Thomas Kelly - Senior Vice President and Chief Financial Officer Tim Donahue - President and Chief Executive Officer.

Debbie Jones - Deutsche Bank George Staphos - Bank of America Scott Gaffner - Barclays Tyler Langton - JPMorgan Adam Josephson - KeyBanc Capital Markets Ghansham Panjabi - Baird & Company Daniel Moran - Macquarie Mark Wilde - Bank of Montreal Anthony Pettinari - Citigroup Chip Dillon - Vertical Research Alex Hutter - Jefferies Chris Manuel - Wells Fargo.

Good morning and welcome to Crown Holdings First Quarter 2016 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. Thomas Kelly, Senior Vice President and Chief Financial Officer. Sir, you may begin..

Thank you, Han and good morning. With me on today’s call is Tim Donahue, President and Chief Executive Officer. I will first take you through the numbers and Tim will review the operational performance. On this call, as in the earnings release, we will be making a number of forward-looking statements.

Actual results could vary materially from such statements. Additional information concerning factors that could cause actual results to vary is contained in the press release and in our SEC filings, including in our Form 10-K for 2015 and subsequent filings.

Earnings per share were $0.57 in the first quarter of 2016 compared to $0.32 in the first quarter of last year. Adjusted earnings per share were $0.69 in the quarter or $0.74 at constant currency rates compared to $0.53 in 2015.

Net sales for the quarter were down 5% at actual exchange rates and down 1% at constant currency rates primarily due to the pass-through of lower material costs. Segment income of $221 million in the quarter improved 15% from 2015 due to contributions from Empaque and strong performances across the portfolio.

The adjusted tax rate of 30% was elevated in the quarter partly due to currency movements in Brazil that create local tax liabilities. We now expect our full year 2016 tax rate to be in the range of 25% to 26% versus our previous guidance of 24% to 25%.

At this time, we are maintaining our full year guidance of adjusted earnings per share of between $3.70 and $3.90 per share.

Although we had an excellent first quarter and the current euro rate is higher than $1.09 we used in our initial guidance, it is still early in the year and the higher projected tax rate will also have an impact compared to our initial guidance. We currently estimate second quarter earnings of between $1.05 and $1.15 per share.

We are also maintaining our estimate of full year free cash flow of approximately $425 million. I will now turn it over to Tim..

Thanks, Tom. Good morning, everyone. As reflected in last night’s earnings release and as Tom has described, we have had a very good start to the year. Global beverage can volumes increased more than 7% in the first quarter, with volume growth recorded across all three operating divisions, including an additional 6 weeks of Empaque this year.

First quarter segment income and earnings per share were ahead of our earlier expectations mainly as a result of the stronger beverage can volumes and cost performance in European Food and in Asia-Pacific.

Compared to the prior year first quarter, lower stock compensation expense, lower pension expense and benefits from lower aluminum premiums were all in line with expectations. The impact of currency on sales and segment income is shown in the release, so my comments regarding first quarter performance will be on a currency-neutral basis.

In Americas Beverage, unit volumes were up 11%, as strong shipments in North America, Colombia and Mexico more than offset a mid single-digit decline in Brazil. Segment income improved $25 million or 29% over the 2015 first quarter with about 45% of that increase coming from Empaque.

Mexican can demand continues to be strong and it is difficult to determine how much of the Mexican increase relates to the additional 6 weeks and how much relates to the continuing growth in the market, although with Empaque now annualized in the first quarter, it will all be apples-to-apples in future periods.

North American operations benefited from a 3.5% volume gain and continued improvements to manufacturing performance. In Brazil, better mix and lower aluminum premiums offset the impact of lower volume.

The two large beverage can projects remain on schedule, with Monterrey, Mexico expected to commence commercial shipments in the fourth quarter and Nichols, New York beginning in the first quarter of 2017.

In North American Food, revenue declined as a result of the pass-through of lower calendar 2016 tinplate costs, with segment income further affected by the sell-through of higher priced inventories. Unit volumes were also lower as the full impact of the previous customer loss has now been realized through the end of the first quarter.

While can pricing in the segment remains stable, it has been just that stable. That is, it has not allowed for price increases that would allow us to recover the non-steel increases in the cost of manufacturer. Over the next three quarters, we expect the earnings of the segment to be more in line with the prior year.

Unit volumes in European Beverage increased 5% over the prior year, with increased demand recorded from our factories in Eastern Europe, France, Jordan and Spain. You may recall that in the first half of 2015, volumes in France were temporarily displaced by a line conversion from steel to aluminum.

Higher volumes, including the recovered French volume, combined with lower aluminum premiums of $5 million, all contributed to the segment income improvement over the prior year. As previously discussed, we are doubling production capacity at the Osmaniye, Turkey plant with the addition of a second production line.

Commercial startup is expected in the fourth quarter this year. European Food had another excellent operating quarter, as manufacturing performance and better mix offset a small 2% volume decline in the quarter. The volume decline relates almost entirely to the recent shutdown of operations in South Africa.

The segment is off to a strong start on the back of continuing benefits from prior and current cost reduction programs, including those related to the integration of Mivisa. As always, we caution, it is only April and far too early in the year to comment on crop plantings or expected yields in 2016.

Beverage can unit volumes in Asia-Pacific improved 2% in the quarter, as strong demand in Vietnam offset selected volume declines in China. The Chinese market is currently forecast to grow 10% in 2016 after 15% in 2015. However, pricing remains very challenging in China and there is some business we have decided to prune from our portfolio.

Segment income performance was in line with the 2015 first quarter, as volume growth in Southeast Asia and cost performance throughout the division offset China. We continue to see beverage and food can growth in Southeast Asia and as we have stated before, China only accounts for about 25% of our sales in the segment.

The new beverage can plant in Phnom Penh, Cambodia, our third plant in that country, is scheduled to begin commercial operations in the second quarter this year. The decline in non-reportables revenues and segment income relates to the divestitures of the five industrial specialty packaging plants that we have previously discussed.

So, in summary, a real good start to the year. And as we have said before, the first quarter is seasonally small and it’s far too early to comment on the food pack. And then lastly, before we open the call for questions, I want to acknowledge Jozef Salaerts who will retire as President of Crown Asia-Pacific at the end of April.

Jozef joined Crown in Belgium 27 years ago and we have been extremely fortunate to have Jozef lead our Asian team for the last 10 years. During Jozef’s tenure as President of Crown Asia, the division has tripled its sales and segment income and continued to expand into new territories.

Jozef leaves us with an Asian footprint and a management team that will serve the company well into the future. I know I speak for everyone at the company in expressing our thanks to Jozef and wishing him well in retirement. So with that, Han, I believe we are now ready to take some questions..

Thank you. [Operator Instructions] And our first question comes from the line of Debbie Jones. Ma’am, your line is now open..

Good morning, Debbie..

Thank you. I was wondering if we could just talk about Americas Bev.

You walked through a number of items, but could you just give us a sense of the delta year-over-year, what really drove that from like a magnitude basis and is that 16% margin something that you think is sustainable going forward?.

Debbie, it’s a good question. I will be a little careful how much detail we give you. We don’t want to disclose things we don’t want to disclose. But I would – as we said, about 45% of the growth in segment income came from Empaque. So if we were up $19 million, that’s roughly $8 million or $9 million.

And what I said was it’s a little difficult at this time for us to determine how much of that relates to the additional six weeks compared to the prior year and how much of that relates to the ongoing growth we are experiencing in the Mexican market. But certainly, the large majority of that $8 million or $9 million will be from the six weeks.

Lower aluminum premiums in Brazil, probably a few million dollars, right, Tom?.

Yes..

And then obviously, in North America we had a strong volume performance, about 3.5% up. I think the market was around 2%. If you have seen the CMI data, so we are a little ahead of the market. I would characterize that as just customer mix and that moves around.

We don’t make any claims to believe that somehow, we are – we have got a better profile or anything else. It’s just it is where it is right now and we will see where it takes us in the future. As to the level of the percentage to sales at 16%, the only thing I would say is we hope so. Keep in mind that aluminum has come down a little bit.

So when you deal with a denominator that is lower, just because the pass-through of metal, you do get a higher percentage and vice versa, as the cost of the raw material goes up and we pass it through, the percentage comes down. So I don’t want to get overly bullish or bearish on the percentage nor should you be overly concerned about the percentage.

I think you need to look at the absolute dollars and the trajectory of the absolute dollars as opposed to the percentage..

Okay. Thanks. That’s helpful. And if I could just follow-up on Americas Bev, specifically in North America, how do you see your mix trending over the last couple of years. And I am just asking the question is I am trying to understand if you were making a bigger shift towards specialty, number one.

And then number two, if there is any opportunity for you to capture some new volume, specifically at the facility that you are building and just kind of how to think about that and your mix between non-alcoholic and beer categories?.

That’s a good question. We – as we described earlier over the last couple of quarters, the decision to consider building a large factory in Nichols, New York is really related to the fact that we are underrepresented in the specialty can market. That is anything other than the standard 12-ounce can, whether it’s 16-ounce cans or sleek cans.

Every non-standard can we currently make is coming from Mississippi and/or Texas. So you can imagine the freight disadvantage that we have and the challenges we have to service business.

So we are confident that as the specialty market continues to grow for non-carbonated beverages, be it coffee, teas, water, juices, beer and anything other than that non-standard 12-ounce, that we are going to be well positioned from that new factory to service that business and rebalance the portfolio..

Okay, great. Thank you. I will turn it over..

Thank you..

Thank you, Ms. Debbie Jones from Deutsche Bank. Next we have is George Staphos from Bank of America. Sir, your line is now open..

Thanks. Hi everyone. Good morning. Congratulations on the quarter. Two, I guess general questions around portfolio ultimately, Tim. I guess first off, in North American Food, was that performance in line with your forecast or was it somewhat below.

And broadly, how do you think about North American Food and the aerosol component of spec pack and its long-term fit within the overall portfolio for Crown?.

Well, I think I talked about three items. We had the sell-through of higher priced inventories. The customer account that we lost last year, we were still servicing them in Q1 last year, while the other company was getting up and qualifying. And that was an item.

And then lastly, the inflationary elements of can manufacturing, non-steel, while pricing is stable, it has not allowed us to raise price to recover that. And I would say, if you looked at the decline in segment income George, it’s about a third, a third, a third as you go through those items.

The sell-through of the higher priced inventories and the customer loss, we could see that and that was in our plan. I think we were hopeful that we would have the ability in our initial estimates to recover the inflationary impacts and that has not been possible.

As we look through the balance of the year, the customer loss – on a comparative basis, the customer loss and the sell-through of the year end inventory is behind us. The inflationary elements will continue. However, we will have the benefits of the two plants that we shutdown late in the year last year, one in Baltimore and one in Ontario.

So that – we are hopeful that, that offsets that, and that’s why I would say that on balance, we will be more in line over the next three quarters with the prior year than we were in the first quarter. As it relates to the fit in the portfolio for aerosol and food, I think we do quite well in both businesses.

I know we do quite well as we compare ourselves to our competition. We have a low cost base in food. We are not here to make cans for practice. It’s not the biggest business we have in the company, but it’s an important business and we are committed to it..

Okay. And I guess maybe a quick related question and I will go to my second question.

Related question, when will be the next opportunity that you think you have a chance to increase margin to offset inflation, really looking at next year at this juncture, will there be any kind of interval over the course of this year where you might be able to do that.

And then the other question, in China you – it would appear that you didn’t grow quite with the market because your pruned some of the business that you had, how should we think about China’s fit, again within Crown’s portfolio longer term and what is the latest update on strategy there? Thanks Tim..

So in food, I don’t believe there will be any opportunity over the balance of the year George, as you said to raise price, I think we are set for calendar year 2016. As to the future, I think your question is better left to those participants who are larger in the market and who are considered the market leaders in that market.

We as having between 12% and 15% of the market, we are not going to be able to drive that process. As it relates to China, yes listen, we are not going to make cans at a loss. And we are not going to make cans just to make cans. There are some accounts where pricing is extremely low and we walked away from that.

As it relates to the fit in Crown’s portfolio, we have an excellent platform in China. And as I have said before, everything in China has worked out as we had hoped and the volume growth has actually worked out even better than we had hoped.

What we didn’t anticipate was the amount of capacity and the number of participants would bid that would be in the market. I think certainly, some of those smaller participants have to be struggling. And we are committed to try to keep our costs down to remain competitive until such time that the market returns to some sense of normalcy..

Okay. Thanks Tim. I will turn it over..

Thanks George..

Thank you. [Operator Instructions] And the next question is from Scott Gaffner. Sir, your line is now open..

Thanks. Good morning Tim, Tom..

Good morning..

Just a couple of follow-up questions on the North American Food business, Tim you mentioned no opportunity to raise pricing in 2016, I guess first part of that is, is that really due to the additional capacity that came online in the industry at the beginning of 2015 and does that then maybe limit the ability to get pricing in 2017 and beyond?.

Well, I think there was too much capacity in the industry before the new entrant came in and there is even more capacity now.

And I think if that participant was being honest with anyone they are talking to, they would tell you that they have got significant underutilized capacity and they have been unsuccessful to gain new business other than the one customer they took from us and one other participant.

Having said that, we are committed to the business, we are going to defend our business. It’s not the biggest business we have. We can afford to defend it. We are committed to the business and we are going to run the business to try to generate as much return as we can.

And I think if you look at our margins Scott, despite what’s going on in the business, we are maintaining margins at a fairly healthy level for a global food business, notwithstanding the overcapacity in the market.

But as I have said to George’s question, you are going to have to talk to some of the other participants to understand where they think they can take pricing, given that they are far larger in the business than we are..

Fair enough.

Still on North American Food for a minute, I think there has been some renewed discussions around BPA, especially in California, where are you as far as the shift in your production around BPA, free cans and is that having any impact on the productivity in the business?.

No. Scott thanks for asking the question. I am going to give you a nice long answer and then I will come – I will answer your last question. But I got a little editorial I am going to give you guys.

So, I think as most of you know the safety of bisphenol-A or BPA, which is a chemical compound used in epoxy linings, has been debated and tested for several years.

And in fact, a couple of the analysts on the call today have recently published in their research that the safety of BPA in can linings remains up for debate and/or that the science does not appear conclusive. I would tell you that those two statements could not be more wrong and it reflects how uninformed many people are.

BPA has been repeatedly studied by the U.S. FDA, the European Food Safety Authority, Health Canada, the Japanese Ministry of Health, among many others. The results of which have time and time again proved the safety of BPA in can linings.

There are a few jurisdictions around the world, where junk science hyped by the NGOs and the media has led to limitations and/or warnings on the use of BPA. California, for example, has recently enacted a Proposition 65 warning on BPA, which states that BPA is known to the state of California to cause harm. In fact, they do not notice. The U.S.

FDA made a rare appeal to the California regulators informing that FDA’s research does not support the listing. And I like many others remain curious how they can state they know BPA is toxic when no other major global regulatory body knows this based on the relevant science.

Perhaps, the funding for the research requires they find some adverse effect to continue to get funding. But our view is that we should follow the science and not the hype pushed by the anti-science activists.

Now, as it relates to Crown’s food and beverage can businesses, we have been involved and we continue to be involved in the testings of alternatives to BPA can linings for several years.

We, along with the other industry participants and our suppliers, along with our customers and we remain committed to helping our customers find the right solution to all their products. I would tell you that we are well on our way for most of the products. It’s really a customer decision when and how they want to make the change.

There is no inefficiency in our operations. To your specific question, there is a small cost increment in the cost of BPA non-intent linings as compared to BPA. We believe that over time that will regress back to where the right cost should be. So, that’s the answer there, but thank you for asking the question, Scott. You let me get it off my chest..

No problem. I appreciate the detailed response. Just last one for me on the leverage, last I recall, you thought maybe you could get to mid-3x levered at the end of 2016, if I recall correctly.

Is there potential to maybe accelerate that? When should we start thinking about moving back to share buyback versus debt paydown?.

Yes, Scott. We do plan to be in that mid-3x range by the end of the year. I don’t think we will be significantly lower than that. So, I would say no, there is not a likelihood that will accelerate that by much anyway. As far as stock buybacks, I don’t think you are going to see any stock buybacks this year from us.

We will see how the year progresses, but the current plan is not to do any stock buybacks in 2016..

So Scott, I think it’s an issue of capital allocation is where you are coming to. And clearly, we are very confident in the cash flow that we can generate in this business. We could begin buying back stock if we wanted to.

But as we look at the drivers to create value, not just this year and what we have been able to do the last couple of years, but as we look into the future, we are trying to balance the opportunities that we see and the capital needs for those opportunities versus near-term stock buyback.

And I think we believe we can continue to generate value by growing the business and delivering new products to customers in many markets that we are currently in and perhaps a couple of new markets. And we are not to the point where we believe we don’t have any opportunities and we can only buyback stock..

Great. Thanks for all the details, guys..

Thank you, Scott..

Thank you, Mr. Gaffner of Barclays. The next question is from Tyler Langton of JPMorgan. Sir, your line is now open..

Yes, good morning. Thanks.

Just on the European Food, I think could you just I guess give some detail on what drove the increase in profit and besides operating performance, were there any synergies still at that point or was it all just the operating performance?.

Well, I think what you are seeing – I think as we said last year, Tyler, we are complete with the Mivisa integration. Having said that, there are still ongoing benefits that you get from that integration that probably are not annualized until we get to the back half of this year or even into the fourth quarter of this year.

We have closed even two Crown plants in the meantime not related to the Mivisa one, a very large end center in the UK and a food can plant, it was a small food can plant in South Africa. So that will continue to generate benefits as well as we lower our cost base. So – but there was – volume was essentially flat other than South Africa.

Price was a push. So, it’s all been cost. And the cost reduction programs and/or ongoing benefits from Mivisa that are not yet annualized..

Got it. Okay, thanks. And then just with Brazil, I think you said your volumes were down mid single-digits.

Could you just give a sense for the remainder of the year what volumes could look like for both sort of the cans down in Brazil as well as your volumes?.

Yes, it’s a hard one to guess. I can tell you sitting here towards the end of April, April looks a lot flatter over the prior year. So, there has been a recovery in April at least for us. And some of it has to do with customer mix.

We all don’t have the same customer portfolio and some of the customers are gaining share and some of the customers are losing share. I don’t think we are poorly positioned. I think in fact we are pretty well positioned in that regard. And then mix is obviously a big driver in terms of standard versus specialty cans in Brazil.

The hope is that we at least from the can side of the business that the marketers continue to understand the benefits and the low cost nature of the can to their system and they continue to push cans. We have made a big jump in mix between glass and cans in the beer sector over the last 5 years in Brazil and we hope that continues.

But as you know, Brazil has some real challenges, sociopolitical challenges right now and it’s having a real impact on the confidence of the Brazilian consumer. And fortunately for us, celebrations and drinking beer at celebrations is still something they are going to want to do.

We will just have to see where it takes us, but we are hopeful that we are far flatter over the balance of the year. And certainly as we get into the fourth quarter, I think we are pretty confident that they will build up again for the big Carnival celebration in early ‘17. So that’s where we are at..

Great, thanks.

And then just Tom, one last question, the guidance for free cash flow, are you assuming flat working capital?.

Yes, more or less flat..

Okay, thanks much..

Thank you..

Thank you. The next question is from Adam Josephson of KeyBanc Capital Markets. Sir, your line is now open..

Thanks. Good morning, everyone. Couple of questions. Tim, I will start with one that perhaps you want to address. Your beloved hometown of Philadelphia is looking to implement a sugary beverage tax and obviously that’s been looked at in California and perhaps other cities as well.

So, can you address that and what your thoughts are along those lines?.

Adam, you have a great way of asking questions that try to get me in trouble and I am not real good at staying out of trouble, but that’s a good question. The new Mayor of Philadelphia is currently proposing a $0.03 per ounce tax on sugary beverages, which in some cases will double the costs.

So, let’s be clear, taxes on sugary beverages that is on big soda as he refers to it are not designed to protect the health of citizens or deal with childhood obesity. And I would offer to you that only those unburdened by the truth can make the claim.

They are regressive taxes designed to raise more revenues so politicians can keep spending more money. And we think they are discriminatory on multiple levels. We believe they should not be legal. We have seen this in a lot of jurisdictions.

I am of the view that for our industry and if politicians truly want to address childhood obesity and related diseases through taxation, then all the product groups need to be treated equally. A lone category should not and cannot be singled out.

Some body, government or otherwise would need to determine which items contribute to obesity through either sugar or fat content and they would be taxed. And those sugary items might include, but not be limited to what, candies, cookies, donuts, ice creams, pies, cakes.

The high fat content items might include pizza, French fries, macaroni and cheese, deli meats, the same donuts, ice cream, pies and cakes. While we are at it in Philadelphia, we can have a special Philly tax for the cheesecake and the tasty cake. We think about that. That probably would not be very popular.

Like many of you, I have children in school and I can tell you that my kids have not seen a soda machine in their schools for at least 10 years. And Tom Fischer looked it up yesterday and the research shows that one in three American kids and teens is classified as overweight or obese.

I think if you look at the lunch menus in the schools that are designed by the so-called dietitians and nutritionists that sales soft drinks regularly, you would see that they include French fries, hotdogs, pizza, all kinds of stuff. So that the claim that somehow eliminating soda will reduce obesity as farcical and disingenuous.

And to the claim that soft drinks contain empty calories that the nutritionist like to say, I think you only need to look at beverages like lattes, cappuccinos, fruit smoothies, all of which contain double or triple the number of calories than those that you find in a soft drink.

So again, I am sorry for the long answer, but at some point the nonsense needs to be addressed. So Adam, you got me in trouble and I took the bait..

It’s my absolute pleasure, Tim.

A couple of other ones, one on Ardagh, what are your views of Ardagh as a potential competitor in bev cans as they have been in food cans, both in the Europe and the U.S., particularly in light of what you said earlier with respect to the capacity situation in North American Food cans?.

Well, I think we go back and – at least what we have tried to understand how they came to get involved in North American Food can business, they made – they probably had a customer, very large customer, you know who that is, make a business case to them.

And they believe that that anchor customer and that business case could be a platform from which they could fill up those plants and have another leg to their business. I think it’s a little different.

I am hopeful that the business case that they are exploring now for the beverage business would be a little different, seems to be able different than them buying plants that may be available in the required divestiture process that’s ongoing for two of our competitors.

But I don’t know what their business case is and – but it seems to me that it looks like a different situation that we saw in food. So we would be hopeful that they would understand the business case. You can’t – you got to believe if they are going to spend $3 billion to $4 billion, they are not going to be foolish enough to destroy the business.

And so we will see where they take it, if they are successful..

Got it. Thanks.

And just a couple of other ones, one on your full year guidance Tom, compared to three months ago, you have call it a $0.04 benefit from stronger euro, you beat your first quarter guidance by about $0.07, I know you talk about 1% higher tax rate, but is there anything else offsetting those two benefits or are you just trying to air on the side of conservatism in this case?.

Well, Adam I would say those are the primary ones. The tax I mean on $700 million or $800 million pretax income is significant. So I think the two items you mentioned in the tax will largely offset where we were on our previous guidance..

Adam, I hope you are right. We were hard pressed to find ourselves ever changing guidance after the first quarter. So it’s early in the year. And yes, things look pretty good this year and we have had a good start the year. The demand looks very strong across most of our businesses in most parts of the world.

But it is early and we don’t really have any visibility into the European Food plantings or expected yields. So until we get a little better clarity towards the end of the second quarter, we are – it’s just safer to say we are at right now..

Got it. Thanks.

And Tom just one last one in Brazil, now you have the mix benefit that offset the volume decline, are you seeing any margin erosion in Brazil and/or do you expect to, just given the economic situation there, the status of the large contracts there or otherwise?.

I would say that we actually probably had some margin expansion this year in Brazil only because the aluminum premium situation has reversed somewhat in Brazil, not to the same level as Europe yet, but it is reversing. So there has been margin expansion. And the mix from standard cans to specialty cans helps the margin as well.

So I don’t think we are going to see a margin decline in Brazil, given the current structure that we have right now..

Thanks a lot Tim. I appreciate it..

You’re welcome..

Thank you. And the next question comes from Ghansham Panjabi of Baird & Company. Sir, your line is now open..

Hi guys. Good morning..

Good morning Ghansham..

It looks like InBev is adding some additional specialty can capacity by their metal container subsidiary. We have seen some other customers do that as well.

Are these sort of one-offs or is it basically the customer is not happy with how fast the industry is adding specialty can capacity in North America, what are your thoughts on that?.

I think Ghansham, what you are referring to is InBev is putting bottling lines in, right, aluminum bottom lines. And I think it’s probably a combination of two things there. They may or may not be happy with the speed at which the industry is putting that in.

It’s not clear to me that the demand for bottles is growing so quick that they need to do that in light of what the competitors that we have who are in that business. It seems to me that there probably is enough capacity and/or the competitors we have are willing and able to do that for them.

It’s probably that they just want to either announce something, whether they follow through on it or not. But assuming they follow through, they want to believe that they are in that marketing and use it to help themselves leverage their purchasing power in the future..

Okay. And then if we switch to the carbonated soft drink side, Coca-Cola has reported yesterday, they seem to be focused on re-branding their packaging on global basis, how do you think that affects beverage cans as part of the mix, is this sort of an incremental.

opportunity for your or maybe even a risk, it just seems like your customers are focused on creating many different formats across the isles?.

Yes. Absolutely fair point and good question and I think everywhere around the world Ghansham, we are extremely well positioned, if not as well as everybody else, better than anybody else for the variety of sizes that are offered in every market.

The one area where we know we fell behind a little bit was North America and that’s why we have the Nichols facility. So we are – we are well prepared to benefit from that. And I think that their efforts to drive their business can only be helpful still for us and we have to stay with them and continue to support them..

Okay.

And just one final one on China, your commentary on basically walking away from certain customers that are unprofitable, are these multinationals our local customers?.

Both..

Okay. Thanks so much..

Let me back up. I am sorry, Ghansham. Let me back up, where we have walked away is local, but pricing is challenging across both multinationals and local..

Okay. Thanks for clarifying..

You’re welcome. Next question please..

The next question is from Daniel Moran. Sir, your line is open..

Hi guys. Congrats on the start, good start of the year. Can we talk a little bit more about the North American beverage can out-performance, do you think this is more of a slowing of the secular declines we have seen in carbonated soft drinks or do you think it’s more substrate share gains.

And how do you think we should think about this going forward?.

Yes. I think it’s – I tend to think especially if you look at the news from the two big beverage companies over the last couple of days, its substrate share gains. So if we start with beer and we continually see beer gaining, beer in cans gaining more share from glass.

I think we are up to a number – Tom Fischer showed me a number the other day, I think were up to 68% of the North American beer market is now in cans and it continues to grow 1% to 1.5% every year in terms of mix. I think if you look to the big soft drink companies over the last couple of days, it does not look like soft drink consumption is growing.

So that would tell you it’s going to be mix. It’s got be substrate mix..

Okay. Thanks for that. And then given how you have seen 1Q progress and a couple of weeks in 2Q, any updated views on your organic global bev can volume outlook, maybe specifically for the U.S.

and Europe since you had in Brazil?.

Yes. I think – well, North America is always U.S., Canada and North America is always a tough one. As I have said earlier, we had a real good first quarter. I think we are really well positioned for a good summer if the promotions by the marketers are sound and the consumer gets back to enjoying a cold beverage. But we will see where it goes.

At some point, the declines we have experienced over the last decade, you got to believe they are going to level out. And we are going to start to grow with population growth and GDP. So I think we are not overly concerned with North America. We are well positioned.

In Europe, we continue to see the beverage can being the packaged choice for conversions. And the situation was tight last year in Europe and it will remain tight this year in Europe for can supply. So we are trying to get as many of the conversions to specialty sizes done. We are adding a line in Turkey.

We are trying to do as much as we can to keep up with the market. I know our competitors are as well. And so I think the European Beverage can market is extremely sound..

Okay, great.

And then what are your competitors has been talking about some pricing pressure, I think isolated mainly in Spain, have you seen anything there or is pricing pretty stable?.

I think you are going to see from time-to-time pockets of pricing pressure in certain geographies. And there could be on or more participants trying to enter certain markets. And to do that, sometimes the attraction is price.

And that’s just something we and all the participants have to be aware of when we are in a market with only one or two other suppliers and it’s the burden is on us to keep our costs down and remain attractive to our customers in terms of quality, service and price..

Alright.

Last one for me, any change in customer conversations regarding potential consolidation in the industry?.

No, I think that would not be appropriate for me to comment on this call..

Alright. Good luck for the rest of the year guys..

Thank you very much..

Thank you. And the next question is from Mark Wilde with Bank of Montreal. Sir, your line is now open..

Good morning, Tim. Good morning, Tom..

Good morning..

Tim, just any updated thoughts on impact to the beverage can business from this ongoing consolidation in the beer market? You have had customer – or you have had competitors who have talked about more pricing pressure from global sourcing from some of these guys.

What are you seeing?.

Well, I will go back to – I think I answered the question, Ghansham answered along the same lines a few calls ago and it’s extremely relevant the question.

The way we look at it, if you look at the two big beer companies that are looking to merge and you look at what looks like to be the required divestiture package in some of the big markets where the can is used, there is not – there is no consolidation in that regard.

There is large opportunity for the acquirer of the other beer company to grow their scale and enter new markets. But in some of the bigger markets like China and the North America, I think they are being forced to divest what they are acquiring to get approval. They do both used cans in Europe, but they are not the biggest can users in Europe.

So from that regard, yes, we are going to see some price pressure. They are going to look to try to drive synergies from any and all sources they can, including from their supplier base to make the returns work on the acquisition. But we don’t – there are a few can suppliers in Africa and there is a big opportunity in Africa for the consolidation.

So, that doesn’t look to affect our business. And as I said in China and North America, there is always going to be pressure. And as I said, we are going to have to remain competitive and keep our costs down, but it doesn’t look like there is going to be a consolidation there..

Okay. Another question, I have seen some stories recently about little bit of expansion taking place down in Southern Africa.

And I wondered just generally across the emerging markets whether you are starting to see markets that you haven’t been in where the can is getting enough penetration now to make you think about entering some new markets geographically?.

Yes. We look at – we are not afraid to look at every market. We are in some interesting places. So unfortunately, some of them are getting more interesting now, but they have always been interesting, so they will be fine and they offer a lot of opportunity in the future.

So, we continue to look at markets as you suggest, but we are always trying to balance what we believe is the opportunity for our product with the overall economic opportunity in that market giving rule of law, sociopolitical issues and the current competitive landscape and what might be available to us if we go into the market.

But yes, we are looking. And if we see opportunities, we will act on the opportunity, but we are probably not going to tell you first..

Yes, okay. Last question I had can you just talk a little bit about how your share is in the craft beer market in North America? That market seems to be growing.

And just I have heard some things that suggest that maybe you changed kind of strategy or the size of customers you are willing to deal with in the craft beer market?.

Yes, I think craft beer market in North America is interesting. I think if you describe the craft beer market as North America, we might be the leader in craft beer in North America. That is because we have much of the craft beer in Canada.

If you look at just the United States, we are probably not the leader in the United States, but we are extremely well positioned. We made a big push to support as many of the craft brewers as we could over the last several years. Our beverage team has done a great job. I think we probably got a little out over our skis.

We might have been a little bit more aggressive in that. We were willing to take much smaller order sizes than some of our competition.

So, the change that you are referring to is that we have more appropriately aligned the minimum order size that we are willing to take so that we can run as efficient as possible so that we can service all customers with the best service and quality we can.

But that change in order size is probably nothing more than regressing to where the competition is in the market..

Okay, that’s helpful. Super. Thanks a lot and good luck for the balance of the year..

Thank you, Mark..

Thank you. And the next question is from Anthony Pettinari of Citigroup. Sir, your line is now open..

Good morning. In North America bev, I think you indicated you are not necessarily gaining share rather you are seeing strong demand and some positive substrate mix.

I am wondering does that hold for your bev can businesses in Europe and Middle East and Latin America? Do you think your market share is basically stable or are there regions where you are gaining or losing share maybe outside of China where obviously you took some capacity down?.

Yes. I think, well certainly, in North America, if you just go by the numbers, we are up 3.5% in the first quarter. The market was up 2%. So by definition, we had to gain market share. I don’t think we have gained share in terms of gaining new customers.

I think what we have gained is our customers have gained share versus those customers we don’t have or it could be temporary in that where we share our customers with another competitor, certain filling locations are doing better in certain regions of the country than other.

So, I don’t describe that as share gain, one quarter or two or three quarters would not allow you to characterize that. I think as it relates to South America and Southeast Asia, Europe, all of these markets grow or move sideways from time-to-time. Currently, Brazil was kind of slowing, but I don’t think we are gaining share.

I think we are doing the best we can just like our competitors are. The best we can to keep our share and service our customers, but that means we are expanding as our customers expand. I don’t think there is any real market share gain strategy that anybody has been on..

Okay, that’s helpful. And then just on China is it possible to size the capacity reductions? I heard you had 300 million cans in China.

Can you give us any color in terms of the reductions?.

Well, I don’t know how you came up with 300 million cans. China is a market where we supply 4.5 billion to 5 billion units on an annual basis..

I am sorry I think I was looking at sales?.

Yes, so sales are $275 million, yes, roughly. Yes, I don’t think it will be appropriate for us to start describing the level of pruning that we have undertaken. The level of pruning is related to profitability on certain accounts, collectability of certain accounts, items like that.

It’s more a prudence than it is of where we think the market is going to be..

Okay, fair enough. And maybe just the last one, it sounds like Mexico was really strong in the quarter.

I think you confirmed the startup for Monterrey or the timing is there any thoughts on opportunities for an additional line there? Is that something that would be warranted later on in 2017 or beyond?.

Yes. We are going to – it’s a good question. I think the answer is from an operating standpoint, let us get the first one up and let’s be sure we are happy with the startup as it relates to efficiency and spoilage levels. And we will evaluate the need for a second line in due course. I do think the Monterrey facility will need a second line.

We will need a second line to service our customers in the region. The northern part of Mexico, it seems to be a can market. The southern part of Mexico is more of a glass market.

And so we have great opportunities not only domestically in Mexico, but our customers have great opportunity to export the Mexican brands in the United States, which have been growing tremendously. So over time, yes, we will probably see a second line in Monterrey, but it’s far too early to discuss when..

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

Thank you..

Thank you. And the next question is from Chip Dillon of Vertical Research. Sir, your line is now open..

Yes, good morning Tim and Tom..

Good morning, Chip..

I know it’s still early in the year. But I know this year you had said earlier, I don’t know if you have reiterated this on the call that CapEx would be around $400 million, which I think would be in line with your – the high watermark we saw maybe 5 or so years ago.

As we look out to 2017 and keeping in mind what you just said about possible further expansion what would sort of be a range of what we should look for in ‘17? Do you think you will stay at that level or could go higher or lower?.

Yes, I think it’s far too early to say. I think we do see opportunities. I don’t want to be the company and I don’t think we are. I think our industry offers great opportunity for future growth in many markets around the world. We are not to the point, where the only opportunity we have to drive value for the shareholders is share buyback.

We have opportunity to continue to expand the business, continue to expand profits, continue to expand the opportunity to generate more cash flow from those profits, but far too early to talk about a range of capital for next year..

Okay, got it. And then could you read for us sort of how we should expect the premium situation, the aluminum premium situation to flow through.

And then on the last three quarters of the year, I know it was certainly a tailwind in the first quarter, does it go away in the second half, does it flip even and become – I know it could certainly change from now, but how should we kind of think about the premium through the rest of the year?.

Yes. Tim, we talked on the fourth quarter call about having a tailwind of about $12 million from the premiums. Tim mentioned in his comments that we have about $6 million or so in the first quarter, a little higher to include Brazil, $6 million in Europe.

So the remaining piece will come largely in the second quarter, maybe a little will roll into the third quarter, but then we are done with it. So at least half came through in the first quarter, we will get a little bit more in the next two..

Got it. Last question is looking at Brazil, I have known from – noticed some other competitors as well that there is a very aggressive, it seems like shift in mix taking place there.

But as you look at the market, you also see I think their beer share of beer that’s in cans is sort of I think it’s risen above 40% and my understanding is here in the U.S.

it’s north of 50%, do you see – are you concerned that we might be close to a saturation point in Brazil, leaving aside the economy there, but just sort of are we hitting sort of a level of market share gains that you think make it tougher to grow?.

Well, as we said earlier I think in North America, cans have about 68% of the beer market, 68%. And in Brazil as you say, we are above 40%. I think the numbers are depending on – from quarter-to-quarter and the promotions, anywhere from let’s say, 45% to 48%. I don’t think we are at a saturation point.

I would argue that if North America is at 68%, there is no reason other than available capacity and marketing. And the confidence of the Brazilian consumer, there is no reason to think that over time, the Brazilian market couldn’t have the same substrate dynamics as we see in North America. So I am not projecting that any time over the near period.

But I don’t think we are nowhere near saturation point. I think the marketers understand the cost and the benefits throughout the entire filling and shipping and storage system. The recovery system of glass bottles is cumbersome on local bodega owners.

And I think the integrity of the beer is far better in cans than it is in glass or any other substrate. So I think we have a long way to go in that regard..

Okay, helpful. Thank you..

Thank you..

Thank you. And the next question is from Philip Ng of Jefferies. Sir, your line is now open..

Hi, good morning. This is Alex Hutter on for Phil..

Hi..

I just want to also touch on Brazil.

I want to clarify on the cadence in the quarter, if look at the production data throughout the quarter, it looks like things were up in January, kind of flat in February and then a sharp drop-off in March and then you indicated in the data today, just the things are kind of flat in April, do you think that there was an impact from the timing of Carnival and Lent in February and March this year or is there something in the macro that could have been driving that?.

Well, there may have been a timing issue. I think Carnival was a little earlier this year than last year. There could be timing. But I think more than that, as you say the macro, right, the Brazilian consumer is not confident. And they have got some sociopolitical issues. You are well aware what they are. I am not going to comment on them.

But until that – some of that is settled one way or the other and there is more confidence among the consumers, perhaps it’s going to be volatile from period-to-period. But what we see in the can business, at least to Crown, April looks much more comparable to the prior year. Now, April is the smaller month.

And as you say, the fillings in March were way down. And we did see the March pull for cans being done compared to January and February. But the difference between filling as it relates to all products that are filled and we are just looking at cans. So we are hopeful that April is a sign of a better period to come.

And we will have the Olympics this year in Brazil, although it will be confined to Rio. It won’t be as broad based as the World Cup was a couple of years ago. So we are hopeful for a good summer season. The summer season is typically smaller in Brazil anyway until we get into the late third and then the fourth quarter..

Got it. Thanks. That’s very helpful.

And then I wanted to touch on North America, you talked about obviously the industry data was up about 2% and you guys outperformed that, I wanted to talk kind of the sustainability of that 2% rate you touched on of getting share from glass, so should we be expecting this kind of like 2% industry growth throughout the rest of the year just based on that shift in pack mix?.

I think what I said earlier is you probably shouldn’t expect anything. I really can’t answer the question. It depends on the promotions that are offered by the marketers. And I don’t have enough data right now, as we sit here in April to understand how they are going to promote PET versus cans.

I think what we have seen, as we know as it looks like CSD consumption has been fairly flat based on the news over the last couple of days. So my view is that it could be – it’s got to be pack shift mix. But we will see where that takes us over the next several quarters. It’s good news in Q1.

I think we did pretty well last year at Crown relative to the industry. We are hopeful that the declines we have seen over the last decade are beginning to be a bit more muted. But we can only hope and plan for what we see currently. And I think it’s – I am the wrong guy to ask.

I think you are going to how to ask some of the big beverage guys or perhaps some of the cohorts you have in your bank who would cover the beverage companies to understand where they think its going.

But having said that, we are well positioned in the market and there are a number of other products that we are providing beverage cans for teas, juices, water, coffees. There are – it’s not just the carbonated markets..

Got it. Thanks. That’s it for me..

Thank you..

Thank you. And our last question is from Chris Manuel of Wells Fargo. Sir, Your line is now open..

Good morning gentlemen..

Hi, Chris..

Tim, you are not drinking any of that Flint, Michigan water today, are you? I am just kidding. You are in rare form today.

You are getting us some sound bites for folks in Philadelphia and other place, the government on BPA?.

I answered two questions as they relate to our business. And as I have said sometimes the nonsense needs to be addressed..

I am with you. Thank you. I did want to ask a couple of questions.

Twice as you kind of went through some answered a few questions, you referenced other better uses of capital type opportunities when you get to 3.5x that you were thinking of, could you maybe give us a sense as to what areas of business you would most be interested in adding to or maybe it’s geographies where you are most interested in and taking a look?.

Well, I think the only thing I was trying to point out Chris, was that just because we get to 3.5x or 3.3x, we don’t automatically tell ourselves, now it’s time to buyback stock.

I think we are well positioned and we are fully committed to returning value and cash to the shareholders, be it through stock buybacks or other means if the Board so chooses over time. And what I was trying to address was that there is no magic number at which we do that. We still see incredible opportunity in the industry.

Largely as it relates to beverage cans around the world and in most part, in markets that we are already in, whether that be through conversion to different sizes or premiumization of our products and our customer’s product. But also there are several other markets where there will be opportunities.

And I am just offering that we still see incredible value creation opportunities in growing their business, not just in buying back shares..

Okay, that’s helpful.

And then second question I wanted to ask was as we see some of the spoils from the Ball-Rexam piece put together, there is likely to be a new entrant in the can market, as we saw a new entrant, for example come into North America recently in the food can side, a lot of folks went out and locked up volumes or customers are such ahead of time, how do you think about how to position your portfolio ahead of a new entrant in the beverage side, would you think about maybe relocking up some volume for a few years, potentially a new entrant could be much more aggressive on price or trying to grow their business faster than the market or disrupt along those lines, how do you think about positioning your business ahead of a new entrant?.

Well, the big difference as I have said earlier is that there was one big customer that went to that new entrant and offered them a sizable opportunity in terms of volume if they would put a new capacity into a market, which already had excess capacity, so more excess capacity has been created. We don’t have that current situation in beverage.

I can’t think of any market other than China, where we have a situation where there is excess capacity in beverage. We are sold out in Europe. We are in pretty good balance in North America and Brazil even with the Brazilian slowdown.

So unless somebody wants to enter the market and put new capital in and far more capital required in beverage than in food, we don’t see that same situation playing out. And we are kind of hopeful that if somebody is going to spend, as I said, $3 billion to $4 billion, they are not going to spend it to be foolish.

So, I think the – hopefully the business case that they see is one in which it’s a different leg to their story or it’s a – they are all private equity players in my view.

It’s a view as to how much they can generate in terms of cash in a very sustainable, stable business to pay down the debt and drive more equity value until they decide at which time in the future they want to try to flip it and move on.

So, I think the situation in beverage globally is far different that what we had in North American food and it relates to capacity..

Okay, that’s helpful. Good luck in the quarter, guys..

Thanks, Chris.

Han, did you say that was the last call or do you have another call, another question?.

Last one, sir..

Last one. Well, thank you very much, Han and thank you everybody for joining us today. That concludes the call and we look forward to speaking with you again in July to discuss the second quarter results. Thank you..

Thank you. That concludes today’s conference. Thank you for participating. You may now disconnect..