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Good morning. And welcome to Crown Holdings Second Quarter 2023 Conference Call. Your lines will be placed in a listen-only mode until the Q&A session of today’s call and please be advised that this call is being recorded. I would now like to turn the call over to your host, Mr. Kevin Clothier, Senior Vice President and Chief Financial Officer. Sir, you may begin.

Thank you, Jackie, and good morning, everyone. With me today -- 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 the actual results to vary is contained in the press release and in our SEC filings, including in our Form 10-K for 2022 and subsequent filings. Second quarter diluted earnings were $1.31 a share, compared to $2.43 in the prior year second quarter, which included $0.60 per share net from the sale of our Kiwi business. Adjusted earnings per share were $1.68 per share in the quarter, compared to $2.10 in 2022. Net sales in the quarter were down 11% from the prior year, reflecting higher sales unit volumes in Americas Beverage offset by the pass-through of approximately $300 million of lower raw material costs, lower unit volumes in most other businesses and $25 million from the impact of the stronger U.S. dollar. Segment income at $414 million in the quarter, compared to $432 million in the prior year and reflects the benefit from contractual recovery of prior year inflationary cost increases in European Beverage and cost reduction initiatives in Transit Packaging, offset by lower overall net volumes. Operating cash flow was $293 million for the six months of 2023, compared to $196 million in the prior year. The operating cash flow at this point of the year was the highest in the last 10 years and the approximate $100 million improvement in operating cash flow reflects our efforts to reduce elevated inventory levels from year-end. The results in the second quarter were as expected. We expect third quarter adjusted EPS to be in the range of $1.70 per share to $1.80 per share. We expect full year EBITDA to grow between 8% and 12%. We expect full year adjusted EPS to be in the range of $6.10 per share to $6.30 per share, with higher transactional foreign exchange expense and lower equity earnings being the difference from our previous guidance. Our full year adjusted earnings include the following, which is in line with our previous guidance. Net interest expense of $400 million in 2023, compared to $270 million in 2022, a $0.40 of incremental non-cash pension and postretirement costs, average common shares outstanding to be approximately $120 million and the full year tax rate to be between 24% and 25%. Depreciation of approximately $345 million, compared to $301 million in 2022, non-controlling interest expense to be approximately $135 million and dividends to non-controlling interest of approximately $120 million. Free cash flow is projected to be $500 million, with capital spending of $900 million. We expect the majority of our free cash flow to go to debt reduction until we get within our targeted leverage ratio range of 3 times to 3.5 times levered. With that, I will turn the call over to Tim.

Kevin, thank you, and good morning to everyone. Trends were similar to the first quarter, so our prepared remarks will be limited before we open the call to questions. As reflected in last night’s earnings release, and as Kevin just summarized, second quarter performance was in line with expectations. As beverage in the Americas and Europe and Transit Packaging continue to perform well, offsetting below-the-line foreign exchange losses and lower equity earnings. Kevin also briefly noted our efforts to reduce raw and finished beverage inventories from year-end levels. The initial results of which are evident on the cash flow statement. And as important, inventory carrying risk that we experienced in the second half of 2022 has been mitigated this year. In Americas Beverage, unit volume growth was 1.5% in the quarter, with North America up 2.5% and Latin America flat versus the prior year. After a weak April, promotional activity in North America accelerated in May and June, and we remain optimistic about the prospects for improved volumes in the back half of the year, and while still very early in the third quarter, volumes to-date in July are also strong versus the prior year. Based on customer commentary, we estimate that the North American market was down in the 3% to 5% range for both the second quarter and for the six-month period. Accordingly, we revised the volume growth assumption for the full year to approximately 7% given the market decline in the first half. Income performance was strong in the quarter with volume growth and the April 1st PPI increases almost fully offsetting Bowling Green insurance recoveries of $20 million in the 2022 second quarter and the impact of lower activity levels designed to bring down inventory levels. Construction on the Mesquite, Nevada facility is nearing completion with commercial startup scheduled for late August. Unit volumes in European Beverage declined 5% in the second quarter, with weakness in Greece, Italy and Spain, offsetting growth in France, Turkey and the U.K. More importantly, we have made significant progress in restoring investment justifying margins to this segment, which you will continue to see in second half performance. The construction of the Peterborough plant in the U.K. is nearing completion, with commercial shipments expected in August and October from Lines 1 and 2, respectively. Similar to the first quarter, beverage can volumes in Asia-Pacific declined double digits. We did see recovery in Cambodia, but Vietnam remains soft. The cumulative effects of inflation, combined with slowing economies are contributing to lower consumption across Southeast Asia. We do expect second half income performance to improve over the prior year albeit against easy comps and be weighted more towards the fourth quarter. Transit Packaging had another solid quarter with income up 20% over the prior year, with margins improving across all product lines as reductions to overheads and SKUs combined with price cost management have more than offset the impact of lower volumes. With 2023 income performance expected to be the highest ever, the business is well positioned to deliver even more as industrial activity improves in future years. In summary, performance in the second quarter was on plan, a solid first half with improvement expected in most businesses in the second half leading to significant year-over-year improvement in segment income and EBITDA in the third quarters and fourth quarters. Turning to the balance sheet. At the midpoint of the year, leverage is just under 4 times, with improved EBITDA expected in the second half, again, against easy year-over-year comps, we expect to close 2023 leverage well within our stated range of 3 times to 3.5 times. And just before we open the call, we ask that you limit yourselves to two questions so that as many of you as possible will have an opportunity. And with that, Jackie, we are now ready to take questions please.

Thank you. [Operator Instructions] Our first question is from George Staphos of Bank of America. Your line is open.

Yeah. Hi. Good morning. This is actually Kash in sitting in for George. We had conflicting calls this morning. So, firstly, I guess, why do you expect volumes to ultimately recover here, and I guess, what are your customers telling you right now? And relatedly, is there anything or an underlying trend that worries them or you about the longer term volume outlook from here?

Well, I mean, you are -- what region are you just asking the question about and then I will answer the question. I guess you are talking about North America.

Yeah. I guess North America would be helpful. Yeah.

Yeah. Well, I mean, you are saying when is volume going to recover. I think, for us we were up 2.5%. The market was down. Listen, I think, the April was exceptionally weak. We were down high single digits in April. We were up high single digits in May and June. We are up high single digits already in July. So I think the trend here, we have three solid months in a row. I think we are going to continue to see high single digits for the balance of the year. I think as we have described previously the market -- the customers have a new model right now. The model is they are going to drive value for their constituents with price over volume and it seems to be working for them. We don’t control how they manage their business, nor should we really tell them how to manage their business, but they are all doing quite well. And listen, we can’t complain, we are up and we are going to continue to be up even more in the back half of the year. I am not sure it’s a -- I am not sure being down 3% to 5% is the new normal in the business. I think that -- I think you are going to see a flatter overall market in the second half of the year, and as I said, will be up.

Got it. Thank you for that. And just, secondly, could you view just Europe, what your profit target is there for this year and for 2024. Are you guys still on track to get back to 2021 levels in Europe by the end of 2024?

Yeah. So as we said last year, I mean, as we said a few calls ago, we thought we would be 50% of the way back to 2024 this year. I think what we said on the last call is, we would be 75% of the way back this year. I think if you were to look at six months to-date here in June 2023, it’s probably very close to 2021 levels through six months even with currency a such weaker than where we were a couple of years ago. So we are well on our way back to 2021 levels this year. So I think the trend is in the performance to-date and we feel really good about the second half of the year. We are not coming off of that estimate. We are going to be well on our way back this year, at least 75% and really, as we sit here today, it’s pretty early, but we are pretty confident in getting all the way back, if not even more next year.

Great. Thanks.

Thank you.

Thank you. Our next question is from Christopher Parkinson of Mizuho. Your line is open.

Can we just dissect the second half in North America, specifically the U.S. volume growth outlook as well? Just in terms of what you are thinking about how your outlook changes with promotional activity in CSD, no promotional activity in CSD, as well as the momentum, which I believe you are benefiting from on the energy drink platform, as well as some pretty lucrative ready-to-drink ramps. So just any color on how the market should be thinking about your growth target would be very, very helpful? Thank you so much.

Yeah. So I think we are -- the first quarter was a little lighter than we expected. Although we didn’t have big numbers in the first quarter. April was a big disappointment as I mentioned. And as I have said, May and June really quite strong, and July -- we are only 20 days into it, but July also strong to-date. We are looking at the back half of the year, especially with new capacity coming up back half of the year, roughly 10% higher than the back half of last year, which if you recall, the back half of last year was also not very strong. So again, we have mentioned against easy comps a few times here and so that will be one reason. But I think the business well positioned and I think we are starting to see more promotional activity, specifically around carbonated soft drinks, the teas, energy drinks, some of the other, I don’t want to call them nutraceuticals but enhanced waters, obviously, growing rapidly, but on a much smaller base. The only way you get these volume numbers is through carbonated soft drinks, alcohol to a lesser extent for us, because we are not big in alcohol in the United States and then sparkling water. So we are starting to see those promotions, perhaps, a bit more limited than we would like to see, but they are making promotions at this point.

Got it. And just for my second question, shifting down hemispheres. Could you just talk a little bit more about the Brazilian market, I mean, presumably, there’s going to be some easier comps, but at the same time, it still seems like the market challenging and the other dynamics, customer dynamics, which you mentioned on your last call, glass recycling trends, so on and so forth. Can you just give us the kind of updated thought process on that market, how you see it evolving in the second half, and probably more importantly, your view of it in the intermediate to long-term as we head into 2024 and onwards? Thank you.

You are welcome. Listen, I think, we have said before, we and others view the Brazilian market very favorably over a medium- and long-term. We are not going to get overly excited about volume performance in a market in any one-month, three-month or six-month period. I think if you start looking at periods of time and whether you want to describe those periods of time of three years to five years, any three-year to five-year period, you lop off and compare, you are going to see significant growth in that market. Obviously, the market is much larger today than it was in the past. So perhaps the growth percentages are not as large, but the volume growth is still as large or larger and remain significant for a beverage can business. In the context of when you need to have capacity to deliver growth of 1 billion or 2 billion units to the market, how many lines it takes and how much equipment it takes. So I do think, again, the back half of the year, comps are a little easier in Brazil as we look at the back half of this year compared to last year. But I don’t think there’s anything we are seeing. I think Brazil was up a little bit in the second quarter. We were up tremendously in the first quarter, although the first quarter of 2022 again was very weak, but up tremendously in the first quarter, up a little bit about 0.0075% here in the second quarter and I think we are expecting a fairly strong performance in Q4 as they go into their carnival season. So I think the customer situation we described in Q1, the customer is in the bankruptcy process, the -- for one of a better term, the work -- their workout process. They are pulling cans, they are delivering cans, their volumes are fairly strong right now, they are paying for those cans in a relatively short period of time and I don’t think they have ceded any market share in the near-term. So we are very positive on Brazil right now.

Helpful color. Thank you.

Thank you.

Thank you. [Operator Instructions] Our next question is from Mike Leithead with Barclays. Your line is open.

Great. Thanks. Good morning, guys. First question on Transit Packaging, I think, this is one of the best earnings quarter since you have acquired the business and I assume demand isn’t that great, so I assume it’s mostly cost. So can you just give us some sort of thoughts around what you think this business’ earnings potential is now or just kind of how much operating leverage it should have to a volume or economic improvement?

That’s a good question. I -- listen, I think, if we look at volume in the second quarter, probably, down on the order of 12% or 13%. Now you got to understand that the business is very diverse. So some of the commodity lines might be down 15%. Tooling was flattish in the quarter and tooling -- you make more money in tooling than you make in the commodity lines. But -- and as I said in the first quarter, think about a third of that volume decline being us walking away from customers and/or SKUs, which we are not very pro. In fact, the business we walked away from had no impact on profitability. So we have simplified the business and done some other things around the cost structure by walking away from unprofitable lines. And as you rightly point out, profit growth in the quarter and year-to-date, and as expected for the balance of the year, largely around cost, but also around good price cost management on how we are recovering indexed hot-rolled steel and also paper. So the team doing a very good job. Now with respect to the future, what is the leverage of the business as industrial activity returns, we -- I am not going to sit here and make a prediction, but I do think the cost structure of the business and the way the new management team is managing the business gives us far greater confidence that we do have that leverage. And if we were to think about 5% or 10% volume growth with industrial activity returning, there’s no reason to believe that, that doesn’t all fall to the bottomline, but I am not prepared to step out and give you a huge number at this point, that’s just -- I don’t think that will be appropriate right now. But I -- but we agree with you, there is a lever in the business as you look forward.

Fair enough. And then second, Tim, just in the release, you talked about using increased cash flow next year to pay down some debt and return to shareholders. Could you maybe just give us a bit more of your updated thoughts on where you think leverage ends this year and just where you still want to get to into next year?

So I think we will -- as I said, we will be well within the range. If you want a much closer number, I’d say, we are -- depending on where the euro finishes the year, because we do have euro debt and that translates the debt a little bit. Think about we will end this year about 3.2 times, 3.25 times. I think that’s pretty -- we feel pretty safe in saying that as we sit here today. We have always described our range of 3 times to 3.5 times. I think we have said it in the last couple of calls, just given where the financing markets are and the cost of debt, we probably would feel more comfortable and we have heard from some of our larger shareholders who would also feel more comfortable if we were at the lower end of that range or even slightly below the lower end of our range before we begin to return cash -- excess cash to shareholders. Now having said that, next year, capital expenditures no doubt will be far lower than they are this year and free cash flow should be higher and so we should be able to achieve both of those. That is bringing the leverage down to 3 times or even slightly below 3 times and contemplating returning the excess to shareholders at that point. But as I said on the last call, just given where borrowing rates are today, the differential in value accretion to shareholders between paying down debt and buying back stock is far narrower today than it has been over the last several years.

Thanks, Tim. Thank you.

Thank you. Jackie, do we have any more questions? We lost the Operator, Tom. Give us a moment, we will see if we can find the Operator for you.

Hello.

Hello.

Our next question is from Michael Roxland from Truist Securities. Your line is open.

Thank you, Tim, Kevin, Tom, for taking my questions. Last call, you said you expected to see some type of recovery in Vietnam in 2Q and 3Q as well. I guess what’s been driving the persistent weakness there?

I think the economy has slowed tremendously there. I think if they had estimated GDP or GD -- let me say it this way, GDP over the last several years has been running between 7% and 10% and the rest of it this year was for 6% or 7% or they are probably now estimating GDP in Vietnam closer to 1% and a very stretched consumer. The introduction of some very strict drunk driving laws and so I think our customers are trying to understand how they are going to deal with some of the changing dynamics in that marketplace. It will come back. It’s just -- they have got some excess inventory that excess field inventory that they carried over from Chinese New Year that didn’t get fully absorbed in the February, March time frame and they are working through it. But again, it’s a big market. It’s a growing market, and as I have said, when we talk about Brazil, we don’t tend to get overly excited about investments we make in a market that we think has great future potential when there are volume disruptions in any three-month or six-month period.

Got it. And then just quickly, I think, in last call you also mentioned you are seeing some customers defer or trying to purchase of cans is closer to the summer and to better manage their working capital and to try to minimize their own interest costs. Has there been any improvement on that, that was referencing, obviously, I think, the U.K. Has there been any improvement in that?

So I think the reference there was Europe specifically or Europe, in general, the U.K. specifically, you are right. A little bit of improvement in the U.K., but I think, what I would say is that, we have been exceptionally focused on improving margins in that region and we are not chasing volume at lower margins and that’s probably how I should say it and leave it at that.

Got it. Thanks very much.

Thank you.

Thank you. Our next question is from Ghansham Panjabi of Baird. Your line is open.

Good morning, everyone. Thank you, Operator.

Hi, Ghansham.

Good morning, Tim. Could you perhaps going back to the promotional question in North America, just sort of frame the level of activity you are seeing now versus maybe last year and what’s typical, just given the warmer months, et cetera, relative to the history. I am just trying to get a sense as to how sensitive your earnings outlook for the back half of the year would be to the expectation that promotional activity would be higher, what’s the best way for us to think about that?

That’s a good question. Let me -- I will answer the last part of that question last because I am going to try to think while I am talking, which is always dangerous. As we have described before, and Ghansham, you know this very well, you have covered the industry for a very long time. Promotional activity in -- specifically in carbonated soft drinks for the last 20 years centered on the, let’s call it, the March to August, September timeframe and discounting ranging from 12 packs being offered at four for $10 or five for $10 to last year, they almost didn’t promote at all and they were charging $9 for a 12-pack and third quarter and fourth quarter last year, almost no promotions whatsoever. This year, the promotions we are seeing are buy one get one on some of the sparkling water brands. So think about sparkling water being offered at $6 a 12-pack, so you are getting two for $6, which is like a $3 12-pack, that’s not awful. On the carbonated soft drinks there’s still -- non-discounted pricing is still running about $8.79 to $9.29 a 12-pack depending on where you are and they are now offering buy two get one free. So that’s that comes out to what $6 a 12-pack. So certainly higher than what we have seen historically. How much volume will they drive with that? They are going to drive more volume with that and then if they don’t discount, but that may be their new model. Their new model might be that their input costs have been elevated and they are not prepared to sell product that at lower value and their hope is probably that the consumer is going to get used to this and the consumer will get used to paying $6 a 12-pack as opposed to $2.50 for 12-pack as they have in the past, and ultimately, volume will return at these higher price points and so we have to be prepared as well within our set to deal with that. I think that we have seen a lot more consumer activity over the last several months and we can see that from the amount of cans that our customers are taking. But, and so as I said, April was really weak, May was mid-single digits, June was high single digits, July, as I said, to-date high single digits and so we are seeing some activity, and we are seeing customers pull cans. To the point of how sensitive our earnings in the back half of the year is, if volume doesn’t materialize, if I had to put a band on it. Well, Kevin gave you the range for EBITDA, 8% to 12%. I think we are comfortably in that range right now with our forecast. I think if the volume did not materialize, we would be at the lower end of that range, that’s probably the easiest way to say that and that’s a pretty big number, maybe it’s too big of a number to come down, but still within the range.

Okay. Perfect. That’s helpful. And then if we switch to Europe, I mean, there’s a ton of indications that European consumer spending has weakened sequentially and so on this year in particular. What’s the backdrop in terms of what -- how your customers are responding to that dynamic and are they making any adjustments as they look out to the back half of the year? I assume tourism is positive in Europe this summer, but it looks like the core consumer there is very, very weak?

Yeah. I think there’s no doubt Europe is in a recession. You look at some of the purchasing manager indexes for the various countries and they are well below 50. They are in the 42 to 44 range, which are exceptionally low and these are some of the bigger economies there. And as you rightly point out, the core consumer, whether it’s the U.K., France, exceptionally weak, I don’t want to call them poor, but they are stretched just to make ends meet basic food supplies energy. Now having said that, our -- the can is still a relatively economical way to deliver beverages or food or any other product and the business is holding up well. I am going to assume that the -- we are down 5% in the quarter, I am going to assume the market is not down as much as we are. We operate on the periphery of Europe that is we described to you before, U.K., Spain, Italy, Greece, Turkey, a couple of plants in the middle, but we are not so big in the middle up through Germany and the Scandinavian countries. I would imagine that the market will do better than we did, and as I said earlier, we are not chasing volume right now. We are really focused on improving margins. So while the consumer is weak, and again, our customers are adjusting their buying patterns to deal with a weaker consumer. I don’t think the market is as weak as you might think it is for beverage cans. I just think our strategy might be a little different than others right now and we are focused on improving margins.

Yeah. Thank you.

Thank you.

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

Great. Thanks for taking my questions. So I guess just back to the volume question, I guess, in North America. So if I heard you correctly, I think, you said, maybe you are up 2% to 3% in the quarter and this year you are still seeing an overall down market mainly driven by maybe some weakness on the alcohol side and some improvements on the CSD and water side. So as you look into next year, would you characterize the market so poised to get back to this -- maybe a 2% to 4% growth rate. I know that you can’t really tell the beverage companies what to do, but how do we kind of get back to that level of growth?

So I think the -- again a really good question. I think the back half of this year, we probably have a -- especially in the fourth quarter an easier comp this year than we had last year. So I think if we were down, and remember, these are my estimates. We don’t have published data when I estimated the quarter in six months down 3% to 5%. I am really looking at what our customers have said publicly. I think there’s only one larger CSD company that’s reported so far and they were in the 4% to 4.5% decline range and I am just going from other anecdotal comments or information that’s out there, but I do feel kind of confident in that range of decline. I think we will see that range of decline narrowed in the back half of the year and perhaps be flat or even slightly up just because the Q4 numbers last year were not very good. If we were -- I think last quarter, Arun, we probably tried to guide you from 2% to 4% down to 1% to 3% in the future. And it doesn’t have to be -- listen, for a beverage can company to be successful, it doesn’t have to be 3%, we can be exceptionally successful managing our business with 1%, 2% growth, especially of the much larger base that we have as an industry today than we have had in the past. And you have got a couple of things you always look at share of stomach and then when we think about share of stomach, how much of that share of stomach growth is going to come from substrate change from other substrates to the cans. I think we all agree -- we all believe and perhaps some of you agree that the can is well positioned environmentally from a substrate point of view. The question is how long before the consumer feels more confident step back out there and spend a little bit more money on something that’s a nice treat, a quite refreshing treat and that -- some of that has to do with consumer confidence, some of that has to do with our customer’s pricing, but the customers clearly have a model now that’s very successful for them. But as I said, we don’t have to be a 3% to 4% growth to be successful. We can be exceptionally successful at 1%. There are some market share shifts happening right now, perhaps, we are not -- we are participating in a little bit of that, not as much as others. But I think, responsibly, we are going to have a pretty good year this year and we are going to have a very good year next year. I don’t know how else to say it right now. It’s a little early to talk about next year, but as we sit here today, we feel pretty good about the next 18 months.

Okay. Thanks for that. And yeah, no, I would agree that there is definitely a robust outcome even at a low single-digit growth rate. So I guess on that note, right now you are guiding 8% to 12% EBITDA growth for 2023. Is that really the target that you think is possible, I mean, given that you are able to achieve that with maybe even more muted volume growth than you thought. I know some of it is coming from restructuring at Transit and some other drivers’ recovery in Europe. But should we expect kind of 8% to 12% EBITDA growth rate as your internal targets and what you are trying to achieve on an annual basis, because right now, the consensus for next year is up maybe 5% or 6%, which may be a little conservative. So I just want to get your thoughts on that?

Yeah. Well, listen, we if you were sitting in Kevin Clothier’s office and if you looked at all the papers here looking at, you would see a number for EBITDA growth this year that’s comfortably within the 8% to 12% range. Our -- the high end of our initial range was predicated on 10% growth in North American Beverage, which revolved around a flat market, we have now revolved -- revised that to 7%. But I would say that and we have said it already, both Transit and European beverage are ahead of where we thought they would be through six months, pretty confident that they are going to remain ahead of initial plan for the full year, so that will offset that and we remain comfortably within that 8% to 12% range. Again, I think it’s a little early to talk about next year. I don’t know if I really want to say that -- I don’t really want to comment on whether the number is 5% or 6% or 8% to 12% next year. It’s a little early. But there are some things we are doing really well across most of the businesses and let’s just briefly talk about them and there’s always things that can go the other way. But we have reset the cost profile in Transit Packaging. We have reset the way we sell product in Transit Packaging and that business is exceptionally well positioned from a much lower cost base and a better manufacturing mindset to deal with lower volumes as we are doing this year and really benefit from a return to better industrial activity in the future. That’s number one. Number two, as we have said, we have reestablished more appropriate margins that justify investment in our European beverage can business and we are well on our way to getting back to the target that we have established. So those two businesses, they are doing quite well. And I think within the Americas Beverage business, whether it’s the United States, whether it’s Mexico, whether it’s Brazil, some of the businesses may move around. But in total, these businesses are well positioned to continue to do well from a cost base and a manufacturing footprint that we believe is well positioned to deliver value to us as we service customers. Asia is a little choppy now. I think we are still confident in the long-term view that Southeast Asia is going to be a growing market. So I think I don’t -- there’s always things that can go wrong. We don’t know where currency is going to take us. We don’t know if the economy we are feeling right now is a bubble up and eventually will pop. We don’t know that. But I don’t really want to get into next year. I can tell you that we have made a lot of changes to our industrial infrastructure and our cost profile, which will allow us to weather storms and really benefit as markets settle down and the consumers return to buying more product.

Okay.

Thank you. Our next question is Phil Ng of Jefferies. Your line is open.

Phil? All right, Jackie. We seem to have lost Phil for a moment. Do you have another question?

All right. thank you. Let me see. It looks like he also queued up. Let me just go ahead and try this other line. Hello, Phil. Can you hear us?

Yes. I can hear you. Can you hear me?

Yeah. We can hear you, Phil. Go ahead, sorry.

Hey, Tim. Sorry about that. I missed parts of the call. You talked -- can you give us a little more color on Europe, how the startups one of your capacity coming along, do you expect some contribution in the back half. The reason why I asked because your comment earlier, down a little more customers certainly in the macro backdrop. So I just want to get a little more flavor in terms of how you are thinking about the back half and with some of that capacity coming on?

Yeah. I think in response to Ghansham’s question, we talked about volumes in Europe in a fairly weak core consumer. Tourism is up this year in Europe and potentially that’s offsetting a weaker core consumer. But as I said, we have been exceptionally focused on driving margin recovery as opposed to chasing every last can and we will continue with that strategy. We need to earn appropriate margins before we consider investing further in a market like that. Now having said, we are going to -- well, the first thing I’d say is the back half of last year, the comps are ridiculously easy. Having said that, we are going to trace the back half of last year. So Q3, Q4 this year are going to be multiples of Q3, Q4 last year. So some of that will come from better price cost management. Some of that comes from additional sales out of Italy and Spain as the new capacity comes up and then we will work our way through the startup costs in Peterborough as we wind down Brownstone and move it into Peterborough. So, but the back half of this year in Europe is going to look nothing like last year. It’s going to be multiples better than where we were last year.

Okay. So you feel pretty good about the capacity coming on at a timely backdrop, just given some of the macro challenges in Europe?

Well, listen, Phil, when you make investments, you know you are making an investment for the long-term. If you told me I was going to spend a couple of hundred million dollars to build a beverage can plant and I was really worried about the next three months or six months, you would never do it. These are 50-year investments and we believe in the product. We believe in the sustainability of the product. We ultimately believe in those countries and those regions we are investing in, and really importantly, we believe in our customers to market their products to consumers and our consumers to want those products and that’s how you make the investment. And as I said, I have said a number of times, we are not going to get overly concerned in any three-month or six-month period. These are long-term investments. I think we manage our cost profile exceptionally well that we can overcome short-term disruptions, but I am not going to comment on what I think the consumer is going to do over three months or six months, but I will tell you, we are -- we feel good about the investments we have made and the future of the business.

Got you. Makes sense, Tim. And then from an Asia perspective, you kind of pointed out how the background has been choppy. The earnings profile has been pretty steady here. Can you give us a little perspective on how you are thinking about the back half and how that progression will look, it sounds like you are expecting some sort of a pickup in the fourth quarter?

Yeah. The only thing I’d correct you, you said the earnings profile has been steady. It has not been steady in Asia. We are down significantly, not only in Q2 but year-to-date.

But I am just talking about sequentially, right, we brought down [ph] --for the last few quarters, it’s been relatively steady from these drop levels under the…

I think. I think…

…from here, do we think...

Q3 will be similar to last year’s Q3 and Q4 should be better than last year’s Q4. But for the full year, we are going to be down such, we will be down in Asia just -- only because Q2 came in much weaker than we thought it would. And again, the back half of this year has easier comps in the back half of last year, but as I said, Q3, similar to last year, Q4 better than last year.

Okay. All right. Thanks a lot. Appreciate the color.

Thank you.

Thank you. Our next question is from Anthony Pettinari of Citi. Your line is open.

Good morning. This is actually Bryan Burgmeier sitting in for Anthony. Thanks for taking the question. You are talking about outperforming U.S. can industry by like 10% on volume growth. I think the first half has been a little bit below the 10% mark, which is maybe a little surprising given the weakness of U.S. beer. Do you think once Mesquite is online, that outperformance can expand in the second half and then also was the Mesquite startup delays a little bit? Thanks.

So Mesquite has been delayed. We had -- we would initially hoped that we would be up already now. We had some electrical component panels, et cetera, delays from suppliers and -- but we are targeting late August startup as we get components that we need it’s been a little disappointing. Most of the supply chain for these things are starting to ease, but there still are some issues out there. I think the growth we see in the back half of the year, some of it around the startup in Mesquite, some of it around the acceleration of Martinsville through its learning curve, but largely around the promotional activity that our customers -- that we see our customers having begun to make in May, June and here in July and we expect to carry through the end of the third quarter as it relates the business that we have under contract and the capacity that we available to service that.

Got it. Thanks for the detail. Last question for me, we don’t talk about non-reportable too much, but was a bit weaker than we expected in the quarter. Can you maybe remind us why non-reportable is kind of unwinding so much this year and do you think maybe on an EBIT basis, do we start to get back to the 2021 levels? Thanks. I will turn it over.

Well, the big difference and you saw it in Q1 was the inventory carrying gains that we took from 2021 into 2022 at much higher tinplate prices. That doesn’t recur this year. The other thing that’s happening and we have been pretty open about it, two things. One, aerosol can volumes for the entire North American market and I am assuming for Europe, although we are not in Europe any longer. But aerosol cans exceptionally weak double digits. And when I say double digits, I mean, well over 10% volume decline across most aerosol can products year-on-year, which is a preview of the economy. If you -- we historically look back, we always say that as we follow our aerosol can volumes, we can predict what the economy is going to look like over the next six months or eight months. So, but aerosol has been weak now for six months or eight months. And then secondly, we noted to you at the end of the first quarter, we took a headcount reduction in our global Beverage Can Making Equipment business. And that business is now slower than it has been in the last several years as companies digest and startup much of the new capacity they brought up and so that business is -- the Equipment Supply business is lower than it has been in the past. But I think -- I don’t have 2021 in front of me. I am not sure how far below 2021, we are in the business year-to-date. I do think that as we look to the back half of this year, in total will look very similar to the back half of last year in that business.

Got it. Thanks for all the detail.

You are welcome, Bryan.

Thank you. Our next question is from Kyle White of Deutsche Bank. Your line is open.

Hi. Good morning. Thanks for taking the question. In the U.S., now that you have Martinsville ramping up in Mesquite about to start, are you happy with your current footprint in the U.S., is there room for improvement here to drive operating rates higher or I think in a good spot, just given the current demand backdrop?

Listen, I think, we -- I got to be careful, I say this, I don’t -- it’s not my position to talk about what others do. I think we were always -- I don’t know how do I say this? We probably didn’t announce as much capacity as all of you wanted us to two years or three years ago. I would say that, we were very measured in the company and the expansion that we announced and that we affected and we are happy with our footprint, given a more measured approach to capacity over the last couple of years as opposed to the market in total. I would say that where we sit today with our infrastructure in North America and where we see gains -- market share gains transpiring over the next 18 months throughout the industry that we are satisfied with our footprint geographically and size wise. So remember, we are not just all making 12-ounce cans anymore. We all have a variety of sizes and different geographies, and I would say that, we are quite satisfied with our platform.

Got it. That makes sense. And then on Transit, I think, you said volumes in the quarter were down 12% to 13%, which is relatively expected given the global backdrop. Just curious how that progressed throughout the quarter, are you seeing any deceleration in demand as you go into the second half? I know you will start lapping some easier comps, but just curious how things are progressing going into the back half?

Yeah. So I would have -- I know exactly where your question is, because I agree with you. I would have expected volumes to decline through the quarter in the second quarter and they didn’t. I think our team in Transit is really cautious going into the back half of the year on volume. I think, however, they are going to do better than that. The back half of the year, comps are a little easy, they are not as easy as some of the other businesses. But the business is holding up better. Then your question implies your business -- the business is holding up better than our fears and it’s probably holding up a little better right now through July than even the Transit team had put forward only because I -- Kevin and I think they have been cautious. Now they have probably been cautious rightly so because we don’t really know what’s going to happen. But the business is holding up better. I -- we have talked about it before. The business is really different than the business was 10 years or 15 years ago. It’s just a -- it’s a much more diverse business, much more end markets that they serve, not so dependent upon is the metals inventory. So some of the markets -- as we have said before, some of the markets that we serve are certainly cyclical, but the business has been very stable, just given the diversity of its end market supply and customer supply. So I understand the point, we understand the point, we as well keep waiting for even a bigger slowdown, but it seems to be holding up very well.

Got it. Thank you. I will turn it over.

Thank you.

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

Tim, Kevin, Tom, good morning.

Good morning, Gabe.

Good morning, Gabe.

Tim, there was a presentation out on the investor part of your website detailing out quite a bit of the cash flow characteristics of the Transit business and maybe even, I think, the North American food can business and talking about some of the dynamics in there. I am just curious, I know it’s tough in this forum to maybe go into a lot of detail, but just maybe the intent of that presentation or what you are trying to let investors understand with that presentation. And then the cash flow characteristics of Transit specifically, is there anything unique about it in terms of, I guess, repatriating that cash or where it generates a lot of its cash flow relative to the rest of your business?

Second part of the question really easy. Almost no complications whatsoever in repatriating cash in Transit, certainly far less than in other businesses. We don’t have any significant -- we might have one -- I don’t think we have any minority interest positions in Transit. So all the cash is ours and much of the business is in -- greater than 50% of the business is in the United States and almost all of the businesses in countries where we don’t have any restrictions whatsoever. I think that it’s probably been a while since we had a fulsome investor presentation. So we just thought it would be helpful if we put one together posted on the website, whether it’s used in conferences or it’s available to investors to [inaudible]. So be it the point about reminding ourselves and everybody else is to the cash flow characteristics of certain businesses, you need cash to run a business and I know everybody got really excited about, don’t worry about cash flow, we are a growth company over the last several years and whenever I hear an investor say, don’t worry about cash flow, it makes me wonder which pension plan is investing their money with that guy because that’s a bad thing. Cash flow is always important. And so whether it’s food and aerosol cans or Transit Packaging, these businesses have well-established industrial footprints, which require very little capital to maintain and run and generate the cash that they generate. Food and aerosol from time to time, especially food, as the business has grown more from human food consumption to pet food, we have made some investments for pet food and we are a very large supplier to the North American pet food market and we do quite well there and that’s where the investment has been focused on food can. On Transit, we are talking about 1.5% of sales in annual capital to maintain or marginally grow the business, and as we said, when we acquired the business several years ago, the capital needs are not very great in that business that any growth in that business would come from bolt-on acquisitions. So -- and so it’s not a capital-intensive business. I think if you somewhere in the annual report, we probably show long-lived assets for that business. The long-lived assets as a percentage of revenue is very low. It’s a business that’s more of a service business than our other businesses, but it’s still manufacturing in part. So listen, cash flow is important. We just -- we think it’s important that everybody understand where we generate the cash.

Understood. Right. I think it’s a good business.

And so -- just…

Second part… T The only thing I’d say, Gabe, is that, we have been growing the beverage can business over the last several years. So the cash flow in that business has been depressed. But obviously, expecting a significant step down in capital over the next couple of years in that business. So that business is going to return to generating a lot of cash as well.

Okay. Second one, two-part, I apologize. One of the things that I am sort of scratching my head on a little bit and we saw this play out, obviously, over the past, I don’t pick a number 24 months in terms of where inventories were at. But from your perspective, is there anything that you can tell us as it relates to your customer’s inventory or maybe finished stock inventory. The reason why I am asking is, because, obviously, there’s I don’t want to say a disconnect, but a timing difference between sell-in and sell-through for the beverage can business, specifically talking about North America. So we are looking at Nielsen data and I appreciate again on the beer side, it’s not as big for Crown. But it seems like I said, there’s this growing CASM in there, and again, I know there are some share shifts. So anything that you can tell us in terms of where you think inventories might be for the system? And then the second part is, obviously, with some of the noise going around with North American beer customer, Mexico has been the beneficiary, can you talk about your ability to participate in that, I think, Modelo has been called out as a pretty big winner, but just anything around Mexican beer.

So, I would say, specific to both North America and Europe, I don’t believe our customers have any excess inventory in hand. In North America, they almost carry no inventory. We deliver just in time. They -- the cans roll in on 15-minute intervals. They go into the can washer. They fill them and then they ship them out. The customers don’t carry a lot of inventory. We have seen customer inventory in Southeast Asia, post-Chinese New Year and even in Brazil, a little bit post Carnival being a little higher than we have typically seen and that might have led to lower demand from our customers as they work down their inventories in those regions. But as it relates to North America, there’s no inventory issue at our customer level. On the beer situation, we do have a very big or a very large Mexican beer can business. We service a wide variety of customers, including beer, I would suggest that the beer customer that you are describing that ships into the United States is not one of our larger customers, it is a larger customer for somebody else.

Got it. Thank you. Good luck.

Thank you.

Thank you, speakers. At this time, we don’t have any questions on queue.

Okay. Then, Jackie, thank you very much. I guess that concludes the call today. Thank all of you for joining us and we look forward to speaking with you again in October. Bye now.