pretty small piece of the overall Asia Pac business. So with the 2 small acquisitions you did and the growth, I would've just expected a little better results in Asia Pacific. So I'm wondering if you can kind of just help us bridge that decline that you saw.

I think it's a fair question, Al. I think that, first point, the food business, while it is small overall to the Asian business, it's not a small business. It's a $125 million to $150 million in annual revenue, so there's a fair amount of income associated with that business. On the beverage side, as we described, we have 3 new plants, all of which are 3 to 4 months old only, only came into production in late June and July, so they're extremely early in the cycle. And we have 2 second line additions that we did back in the first quarter: 1 in China and 1 in Malaysia. So there is a lot of activity right now and there is a lot of startup, coupled with one of the new factories that we started, was in Cambodia, in July. And the market has taken a downturn, we believe, temporary, following the national elections where the opposition party is still contesting the results of the elections. So there has been a fair amount of social unrest and demonstrations and tanks in the street and things like that, and the market has curtailed quite a bit. So we've got some underutilization at that factory, coupled with start-up costs in the other factories. And but we are -- as John said, we believe strongly in the growth of the region and in each one of those countries. And with volumes up almost 20% on the prior year in the quarter, a little bit below our expectations but nonetheless still very high, and we believe it sets us up well for the future.

The start-up costs, is there any way to help us quantify what year-over-year those costs were? And are the startups progressing as you expected? And what are you seeing right now?

I would say startups are progressing as expected, with the exception of the new Cambodian plant where demand is muted. But on the order of if you want to think about year-over-year increase in startup, it's $5 million, $6 million, maybe a touch more, this year versus last year in the quarter. It's a big number, right? There's a lot going on.

Okay. And how is -- how are things kind of running right now? And what -- and then if you can just kind of give us a flavor for Cambodia. So the market was down, can you give us a flavor for how much? And what's the recent trends that you're seeing there?

Well, I think the factories are running according to their learning curve. In Danang, I think we're ahead of the learning curve. The others were on learning curve. The Cambodian market has been exceptionally weak given the protests. It could be on -- down on the order of 30% or 40% the market, and we are the market in Cambodia. So we -- that doesn't mean that this is a permanent impairment of that market. It's temporary and we strongly believe it'll come back, especially as we get closer to the November, December build season for Chinese New Year.

Okay. And then final question, it's just on the CapEx, piggybacking on some previous questions. The $250 million to $275 million, I mean, you could -- you can still -- even at $200 million of CapEx annually, that's enough to grow a couple of lines, typically. So why so much growth CapEx when, incrementally, all the data that we are seeing in most of the emerging markets points to some softening rather than acceleration?

Look, we're not absolutely sure that we're going to spend at the $275 million level. But we want to plan for new opportunities. As Tim just said, Asia grew 20% in the third quarter in units, we did. And in Southeast Asia, we're growing with the market. In China, we're taking share because we anticipated this growth ahead of anybody else and so we put in capacity, but we want to leave ourselves with some flexibility. And in the Middle East and Europe, as we look at that, there are some opportunities there as well, although we're not planning anything for Europe in terms of capacity. But we may be a little on the high side, but we want to -- we've had tremendous success over the past 10, 12, 13 years growing our global beverage business. And we want to be able and plan to take advantage of opportunities as they might arise.

Our next question comes from Chris Manuel with Wells Fargo Securities.

It's actually Gabe, sitting in for Chris. Question about Americas Beverage: Some of the competitive intelligence that we hear talks about some of the branded guys increasing promotional activity, and some of the Nielsen data maybe suggests private label is off a little bit. Can you talk about the dynamic in North American beverage maybe near and maybe medium term, as well as how you see pricing and demand-supply in Brazil?

Yes, why don't I talk about North America and Tim will respond to Brazil? I mean, first of all, as Tim said, we were up pretty much in line with the market in the beverage cans, or off, if you want, 0.5% with the industry in the third quarter. And we have seen some promotional activity. A lot of it was post Labor Day. And I think, if you took a look at the quarter in its entirety, promotional activity below what we ordinarily would have expected to see. So I think that's kind of good news. There's room, we think, for our customers on the soft drinks side to improve things with a little bit more promotion than they've been doing, and so I think that's positive. The other thing that's positive, and I know it's early days, but just listening to some of the things that we've heard coming out of the marketplace, is that it's pretty apparent to us that the can's share of the package mix in nonalcoholic beverages in North America has improved. I think that's very positive. I mean, the whole industry is off 0.5%, but our impression is that unit volume among our customers might be softer than that. And we think that's package mix change and makes perfectly good sense for us since we know the can is the best industry for people to put their products into, for too many reasons for us to discuss on this call. So I think that's positive. Looking ahead, I think our customers know better than we. They're very large, well-capitalized companies; tremendous R&D capability, new product capability. And we think they're actively addressing some of their issues, possibly, for example, different sweeteners for the diet drinks and so on. So there's a lot of activity. New drinks, other things than traditional carbonated soft drinks. So we think there's a lot of reason to be not terribly pessimistic but maybe even thinking that things could turn around here a little bit. But Tim, you might want to talk to Brazil and you may want to add something to what I just said.

No, I don't think I need to add anything to North America. On Brazil, I think, as we said earlier, as we look at the third quarter, we're up 10% for the year, we're up similar to that number. The market continues to grow. There's a proliferation of sizes that we're able to provide, all the sizes in Brazil, to our customers. We've got a World Cup next year in Brazil. There's a lot of room for increased activity and promotion from our customers. As you know, beer is a much greater proportion of the package mix for the beverage can makers in Brazil than it is in other parts of the world. And John, I think, walked you through our conviction as to add capacity and understand the near-term consequences of adding capacity, but just if you want to take a view as to where we think we're going to be in volume next year in Brazil, we'll be double what we were in sales unit volume, what we were in 2010. So we've doubled our actual sales unit volume. Our capacity has probably increased a little bit more than that over that period of time, getting ready for further growth. So I -- that's the volume side. On the price side, I think it's a little early for me to comment. We don't see any negative issues on the horizon on the price side. And but other than that, too early to comment.

And then maybe a question for Tom. Free cash flow, how you see it evolving. When we kind of touch on CapEx for next year, are there any big puts and takes with respect to pension or anything else that we should be thinking about for next year?

No, Gabe, I can't think of anything that's going to move the needle that much. I mean, working capital, one way or another, could have an effect, but other than that, I don't expect a big change in pension, cash tax, CapEx or any of the other items.

Our next question comes from Adam Josephson with Keybanc.

Just a couple of questions. John, one more in North American beverage. So it sounds like what you're saying is you think the third quarter trend in terms of the industry down 0.5% is more representative of what you think the longer-term trend will be than the first half which was down 4-ish percent.

I don't want to overdo this. I mean, 1 quarter is not enough, obviously, for us to say that things have turned. But I thought it was very positive. I mean, I -- we had expected that we would do better. We gained a little share year-on-year, but it wasn't just that. Talking to our customers, we had thought our third quarter North American, U.S., Canada, beverage business would be stronger than it was, obviously, and apparent. And it wasn't. But having said that, we were off 0.5%, the industry was off 0.5%, and I thought that was quite positive. So yes, I mean, I'm hoping that maybe this thing is turning around a little bit.

One on Brazil. Can you give us some sense of what kind of benefit do you expect from the World Cup next year just based on your previous experiences?

Well, Tom -- I mean, rather, Tim knows more about soccer than I do, so I'll let him give you a shot at it.

I think, with or without the World Cup, we're fully expecting another very strong performance in Brazil next year, not only for Crown but for the whole industry. And I think our customers are expecting the same. But I don't see -- if this year in the third quarter we're up 10%, had we had a World Cup this year, maybe we would have been up 11%. So let's not overdo it. But I think it does underpin the demand that we do expect next year but it's not something that's going to blow the number way over the top. We're still expecting extremely strong performance next year, as we've had for the last couple of years, both for the company and the industry.

And John, one last one, on China. At what expect -- at what point do you expect capacity there to be roughly in balance with demand?

Yes, I -- it could take 2 more years. And but I think the rate of new capacity being added has dropped dramatically, but it could be another couple of years.

Our next question comes from Scott Gaffner with Barclays.

I wanted to follow up on the ramp of the new facilities, a lot of discussion there on profitability and when those come to full capacity. Can you just, first of all, talk about when, on a volume perspective, we get the full capacity from day 1? And then you mentioned, maybe after a year, you get up to full volume capacity, but it takes another 2 years or so to get up to the full margin potential of those facilities. Can you quantify for the change in profitability, the change in returns between year 1 and year 3, sort of average, so we can get a sense of how those facilities ramp up on profitability and volume?

Well, I don't think we want to talk too specifically about our elements in profitability. What I will tell you is, and what John was referring to, between full year volume capacity output after 12 months and full margin potential sometime in year 3, the elements that we're talking about is increased efficiency, increased productivity, less spoilage, better changeover times, which leads to increased productivity, et cetera. So I think that they're the elements that John was referring to. But I don't think we really want to start talking about specific elements or quantification of profitability.

Okay, but what about just the change, the directional change, I mean, a couple of hundred basis points? Or is it a much larger change in profitability than that?

Within a plant...

Yes. When you get from year 1 to year 3.

You're talking several hundred basis points, at a minimum, and more as we move through startup through the end of year 1. And even as we move to this year 3 period that John was referring to, you're still talking about a couple of hundred basis points within that factory, yes.

Okay. And when we think about the inventory side, the working capital associated with these facilities, I would assume you have a little bit more working capital at the beginning and then it sort of starts to fall off at some point as you're running more efficiently and have less spoilage. How does that sort of play out?

Well, it falls off as you have less spoilage and more productivity, but it goes up as you have more sales unit volume going out the door and you have more needs and demand from your customer. But think about each factory probably adds $20 million of working capital to the overall corporation's working capital.

Okay. And when we look at repurchases to date, you've done a significant amount of repurchases, $300 million. Any opportunity to continue to be in the market in the fourth quarter?

Yes, as you said, Scott, we've done $300 million so far. We're -- we do have a little bit of room there, but we're not ready to commit to actually any more than the $300 million at this point.

Our next question comes from Anthony Pettinari with Citi.

Just a follow-up on European food. You talked about some of the volume issues and more of the mix issues that have been impacted that business. And I'm wondering if you're seeing any change in competitive behavior over the past year that's maybe worsened some of those mix issues. And then maybe a related question: You referenced your European capacity being appropriate or maybe there are some opportunities for cost takeout. I'm wondering, to the extent that you can, can you talk about what kind of steps you're taking to achieve cost reduction without really reducing capacity?

Yes, why don't I try it first? We're not seeing a significant competitive activity -- changes in competitive activity in food. Our view is that the overall unit volume softness and the mix, the adverse mix effects, are pretty much affecting all of our competitors and ourselves similarly. So I don't -- we're not seeing that. In terms of cost reductions, the one that we just recently announced, it was basically overhead cost. And it was a view that we're moving our European operations, particularly our non-beverage operations, very aggressively to a management structure, numbers, et cetera in line with our best operations in North America, Asia and so on. So you could argue it's a little bit overdue, but we're doing that. Now one of the reasons we're able to do it is -- you may recall that we moved our European headquarters a number of years ago from Paris to Zürich. We changed the way that we looked at management of a number of these countries significantly, and as a consequence, we were able to take out layers. And we've continued to take out layers, and that's what this most recent initiative was focused on. Looking ahead, although I think our factories, generally speaking, in the food area have done very well, we know that there's progress that could be made, that needs to be made to improve efficiencies, drive down spoilage, manage overtime better, all those things that you do to drive down costs in a factory. So those are initiatives that are underway and we're going to take those forward into 2014. So that's the way we look at the food business.

And Anthony, if I could just go back on food cans. And I'm glad you brought the topic back up because, earlier in the conversation, I didn't get a chance to talk about this. But I think, if we look at -- and this goes to your point about increased competitive activity, when we look at the performance of our European food can business this year compared to last year, generally, the margin -- units are stable year-on-year through 9 months. The margin profile -- adjusted for the bad debt write-off that we had, the margin profile is similar to last year as well. The big downturn we had in European food happened last year. 2010, 2011 were very strong years. 2012, we had a lot of increased competitive activity and a volume performance that we were not satisfied with. We're running right about where we were last year. The unexpected and -- or disappointment that we have this year is mix, as John has talked about, and we haven't recovered volume as we hoped we would this year. But there hasn't been any further deterioration this year, it's just we haven't recovered as we had hoped.

Our next question comes from Alex Ovshey with Goldman Sachs.

Just going back to North America beverage. We've seen a pretty sluggish volume trend there over the last couple of years. Can you talk about where you see your utilization rates today in North American beverage? And over the last few years, we've seen the other 2 players take out capacity. How do you think about your capacity footprint in North America and whether or not there will be opportunities to potentially bring that down over the next couple of years?

Well, largely, we're in good shape. If you -- and I know you have, if you've followed our volume performance year-on-year for the last several years, you'll know that we've been up to, at worse, flat or minus 0.5% in any 1 quarter, but in several quarters, we've been up 1%, 2%, even 3%. So we have a well-balanced portfolio among branded and non-branded nonalcoholics, and we have a fair bit of alcoholic. And we don't see any need to adjust our footprint at this point. We're pretty well balanced. And I'd say our utilization rates are in the low 90% range, if you wanted a number.

Yes, I -- looking to just adding to what Tim said: Our market share has been between 20% and 21% in Canada and the United States for the last 3 years. And we anticipate we're going to try to keep it right around there. If the markets were to slide there more rapidly than we think, well, then we'll take a look at capacity, but at the moment, we don't see any need for that. We're utilized over 90%. And for us, the focus in North America is going to be continue to drive -- try to drive costs out in our North American beverage plants, with some improved performance in some of the laggers that we have. And we think there's an opportunity there.

That's helpful comment, John. And on the corporate expense line, that's tracking well below last year's levels for the first 3 quarters. Can you just help parse out what part of that decline is pension? And do you have an updated number for corporate expense for 2013?

On a full year basis, pension will be down in the corporate area about $20 million. So that, you're seeing that pretty much ratably over the quarters. I would expect we're going to be in low 160s for the year at this point.

About the same number it was in Q2.

Yes. And as Tim just said, the third quarter number was in line with the second quarter number of 36.

Got it, Tom. And then I want to go back to the Asia beverage business. So for the first 3 quarters of this year, your revenues are up $157 million and your EBIT is actually down $2 million year-over-year. Some of the factors that I can think of is you did an acquisition of a general-line paint can company in China. Maybe can you tell us what the revenue contribution of that acquisition was? Because I know there wasn't too much EBIT there. And then were you running benefits from insurance proceeds related to the Thailand plant through your numbers in '12? And did that essentially go away in '13? Maybe you can put a little bit of color around that factor as well. That would be very helpful.

Okay, so you referenced the Superior Multi-Packaging acquisition. And I think, when we made the acquisition last year, we probably told you that the annual sales contribution was on the order of about $125 million or $130 million a year. And you're right, it's a general-line paint business that, when we bought it, was underperforming. And we're making efforts and incurring some costs to try to improve that performance, but we believe it sets us up quite well to expand 3-piece production capacity not only in China but in Vietnam and other countries. So the margin contribution there is quite low at this point compared to the sales contribution, but we do have confidence in our ability to improve that and the market demand and need for that business in the future. On the insurance, we will have -- last year, had business interruption insurance for the factory that was taken out by the flood in 2011. That would have run through income last year as we were replenishing some of those cans from other locations, be they from Asia and/or Europe, into the Asian region last year. Our Thai plant actually got started up later this year than we had anticipated. So the combination of the lack of the reimbursement from insurance and the additional start-up costs that we have in Q3 because of the delay in the startup of the plant, yes, that certainly has an impact.

Our next question comes from Debbie Jones with Deutsche Bank.

I was wondering if you guys could talk about the trends that you're seeing in the Middle East right now, what type of growth rate you're expecting going forward. And I know the region is quite large, but how do you feel about the supply-demand balance where you compete? And is there any opportunities for consolidation?

Yes, the Middle East market overall, we think, is up on the order of 3% to 5%, something like that. We are essentially flat because we have not been adding any capacity. And I think we've talked about this before, particularly in Saudi Arabia, we've had several soft drink companies decide to go into self-manufacture. So they've been adding some capacity, as a consequence, we have not been adding capacity and we want to wait to see how the market develops before we do that. Looking ahead longer term, 5 to 10 years, we think the market is going to continue to grow in the range of 4% to 7%, 8%, or faster. So it's a tremendous growth market. But at the moment, we don't have any plans to add capacity until we understand better how of -- how some of the self-manufacturing capacity is going to affect overall supply-demand balance.

And I was just wondering, can you give some guidance on the capital spending for Teresina in Brazil just in terms of what you're going to do in '13 versus '14 to get that up?

I would say the spending will be largely weighted towards 2013. There will be some residual spending in '14, but the majority will be in '13.

Our next question comes from Phil Gresh with JPMorgan. Phil M. Gresh - JP Morgan Chase & Co, Research Division: My first question is just on the cost savings. Tom, you talked about $17 million in saves from the current restructuring program hitting in '14. You've also done other restructuring programs in the past. So I'm just kind of curious, between the carryover benefits and the new saves, if you could just kind of just put it all together for us and tell us roughly how much in kind of incremental saves from '14 to '13 we should be thinking about. There have been quite a few programs at this point, so I'm just trying to get the numbers.

Yes, the majority of the past restructuring actions, Phil, are already in the 2013 numbers. There's -- should be some mid-single-digit increment going into 2014 from the old ones. And obviously, we talked about the incremental from the project this year. Phil M. Gresh - JP Morgan Chase & Co, Research Division: Got it, okay. And just last clarification on Asia Pac, sorry to beat the dead horse, but I guess the start-up costs of $5 million to $7 million or so, you guys had expected it to be better kind of as we progressed from what you said in the last call. I understand what you're seeing about the Thai startup being a bit late. But I guess what I'm wondering is, how should we think about when that kind of neutralizes or actually turns, you start lapping those costs and actually might turn positive? Is it fourth quarter? Is it -- do we need to wait until first or second quarter of next year? Kind of at what point do you think that happens? And yes, well, I'll stop there.

So I think the reference to what we've said previously was that we have -- we always expect the start-up costs to get better. We never said they would get better in Q3, because we had so many new plants in Q2 and Q3. But clearly, we would expect, by Q1 of 2014, that we'll have a positive comparison. That is, start-up costs that we're still incurring in Q1 of '14 will be lower than they were in Q1 of '13.

Volume for growth [ph]. Phil M. Gresh - JP Morgan Chase & Co, Research Division: Okay. And then just last question, on the non-reportable segment. I think you guys were expecting some of the cost savings to kind of accelerate the benefits in the second half of the year, but the EBIT was actually down year-over-year. So any additional color you can give us to bridge that? I know you talked a little bit about volume, but anything else you could give would be helpful.

Yes, so back to your original question to Tom. The -- most of the prior restructuring activity we have undertaken over the last couple of years in Europe has been centered around European aerosols and European Specialty Packaging. We are seeing those cost savings. Unfortunately, what we've had is a very soft demand for some European Specialty Packaging products owing to the recession.

Our final question comes from Chip Dillon with Vertical Research.

A couple of questions. One is, as you all look at your future growth, you mentioned the regions you plan to grow in, do you feel the cost of those newer plants might actually cost more than the ones you've recently done? Because I understand a lot of your growth in the last couple of 3 years that we're now going to start to see the fruit off has come from moving older equipment into these newer regions. And are you sort of out of that? And will you be buying more new equipment?

Yes, no, we don't expect a significant change to it. As a matter of fact, we haven't moved old lines in 5 or 6 years now. So all of this capacity, and certainly what we just referred to over the last 3 years, the 9 or 10 plants, including the new Brazilian plant, that's all been new state-of-the-art equipment. One of these days, you'll have an opportunity to visit some of our international plants, and they're spectacular. So they're brand new, the buildings are great, the equipment's new. And we're planning for a lot of sales through those plants. So that's not going to change. I think what can change, whether it fluctuates upward or downward, basically is construction cost, the buildings and the land. But the equipment, we don't think it will. As you know, most of the -- 90% of the critical production equipment in a beverage can body line, we manufacture ourselves. And [indiscernible] tooling and continue to, post startups. So we can control that very, very well. And so really, it's just a function of what you think is going to happen to cement, steel, land costs. And in some of these places, no question, it's going up somewhat, in the case of land, simply because demand for industrial space is increasing, particularly in Asia, as the economies do so well. But no, no, you're not going to see any sort of significant change in capital costs going forward over the past several years.

Okay. And then a quick one on the minority interest dividends. I know they were, what, $65 million for the first 9 months. And I guess, in the last couple of years, it's tended to be bigger in the fourth quarter than, I guess, the first 3 quarters on average. And what would be a good guess for that for the full year, could it reach $100 million?

Yes, I think it will be somewhere between $90 million and $100 million, Chip.

Okay, got you. And then just lastly, there -- and this doesn't really affect you all, although you might make the equipment, I'm not sure. But there's a new can plant being built in Virginia that I'm understanding has a sort of a lighter-weighting technology involved with it. Is that something that could maybe cause other food can guys in the U.S., as contracts come up, to have to consider adopting that technology? And could that have an impact, one way or the other, on you guys?

Yes, a couple of things. No, we're not building that equipment, but we do build some of the equipment of the type that they're going to be using but we're -- we will not be supplying it. As to the lighter weight, that was a rumor that circulated in 6 to 9 months ago. We're pretty sure that it's bogus and that the opportunity to have very substantial light-weighting of the type, it's been described, is simply not the case. The technology that this company is using is well known to everyone in the industry, including the other 2 American food can companies and all the European food can companies. There are actually nothing that's being done that's proprietary. However, what's been discussed is simply not feasible in the context of North America and not very feasible in Europe. The nature of the re-torch [ph], the nature that -- of our customer handling, the nature of shipping and handling through the supply chain to the ultimate customer, we don't think there's anything to that.

Okay. And then I have to ask you real quickly one more. The CapEx number you mentioned for next year looks similar to this year. And yet for the first time, I guess, in 3 or 4 years, unless I missed it, you're not really announcing construction of any new plants once we get past Brazil, unless I missed it. So I would have to assume that we will probably hear more on that in future calls, or maybe that CapEx number could come down next year as time goes on.

Well, it may. And so we don't see nearly as many opportunities going over the next year as we have over the past several. So that's a factor. And we agree with you. And -- but always keep in mind that, although our, let's say, recurring CapEx, so-called maintenance CapEx, is quite low really in metal packaging, if you're running it properly, maintaining your equipment properly, we are always looking at cost-reduction opportunities. And that's something that we still know we have in North America and in Europe: further automation; take people out; speed up lines; improve productivity; as Tim said, reduce spoilage. Well, often, that requires some capital investment. So where we have really good fast-return, high-return, quick-payback, cost-reduction opportunities, we're looking at those also, particularly for Europe and North America. I think, as you know, we said at the outset here, we're real careful about putting capital into North America and Europe. I mean, there's a lot of talk about the so-called specialty can phenomena in North America, which of course means anything other than 12 ounce. We've been very, very careful about adding any capacity. We want it to be customer pull, not something we're trying to push on them. So cost-reduction activities are uppermost in our minds, and that's some of what we're talking about for next year.

I think the only thing I'd add to that, Chip, is that, the analyst and investor community, when you look at growth CapEx, you're always focused on beverage. But we've got 50% of the company that's non-beverage that does require capital. And we have opportunities for growth and/or cost reduction, as John mentioned, in that other $4 billion, $4.5 billion of businesses.

And at this time, I'll turn the call back over to the speakers.

Okay, Shirley, thank you very much. That will conclude our call today. We thank you for listening and ask you to note that our Fourth Quarter 2013 Conference Call will be scheduled for February 4, at 9 a.m. Eastern standard time. So thank you very much.

Thank you. This does conclude today's conference. We thank you for your participation. At this time, you may disconnect your lines.