Crown Holdings, Inc. (CCK) Q4 2019 Earnings Report, Transcript and Summary

Good morning, and welcome to Crown Holdings Fourth Quarter 2019 Conference Call. [Operator Instructions]. Today's conference is being recorded. I would now like to turn the call over to Mr. Thomas Kelly, Senior Vice President and Chief Financial Officer. Sir, you may begin.

Thank you, Crystal, and good morning. With me on today's call is Tim Donahue, President and Chief Executive Officer. 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 in our Form 10-K for 2018 and subsequent filings. Earnings for the quarter were $0.64 per share compared to $0.40 in the prior year quarter. Comparable earnings per share were $1.04 in the quarter versus $1 in 2018. Net sales in the quarter were up 2% versus prior year, primarily due to 7% beverage can unit volume growth. Segment income in the quarter was up 2% as improvements in both Asia -- both Americas and Europe beverage were offset by lower results in European Food and Transit Packaging. As outlined in the release, we estimate full year 2020 adjusted earnings of between $5.40 and $5.60 per share. These estimates assume exchange rates remain at their current levels and a full year tax rate of between 24% and 25%. We currently estimate 2020 full year adjusted free cash flow of approximately $600 million, with approximately $600 million in capital spending. With that, I'll turn the call over to Tim.

Thank you, Tom, and good morning to everyone. As reflected in last night's release. Overall, fourth quarter performance was as expected. And compared to the prior year period was a bit mixed across the operating segments. Unit volume demand for beverage cans remains strong with our global volumes up 7% in the quarter and 3% for the full year, offsetting continued weakness in European food and planned activity reduction in transit. For the full year, adjusted earnings came close to the 2018 level even after absorbing $0.50 per share of headwind from noncash pension expense and currency translation. Free cash flow, a record $754 million or $5.59 per diluted share, benefited from significant destocking in transit as we curled activity in light of lower overall manufacturing activity. In response to the growing global demand for beverage cans, we commercialized four new production lines in 2019, with at least 3 new lines and the conversion of two lines from steel to aluminum scheduled for 2020. We have summarized the progress and timing of the announced 2020 projects in last night's release. As of the announced increase in 2020 CapEx, we'll leave that to the Q&A portion of this call. In a supplemental table, we have provided the currency impact on sales and income by segment, so my comments will focus on currency-neutral performance. And at today's foreign exchange rates, we currently expect currency translation to have little impact in 2020 compared to 2019. Before reviewing the operating segments, our tinplate steel price expectations are for mid-single-digit declines in 2020. In our steel aerosols and food can businesses, we will adjust selling prices according to contract, which will result in margin pressure in the first quarter as we work through our higher cost inventories. That impact is roughly $0.20 per diluted share in the first quarter, split equally among European Food and the nonreportables businesses. Today, delivered aluminum is about $0.14 a pound cheaper than this time last year. So as we are on pass-through for almost all aluminum, this will result in lower reported revenues in the beverage can businesses, but have no impact on absolute margins. Turning to the segments. In Americas Beverage, overall unit volumes advanced 8% in the quarter, with North America up in the low double digits and Latin American operations up in the mid- to high-single digits. The new plant in Rio Verde, Brazil began commercial shipments in late November, and the plant continues to perform significantly ahead of its learning curve. The third line at Weston, Ontario began shipments in late January, and we expect an early Q2 start-up for the third line in Nichols. Demand remained strong throughout all of the Americas markets, and we continue to review opportunities for further capacity expansion. Segment income, up 25% in the quarter and nearly 20% for the year, reflects the increased volume and the elimination of excess freight and other cost headwinds faced in 2018. For 2020, we expect the segment to post income gains, although not to the same magnitude as in 2019, and perhaps weighted more towards the later quarters as Weston and Nichols work through their respective learning curves. Unit volumes in European Beverage increased 9% in the quarter, primarily related to the 2 new facilities in Italy and Spain. Gains to the prior year were also notable in Eastern Europe, France and Turkey. Middle East demand was firm with volumes up 0.5% in the quarter. And for the year, overall segment unit volumes were up 6%, reflecting Europe, up 9%; and the Middle East, up 1.5%. As in the Americas, the supply-demand situation remains tight. And while we review expanding capacity, we believe the overall market return profile needs improvement. For 2020, we expect growth in the segment's income performance, although the first quarter will be a bit behind the first quarter of 2019 as the Seville plant will be down for the entire quarter as we complete the aluminum conversion. Sales unit volumes in European food improved 1% in the quarter and for the year, we're up 1.5%. This is well below the 6% growth we had forecast coming off a very poor harvest in 2018. As we have discussed with you in earlier quarters, the 2019 selling price increase was not enough to cover inflationary cost increases, including in tinplate steel. This negative price inflation, combined with negative mix and lower Q4 production levels, led to the decline in segment income for the quarter. And while we did lower production activity in the fourth quarter, we still ended the year with far too much inventory, which will be felt in the first quarter of 2020, as that higher-priced inventory runs through the system against a market backdrop of mid-single-digit tinplate steel declines. So underperformance in Q1 of 2020, with the business recovering to a level overall performance for the year. Asia Pacific continued to benefit from strong demand throughout Southeast Asia with unit volume shipments up low double digits for both the fourth quarter and the full year. And for 2020, we expect performance to be a bit flatter than we've reported in recent years as the full impact of our late 2018 asset repositioning in China takes effect in 2020. Excluding currency, sales in transit packaging declined 7% in the quarter and 2% for the full year due to lower overall volumes and the pass-through of lower raw materials, principally steel. Net volumes were off 4% in the quarter and 1.5% for the year with declines more notable in protective packaging and tooling. Segment income in the fourth quarter reflects volume, mix and $6 million of under-absorption of fixed costs as the business lowered activity is planned to drive down working capital levels. The business had a record operating year in 2018 and a record cash flow year in 2019. And adjusting for currency, 2019 performance is not too far from the business we acquired at the end of 2017, despite a slowdown across a number of industrial end markets and minimal capital investment. The 2019 working capital reduction plan resulted in the business generating unlevered free cash flow, well above 100% of its EBITDA percentage that I've seen very business -- very few businesses deliver. And certainly, a significant proportion of the company's overall free cash flow in 2019. Equipment backlog stands at over $100 million, higher than at this time last year. And for 2020, we expect segment income in the business to exceed 2019 levels by $10 million to $15 million, and be weighted towards the third and fourth quarters as the comps become more favorable. Fourth quarter income in the nonreportables businesses benefited from a strong result in our beverage can equipment making businesses. And for the full year, North American food cans posted a strong gain over the prior year, and combined with the improved results in can-making equipment, offset overall market softness in global aerosols. And as described earlier, nonreportables will start the year slow in Q1, as we cycle through higher-priced steel inventories. The Board-led portfolio and capital allocation return review is ongoing, and it would be premature for us to comment ahead of the Board's conclusions, but we will provide updates as warranted by future Board decisions. So as we stated at the outset, a productive year in 2019. Adjusted earnings, almost on top of the prior year despite $0.50 of headwind from new -- two nonoperating items, record free cash flow, deleveraging on target and significant new beverage can capacity commercialized in 2019, with more to come in 2020, all leading to significant value creation for shareholders in the future. As we have said since at least this time last year, the future for beverage cans is very bright. Customers and consumers alike continue to embrace the can as their package of choice, recognizing its inherent environmental advantages over other substrates, offering Crown and the industry a substantial growth opportunities in the future. Equally important in food cans, and as we said last year, if governments, NGOs, retailers, consumers, and others are serious about sustainability and not just giving it lip service then they too should be embracing and promoting the food can. When it comes to limiting food and packaging waste, increasing recycling rates, among other advantages, the food can should be the package of choice compared to less environmentally responsible packaging such as pouches and thermoform trays, among others. And with that, Crystal, we're now ready to take questions. Thank you.

[Operator Instructions]. Our first question comes from the line of Gabe Hajde from Wells Fargo Securities.

Tim, you mentioned the machinery business. It's not something that we talk about very often, but my understanding is that it has pretty attractive margins. Is that something that we would anticipate, I guess, maybe can you size up that business on the revenue side and then something where we would expect to see pretty nice growth over the coming years, given a lot of the beverage can activity?

Yes. So always a little careful when we describe revenues because we eliminate the revenues, which are sold intercompany among the Crown affiliates, but third-party revenues on the order of about $100 million. It's a business that, like a lot of equipment and tooling businesses, will run through cycles. And as you point out, given the extremely positive outlook for beverage cans. We would agree with your -- the thesis within your question that, that business should benefit as we look forward.

Okay. And then moving to the European food side. I'm going to -- the optics of if we look at just the income statement over the past five years and post the Mivisa acquisition, I appreciate there's been two consecutive years of terrible crop yields and growing conditions. But is there anything that you can point us to that gives us confidence that there isn't something structurally wrong within the marketplace that we should be concerned about?

Well, I don't think -- we haven't lost any share. And we haven't seen the merchant can market lose any notable share to self-manufacturing. Certainly, after the Mivisa acquisition, if -- I think when we completed the Mivisa acquisition in 2014, the euro was at about $1.33 or $1.35. It's on the order of $1.10 now. So some of what you've seen in reported -- we report in dollars, so some of what you've seen reported is currency related. On the euro side, the decline is not as significant as you see in dollars. But nonetheless, we've had, as you rightly point out, 2 terrible crops. And I think, as we described earlier in the year, perhaps, we and some others, in an effort to try to make sure we didn't experience volume declines in '19 like we did in '18 with a bad crop, perhaps we -- the customers received too much advantage in terms of pricing. That is, we didn't we didn't adjust pricing enough in '19 to offset the cost inflation we had in the business, not just steel, but all costs. And I think that's something that we and the team are working on to try to address going forward. But I don't think there's anything structurally wrong in the business. We've had a couple of disappointing harvests and frankly, we didn't manage pricing very well. So we're -- we've made a change in the business. And it's incumbent on the new managers in the business to turn that around.

Our next question comes from the line of Mark Wilde from BMO Capital Markets.

Tim, I wonder, can we talk a little bit about that $600 million in CapEx and what might be in there? It's a fairly large year-over-year increase.

Let me talk a little bit about it, not a lot. So I think we've historically spent, at least for the last, I'd say, historically. But for the last 5 years, in the order of $400 million to $450 million. Mark, you've been in a number of beverage can plants, not just Crown's, but our competitors, and you understand that beverage can, by its very nature and part of the moat around the business, is the capital infrastructure associated with making beverage cans. So you appreciate that it's -- you've got to feed the beast, so to say. And as part of the moat we enjoy as well. So as we look at the opportunities we have, certainly in North America and in a growing Asian business, we are on the mindset that there's an opportunity for us to accelerate capital and reap some of the rewards and reposition the business in the most favorable light for the future. So as I said in the prepared remarks, and as you see in the news release, we've described to you the projects that we're comfortable announcing at this point. But there are there are a number, and I would say, 2 to 3 to 4 other projects that we are actively working on that we're not quite prepared to publicly talk about. But perhaps, we will talk about them in more detail in the April call. But I don't think we're that far away from telling you what we're working on. It's just we're trying to tie up a few loose ends. But you should consider that, that would embrace North America and Asia Pacific.

Okay. Tim, I just wanted -- on the other side of it, can you talk at all about what you're seeing or what you're expecting in terms of kind of can sheet supply and whether we might see some can sheet supply additions here in North America? I mean, it seems like the kind of trade issues around can sheet have only complicated things over the last couple of years. There's also been an issue with kind of aluminum scrap values. So if we could just get a little color on that issue.

Yes. So I mean, we haven't -- the aluminum scrap issue is perhaps more specific to somebody else. It has to do with the American producers not wanting to take scrap back in net terms in any great -- any greater proportion than the aluminum can sheet they provide. So, i.e., if aluminum is coming in from other countries, they don't want to be taking any more scrap back and reprocessing than what they need in their own smelters. I think globally, there's plenty of aluminum can sheet available. China is a leading, if not the leading, aluminum can sheet supplier. The quality is at par or soon will be at par to the other manufacturers in the Americas and Europe. It's a question of price, and we all try to do our best to attain the best price we can for our customers. I -- to the extent, is there going to be more can sheet supply created by the manufacturers of can sheet in North America? Well, that's a question for them. And the answer that they'll give you is, as we've said earlier, they probably want to see some reward to that as well. So their business is extremely capital-intensive. And -- but there's plenty of can sheet supply out there.

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

I want to hit first on European food, Tim, if you could. So as it was teed up earlier, I think by Gabe, obviously, you're coming off a couple of tough harvest, but there have been other secular issues within the business on a longer-term basis, obviously. The -- is the business now earning what you think is a fair return relative to your cost of capital? Can you comment on what dollar amount or what initiatives you need to do maybe beyond pricing, maybe it's just pricing, you need to get to, to be earning cost of capital? And then I have a couple of follow-ons.

Yes. Well, listen, I -- we're clearly earning well above our cost of capital in European Food. We don't -- we can discuss whether we spend too much or too little in European Food, but for roughly a $2 billion business, we're spending about $30 million in capital a year. So that's not very much. And year-on-year, even with the decline in earnings, the cash flow that's generated by the business is tremendous against the backdrop of minimal CapEx. And so we can have a discussion as to whether we're not spending enough or whether we're spending an appropriate amount. But clearly, earning, it's well above its cost of capital. That doesn't mean we're satisfied with the earnings profile of the business. It's down significantly from recent years. Okay. The harvest were disappointing. But honestly, we're disappointed in our own performance. And we've got to do better. Now does that mean we need to do some restructuring, close 1 or 2 plants? Perhaps. But I think we'd like to understand before we do that, because we're pretty well balanced with the exception of 1 or 2 plants, demand has not really declined. I think we're going to see some demand pick up this year, but it's more around pricing and appropriate levels of cost recovery. So the answer, George, is we've not done a very good job managing the business. We need to do better.

Understood, Tim. Thanks for the candor on that. I guess the next question I had, just going through the list, can you give us a bit more color in terms of, not just your biggest segment, but why Asia isn't trending better than flat? And I don't know if I get exactly how you worded it.

So I made the same comment last year at this time that we were going to be flat in '19 versus '18, and they did about 4% to 5% better in '19 versus '18. I just think that we'll feel the full impact of the repositioning of China in '19. So we're going to take another leg down in Chinese income this year. So we probably went half of the way down in '19, and we'll go fully the way down from what I expected last year in '20. So it will offset the growth in Southeast Asia. And then we're kind of -- then we kind of reset and we start growing again in Asia. But a very -- a pretty satisfying market, overall. I think we're earning, what, 15-or-so percent earnings, and the business is growing, and it is competitive, but we're well positioned, and we have -- we certainly have a very low-cost profile compared to the other regional competitors there.

All right. And my last question, and I think I kind of get it just from the press release, but given the growth that you're seeing in beverage cans, obviously, you're ramping capital spending, as you noted in Mark's question and going through some of the projects. The press release says, your other global metal packaging and transit businesses continue to generate significant and stable free cash flow funding your beverage can expansion. So should we take from that, that given the growth that you see in beverage cans, both the stuff you can talk about now and the stuff that you have on the horizon, that you aren't finding a capital allocation constraint in beverage cans relative to the rest of the portfolio? And you -- or not? How would you kind of have us think through all of that?

George, you're always a clever guy. So you're trying to get me to talk about the Board process here with an interesting question. I think that we are fortunate that we have businesses that generate stable and consistent free cash flow that allow us the luxury of investing in an expanding global beverage business. And I think the beverage business, and we've described it and others have described it, and I think it's going to be extremely healthy for the next several years. We'll see what happens beyond the next 3 or 4 years. But certainly, for the next several years, we're going to have an opportunity to continue to build out our footprint, modernize the footprint, lower the cost profile that we can offer the customers such that the can becomes even more competitive against other substrates, but that does require cash. Among other demands that shareholders want from organizations, and shareholders want, not only growing businesses, but they want dividends and share buybacks. So when you put it all together, the Board has -- is in a process right now, and they're trying to understand the thesis that's being offered as to should we limit ourselves to fewer product lines versus the separation of those product lines and the leakage that would come from those product lines and the ongoing cash flow afforded to the overall organization to accomplish, not only growth in beverage cans, but the ability to pay dividend and buy back stock in the future. So I think the statement in the press release is pretty straightforward. We believe we're fortunate. We have a number of businesses in the portfolio that generate stable and consistent free cash flows, which, at this point in time are fueling a growth in the beverage can business. And it's always important to remember at this point in time. So I don't think it's appropriate for me to say any more than that at this point because the Board is reviewing that.

Our next question comes from the line of Ghansham Panjabi from R.W. Baird.

So I guess, going back to the CapEx of $600 million, which would be, obviously, a record for your company. Just from a high level, I mean, is this a function of spending too little given your leverage post-Signode? And this is sort of a catch-up phase, normalization, whatever you want to call it? And then I think you mentioned North America and Asia as the likely market for the increase in CapEx. And so for North America, should we think about the new plant or line additions? And what about Brazil, given outsized growth in the region? I mean, obviously, you had the capacity there, but is that really enough to support the outsized market growth we're seeing in the region?

Yes. So I think the -- I was probably pretty clear, the additional projects we're looking at in North America and Asia. And it would envision in Asia, a new -- a large new plant. And in North America, I think we probably could consider perhaps a new plant and perhaps a line addition or the existing plant. And I would tell you, Ghansham, it's certainly not underspending in any regard. And I wouldn't I wouldn't pollute the discussion with post-Signode. I think what Signode has afforded us is the opportunity to spend. The cash flow and signal, we can come back to Signode, but the cash provided by Signode affords us to spend more money. I wouldn't say that we've underspent in the past. I'd say that we've been -- we've tried to be extremely disciplined in a market that up until 2019 had shown no growth to negative growth for 15 years prior. So we're in a market right now that for the first time in 15 years, has shown growth. And, okay, I think we're going to see growth again in 2020, and we'll probably see it in '21 and '22. So we are now prepared to expand capacity. But prior to 2019, I think it would have been fairly reckless to throw a whole lot of capacity of market -- in a market that up until now hasn't shown any real growth. So certainly not underspending. It has nothing to do with Signode. It's just a reflection of a market. And our customers and consumers alike demanding more from beverage cans than they have in the past.

Very clear. And then for my second question, I guess, the $0.40 increase in EPS between 2020 and 2019 using the midpoint of your 2020 guidance, how does that break down from a high-level bridge standpoint, operating income and then pension and whatever else you want to call out?

Yes, got you. So on an after-tax basis, we'll pick up, let's say, $0.15 or $0.18 on lower interest costs. We have -- we'll pick up about a few cents on pension. That's not real material. Minority will be about flat. And we're actually, compared to where we ended up on this year's tax rate, tax is a bit of a drag. If you take the midpoint of the 24%, 25%, so let's say, a 5% drag there. And then the rest flows through operating income.

Yes. Ghansham, just to summarize, I think in the prepared remarks, by segment, we said the Americas beverage business would have higher segment income, although not to the $80 million higher like we had in '19. European Beverage will be up over '19 as well, although Q1 will be flattish to slightly down because of the Seville conversion. In total, European Food will be flat. Asia Pacific flat and Transit up about $10 million to $15 million on the year. Nonreportables down just on the steel repricing that we won't recover as we go through the year. So all -- putting all that together, segment income up over the prior year in total.

Our next question comes from the line of Anthony Pettinari from Citigroup.

Tim, have you seen or does your 1Q guidance assume any impact to Transit or Asia Pac bev from the coronavirus disruptions? And I understand you don't have a huge direct China exposure, but are you seeing any knock-on effects maybe with transit customers, supply chains?

So the Transit business has a very small -- I think we have $20 million of revenues in China. So it's not a factor. If anything, if there was a prolonged shut down, and we'll talk about that in a second in China, you would expect manufacturing activity in other markets to pick up to offset lower Chinese exports and perhaps, we would see some benefit of that given that we're almost nonexistent from a transit perspective in China. In beverage, we are on mandatory shutdown right now. As I've heard other companies describe this. They make it sound like they're voluntarily shutting down. Just so you know, Beijing, coming out of the Chinese New Year, Beijing had a mandatory shutdown through February 2, and almost every other province, extended the mandatory shutdown except for critical industries through February 10. So the 3 beverage can plants are on mandatory shutdown, and we'll reopen next Monday unless they extend the shutdown. We don't have a very big beverage business in China. As we described to you before, it's about $95 million in sales. And certainly, we're expecting a lower income this year. So we don't expect any significant -- and we haven't budgeted anything significant for coronavirus, and we'll see how it manifest itself going forward.

Okay, that's helpful. And then there are a few moving pieces in terms of new projects coming online and projects from last year that are ramping up. I was wondering if you could provide any commentary on the level of start-up costs you anticipate for 1Q and then maybe for the full year?

Yes. So I would -- we always -- I always say when we talk about Asia, we always have a number of projects. So the start-up costs are somewhat equal to the start-up costs in prior years. But I think we will see a little headwind in Americas beverage in Q1 just from the start-up of Weston and the preproduction costs in Nichols line 3 in Q1. Rio Verde is blowing right through their learning curve. So I don't expect that to have much of an impact. We, like others, if we could have the Brazil experience everywhere, we'd be phenomenal. I don't -- we'll have European beverage, as I discussed, Civil, which is a very large 2-line plant. We will not be making cans in Q1 because the conversion is being completed. We probably begin making cans on the 1 line at the end of March and the other line in early April. So we have some pre-production there. But the workforce is an experienced can workforce and aluminum cans are easier to make them steel cans. So I expect them to come through learning curve fairly rapidly in Q2. But really, Americas beverage a little bit with Weston enables, nothing else.

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

I wanted to ask about where -- and we know a lot of this growth is coming on the back of sustainability. But as you have these conversations with your customers, is the ask for the can or is it for the standard can, where do you think people really want to see the can go from here? And I guess the reason I'm asking is, if you think about like some of your longer-term customers that have been in standard cans. As they grow with you and as you maybe add new capacity for them, what do they prefer going forward?

So it's a great question. I think, real quick for the for some of the newer customers, the newer products, we're seeing that in slimmer sleek cans and some 16-ounce formats. For the existing customers, I think it's both. I think they're -- they are dealing the big -- who the existing big customers are. They are dealing with a number of jurisdictions nationwide, which are pushing back on one-way plastic packaging and they are certainly looking to gain more shelf space and sell more of their product, and they're looking to do it across a number of formats. So they are ramping up the promotions of sleek and slim. But at the same time, from a sustainability standpoint, we're seeing more demand for 12-ounce standard as well.

Okay. And then I wanted to ask specifically on Europe. If we could exclude the Middle East, you mentioned broadly speaking, several years of growth, is that your expectation specifically in Europe? And is that just a sustainability story? Or are there other things driving that as well?

Yes. So you're right. I think the Middle East, good to exclude it because it's probably flatter demand, the region will grow, but our profile, our profile will be flatter. We expect European beverage, again, as you say, to continue to grow. And the market, I think, the market, Tom, you have the number here, just as a reference point. Just bear with me, I'll tell you what we think the market did, it's a good jumping off point. I think we think the market in Europe was up 4% to 5%, both in the fourth quarter and for the full year. And I think that's not an unreasonable level of growth do we expect over the next several years for the market in total, which requires on a full output basis, 1 to 1.5 can lines per year. So -- and I don't expect that to subside. I think we're going to continue to see growth in European beverage. As I said in my prepared remarks, however, we have $600 million of capital is a big number for us, and that will be dedicated to markets where we believe the return profile is more favorable. Right now, the European beverage return profile needs to improve. It's a very healthy market, and it will grow, but we'll wait to see the return profile grow before we throw any more capital at that market currently.

Our next question comes line of Adam Josephson from KeyBanc Capital Markets.

Tim, on Transit packaging, you talked in your prepared remarks about just how much cash it generated last year? And then in the Q&A, you talked about how it's enabling you, it's funding a lot of the beverage can expansion that you're doing. And when you bought the business, when you announced the acquisition a couple of years ago, you said much the same thing that look, this generates a lot of cash, much more so as a percentage of EBITDA than the rest of our business. There are some investors out there who, obviously, think that it doesn't have a place in the portfolio and that it's dragging down the multiple at which you trade. Obviously, you're saying on this call, it's generating a ton of cash, and it's doing what we wanted it to do. So can you just talk about that perception that among some that it's dragging down your multiple, it doesn't belong in the portfolio, et cetera?

You're also a clever guy. You're trying to get me to talk about the Board process before we're prepared to do it. So what I would say, and I think I was -- as George said, I was pretty candid on European Food, where we have not done a very good job managing the business. I would say just the opposite in Transit. The Transit team has done an exceptional job managing the business within the scope of a manufacturing environment across a number of end markets, whether it's auto, steel, white goods, et cetera, which are down. And I think the EBITDA in '19, adjusted for currency, is we did in 4% or 5% of what we bought in 2017. And the cash flow, as you note and as we've said, is extremely high. So we've described this business in the past as a conversion -- cash-conversion business in the 90% range, and that's basically EBITDA minus CapEx divided by EBITDA. And what the business accomplished this year is even well beyond that. They're free cash flow unlevered. So considering CapEx, considering taxes, considering working capital, well above 100% of its EBITDA. So the market has a view of whether the business belongs in the portfolio or not. The Board is looking at that. The Board is looking at a number of things, and there are other packaging companies, be they food can companies or beverage can companies that also have other assets. And we, like they, to separate those businesses, we're trying to review how much leakage there is. And before we entertain the prospect of what a single-line beverage can company multiple might trade for in the future. The first thing in creating value is not destroying value. And I think that's something the management team is working closely with the Board on right now. And as I said, I think it's probably premature for me to comment any further.

Just one other question along those lines, Tim, that you have slower growing businesses that generate a disproportionate percentage of your cash flow. So are you of the mind that if you rid yourself of these really good cash flow businesses and become a more capital-intensive company, you would, for whatever reason, trade at a higher multiple, even though your capital intensity is much greater?

I don't know. Listen, Adam, I don't know what the multiple will be. It might be a higher multiple today, what I said earlier, at this point in time. What will it be in 2 years? While we're on the topic, you know I refer to you as the -- what do I call him? No. The dark -- The prince of darkness. So you're a bit more negative on this space and across all of the packaging space than others, and we're very positive on the outlook for beverage cans globally, but it does take cash to fund the beverage business. Now, in time, perhaps the growth in beverage gains, 3 or 4 years will slow down and we'll start to harvest more of the cash out of the beverage business. But for now, we need to feed the beverage business to grow it. And I think if we want to -- you want to trade assets for a point-in-time beverage multiple, that's one thing. I think, as we said, it's premature to talk about, but we're trying to understand the process of creating value, and that first means don't destroy value in the near term.

Yes. Understood. And just one on your transit packaging EBIT guidance for '20. I think you said it was -- it would be up $10 million to $15 million. How much of that is just driven by the inventory reductions at year-end versus whatever market outlook you have? I assume you're not expecting manufacturing activity globally to get too much better in 2020. So I'm just trying to separate the pieces there.

I think if you look at the economic indicators and the -- and some of the economic forecast that are out there by a number of the large banks, including your own, they point to the back half of the year, perhaps economic activity kind of stabilizes and maybe we see a slight pickup. So -- and then, certainly, our comps get easier in the back half of the year. So perhaps, on a comparable basis, a little soft in the first half and stronger in the back half, but up $10 million to $15 million overall. So -- but the -- we've -- the team has done an exceptionally good job and in reducing the inventory, and not only that, but they have plans that are well advanced to reduce overall costs. So I think we're certainly more bullish on the outlook for the income performance then, than you would be from the outside, not understanding the business.

Our next question comes from the line of Tyler Langton from JPMorgan.

I just had a question. I think you said in Europe, you kind of, your bev, you mean volumes and growth sort of 4% to 5% in sort of this year with the market. I guess the question is if you hold off on investing in new capacity, I guess, sort of given what you've sort of installed so far, I mean, it -- when you look to sort of 2021, would you not be able to sort of grow at that sort of mid-single digit rate? And I guess, how do you think about sort of bad and sort of the potentially losing share versus sort of higher returns?

It's possible that if we don't invest and if the market keeps growing and others invest, we'll lose a little bit of share, but I think I'd rather see us raise price and raise the margin profile than just invest for the sake of share, and that's my message to the team. And hopefully, that's their message to the customers in their markets that if you want us to invest to support your growth plans and your sustainability plans, we need to have a better return profile in that market.

Okay. That's helpful. And then I guess, Tom, could you just give a little on the -- for free cash flow to some of the other components, assumptions like working capital, pension, restructuring...

For 2020?

Yes. Versus 2019.

Yes. The cash pension should be similar at $15 million to $20 million. The real moving piece is CapEx. Obviously, we talked about that. But beyond that, working capital was -- we had some benefit in 2019, let's say, $20 million to $30 million. In 2020, we expect a drag as we build up the beverage can capacity. We'll need increased working capital to support the growth. So we're probably looking at a drag of about $75 million in working capital in 2020, but we'll try to do better than that.

Our next question comes from the line of Arun Viswanathan from RBC Capital Markets.

I guess, first off, I don't think there's many questions on the guidance. So just getting your thoughts on the range that you provided. It seemed like a pretty tight range. I guess, are we to assume that FX maybe isn't as impactful as a factor in 2020? And similarly, many of the other factors around beverage can growth, Transit and European food are dialed in. Or how are you thinking about the range that you provided on EPS?

So Arun, it's a $0.20 range. I think we've typically provided a $0.20 range. It's kind of hard to provide you with anything greater than that without you having any level of comfort or are we having any comfort in what we're doing. Currency, as we sit here today, currency should be much more muted, the impact in '20 versus '19, than it was in '19 versus '18. Tom described pension, it's a few cents benefit in '20 as opposed to a large headwind in '19. I think we've described on the call here, pretty much in detail what we think each of the segments is -- what we believe at this point, each of the segments is going to accomplish in terms of its segment's income. Anything could happen. But I think as we sit here today, it's kind of the range we feel comfortable with. We don't want to start forecasting for what we don't know. So for what we do know, that's kind of where we're at.

Okay. That's fair. And then just on the portfolio review, I guess, I understand the notion that both your food can and Signode businesses do provide quite a bit of cash flow and would agree with that. I guess, I'm just, again, curious, just there has been some transactions within food can. Does the Board process look into -- is the Board process examining potential transactions as well as this part of this review? And would there be a scenario where you could do something creative, whether it be JVs or selling a portion of either business?

Well, I think you should expect, and I think we've said it that the review is comprehensive. I'll just leave it at that.

Our next question comes from the line of Mike Leithead from Barclays.

I guess, higher-level question on the overall beverage can market. I appreciate the market's growing very rapidly today and you -- and your major competitors are investing to fill this demand. But I guess, when you're going through the -- your capital approval process, how do you get comfortable with the risk that market demand doesn't continue at this new outsized rate and kind of reverts back to the no-growth, longer-term trend line, and we're stuck with overcapacity again? I mean, I guess, just how do you think about the risk-reward there?

Thank you for asking that. It's the question we always wrestle with. It's -- I think in response to Ghansham's question earlier, what I tried to say was that the additional spending in 2020, the forecast in spending in no way is a reflection that we underspent in the past. It's a reflection that the market and the growth in the market, that was negative, did not warrant any spending. So what we see today is growth. And I think we foresee in North America growth for the next couple of years. And fortunately, for us, we are positioning ourselves where we are underweight in specialty cans to becoming more in line with the market in specialty. So we have an opportunity to spend in that regard as well, and I don't want to say without regard. But alongside the market growth, we are more appropriate aligning ourselves in the North American market with the specialty can growth in the market. As opposed to the rest of the world, where we are at-market levels or even higher on specialty can as proportion of our sales. And then the additional spending in Asia, that market continues to grow, and so that's never going to -- an issue. But your question is the right question. And I think for the next couple of years, as we've said, Mike, we think growth is going to be very favorable, especially in light of recent growth or negative growth trends. But in '19, we had growth, and that was the first year of growth in a long time, and we'll have it in '20 and '21. It's -- and as I've said in the past, and hopefully, we're all somewhat responsible here.

Got it. No, that's helpful. And then just on the strategic review process, I appreciate there's nothing you're going to report at this time. But just in regards to timing, is there a rough time frame you're targeting to wrap up this formalized process by? And would you anticipate making an announcement, even if the result of the Board review is no change to the overall portfolio?

Well, I think when we made the initial announcement, we talked about a number of things. We talked about capital allocation, we talked about portfolio review and we talked about refreshing the Board of Directors. So the Board -- the initial Board refreshment has occurred. Board members retire from time-to-time, and that's an ongoing process. I think you should expect that whatever the outcome of the portfolio review is that the Board will publicly report its conclusions. And I would suggest to you that it's probably, regardless of the rumors in the marketplace, it's probably more appropriate that you expect that to be some time in the April to late April time frame.

Our next question comes from the line of Brian Maguire of Goldman Sachs.

I just wanted to come back to the $600 million CapEx guidance. Should we assume that if the 2 to 4 unnamed projects don't materialize or go forward, then the CapEx number could be materially below the $600 million? And sort of related to that, Tom, what do you think is the right CapEx level beyond 2020?

Well, I think if the projects we're discussing don't materialize then, yes, we would be back in the $430 million to $450 million range. I think we're pretty comfortable that we're -- that they're going to materialize. We're just not prepared to tell you right now. We'll probably be prepared to tell you in April a lot more. So I think you should, for your modeling purposes, you should conclude that we're going to be closer to the $600 million number because I think we're going to be successful, and we'll come back and tell you in a couple of months here, what we're doing. What's an appropriate amount of capital for a growing business. That's a great question. I think if the business continues to grow, we'll continue to feed the needs of the business. If the business -- the growth slows down, and then we'll slow the capital down. I don't think it -- this isn't a government budget where we spend our budget every year. We try to start every year, understanding our base maintenance needs. And then from there, you build on growth. So -- but that's where we're at right now.

Okay. And in the last couple of months, there was a news of a sort of a new entrant into the Continental U.S. market in Florida. Just wondering if you had any thoughts on that. And just kind of, in general, you talked about barriers to entry when you talked about your CapEx spending earlier. Can you just talk about how you see those barriers and whether -- or whether you think that all the growth that we're seeing in the capital flowing into the industry could start to attract others or not?

Well, there's a lot of growth. There's a lot of positive momentum around the sustainability argument. There's a lot of money available out at very cheap rates. So anybody is capable to do anything. You hate to comment on speculation. I don't see the new factory in Florida having a big impact on the North American market. I think a lot of those cans are going to be headed back into the Caribbean. We'll see what they do with that factory going forward. We're not -- we don't have manufacturing in the Florida market, so it doesn't directly impact us, but everything impacts you indirectly over time. Others may come to the market. But as I said, I hate to speculate on that because I don't know. I think -- I do think there's enough growth right now to absorb what we and the others are doing. And I think our footprints, we and the existing can makers, we have national footprints and we're better able to service the needs of national and regional customers than somebody that comes in with 1 or 2 plants in a region.

Okay. Last one for me, just a quick one. I know it's not your biggest market, but Vietnam, they put in a pretty strict DWI law to start out the year. I've seen some reports that beer consumption is down 25% or so in that market. Is that something that you're seeing play out? And is that part of the sort of flat EBIT guidance in Asia this year?

So I think what you just said, you need to tell everybody around the world, and they should expect that, and they shouldn't come to Vietnam with any more can capacity. I agree. Now honestly, we've seen no impact of what you just described in the Vietnamese market. It is a -- it continues to be a rapidly growing market. The beer industry is dominated by 2 principal beer companies there. One is currently 80% in cans, 20% in glass. The other is just the reverse, 20% in glass -- or 20% in cans, 80% in glass. So a growing market, a growing middle class, an extremely well-educated population, closing on 100 million people. The flat performance we're describing in Asia has nothing to do with Vietnam. It has to do with China. So Vietnam, I saw one of the comments earlier today in one of the pre-call reports, but we've not seen any impact from that law.

Our next question comes from the line of Neel Kumar from Morgan Stanley.

I think you have mentioned low double-digit volume growth in North America. What allowed you to realize growth in North America in the fourth quarter, given the capacity constraints you've been facing and you're only bring on the new line on Weston last month?

Well, it's typically a very low quarter for can. So in the second and third quarter, we are oversold as a company. And an industry, you build cans in the first quarter. Sometimes, you even build them in the fourth quarter into the first quarter for sale on the second and third quarter. So just being a lower-demand quarter, you have more cans available to sell in the fourth quarter. It's just math.

Okay. All right, that's helpful. And then just a follow-up on your comments on the European beverage return profile. Is that comment specifically referring to your 12-ounce cans? And then given that you had a similar issue in the past in the U.S. and then still getting price increases in 2019, you think you could see similar movement in Europe, given the tight spot in the demand environment? And I mean, do you have any contracts up for renewal in the near-term in Europe?

Well, there's always contracts that are up for renewal. There's always contracts that will roll over. I won't say anything else commercially other than that the team has been tasked with the job of improving the margins. And until we see margin improvement, we're looking at behaving similar to how we behaved in North America pre-2018, 2019 as it relates to capacity. I would love to see the margin profile improve. I think it -- whether we're talking about 12-ounce or 33-centiliter, 50-centiliter or slim and sleek cans in 15-, 20- and 25-centiliter, it's an overall market return profile that needs to be improved.

Our next question comes from the line of Mark Wilde of BMO Capital Markets.

Yes. Tim, just a couple of quick follow-ons. One, I wondered if you could talk about what you're seeing in both Brazil and Colombia. With Brazil, I'm just kind of curious. We've got ABI building their first can plant there. And I know in Colombia, you've felt the impact from Empaque [ph] coming in? And then the second thing, I wondered if you could talk about, is just sort of generally what you have seen come out of these renegotiations in North America. I know there were a lot of can contracts that repriced at the start of this year. I think it would be helpful to all of us if we had some understanding of kind of where you were getting price versus just where you were getting like terms or the ability to pass other costs through.

Yes. Mark, on your second question, I'm going to allow you to ask that question tomorrow. You're going to get a chance to ask that tomorrow, and we'll see if they want to answer it. But frankly, I don't want to answer that. I don't see any advantage to answering that. On the first question, yes, we lost a significant chunk of business in Colombia. A competitor came into the market. And we described that in the third quarter. It's -- we'll cycle through that Q3, Q4 of '19, Q1 and Q2 of '20, and then we're back on our way, but the business is rebuilding itself with other customers. Notably, the partner we have there who fills cans and distributes can beverages, both beer and soft drinks. In Brazil, the market continues to grow. And again, just to -- I should have kept my finger on it, but here we are. Our estimate is that the industry grew at about 14% in 2019 over '18. And we were up 4%, just because of capacity. Now we were up 8% in Q4, and we'll be up a lot more in 2020 just because the capacity came on. I think there's enough growth in the market that it's going to absorb the new plant that you described as well as the new capacity we put in, in any other marginal capacity anybody else puts in. It's a -- it continues to be an exciting market for beverage cans.

So just, Tim, in just rough terms, and you're really talking about a market that grew by something like 4 billion cans last year?

Yes.

Okay, Crystal, I think -- thank you very much, Crystal . I think that concludes the call today. And we look forward to speaking with you all again in April. Thank you very much.

You're welcome, and thank you, speakers. That conclude today's conference. Thank you all for joining. You may now disconnect.