Crown Holdings, Inc. (CCK) Q3 2024 Earnings Report, Transcript and Summary

Good morning, and welcome to Crown Holdings Third Quarter 2024 Conference Call. Your lines have been placed on a listen-only mode until the question-and-answer session. Please be advised that this conference is being recorded. I would now like to turn the call over to Mr. Kevin Clothier, Senior Vice President and Chief Financial Officer. Sir, you may begin.

Thank you, Al, and good morning. With me on today's call is Tim Donahue, President and Chief Executive Officer. If you do not already have the earnings release, it is available on our website at crowncork.com. 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 our Form 10-K for 2023 and subsequent filings. Net sales in the quarter were level with prior year at $3.1 billion, reflecting increases in global beverage can volumes and North American food can volumes, offset by lower volumes in most other businesses. Segment income was $472 million in the quarter compared to $430 million in the prior year, reflecting volume gains in both Americas and European Beverage and the benefits of cost reduction initiatives in Asia-Pacific , partially offset by demand softness across most other businesses. The company recorded a GAAP loss of $1.47 per share in the quarter, mainly due to a non-cash pension settlement charge of $4.33 per share compared to earnings of $1.33 per share, excuse me, in the prior year quarter. Adjusted earnings per diluted share were $1.99, up 15% compared to $1.73 in the prior quarter. Free cash flow remained strong at $668 million through nine months, driven by excellent operational performance and reduced capital spending. We took steps in the quarter to strengthen our balance sheet by transferring approximately $860 million of assets and liabilities of our Canadian and U.S. pension plans to highly rated insurance companies, which will reduce future cash flow and earnings risk. With this action, combined with the previous buyout in the U.K., the company has annuitized approximately $4 billion of pension liabilities since 2021. As part of the settlement, the company contributed $100 million into the U.S. pension plan. As announced during the quarter, Crown's Board of Directors authorized the repurchase of an aggregate amount of up to $2 billion of common stock through the end of 2027. During the quarter, we purchased -- we repurchased $110 million of common stock. We will continue to opportunistically pursue share repurchases through a disciplined approach. We are proactively managing our debt maturities with the issuance of EUR600 million of euro notes due 2023 and the repayment of EUR600 million of outstanding notes due -- that were due in September. We finished the quarter with $1.7 billion of cash after taking the actions above and net leverage was 3 times compared to 3.5 times for the same period last year. Before turning the call over to Tim, I want to discuss our expectations for the fourth quarter and full year. Our fourth quarter adjusted earnings per diluted share are projected to be in the range of $1.45 to $1.55 per share. In view of the strong performance, year-to-date, we are increasing our full year guidance to $6.25 to $6.35 per share compared to the previous guidance range of $6 to $6.25 per diluted share. Key assumptions supporting the updated earnings guidance include interest expense is $380 million, average common shares outstanding of 120 million and exchange rates at current levels, full year tax rate of approximately 25%, depreciation of approximately $300 million, non-controlling interest between $140 million and $150 million and dividends to non-controlling interest of $125 million. We project 2024 full year adjusted free cash flow to be at least $750 million after making the previously mentioned $100 million pension contribution and no more than $450 million of capital spending. With the combination of free cash flow and the $300 million in proceeds from the previously announced Eviosys sale, we expect to end the year with net leverage below 3 times. As discussed in July, we are committed to our new long-term leverage target -- net leverage target, excuse me, of 2.5 times, which is expected to be achieved through the combination of debt reduction and EBITDA growth, while returning capital to shareholders through dividends and opportunistic share repurchases. With that, I'll turn the call over to Tim.

Thank you, Kevin, and good morning to everyone. I'll be brief and then we'll open the call to questions. As reflected in last night's earnings release and as Kevin just summarized, third quarter operating results were strong and ahead of earlier expectations. As has been the case throughout 2024. Global Beverage operations performed exceptionally well with combined Global Beverage segment income up 23% on the back of 5% global volume growth. Manufacturing performance, including higher efficiencies and lower spoilage was excellent. Additionally, a great effort by the Asian team to embrace and execute the capacity reduction program announced late last year, leading to the full realization of those benefits earlier than expected. Consolidated segment income margin advanced 140 basis points over the prior quarter. Importantly, through nine months, free cash flow is $450 million ahead of the prior year nine month period due to lower capital expenditures and better working capital management. Net leverage at the end of September after giving effect to the pension contribution and share buyback was 3 times, a full half turn lower than at this time last year. And as Kevin just noted, we expect year end net leverage to be below 3 times. Americas Beverage reported a 21% increase in segment income on the back of 10% volume growth, including 5% increase in North America. Our full year volume growth estimates remain at 5% to 6% for North America and mid-to-high single-digits in Brazil. Income performance in European Beverage advanced 18% over the prior year, primarily due to 6% shipment growth combined with the continuing benefits of our margin recovery program. Income through nine months this year has now equaled the full year 2021 level in the segment. Income in Asia-Pacific advanced 50% in the quarter as the combined benefits from actions to reduce capacity and improve revenue quality offset an 11% decline in unit volume sales. While demand weakness was noted throughout the segment, we remain well positioned to benefit from our new lower cost structure when regional volume demand returns. As expected, Transit Packaging income was down to the prior year. Shipment volumes and results continue to be impacted by weakening global manufacturing conditions with activity likely to stay in contraction at least through year end, leading to our cautious outlook at this time. The business continues to tightly control costs while generating significant cash. North American Tinplate operations performed well in the quarter with 5% higher food can volumes, while can-making equipment had lower activity as expected. And in summary, and as we said earlier, a strong quarter where the benefits of higher volumes and the efforts of a world class manufacturing team were evident. Global beverage operations have been strong for nine months and are expected to remain so through year-end. Global manufacturing conditions remain in contraction, but the Transit business is well positioned to grow when industrial market demand returns. A solid performance so far this year with margins and income up, EBITDA expected to exceed the record level posted last year, strong cash flow with leverage down and expected to go lower. And with that, Al, I think we are ready to take questions.

[Operator Instructions] Our first question comes from the line of Ghansham Panjabi of Baird. Your line is now open.

Hi guys, good morning.

Good morning, Ghansham.

Good morning.

Good morning. Yes, I guess on the Americas segment, obviously, very, very strong margin conversion, much higher than our forecast and much better than the trendline for the first two quarters. Just give us some more color in terms of what drove that. And is there any benefits unique to 2024 in price cost or whatever else that may not repeat in 2025 for that segment?

Well, I -- Ghansham, I'll deal with the second part of the question first. As we said earlier this year, we would expect the growth in the business that we've had this year, i.e. the market share gains that we've had this year or our growth ahead of the market growth this year to not recur. That is our growth next year will be in-line with the market. So we're looking at a market in North America, so far this year where we believe the market is up 1% to 1.5%. And I think in North America year-to-date, we're probably up 6% to 7%. If the market is up 2% next year, we think we'll be up 2% next year. So that's number one. We had an exceptionally strong performance in Brazil. Brazil bouncing back nicely through the summer. You've heard our view on Brazil over the years, we remain very bullish on the Brazilian market, despite hiccups along the way, we always believe it's a market that over any period of time, if you measure it, it's a continuing trendline up. And then we had a very strong performance in Mexico this year. So obviously, margin is very high, some of that had to do with lower aluminum, although aluminum -- the cost of aluminum is starting to trend up, so that will have an impact on percentage margins, but not on absolute margins. But all-in-all, it was much better than we forecasted as well. It could -- to be honest with you, Ghansham, it could be $15 million better than we had forecasted in the third quarter. And the manufacturing team doing exceptionally well. I would say we're going to have manufacturing improvements from better efficiency in spoilage and asset utilization this year, upwards of $20 million to $25 million benefit this year and where you really get the benefit of that is in a high volume quarter like the third quarter.

Okay. And so just to clarify on that, so price cost in terms of PPI adjusters, et cetera , at this point, looking out to 2025, do you see any headwinds associated with that year-over-year?

I think PPI could be a small headwind next year, although I don't have the numbers in front of me. I think obviously, inflation has been coming down and the contracts are organized in such a way that you pass on those savings to customers if and when you have them. Now, PPI is not a perfect proxy for the costs in our business. And we've talked previously about, PPI does not seem to reflect what happens in the coating space, for example. Labor always goes up, labor never comes down. The labor content may come down, but the rate never comes down. So there are a lot of things that move around in our cost base that aren't perfectly reflected in PPI. But I would expect PPI, as we sit here today, to be an adjustment in the favor of the customers next year.

Okay. I'll just turn it over there. Congrats on the progress.

Thank you.

Thank you. Our next question comes from the line of Chris Parkinson of Wolfe Company Research. Your line is now open.

Hi guys, good morning.

Good morning, Chris.

You hit on this a little -- Good morning, thank you. You hit on this a little just in your last response. I just want to dig a little deeper. Just given the progress that's being made operationally, not only in the Americas but also Asia, can you just kind of comment on your efforts there? You mentioned you were ahead in Asia, but if you could just dig a little bit deeper, kind of comment on where you are, in terms of your ultimate progression, on where you wanted to be, where you are, and as well as your conviction in terms of the sustainability of that progress into '25 and '26? Thank you.

So when I remark about being ahead of expected progress, I was specifically referring to the capacity reduction program that we had undertaken. So, just think about it, it's a division that's on the other side of the world. They're a long way from headquarters. We see them several times a year. Having said that, they've enjoyed being part of a high growth business for the last 20 years, and then they've got a little growth hiccup and the plan is that we're going to remove capacity. So we were always a bit concerned as to how readily -- how ready they were to accept cost reduction as opposed to continuing growth. And as I said, we're really pleasantly, really pleased with their embracing of the need to right-size their capacity. I think we now have a business that is on the order of each quarter now earning somewhere between $45 million and $50 million of segment income, which is, in the absence of volume growth returning to the region. I think that's the kind of range we expect in that business going forward. Obviously, the real benefit in that region will be when volume returns, when the consumer has more confidence and off a lower cost base, we look to really benefit from that.

Got it. And just as a quick follow-up, getting below 3 times leverage obviously shows a lot of progress. Can we just hit on just any preliminary thoughts and how we should be thinking about not only trending in the year end, but perhaps just into 2025, how the street should be thinking about working capital, cash interest expense, if there's an update there, and just how we should be thinking about cash conversion as we progress, and just any quick cost of capital allocation as a corollary of that? Thank you so much.

Thanks, Chris. So, Chris, so in terms of working capital, look, we've done a great job in terms of driving down working capital this year. We expect it to be at least a $100 million benefit for us. I don't think there's much more to get out of working capital. So I think we're probably where we're going to be. I think when you look at interest expense, we have -- clearly have an opportunity to have lower interest costs with interest rates coming down. I think it will be determined by how much the Fed decides to reduce rates. But interest expense at down from $380 million to $350 million is definitely possible and probably kind of the baseline of where we would look at. And then as we think about capital allocation to buy back stock, I would fully expect us to be in the market next year to buy back stock. I think that our leverage target, we're committed to 2.5 times getting to it. And I think as Tim had said on the previous call, we could be there by the end of next year if we want to be. I think we want to stay below 3 times, but we are committed to also returning capital to shareholders through share repurchases. So I would expect us to be in the market next year buying back shares.

Thanks for the color. Thank you.

Thanks, Chris.

Thank you. Our next question comes from the line of George Staphos from Bank of America. Your line is now open.

Thanks so much. Hope you guys can hear me okay. Congratulations on the progress so far guys.

Thank you George.

How are you? My two questions. First of all, assuming that you grow with the market, recognizing the market growth is going to vary from year-to-year and you can't necessarily predict that. How much runway do you have in terms of capacity across beverage cans? If there's a way to shade that or discuss the color by region in terms of how much runway you might have between North America, Europe, and the like? That's question number one. Question number two, given our analysis, your EVA, your return on capital have all been trending up well, and congratulations on that. As we think about the next two years, not trying to get into an earnings forecast quarter-by-quarter, what do you think is going to be the biggest driver of your operating profit improvement assuming in the next couple of years? Will that be just pure volume? Will it be the improvement, say, in Signode or your non-beverage can operations? What are the headwinds? And do you think invested capital, what you invest between working capital CapEx will grow in tandem with operating profit or do you think you can actually keep that constrained relative to your operating profit growth? Thanks guys. Good luck in the quarters.

All right, that's a lot. So -- George, don't go anywhere because you might have to repeat some of that. I think that on our business and you know the business very well, George, growth is -- income growth, let's say, is largely dependent over time on volume growth. We need volume. We have an industrial platform that's sitting there and it doesn't do well if it's not running, it needs to run all the time, that is 24/7. So you always need volume and the more volume you have and the more growth you have, the better your profits are. The platforms that we have, I would say that I can't -- as I sit here today, I think given what we expect market growth to be for the next at least two years, we don't anticipate having to install any new capacity to achieve expected market growth. Now if there is a -- if there's movement among suppliers and/or we want to modernize a specific facility, okay, there's a little capital to be spent, but there's no necessary capital to achieve what we think markets will grow over the next several years in all the markets. I don't know if Kevin mentioned it, we're -- we said no more than $450 million this year and I think if we wanted to give you a number for next year, we'd say the same thing, no more than $450 million for next year. Now in addition to -- that's beverage, what I largely just talked about. The other part of your question, George, was how will the non-beverage businesses do. I think largely until we see the next inflection on global beverage can growth across the industry, we would expect the equipment business to be more or less in-line with where it is this year. I don't see any really large moves in the aerosol business. I think that's largely going to be, as we look to next year where it is this year. And food, food cans in North America could be a little bit better. But it's all modest. I think in total, if you were to look at food cans, aerosol cans, equipment making, it's roughly 5% of our EBITDA on a consolidated basis. So if it's up a little bit, it doesn't move the needle a whole lot there. I think on the Transit side, the cost base is in really good shape. Competitively, we're in very good shape. For those of you who follow global manufacturing or purchasing -- manufacturing, purchasing managers index -- indices around the world. You'll know that they're in deep contraction in certain countries. For example, if 50 is considered the dividing line between expansion and contraction, Germany is currently at 40. So globally the manufacturing sector not looking very strong. But having said that there are some signs of life at least in North America and the construction industry looking like they could be -- an opportunity to turn the corner, we'll see, but obviously a lot of upside in the transit business when and if or if and when industrial markets return. Did I -- I think I got it all, George.

Yes. No, Tim, you got it. Moderate -- whatever the market is going to grow at, that's what's going to be the biggest driver. And if you get optionality with Signode that's incremental and CapEx.

Just touching on your last point, which you rightly point out, off a much lower levered balance sheet and from an EVA perspective, an investing capital base that shouldn't expand so much, right.

Thank you so much, Tim.

Thank you.

All the best.

Thank you. Our next question comes from the line of Mike Leithead of Barclays. Your line is now open.

Great. Thanks. Good morning guys.

Good morning, Mike.

Good morning. Tim, you said it a few times already about Global Beverage can this year continuing to exceed expectations. I guess bigger picture, when you go through the numbers internally, what do you think has been the biggest driver of the outperformance versus perhaps where you budgeted to start this year?

I think number one is volume. Volume has been a little better and it's held up. So you always have a -- there's always a concern when you look at a forecast and you see large volume gains, especially in a market where you're asking yourself, how strong is the consumer? There's been a lot of inflation in the product line, as well as inflation across everything else the consumer is having to deal with. And the market -- the market you participate in is up 1% to 2%. Do you really believe these volume numbers? So I think volume is number one. It was -- it's been strong and it's a -- it's been steadily strong, which is always nice to see. And then our manufacturing performance both in the United States and Europe has been -- it's always -- I got to stop for a second. It's always exceptional in Brazil. But it's -- if I looked at the United States and Europe, making great strides to the levels of exceptionalism this year as well. So a lot of money that we've gained this year for manufacturing performance.

Great. That's super helpful. And then, Kevin, on the pensions, just following the settlement and funding in 3Q, how does that change your go-forward pension expense and say the cash you need to fund it over the next one to two years?

Yes. So from a cash funding perspective, we would not expect any U.S. pension funding over the next year or probably the following, maybe some minor amount. But....

Newer Canadian.

Newer Canadian pension plan. We still will have -- we have various other pension plans that are still outstanding. So there will be some pension funding. We do expect -- I'm sorry, did you have another question there, Mike?

Yes, it was just around the cash funding and then also just the pension expense that flows through your P&L. Is there any change to that?

Yes. So look, I would expect, the pension actions probably give us about a $0.05 uptick after you consider the interest cost on the $100 million pension contribution that we had. So call-it roughly $15 million of lower pension expense, $6 million of interest expense on the $100 million tax effect, it'd probably give you right around $0.05.

Great. Thanks, guys.

You're welcome.

Thank you. Our next question comes from the line of Phil Ng of Jefferies. Your line is now open.

Hi, guys. Tim, you talked about the consumer making sure it's strong and healthy. I'm most curious about Europe, right. You guys put out a solid quarter again, certainly some restocking, you had the Euro Cup. So how are trends kind of shaping up and what you're seeing on that front? Because some of the European packaging companies have actually talked about perhaps the consumer being a little softer.

Yes, I mean that doesn't surprise me. I think the consumer is -- I think European consumer is much weaker than the U.S. consumer as a -- just as a -- not to make a political statement, but I think they have far less disposable income in Europe than we do in the United States and that's all around policy and other things, but we agree with that sentiment that the European consumer is perhaps weaker. There are a number of things as you started to point out, we've got some restocking this year. We've had a couple of events, the Olympics and the Euro Cup, and a fairly good tourism season. If you follow the airlines, I think the tourism season was pretty strong and it's generally strong in the regions where we're strongest, that is Southern Europe. We had a very weak fourth quarter last year in Europe, principally due to the destocking we've discussed. We're not anticipating that happening again. And the large part of our outperformance in Q4 this year compared to Q4 last year will be related to European recovery. So large majority of that. So I think it's a -- one of the things that helped Phil, we're in a business that's -- it's a small pleasure business, right. It's -- you've got a weak consumer in a lot of places and they're struggling. And despite that, the beverage can is holding up really well. You would tell yourself it's holding up exceptionally well in the face of a consumer that's stretched. So we're benefiting from that not only in North America, but also in Europe as well as some substrate shift in Europe, which is continuing to happen. So all-in-all, despite the weaker consumer, feel pretty fortunate to be in the can business.

Okay, super. When I look at the progress you guys have made on the margin front, whether it's Asia cost coming out and then recouping inflation in Europe, it's been pretty incredible. Margins have been up nicely, appreciating aluminum prices are going up. That will swing percent margins. But do you still have much to go here in terms of driving margins higher? You talked about some of the good things you're doing on the manufacturing side. So when we think about '25 and perhaps even 2026, how should we think about the margin profile and profitability going forward?

Yes. So -- there shouldn't be a limit to the margin, right. But obviously you've got customers and suppliers and they have margin aspirations as well. So I liken it to golf. If you're a golfer, or those of you who are golfers, it's pretty easy to go from a 25 handicap down to a 10. To try to go from a 10 to a scratch or to a plus is, it's the law of diminishing returns. It's really difficult. The low-hanging fruit is largely gone. And now you're really looking at sharpening the edges. And there's always improvement we can make. One of the things that happened here in the third quarter, we didn't say it yet, why did we outperform so much in the third quarter? And Kevin and I were talking about it last couple of days, and you kind of look at each other and you say, you know what, everything went right. I mean, it wasn't perfect, right. Transit's down, but everything else went right. Even the food guys had a good volume quarter. And there's always the question in your mind, you know, you're going to have a time in the future when everything doesn't go right. So I -- I think we're really pleased with the operations. We're really pleased with the business folks, they're driving exceptional margins. I don't know if we have leading packaging industry margins, perhaps we have leading can margins, but, it's -- how much higher can they go ? I don't know. We're going to try to do the best we can to keep them where they're at and grow them, but we're going to need some volume to do that, Phil, right. We're going to need the market. Now that I think that, as we discussed earlier, that the -- it looks like business has largely settled in North America over the next couple of years. So we're going to need the market to grow. And then obviously, it would be nice to have a bounce back industrially for the Transit business as well.

Okay. That's helpful. Thank you. Appreciate it.

Thank you.

Thank you. Our next question comes from the line of Jeff Zekauskas of JPMorgan. Your line is now open.

Thanks very much. When I look at the Transit margins by quarter, the decremental margins seem to be getting worse. Maybe they were 22% in the first quarter, 38% in the second, 68% in the third. Is that because volume continues to fall or why does the margin progression seem to get more severely negative?

I'm not following you because I don't have -- I'm not looking at all the data you're looking at, but you're going to have to come offline and ask the guys to explain it, the guys a little better because I just -- you just said our margins were down 60%. I don't understand what you're saying.

The incrementals. In other words, if you look at the change in sales and you look at the change in operating profits, it seems that there is a greater percentage decrement as you go through the year. But we can take it offline.

Yes, listen, if I look at -- we can do all that. If I was to look at our third quarter margins compared to our nine month margins, the third quarter margins look like they're all better than the nine month margins. So the way we would look at the business is that with the benefit of expanding volume, you get even more -- you get more margin. Now we had a -- you know the third quarter is a bigger quarter. So to move the needle on a bigger number is always harder to do than move the needle on a smaller number, but you're going to have to take this offline.

Sure.

This is a day of school I missed, so I'm not following it.

Sure. And also in terms of your beverage can volumes in the third quarter, overall, were they very different than they were in the second quarter that is sequentially, how much did your volumes change in beverage cans?

Absolute level of volume?

Yes.

I got to believe the absolute level of volume is higher in Q3 than it is in Q2. I don't have the Q2 in front of me. I do know, I looked at one thing that happened, Jeff, and I do know that specifically to North America, we were up 5% in the third quarter, which is a little bit lower than we had been up earlier in the year. But I do know the third quarter of '23 was up like 12% or 13% over the third quarter of '22. So, yes I'm looking at -- no, I mean, volumes were higher in Q3 than they were in Q2. And the absolute level of volume, pretty much the same. I'm talking global. I'm only looking at a global number. The differential or the delta on the absolute Q3-to-Q3 versus Q2-to-Q2 about the same. But Q3 volumes in absolute terms up in Q3 versus Q2, both in '23 and '24?

Okay, great. Thank you so much.

Thank you.

Thank you. Our next question comes from Anthony Pettinari of Citigroup. Your line is now open.

Good morning.

Good morning.

Just following up on Europe. I think you closed the Helvetia acquisition about a year ago. And I'm just wondering, did that contribute at all or meaningfully to the kind of mid-single-digit growth you've seen in Europe? And can you just talk maybe about how that asset is operating or maybe kind of longer term goals for Germany and that plant?

Yes. So I will say this and you're going to give me a platform to my fellow competitors, my fellow global competitors are going to appreciate this as well. So bought the business about a year ago. It's probably responsible for about 1.5% to 2% of our growth this year, 1% to 1.5%, something in that range. We have been spending a lot of time retraining the workforce, and a lot of time fine tuning the equipment is the wrong term. We're doing a lot more than fine tuning the equipment. And what we knew when we bought it and what we found out when we got inside, very similar to what we hear others saying when they look at some of these smaller one-line operations around the world. They're set-up poorly, the people aren't trained very well and they're never going to be successful as one-line operations. So you do have some one-line operations in the U.S. right now. One guy is -- I think he's basically moved, he sold the equipment to somebody else. There's another guy that I don't know how he's going to survive. Now, there is a one-line operation in Texas that's run by a high quality can company out of Mexico. They're going to be fine. They know how to make cans. But these new one-liner guys that got into the business because they think can making is an easy venture, they found out that it's not so easy. But we're making improvements to the plant, and we expect that should only be a further benefit to us as we go forward. We didn't pay a lot for the asset. You get a building, we got a can line, and we got an end line for roughly $120 million, which is far less than we and some others in the industry would spend to build a proper plant. So we're spending a little bit of time here and effort to make it a proper plant with a properly trained workforce.

Okay. That's very helpful. And then just after kind of the pandemic boom and destocking, I mean, it seems like Bev cans are in a pretty good place from a supply demand perspective. And I'm just wondering, have you seen any changes in pricing dynamics in any of your markets, either positive or negative? Are customers trying to extend or shorten the lengths of contracts? Or are there any kind of larger than usual contract cliffs coming up in any of your markets. I'm just wondering if you talk about pricing to the extent you're able to and to the extent there's really you're seeing anything kind of notable in the markets?

Well, I would say that there's always competition, and perhaps some others see our margins and they believe they can underprice us from time to time and where they see our performance and they're trying to understand how they can make their performance better. But listen, markets are competitive, and -- the customers, the buying agents that the customers have a job to do and we have a job to do, and their job is theirs and our job is ours. But it's always going to be competitive. I think the single out, any one or few items, it's just business, right? You're always going to have competition, whether it's from your natural competitors, or whether it's margin competition from your customers and your suppliers trying to grab from you one way or the other. I don't think there's any -- in the next two years, there's no large cliffs of volume coming due. We do have -- in the North American market. I do think we have some -- as an industry, we have some larger contracts coming due heading into '27, but it's not unlike any other period in the past. So, yes, conditions are good. They could be better some of these -- as I mentioned, some of these one-line, new entrants, they're going to wash themselves out and we'll get back to a market where the customers understand if you want reliable quality cans, you better go with a reliable quality supplier. And I think the large multi-nationals are quality and reliable.

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

Thank you.

Thank you. Our next question comes from the line of Arun Viswanathan of RBC Capital Markets. Your line is now open.

Great. Thanks for taking my question. I hope you guys are well. I guess, first off, maybe I could just get your thoughts on some preliminary framework for '25. I think you mentioned kind of your volumes following the market and -- but maybe the other businesses, you talked about low manufacturing activity, maybe that could weigh on Signode or Transit a little bit? So assuming maybe kind of low single-digit top line growth, would you -- and some of the manufacturing efficiencies, would you be able to maybe see about mid-single-digit EBITDA growth? And then with some of the re-financings and some of the pension stuff, would you be able to see maybe mid to high single-digit EPS growth? Or how should we think about kind of EBITDA and EPS growth into '25?

I think it's a little too early to say. The one item you left off of there is with the Eviosys sale, we're going to lose a significant amount of equity earnings, which obviously accretes earnings as well. So -- but I think it's a little early to say. I don't want us to get ahead of our budget process. And I certainly, I want us to do a better job this year of not allowing the differential to exist between your expectations and what we believe we can achieve. We kind of let that -- we as a company kind of let that get ahead of ourselves last year. So we don't want to do that again. I don't think we're ready to do that.

Okay. And then on the free cash flow, so CapEx is in the $450 million range, is that kind of -- how would you characterize that? I mean, what part of that is, say, maintenance and sustaining growth? Would you find that as kind of the low levels here that we should kind of expect going forward? Or is there other reasons why that could potentially go higher as you look into '25?

Well, I think the only way it goes higher is if there's a significant market shift somewhere in the world which would require us to add capacity in a location that we're not currently in.

Okay. And then just one last one if I could ask. We talked a lot about promotional activity earlier this year. It seems like, we haven't been speaking that much about it, but I know there has been some deflation. Do you think that the customers are appropriately promoting their product? And I guess, have there been any shift more to or away from towards favoring volume a little bit more? Or how do you think about the promotional activity levels? And are you guys encouraged maybe by the potential for some increase there? Thanks.

Yes, I mean, the first thing I would say is it's not for me to comment on what's appropriate that our customer set does with respect to their business. But listen, they have a business model. We need to adapt to their business model and run our business as best we can to adapt to their business model. We're only successful if they're successful, and we need them to be successful long term. So, we support their needs. We hope we support their needs as best we can with quality and service at all times. Now, specifically on promotions in the North American marketplace, I would say we saw a little bit of an uptick in August. It looked like it backed off at the end of the quarter. Looks like it's first couple weeks of October. Things are going okay. So, but I would describe, if you're looking at promotions versus historical levels, you would describe last year and this year as lackluster. But that may well be the new norm. And as I said earlier, we need to adjust our business to adjust to their new business. And they have a business model and we're only successful if they're successful. So, we better find a way to be successful with our new business model if that indeed is it.

Great. Thanks a lot.

Thank you.

Thank you. Our next question comes from the line of Joshua Spector of UBS. Your line is now open.

Yes, hi, good morning. A question on adjusted free cash flow to clarify a couple of things quickly, is first, your guidance of greater than $750 million when you talk about the pension. Is that excluding the pension? So on a reported basis or adjusted reported basis, it would be greater than $650 million, or does the $750 million include that? And then if you could just comment on 3Q versus 4Q, it seems like free cash flow in 4Q is pretty minimal when normally that's a pretty highly cash generative quarter. So if you could explain what's going on there? Thanks.

Sure. So in terms of the free cash flow of $750 million, that includes the deduction for the $100 million of pension contribution we made. So not $650 million plus $100 million, it's $750 million plus the $100 million if you wanted to add it back. So that should resolve that. In terms of the Q4. If you look at it, we say at least $750 million, we're at six -- let's call-it just under $670 million right now. You're going to have some earnings growth, you're going to have some working capital improvement, but you're also going to pay interest expense of probably close to $100 million. You're going to pay taxes equal to about $100 million. You're going to have CapEx of around $200 million. If you do the math, it gets a little better than $750 million. Working capital is always the number that we drive to get as low as possible. So we'll see that will be the number that gets us really the delta to see how much better we do than the at least $750 million number.

Thanks. And just a kind of more philosophy follow-up here, just how you guys approach guidance. So you guys have done quite a deal, better versus your guidance the last couple of quarters. I think everyone likes to see some conservatism. But I guess when you're talking about the beats, it's a little bit of the cost savings maybe surprise, the volume surprise. So as you think about fourth quarter and maybe as you think about framing next year, are you trying to be conservative versus expectations? Or are you actually versus your plan seeing things coming in a lot better, which was I guess a surprise versus what you hope to achieve, if that hopefully makes sense to answer that?

Yes. So I think if you look at where we've outperformed this year, it's been in the Beverage businesses, Americas, Europe and Asia. If you looked at the fourth quarter of last year, Asia had income of $47 million, which is kind of what the average has been for the first three quarters of this year. So you wouldn't expect a large increase in Asia year-on-year. And, last year in the fourth quarter in Americas Beverage, we had -- we actually had higher segment income in the fourth quarter last year than we had in the second quarter this year, which is a remarkable number because the second and third quarter -- if we were to rank the quarters, you should go three, two, four, one. And for the fourth quarter to be bigger than the second quarter. So I think the opportunity for the Americas beverage business to have a quarter that's significantly better than the prior year quarter is far less this year in the fourth quarter than it has been in the first three quarters of this year. I think, the one business that we firmly believe we're going to do better year-on-year in the fourth quarter this year is European Beverage. And that's basically because the massive de-stocking that occurred in Q4 last year, we don't foresee that. So I think, the range we gave you is a -- I appreciate the question because we knew it was coming because we have -- when you beat a number by 10%, it's -- it begs the question for the next quarter. But I think the range we've given you is a fair range.

Okay. Thank you.

Thank you.

Our next question comes from the line of Stefan Diaz of Morgan Stanley. Your line is now open.

Hello, good morning.

Good morning.

Thank you for taking my questions. And I Hope everybody is okay with the hurricane down in Florida.

Thank you.

So one of your global customers mentioned a consumer preference shift into cans, specifically in Mexico. And I think they also mentioned not necessarily having all the capacity needed to meet the can demand in the short term. Maybe just what are you seeing in Mexico? And do you potentially see the need to expand capacity within the region? Maybe not a new line, but add some efficiencies within the region, et cetera?

Yes. So I'm aware of what you're describing. As I said earlier, we've had a really strong performance volume wise in Mexican cans this year. Glass business has been firm. I don't necessarily see us needing to expand capacity, as I said, anywhere in the world right now, unless there's a new customer award in a region of the world where we're not located. But I don't -- and that would apply to Mexico as well. So I think we have -- for the footprint we have currently, the capacity we have now, there's a little bit open where we see the market going for the next couple of years, I think we're okay.

Great. Thanks for that color. And I know you're expecting down volumes within Asia due to your footprint actions in the region and the related profit benefits. That said, can you give some color on what you saw in the market in 3Q and what you're expecting in the region into the end of the year? And maybe just a quick follow-on to that Asia question. During the summer, there was also a Chinese competitor that announced the construction of an additional line in Vietnam. Just given your bullish view on the region into the medium-term, how do you assess the risk of potential new entrants into the region as well? Thanks.

Yes. So I would say it is a country specific region. The expansion by the Chinese competitor into Vietnam is specific to a multi-national filler, not specific to a Vietnamese filler. I'll leave it at that. Volume, I got year-to-date volumes here. I can tell you year-to-date we think Southeast Asia is up 5% or for the full year, we're estimating that they're going to be up about 5% and we forecast, will be down about 8%. So I -- some of that's due to our capacity reduction. Some of that frankly is due to customer pruning, right. We walked away from a fairly significant chunk of business at two customers where the margins were not worth the risk. And you always -- we're not here to make cans for practice or just to pad volume statistics. We need to get a fair compensation for the risk we undertake and we didn't believe that business did. But that was on the order. Those two customers probably 75% of the volume decline we're experiencing came from those two customers. Having said that, I would not describe the capacity reductions we took as related to those two customer walkaways. So I think all-in-all, we feel we have a very good customer set. We have pretty good balance with capacity. And like any region of the world, like any business, you need growth and we look forward to growth in the future.

Great. Thank you.

You're welcome.

Thank you. Our next question comes from the line of Edlain Rodriguez of Mizuho. Your line is now open.

Thank you. Good morning, everyone. Tim, quick question for you on capital deployment and share buyback. So how do you balance the timing of any share buyback against an increasing share price? Or is the answer what I suspect you will say that the stock is still undervalued and you'll continue to be aggressive buyers as you go forward regardless of the share price?

Well, I would say that the share price is undervalued. But the market doesn't say that. And so I think we will continue to use the term opportunistically buyback shares. I don't think we're going to be overly aggressive at any one point in time in the year because we're trying to prove a point that we're undervalued. If I look at our operating statistics, I look at our growth, I look at the businesses we operate in the portfolio, the percentage of the businesses within the portfolio, yes, I think we're undervalued. It doesn't matter what I think, the market's spoken, so we're going to be opportunistic with share repurchases.

Okay. And as a follow-up to CapEx spending, you keep ticking it down. I mean, last quarter, it was no more than $500 million. This quarter is like no more than $450 million. Like is there anything that's being deferred like why are you able to ratchet it down like that just on a quarter-to-quarter basis or year-to-year, like what's going on there?

Well, we keep saying no and eventually they accept no. I know you're chuckling, but that's frankly -- that's you're always asking the teams to do more with less, and you're always trying to make sure they perfectly understand why they need to spend money and if there's no payback, why are we spending money? So it's really a question of refining the -- it's a constant refinement of a process where they need to prove why they needed to spend money. I don't think we're deferring anything. We've spent a lot of money over the last several years and now is the time to get a payback on it.

Yes, perfect. Thank you.

Thank you.

Thank you. Our next question comes from the line of Gabe Hajde of Wells Fargo Securities. Your line is now open.

Tim, Kevin, good morning.

Good morning, Gabe.

I want to try to revisit Anthony's question a little bit and just framework for thinking about volumes. You teased us a little bit with market growth of 2%, which I appreciate we don't know. But short-term....

Gabe, it could be zero, it could be 1%, it could be 3%. I just picked the number, right? It's just a....

No, I understand, but short-term, are there any, I guess, disruptions from weather in the Southeast for the U.S.? But more importantly, what is informing sort of how you're thinking about the business? I mean, we all know that you guys go through medium-term planning and when I walk through a convenience store, I'm seeing more options to pick-up a single serve can. And so whether it's innovation, whether it's channel in which cans are being sold, maybe dialogue with customers and what's informing your view for an expectation of low single-digit growth in maybe North America? And then in Europe, as we do lap some of these sporting events, et cetera, restock this year, thinking about next year, I think sustainability has been a pretty big driver for growth. Are there other things that we should be thinking about in our models, in our forecast for growth?

Okay. Let's -- I'll start with the hurricanes in the Southeast. We did have some storms in the Upper Midwest in August, which delayed some of the fresh pack, but we'll get that back in early October on the food side. The hurricanes in the Southeast, no discernible impact to our Beverage can business that I feel right now. We did have our -- we have an aerosol can plant in South Carolina that we shut down for a few days. So some sales loss there, but that will be made up. Nothing notable to discuss or to warn you about no impact to any of our facilities other than power loss for a few days. Certainly some of our corporate employees dealing with some real devastation to their homes and belongings, and we're helping them as best we can. Start with Europe first. I think that sustainability, as you rightly point out, is a big driver for the continued growth of the European can market, as well as whether it's from sustainability or just cost or convenience or better for the fillers, the continuing conversion from glass to can, specifically soft drinks, but also beer over time. And we'll benefit from that in Europe -- we believe, we're going to -- continue to benefit from that in Europe. So whether that's sustainability or not, or cost, there's continuing conversion. The one thing that I do think the upside in Europe -- that Europe hasn't had yet that we've seen to have had much more of in the United States is the proliferation of non-beer alcoholic beverages. So as the other alcoholic ready-to-drink or other alcoholic beverages in cans become more readily available and embraced by Europeans to replace beer over time -- potentially replace beer over time, that will favor the can. United States or North America, if you will, you're right to point out that if you go to a convenience store you see a variety of all kinds of products now being offered in cans. Some of that has to do with changing demographics meaning the younger generation is not as loyal to the brands they drink, their willingness to explore and experiment and try new products and just because they like product A today doesn't mean they're going to like it two weeks from now. So -- but all of that does bode well for the can because as you know, the can is the perfect billboard to market and advertise your product with a variety of colors and graphic feels and other things like that. So we do think there's continued opportunity there. I don't want to say that we're going to continue to see cannibalization of beer. At some point, beer will find its footing, but there has been a bit of a cannibalization in beer from these non-alcoholic drinks and -- so we'll see where that settles. But one thing I think we do believe that, that in the third quarter in North America, we do believe the alcohol segment grew faster than the non-alcohol segment. And some of that could be a bounce back of some of the mass beer declines we've experienced over the last seven or eight quarters, we'll see where that falls out. But I think specific to your question, Gabe, you look at new consumer behavior and the new consumers are the younger consumers and they generally consume more than older consumers and they are less loyal, more willing to try new things, and that generally will bode well for the cans. So -- but again, whether it's 1%, 2%, or 3%, we're -- the only reason I put that number out there was to tell you that if the market was up 2% next year, we'd be up 2% next year. We're not going to -- we're not -- as we sit here today, we don't believe we outperform or underperform the market. We're going to be in-line with the market.

Understood. I appreciate it. Two quick ones, hopefully. Maybe to re-ask the share repurchase question a little bit differently. I mean, you serve time as CFO. I suspect there is a framework behind your decisions to repurchase shares or at what value you think intrinsic is and you'll be more or less aggressive in and around that. Maybe confirming that for us and then thinking about other alternatives that you may have per capital. I mean, I see almost $1.8 billion sitting on the balance sheet and I appreciate we're talking about net debt versus gross debt and those types of targets, but just help us with that. And then really quickly, hopefully, any expectation for or early read for Tinplate pricing, it's been a little bit volatile. I know it tends to track normal steel prices, but just sometimes it impacts a little bit of volatility or impose a little bit of volatility or impose a little bit of volatility on your non-reportable segment.

Yes. So, on Tinplate had you asked me three months ago, I would have said it was going to be up 5% to 10%. A month ago, I would have told you, looks like it's going to be down. Now it looks like it's going to be up a couple of percent. I don't know and we won't know till January. A little bit of volatility in the Tinplate businesses. But as I said, in total, the non-reportables Gabe, now making up about 5% of our EBITDA. So I wouldn't -- that should not be any narrative that we need to discuss to really understand or describe the Crown story at this point. Sure, Kevin has got a lot of cash on the balance sheet. Two things I want to say. That's not all going to be used for share buybacks and it's not going to be used for acquisition. It's principally going to be used for debt reduction. We have a number of maturities coming due. And we generally earn as much interest or more than we pay. So we feel better about holding the cash, earning more interest than we're paying on the debt we have yet to pay down. But most of that cash is waiting to be applied to bonds that come due and/or some term loan that we'll pay-off in the future. And lastly, on share buybacks, yes, listen, I spent a lot of time in the finance sector of the company, your views of the world are always shaped by your past, and the one thing I would tell you is that one thing you do know is that when you pay down debt, it is certain and there's a there is a nice feeling behind certainty. So I would describe to you that there will be a healthy mix of debt paydown along with share buyback over the next couple of years on our journey to 2.5. As I said, we don't -- we don't feel the need to get there quickly. It was only two or three years ago when perhaps not you gay, but many of the analysts and others were not very concerned about companies that were levered 3.5 to 4.5 times in our space, just given the consistent large cash flows we do generate. And that's changed a little with the size of interest expense or interest rates right now, but we're pretty comfortable where we're at. We'd like to reduce the interest expense. So more of the operating leverage we have accretes to the bottom-line. We agree with that. But as I said, paying down debt is certain -- but there'll be a healthy mix.

Thank you, sir.

Thank you. That is all the time we have today for questions.

Thank you. Okay. I think you told me that was the last question. So thank you very much, Yale, and thank you everybody for joining us. That concludes the call today and we'll speak to you again in February. Bye now.

Again, that concludes today's conference. Thank you everyone for joining. You may now disconnect and have a great.