John Conway - Chairman and CEO Tim Donahue - President and COO Tom Kelly - Senior Vice President and CFO.

Taylor Langton - JP Morgan Chip Dillon - Vertical Research Partners Adam Josephson - KeyBanc Philip Ng - Jefferies Alex Ovshey - Goldman Sachs Ghansham Panjabi - Baird George Staphos - Bank of America Merrill Lynch Debbie Jones - Deutsche Bank Scott Gaffner - Barclays Chris Manuel - Wells Fargo Anthony Pettinari - Citi Al Kabili - Macquarie Research Mark Wilde - Bank of Montreal Tim Burns - Cranial Capital.

Good morning, and welcome to Crown Holdings Second Quarter 2014 Earnings Conference Call. (Operator Instructions). Please be advised that this conference is being recorded. I would now like to turn the call over to Mr. John Conway, Chairman of the Board and Chief Executive Officer. Sir, you may begin..

Thank you, Shirley and good morning to everyone. With me on the call are Tim Donahue, President and Chief Operating Officer; and Tom Kelly, Senior Vice President and Chief Financial Officer.

I will make some brief introductory comments regarding the company's performance in the first quarter and then turn it over to Tom Kelly who will take you through the numbers and give you some additional detail; Tim Donahue, who will review carefully the performance of the various businesses and discuss our views about how the business is developing for the year.

Let me remind you that on this call, as in the earnings release, we will be making a number of forward-looking statements. Actual results could vary materially from such statements. Additional information concerning factors that could cause actual results to vary is contained in the press release and in our SEC filings.

Including comments in the section titled Management's Discussion and Analysis the Financial Condition and Results of Operations in Form 10-K for 2013 and in subsequent filings. Company had another solid quarter and demand for our products around the world was quite strong. In our beverage can segments global beverage unit sales were up 3%.

Sales of food cans globally increased 17%. Finally our metal vacuum closure business had a particularly good quarter and unit volume sales increased 8%. During the quarter we completed and began commercial production at another beverage can plant. This one is in Teresina, Brazil which is in North Central Brazil and is our fifth factory in that country.

The plant is a can body plant capable of making multiple can sizes and extends our Brazil geographic coverage. Start up is going smoothly and demand in Brazil clearly supports our continued expansion of capacity there.

Within the context of global growth and unit volume sales increases it is noteworthy to mention certain markets that did particularly well. In beverage, Brazil and Columbia were strongly in the quarter and Tim will talk about this more in a moment likewise Asian demand was very strong and our sales were up sharply for the quarter.

Finally in Europe, Crown’s beverage can sales increased as the demand but our Middle East beverage can business although it did well in the quarter weakened in June.

We’re concerned about Middle East demand for the balance of the year to those as you know there are three conflicts ongoing now in the region and they’re adversely affecting all economic activity including Crown sales of beverage cans. Food sales globally were very solid.

As I mentioned the integration of the food can company Mivisa which closed on April 23 has gone very well. This new addition to our European food can platform has proven to be as excellent in all respects as we had projected. So in sum we had a strong quarter and we feel very good about what we have achieved year-to-date.

Nonetheless, there are clearly concerns is look out over the balance of the year. With that I'll turn it over to Tom..

Thank you, John and good morning. Diluted earnings per share for the second quarter were $0.76 versus $0.93 in 2013. Diluted earnings per share on a comparable basis were $1.01 compared to $0.96 in 2013.

Net sales for the second quarter were up 7% due to increased global beverage can volumes and contributions from Mivisa since the close of the acquisition in April. Segment income for the quarter of $285 million includes the Mivisa operations on a normalized basis before the purchase accounting charge related to the sale of acquired inventory.

Segment income of $485 million on a year-to-date basis includes $6 million of negative year-on-year impact from increased aluminum premiums in Europe.

Assuming that aluminum premiums remain at their current levels for the rest of the year, we currently estimate the 2014 full year impact of the higher premiums to be approximately $20 million compared to 2013.

Using that same premium assumption, we currently project third quarter comparable diluted earnings per share of between $1.15 and $1.25 per share. We currently estimate our full year comparable diluted earnings per share to be between $3.20 and $3.35. These projections assume no share repurchases and an effective tax rate of 26%.

We expect full year free cash flow of approximately $500 million with capital expenditures of approximately $320 million. Tim will now take you through the operations..

Thanks Tom and good morning to everyone. As both John and Tom discussed, we have had a solid first half. Demand for global beverage can units increased 3% in the second quarter and were up 4% in the six months through June 30th. Global food can unit demand was up 17% in the quarter, reflecting the Mivisa acquisition.

Excluding the impact of the acquisition and required divestitures, global food units were up 3.5%. In Americas Beverage, volumes are flat in the quarter as strong double-digit volume growth in Brazil and Colombia was offset by a 3% decline in North America.

Segment profits were impacted by lower North American production levels in the quarter, increasing unit production cost across the system. As John discussed, we commenced commercial shipments from our new plant in Teresina in the north central of Brazil during the quarter.

For the first six months, the Brazilian can market recorded 19% unit volume growth due in part to strong World Cup sales activity. With the can now holding 45% of the package mix for beer and special cans making up about 35% of total overall can requirements, the outlook remains very positive for beverage cans in Brazil.

Anticipating your questions, demand did soften in June compared to the prior year but July will be up against last year and we expect the upcoming summer selling season to be strong.

Unit volume sales were flat across our European beverage segment as strong performances in the UK and Turkey were offset by the impact on our Middle Eastern businesses from the ongoing conflicts in the region. The beverage team continues to perform well as increases in efficiency and productivity drive results.

European food volumes increased 21%, not only from the 68 days of Mivisa sales included in the quarter, but also from strong shipments from our factories in France and Germany. With out the Mivisa acquisition and required divestitures, our unit sales were up about 1.5% in the quarter.

However, just a bit of caution, as this is not a perfect comparison as we have already begun the integration of our production requirements across the plans. And this comparison will become increasingly meaningless going forward.

More importantly, our new combined food business is strong, low cost and well positioned to deliver high quality products and service to customers and growth in revenues and income to the company.

While it's still early in the third quarter, we're hopeful for a relatively strong harvest this year with tomatoes, beans, corns and peas all looking very good. Sales unit volumes in Asia-Pacific beverage cans were up double-digits with particularly strong performances in Cambodia, Malaysia, Thailand and Vietnam.

Non-reportables, that's aerosol cans, specialty packaging and tooling and equipment were down in the quarter, mainly due to the timing of equipment shipments which should be recaptured in the back half of the year and unfavorable mix in aerosols. And with that, I'm going to turn it back over to John..

Thanks Tim. Shirley I think we’re ready for questions..

Thank you. At this time, we’re ready to begin the question and answer session. (Operator Instructions). Our first question comes from Taylor Langton with JP Morgan. You may ask your question..

Yeah, good morning. Thanks.

Can you provide just like some color in terms of what Mivisa contributed in the quarter and then do you have any updates in terms of the depreciation you expect from it going forward?.

Yeah Taylor, Mivisa contributed about $0.05 in the quarter that's after interest and tax. Our full year depreciation with Mivisa should be at about $195 million..

Got and then just with I think you said with Brazil having strengthening and weakening but do you have a sense and I guess that's in the second half what volumes could look like in the country?.

I think the first half of about 19% and I think the back half of the year we're thinking mid single to high single digits for the market..

Got it, okay. All right thanks a lot..

You're welcome..

Thank you. Your next question comes from Chip Dillon with Vertical Research Partners. You may ask your question..

Hi, yes, good morning.

May be I was just a little bit hot on my estimate but it looks like the interest expense is coming in lower than we thought, should that sort of where should that be when we factor in a full quarter of Mivisa going forward should that be around 70 million a quarter would that be a good place to start?.

Chip, the Mivisa interest is coming through at about 2% it's all floating rate that so you are probably a little bit high there. For the year I would we're going to come in I think mid 250s..

Got, mid 250s.

And when you look at the CapEx for the company I believe this might be a little I don't know if you were guiding this high, 320 maybe that was in your range but could you talk a little bit about some of the projects I know may be last year you were thinking of another can plant and may be you are actually working on, or you cant tell us or may be these are other items.

But could you talk a little bit about that and where you think CapEx goes directionally in 2015 given that it's less than six months away?.

I think just dealing with 2014 to start obviously we're trying to see a began production this year with much of the capital being spent this year in addition to last year.

There are several projects that we have ongoing in Europe right now to put sleek can capability especially can capability into a number of factories and obviously there is always ongoing efficiency and productivity improvement programs and then there are other projects obviously that we’re studying that we are not yet ready to discuss.

As we look ahead to next year, I think given the size of the organization $9 billion to $9.5 billion in revenues it’s not unlikely that a number like of at least $300 million, roughly 3% of sales is not an unreasonable number that we expect in capital..

Got you. And one quick follow-up on the food can side, you certainly seem encouraged with how that market is faring this year domestically.

And last year there was concern about some shift and I guess a competitor that had grown mostly another company expense a little bit of yours how -- what's -- could you just update us on your kind of contract situation there and do you expect that to remain in terms of your volume is pretty stable or at least or your share to stay pretty stable in the next year or two?.

So I think in North American food, I think that’s the reference, generally speaking we think our volumes are quite stable and they’re stable as a consequence of lot of good work by the commercial team responsible for the food business.

As you know, I think you’re making reference to a particular customer and that customer’s volume we will not have it next year at least not a lot of it. But fortunately we were relative small proportion of the customer, but that will adversely affect us next year from a volume perspective..

And no further major contracts coming up in the next year or so?.

No, no. I think as we said on some of the previous calls, we did a lot of good work we think to secure volume for the next number of years..

Thank you..

Thank you. Our next question comes from Adam Josephson with KeyBanc. You may ask your question..

Thanks, good morning everyone.

One on Mivisa, what actions are you taking with the business now that you own it? And are your cost savings expectations any different than they were when you announced the deal?.

Well, first of all, we generally and organizationally have decided that the Mivisa management team, which we feel is excellent, we'll have responsibility now going forward for our food business in Iberia, Africa and all of our export business, which is quite substantial. (Inaudible) principally full pull-out ends for food.

And so in effect we'll have four operating units, business units in Europe Beverage aerosol spec pack and two food units. So that's going great. The plans have been reallocated, responsibilities and people have been reassigned in extent that we need it to, and that's going very, very smoothly.

Beyond that, obviously we're taking look at our factories across Europe food can plans and determining which are better situated in terms of the specs they produce and where they are located vis-à-vis the customers and we have begun doing some reallocation of business among them all.

So I'd say the whole process is going very well, we were very pleased with the performance of Mivisa for the two months and few days that we owned it, we've owned it so far or at least through the end of June and the whole process I think is just going as well as we could possibly have hoped..

Thanks John. Just one more in the European food can market.

Did you expect competitive dynamics to change in light of your recent consolidation of the industry?.

Well that remains to be seen. But obviously, we felt we need to be a lot stronger in Iberia than we were, we felt that we needed to lower overall cost dramatically and we have, perhaps those things are going to contribute to greater stability in the future, but time will tell..

Thanks a lot John, I appreciate it. .

You are welcome..

Thank you. Our next question comes from Phil Ng with Jefferies. You may ask your question..

Hey good morning, guys.

Obviously strong start to this first half guidance, you guys come up to lower end but generally speaking it still seems pretty conservative, is that mostly driven by your concerns around the Middle East, higher metal premium just wanted some color around that front?.

Yes, I think and Tom and Tim can pinch in on this as well. I think we mentioned the three factors that we are watching closely, the Middle East situation and that concerns us. Our businesses there have been remarkably resilient through a lot of upsets, but we seem to have its more pronounced today these conflicts than they have been in the past.

So that’s a concern Tom mentioned the premiums and that’s a concern and then Tim of course I think alluded to the fact that or said that we are being very cautious about production in beverage in North America.

We don’t want to carry excess working capital, we are not going to run units into the warehouse to make earnings and so we are being somewhat cautious there. So I think those would be the three things but I don’t know Tim and Tom might want to supplement that..

No, I think John has touched on the three major issues of concerns as it relates to the outlook..

And on the premiums Phil, again that was assuming the numbers stay where they are today the premium number. If it goes up obviously, that’s worse for us and if it goes down we can do better..

Got you, can you kind of handicap what you are thinking about for Middle East in the back half in terms of volumes? Can you remind us how much of it represents for Europe, I think it's little over a third, I just want to make sure that's the case?.

Yes, it's about 35% of division unit sales, plus or minus. Yeah, I don't have, to give you an estimate for the back half of the year..

I think it'd be fair to say no better than flat..

Yes. Okay..

And honestly we're going week by week, month by month..

Okay, that's helpful. And I guess as longer term when you think about Europe food, then you guys have done a good job taking capacity out and I think one of your competitors is looking to take some of supply out as well. Where are we stacking up from an operating standpoint and demand seems to have turned up a bit here.

I just wanted to get through thoughts on pricing heading in 2015?.

Well, I think utilization for everybody is going to be going up, I mean it's pretty complex question as you know. You had two piece cans, D&A, DRD three piece, that's a little harder. But I mean generally speaking capacity utilization is improving, I think across the board and that should be positive..

Okay. Alright, thanks guys. Good luck in the quarter..

Thank you..

You're welcome..

Thank you. The next question comes from Alex Ovshey with Goldman Sachs. You may ask your question..

Thank you. Good morning guys..

Good morning..

Good morning..

Were there any cost saving synergies that you guys were able to achieve from Mivisa as you have owned it for a little over two months? And what's the expectation for cost saving synergies through the back half of the year?.

Well, I think we're certainly well underway in terms of the integration moving production from Mivisa plants to Crown plants or Crown plants as to Mivisa plants, where it is appropriate across customer locations and specifications, a little early to quantify that only having the business for two months.

And I think we've given you previous synergy estimates of roughly $35 million, I think. And at this point we'll stay with that on a full year basis and we'll update in the future as we get into with a little bit heavier….

Got you, Tim.

So on that $35 million that what you guys are thinking about is most of that come in ‘15 or do you expect to see some of that in back half?.

Yes. We'll get more -- we’ll get most of it in ‘15 but the balance we’ll achieve in ‘16..

Got it. And then in North America Bev, I think your volumes have been running down 2% to 3% over the last year or so and you talked about scaling back production.

Is there an opportunity perhaps to rationalize the footprint in North America Bev and potentially be able to drive margin throughout that process?.

I think for the quarter, we were down a little more than the market. It is just customer mix and sometimes it's kind of look at the draw how your customer is doing in a particular quarter.

So I don't think any alarming, it's just what it was hard for us to do a lot on rationalization in North America given where we are geographically and what our needs are geographically.

And then the other thing you need to remember and this is not just true for us but for the industry to the extent that our customers trend towards specialty cans, non 12-ounce basically. That in itself reduces excess capacity just because what's associated with changeovers and all the rest.

So we don't have any plans for rationalizations in North America. Actually the reverse we're going to do things to drive down costs and perhaps some things to increase specialty can capability..

That's helpful John. And just last question on the Europe Bev segment, so even though you’ve obviously had a very meaningful headwind from the premiums, operating earnings in that segment are up it seems like about 13 million bucks in the first half.

In terms of thinking about second half, I realized that the premiums are still a headwind but I mean is the expectation that you can continue to grow earnings in European Beverage in the back half of ‘14 as you achieved in the first half of this year?.

I think what you’ve seen the back half of last year and the first half of this year is an extreme focus on cost and productivity and improvements in the manufacturing platform. Demand has been very firm as well in the Northwest Europe.

As Tom mentioned though, we gave you a number four premiums and much of that will happen, two thirds of that premium number that Tom quoted on an annual basis will occur in the second half of the year. So that will have, that will flatten out perhaps some of the earnings profile in beverage in the second half versus the first half..

Got you. That’s helpful. I’ll turnover, thank you..

Thank you. Next question comes from Ghansham Panjabi with Baird. You may ask your question..

Hey guys, good morning..

Good morning, Ghansham..

On the Middle East business, how much of a deceleration did you see in June? John you mentioned that the region has been full of conflict in the past, so really what’s different now? And also how does the profitability in Middle East beverage compare historically to the Continental European business?.

Well the Middle Eastern business is somewhat more profitable, but we saw a slowdown, both in Jordon and Saudi Arabia and of course the countries immediately adjacent to the ones that are engaged in conflicts among other. So I think it was a June event, we did fine until June and then June sales fell off.

Now, some of our other businesses in the region are having -- had a pretty strong quarter and if they continue to that would be helpful although we can’t count on that. So that’s what we’re referring to..

And how much was June down?.

I don’t have it in front of me, but it was meaningful 5% to 10%..

The quarter was….

Just June..

Yes. The quarter was off about 2.5 to 3, but June was certainly as John said, much where the big decline occurred..

In those countries..

Okay. And then in European beverage, can volumes, I'm sorry if I missed this.

But what were volumes for the quarter?.

We were up in continental Europe if that's how you want to describe it, we’re up about 2%..

Okay. And in terms of the non-reportable drop in profitability, I think you called out unfavorable mix in aerosol if I remember correctly.

Can you just give us some more color on that seems to be quite a bit of drop in profitability?.

Yes. So you have the tooling, you have the timing of shipments of equipment shipments which is the biggest, the biggest piece that accounts for a little bit more than half of the drop. And then you have some ones and twos across the two aerosol businesses and a little bit of promotional specialty packaging in Europe.

So, but in aerosols, generally shave gel was down in both United States and Europe and we're strong in shave gels..

Shavings overrated. And finally Tom, just one question for you in terms of Mivisa earnings contribution as it relates to new guidance for the year. How much you estimate from Mivisa? Thanks..

All I could say Ghansham right now that I have in front of me, but it's in the full year numbers. And I think in the past we've given out most of the components of that. The missing piece was depreciation. And again for the full year total company, we think depreciation will be about 195..

Okay. Thanks so much..

Welcome..

Thank you. Next question comes from George Staphos with Bank of America Merrill Lynch. You may ask your question..

Hi guys, good morning. Most of my questions have been asked already and answered to some degree. I guess my question to start would be this, since it’s one we've come back to periodically over the last number of quarters.

Crown's done a good job growing its network and footprint over the last number of years; you've now added Mivisa which you seem to be very pleased with.

As we look out to ‘15 and ‘16 and given the fact that as a company has grown, one could argue perhaps it’s gotten also a bit more complex, you are larger in Asia, you can’t necessarily control events in Asia; Middle East, well that’s been a great market for you, again you can’t control when conflicts arise and that’s impairing your profitability.

What would be wrong with the concept of maybe slowing down investment from here for the next couple of years and really trying to further ratchet yield and efficiencies and return on capital out of this business that you’ve built with great effort over the last number of years?.

Well George, I think implicit in your question is that the proportion of effort that we might put into expansion is going to be similar to what we have done in the past. And I think what Tim has pointed out is that as the company has gotten so much larger, you could argue our capital expenditures really have not expanded proportionally.

We have been reigning things back compared to what we were doing. The next thing I think that you are assuming is that the CapEx is sufficiently large so that startup costs and things of that sort tend to be in an order to drain and potentially adversely affect other operations in any particular region which we don’t think is the case.

So to answer your question, nothing would be wrong with what you describe except to the extent that we missed some really good opportunities in pursuing it. So, we are constantly aware of trying to take a balance between continuing to grow sensibly and how that might be slowing or adversely affecting earnings growth and we don’t think it really is.

And the projects that we are pursuing are well above cost of capital. And at this point, they are virtually all very natural extensions of where we are geographically. We are not engaging in any far-flung adventures in terms of new regions, new countries with which we are not quite familiar.

So, we're pretty comfortable with the balance and we take your point however, if we thought that we were tipping too much and an excessively pro-growth mode, we do something about it, but we don't think we're there..

Alright. I appreciate the thoughts on it.

John do you -- if you had to forecast and I recognize this must be dangerous question I ask on a conference call, when you are not in a position to guide on ‘15 yet, but is there a spread that you have in mind that your return on capital might exceed its, further exceed its cost of capital over the next couple of years what would that figure be? In other words, what could you give us to be able to gauge your progress on improving return given all of these good initiatives that you have underway?.

George, I don't know. We will take that question on Board and think about it and give us, give Tom Kelly or me or Tim a call over the next number of weeks..

Okay, will do.

Switching gears on specialty cans broadly and then within North America, would you say that your philosophy on the product and it's rolling the package mix is changed or do you like it equivalently or do you like it even more than perhaps you might have thought or viewed it several years ago?.

No, I wouldn't. We have been doing specialty cans for 30 years. The trend in the Middle East actually began in the 80s. So the famous Japanese can 202 diameter what the industry often calls a slim can, not a sleek a slim can of various quantity, typically 250 ml to 275 ml, that kind of thing 285 ml. So, we've been doing that for 40 years, 35, 40 years.

And we have seen that in Asia, same kind of thing throughout the Middle East, Europe as you know as I said various can sizes. However the U.S. market it's been relatively recent in our view I know there has been a lot of talk about it but there is a proportion of the package mix has been relatively small.

And of course our situation has been that we've been essentially sold out here for the last number of years principally on 12-ounce and 16-ounce. So we don't have excess capacity that's easily converted and we've been reluctant in the market that's been flat at best to put a lot of money into different sizes.

Now as our customers become more and more, if they do become more and more convinced that they want to try different formats we're going to have to follow with them. So in North America we're taking I think a renewed look at the issue, but our philosophy globally hasn't changed at all.

We have always thought whatever our customers want that's what we're going to do and we have had a lot of success with non-indication internationally and typically non-33 [certainly there] and here non-354 a middle year if you want to say non-12 ounce that we --.

John, I just -- go ahead I am sorry..

No, no that's it -- that's it..

Yes, two questions. One are follow on to that and then one just on the Middle-East. By definition the custom can is custom, so the products have unique size and therefore to the extent that there is demand for a size that you have got the ability to produce for that's the good thing.

But to the extent that you might put in a line where demand might periodically have been flow you might have excess capacity of a very unique product line. So how do you prevent against that, how do you build flexibility into your specialty and custom lines? That would be question one.

Question two, can you just give us what affect you think you've built in for the Middle-East in your overall guidance and could you remind us how many cans roughly are we speaking about in the Middle East right now as you are counting? Thank you guys. I'll turn it over..

Yes, I'll Tim reflect on the Middle-East question and I'll -- the previous one. As the specialty cans many perhaps most of the recent investments we've made internationally, our factories and production lines capable of producing multiple sizes. We’ve spent a lot of time and effort on this in various respects.

First of all to make sure that the equipment is flexible, to make sure that we are able to change lines relatively quickly both diameter and height.

And that’s true and virtually every new line that we put in, in the last probably five years the consequence of that George is capital cost is somewhat higher than they might otherwise be so we’re very careful about it. Given North America we do not intent to add any capacity on speculation about specialty can.

We’re working on the assumption but the market is what it is and this is going to be a substitution process so what we need to do if we want to pursue more specialty cans as we have in the past we need to make our existing lines more flexible but we do not intent to add capacity. And Tim will talk to the Middle East question..

Thank you. .

So on the Middle East without getting too specific I would say that the guidance that Tom gave you earlier reflects anywhere from $0.02 to $0.04 of conservatism or concern built in for the Middle East and you’re talking about a market on an annual basis for Crown of roughly 7 billion units..

Okay. I would guess six. Thanks Tim. Good luck in the quarter..

Thank you..

Thank you. Your next question comes from Debbie Jones with Deutsche Bank. You may ask your question..

Hi good morning. I’d like to go back to just Brazil really briefly.

Could you remind me what the capacity target is for Teresina, and quantify the impact in the ramp up cost for the full year?.

The capacity across multiple sizes and we’ll have the ability to make 5 to 6 sizes in the plant but the rated capacity is a billion units. And I do not have in front of me the impact of start up in the quarter nor do I have it for the balance of the year so you’ll have to come back on that..

Okay no problem. And I am just wondering you probably might not have this in front of you either but the pack mix shift that we have seen so far and if the expectation was for just be a continue shift towards cans versus glass in 2014.

I'm just wondering if that materialized and if so would you expect that to reverse in 2015?.

We don't expect it to reverse. It's interesting, I know on the April call, we had the experience in the month of March for example. Cans were just a month alone of March, cans were actually greater than glass. But on a year-to-date basis can mix for beer is at 45% which is up about 2.5 percentage points from last year.

And I do not believe that we expect that to reverse. So I think that the can is growing in popularity among the fillers and for good reason..

Okay. And just quickly go back to the Middle East. I was just wondering if is there any U.S. government restrictions that are placed on you.

In that region that maybe your lower competitors don't have that might be impacting you? And then secondly, can you just remind me how the premium works in that region and whether or not you're able to pass that on to your customers?.

There are restrictions in the Middle East on certain countries that we don't sell into directly. But that isn't the fact here that we are describing, we're talking about just an inability simply because of conflict. So that's what we're [referring].

So what was the other part of your question Debbie?.

I would just, I couldn't remember what the aluminum premium situation was in the Middle East and whether or not that is a pass through to your customers?.

Generally speaking in the Middle East, we passed the premium through which more on an annual basis not a formula basis, but the consequence is the same. We have a little bit of the premium this year in the Middle East, but nothing like in Europe where the convention is simply it’s not included in the formula and the can maker bears it.

Now why that’s the case we have to go back in history, it makes no sense, but it is what it is for the time being..

Okay, thank you very much..

You are welcome..

Thank you. Our next question comes from Scott Gaffner with Barclays. You may ask your question..

Thanks good morning. Just wanted to go back to George’s questions for a minute on specialty cans.

Just wondering has there been any shift in the profitability on specialty cans in North America and maybe that’s part of the reluctant to invest more money in excess additional capacity there?.

No we don’t think so. I mean it’s still somewhat more difficult you still need to do something about size changes et cetera and specialty continues to be quite popular, so that aspect of the opportunity has not changed..

So you haven’t seen -- the profitability has not come down in North America yet..

No..

Okay and then I think in your prepared remarks, correct if I am wrong, but I thought I heard you say that you had increased per unit cost in the Americas in the quarter.

If that’s correct can you just explain that a little bit further for me please?.

Yes we production levels were down about 9% in the North America so lower units produced higher cost per unit..

Okay so you just that’s all about inventory management headed into the….

Inventory management and the fact that we have been down 2.5% to 3% for the first six months and as John said we are not going to run cans in an inventory, just to make an earnings number, our production plans are going to take into account the market that we see and our projection for what may happen in the market..

Great. But it looks like, if I look at the shipments from CMI it looks like the numbers have actually gotten they are down year-over-year progressively better in the second quarter versus the first quarter, is there something you are….

Yes. For this industry at large, the second quarter was something have to improvement but we're not prepared to that, that trend is going to continue, we hope so and it may not continue for our customer assortment..

Okay. And then just lastly on European food, I think you mentioned some positive trends within certain product categories. Just wondering overall what do you think as far as the underlying consumer demand for food cans in Europe, I think if I recall some of our prior conversations, food can was more of a premium product in Europe.

Are you seeing underlying demand come back at all or is it more just around a quality harvest?.

No, I think underlying demand has been strong as well. I think Tim mentioned that from where we could judge our let's call it a legacy business an imperfect comparison but nonetheless was up about 1.5%, which is a positive trend in the quarter. And we think the industry generally has been up somewhat.

So, we think the overall trend has been down for a while and now finally up, we think that's a good outcome..

Thanks a lot. I appreciate it..

You're welcome..

Thank you. Our next question comes from Chris Manuel with Wells Fargo. You may ask your question..

Good morning gentlemen. Three different questions, I'll try to go through fast. But first with respect to Mivisa. John maybe some things had changed the touch, but Tim you alluded to in the call how this has already been integrated and put into and later discussed how you have shifted some businesses around.

Initially, I recall back on John when you did the call announcing the deal, you indicated the business was going to stay on its own separate that was running extraordinarily well, you didn't want to make any adjustments to it.

And so maybe could you help us a bit with, it sounds like you’ve found some opportunities to move some of your own business and shuffle some leadership and some different things around to improve mix and improve shipping and that kind of stuff.

Could you may be give us a sense of, you had a 1 billion or 1.07 billion business, I think you acquired something neighborhood of 750 of revenue how does that two pieces split today is it might be ironic if you can do that and what's the margin opportunity or what's the overall utilization rate as we look at it, to kind of get a sense as to where you are and where you might go?.

Yes. I terms of organization, just to give you a sense Chris, we did say we're going to keep the Mivisa management intact and we have.

And what I was referring to however was we took a look at the whole situation and we basically reassigned if you will eight factories in Portugal and Africa to the Mivisa management team, geographically it made a lot of sense.

So our Portuguese plant, the Mivisa management team is picked up and we have seven factories throughout Europe, couple of Africa rather several of them quite small but nonetheless they've become responsibility of Mivisa they had African activities and we thought that was the best thing to do.

However, the Hungarian plant, the eastern European plant that Mivisa had has been reassigned to our European food can management team. So that's what I was referring. We think that the outcome has been great so far, it's going to be great going forward.

As to margin proceeding obviously we think the aggregate margin is going to improve as we make better use of the Mivisa asset and we just rationalized what we're doing in terms of shipping and specs and all the things Tim and I talked about earlier but we haven't quantified it..

Okay.

And then could you touch on utilization I know you've done a couple of rounds of restructuring in your European, your legacy European food business to get it back presumably the upper 90s where are you at today, or do you have a sense of where you are today as you look at the whole two pieces of the business now or the European Food business?.

There hasn't been a major change in utilization as we speak but we expect over the next two and half years because we think these synergy savings wouldn’t carry over into '16, clearly we'll be taking a look at further opportunities for rationalizations and consequently utilization improvement..

Okay, thank you. And then the second topic was with respect to China and there has been some discussion of one of your competitors adding capacity in Wellin I believe one of the regions there in China.

Any thoughts as to how the market fits today, our utilization rates or I should say capacity, supply-demand balance getting better what do you think the outlook is there for the next and opportunities for price as we head into ‘15 to begin to see improvement or is it going to be another any kind of tough year?.

I think we think the market in the quarter was up mid single-digits, it slowed from the first quarter. But the second quarter tends to be our lowest quarter in China it has been historically the lowest quarter. So, we don’t read too much into that. Utilization is still in the mid 80s, low 80s and it hasn’t changed very much.

I mean the market has been growing relatively rapidly but there has been capacity added as you said. We do not foresee pricing improving in China next year. We expect it will be about the same as it was this year..

Okay. And then last question is and Debbie kind of I think started down this path. In some regions of the world aluminum premiums and things are North America customers are basically buy the metal and you almost told it, parts of the Middle East or other parts of the world, it kind of gets passed on an annual basis or different elements.

What prohibits such a change in recapturing what you’ve lost in other parts of Europe or other regions of the world I mean that do you, I recognize you are kind of number two number three player when you look at continental Europe and you probably need kind of the leaders to lead in that respect.

But what prohibits that from occurring, in your view?.

We have about 18% of the beverage can market in Europe. You're talking to the wrong guys..

Fair enough. Thank you. Good luck..

Thank you. Our next question comes from Anthony Pettinari with Citi. You may ask your question..

Good morning..

Good morning..

Just a quick follow-up on Latin America.

Can you remind us how long it will take Teresina to reach full operating rates for that 1 billion units?.

9 to 12 months..

9 to 12 months.

And can you give us some color on operating rates for bev cans in North America and then in Latin America?.

Latin America, well above 95% to 98%. North America low to mid-90s..

Okay, okay, that's helpful. And then just maybe one final one. I think in the beginning of your prepared remarks, you referenced strength in back in closures.

And I was wondering if you could give some color on what's driving that and what the volume growth was year-over-year?.

The volume was formed much across the board. And frankly we didn't spend time thinking it, but typically as you know what that means is metal back and closure for relatively high value juices and food and baby food and so forth.

And typically it's a sign of kind of consumer spending improving and people spending a little more money but we have not done, not a lot of analysis, we just know we had a pretty strong, we had a strong quarter on both sides of the Atlantic in the metal vacuum closure business..

Okay, that’s helpful. I will turn it over..

Okay, thank you..

Thank you. Our next question comes from Al Kabili with Macquarie Research. You may ask your question..

Hi, thanks good morning.

Just wanted to start off on Europe’s food and I know you mentioned sort of organic volume growth in the segment I am wondering if you can talk a little bit about the earnings growth organically legacy Crown versus legacy Mivisa how they did from an earnings perspective year-on-year in the second quarter?.

Well I think Tom has given you the Mivisa numbers and I think you can see the Mivisa number in the release as it relates to the inventory adjustment, the balance will be legacy Crown but as we cautioned you be a little careful because we have started to integrate so we are moving business around and I think we want to very soon stop talking Mivisa versus Crown, us versus them we are all the same Crown seal here and but I would say that in the legacy Crown if you want me to guess segment income up 5 million to 10 million and the balance would be Mivisa I think Mivisa is probably 15 million in the quarter I think is what we had..

Yes and I understand Tim I guess I didn’t have the prior quarter’s Mivisa I have kind of an estimate for the annual earnings for Mivisa but we didn’t have the split on the quarter so that’s what I was trying to help in.

If you have sort of comparable number for Mivisa historically in the third quarter just to help fine tune the model that would be really helpful..

I don’t have that..

Okay, alright we will follow it up with you or Tom after. And then I guess the Europe, I wanted to touch on earlier question on Europe Beverage I believe it was Alex, so the with the metal premium headwind, earnings were EBIT operating profit was up $5 million year-on-year with flat volume and that metal premium.

And so that implies a really healthy amount of productivity savings. Is there anything unusual in the second quarter related to that, to drive that strong performance? And can we expect that kind of level of productivity in the backhalf, I know metal premiums are going up.

But that's pretty healthy productivity?.

I think what Tim referred to in fact is what occurred the plants ran exceptionally well in Europe and we put a tremendous amount of emphasis on cost reductions, improving efficiencies, reducing spoilage, reducing downtime associated with size changes and all the rest and we've had a tremendous amount of success.

We're not going to be able to continue to improve productivity and consequently drive down cost at the same rate. So no you shouldn't anticipate that. But we did, we had a very, very good operating performance in the quarter and it was a consequence a lot of planning and a lot of hard work..

Alright. Thank you. And then final question is, I know you talked about the political situation in the Middle East. And I was wondering what you've seen and it sounds like you had saw some pretty good volume in Thailand.

But I'm just wondering if you can give us an update on what you're seeing in the political situation there and any risk related to that in the back half? Thanks..

So Al, if you recall last year there were certainly some turmoil around the elections in Cambodia, that seems to have passed, we had a very strong quarter and year-to-date and the outlook for the balance of the year is quite good in Cambodia.

And in Thailand, there has been almost no impact and in fact since the military has somewhat taken over in Thailand, things have stabilized and we're back to a very strong consumer economy in Thailand that we have been accustomed to. So, nothing to report there other than all systems go..

Okay, great. All right, thanks. Good luck for rest of the year..

Thank you. Our next question comes from Mark Wilde with Bank of Montreal. You may ask your question..

Good morning..

Good morning, Mark..

Just kind of a follow-up on the North American food margins; I think if I heard you correctly, you were suggesting that you didn't expect any further change from sort of business moving around and may be contracts being redone over the next six months and into next year, is that correct?.

Yes. That's true. There may be a few small things but generally speaking, we're pretty well set for next year..

Okay.

And I know you don’t want to get too specific about sort of what might be in the capital program going forward but can you give us just some broad sense of kind of areas where you might be looking at for expansion? It sounds like China is probably not a place given what you said about the operating rates and kind of continued supply coming in there.

So any direction you can give us on that would be great..

Yes, I think Tim did a pretty good job covering it a little while ago. We’re looking particularly in Europe and North America at specialty size expansion if you will, doing things with our existing plants to make them more flexible and responsive to what customers want to do going forward. So that's a part of it.

We did a lot of good things with cost reductions in Europe associated with better productivity, simply with the physical plant that we had but we think there is money that can be spent to lower cost there, both materials and speed up lines, get better productivity and the market is growing somewhat.

And then if you just look at the places that are growing so nicely, Brazil for example where we’ve just completed Teresina makes a lot of sense to us. Asia, generally growing very well; China, growing, but the capacity utilization not changing a lot.

So you are absolutely right, we're not putting more money into China; Southeast Asia, still doing very well. So that pretty much captures it. As we look ahead at synergy opportunities and the food business in Europe, it may require somewhat more capital to allow us to capture those.

But I think, Tim did a good job of pointing you in the direction where the capital is going to be going in the years ahead..

Okay. That’s helpful, John. Good luck in the second half..

Thank you..

Thank you..

Thank you. Your next question comes from [Tom Wayne] with Morningstar. You may ask your question..

Hi, good morning. And thanks for taking my questions.

Given the political risks in Middle East that we discussed earlier in the call, how does Crown think about applying discount rates or hurdle rates for projects in the Middle East versus projects in other emerging markets?.

Well, we want to make more money in the Middle East, obviously we won’t higher returns. We don’t have any plans now for capacity expansion in the Middle East. So it’s a little bit of a mood point. But clearly anything that we might do in the future in the Middle East might be more discounted more heavily than there has been in the past..

Great. And then regarding new plant in Teresina, if my numbers are correct, the region in [west] plant located has low income per capita relative to the rest of the country.

What makes the plant in the region particularly attractive from the long-term demand perspective versus other regions in Brazil?.

The northern part of the country in a relative sense has been growing much more rapidly than the south and this has been true for quite some time. And beer consumption per capita has been growing much more rapidly in the north than in the south.

And then the other thing that is happening that is very noteworthy is the brewers would prefer to expand can sales and they’re a lot -- most of their brewing capacity in the north is focused on cans more so than glass. So, all those things are working in favor.

And then finally as you undoubtedly know that the Brazilian government has been attempting to develop the north, has been putting more money into the north and that's been favorable as well -- and big, big population up there.

So all those things have made it -- our customers have done exceptionally well, all the brewers have been adding capacity in the north, so of the soft drink guys and juice and so forth and that's being bowing the demand..

That's great. Thanks very much..

You're welcome..

You're welcome..

Thank you. We have time for one final question and that comes from Tim Burns with Cranial Capital. Go ahead with your question..

Good morning, guys..

Good morning, Tim..

Good morning, Tim..

Can you mention that you're putting in some sleek can capacity in Europe? Is that something that's customer directed or that you're doing to procure new business or how does that work?.

Yes, I mean this is customer directed and it's an expansion of the existing platform across the number of factories just reacting to the market and the customers’ needs..

Got you. And are we -- we’ve been talking about specialty can technology that can be run at the cost of 12-ounce can capacity for quite some time, obviously [XL] has fallen short and we're seeing Budweiser with [Belvac’s] assistance come up with some pretty nifty cans, but I'm not quite sure of the cost.

I mean are we going to see a breakthrough? Is that something that your technical people led by a [Abramowitz and Co.] can crack at some point?.

Tim, if you're referring to specialty size is let’s say different diameter, different heights. The issue tends to be length of run, breaking up production runs on larger, on sizes that are in higher demand and how long that takes you and so forth.

And so what has happened over the past five years or so, this is mainly the province of the equipment companies and why frankly we're so lucky that we have one of the leading beverage can equipment companies in the world in CNB engineering but this is largely about flexibility of production equipment and flexibility of being able to change in integrated line rapidly without too much loss of production at either end and being able to ramp back up and being able to achieve goods spoilage low and high efficiency rates quickly.

And a lot of work has been done in that area, not just by us, all of our competitors, all of the equipment fraternity. So that’s what’s helping I think to add the flexibility in lines at an acceptable cost..

Got you.

So coil the can, we are not giving up on yet but there is a lot of variables?.

Yes and don’t confuse yourself I think to the extent that you are talking about a substitute for impact extruded aluminum cans that’s a whole different subject. We are just talking about flexibility in beverage can production..

Got you. And I had one last question and Mivisa obviously was a great buyer of metal, their hub and spoke system was spectacular, perfectly suited to seafood and fruit and shipping it all over the place as need be met they also had access to Africa. More and more people are looking at Africa as a potential real market.

I think it’s only about 10 billion beverage cans as we speak.

Is it too risky or is it a marketplace that you guys will continue to pursue?.

Well, we continue to look at it, our beverage can activities are Mediterranean based in Africa. We don’t have anything in beverage in Sub-Saharan Africa and we don’t have any plans to go to that region. We have some food activity there and that’s done reasonably well.

And we plan to support that and that’s where we are referring to when we said that Mivisa will now be managing its African business if you will along with Crown's African business. So, yes, I think the overall market trends are good throughout Africa and but we're focused as to beverage on the North of Africa not Sub-Saharan..

Right. Well, it was good quarter and we'll talk to you next quarter..

Thank you, Tim..

Thanks..

Thanks..

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

Okay, good. Shirley, I think that's all the questions. So, we thank you very much and we look forward to speaking with you in a few months time..

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