Thomas Kelly - Senior Vice President and CFO Tim Donahue - President and CEO.

Brian Maguire - Goldman Sachs Scott Gaffner - Barclays George Staphos - Bank of America Merrill Lynch Matt Krueger - Robert W.

Baird Mark Wilde - BMO Capital Markets Chip Dillon - Vertical Research Anthony Pettinari - Citi Debbie Jones - Deutsche Bank Philip Ng - Jefferies Adam Josephson - KeyBanc Chris Manuel - Wells Fargo Arun Viswanathan - RBC Capital Markets Tyler Langton - JP Morgan.

Good morning. And welcome to Crown Holdings’ Second Quarter 2017 Earnings Conference Call. Your lines have been placed on a listen-only mode until the question-and-answer session. Please be advised that this conference is being recorded. I would now like to turn the call over to Mr. Thomas Kelly, Senior Vice President and Chief Financial Officer.

Sir, you may begin..

Thank you, [ph] Ang (00:39), and good morning. With me on today’s call is Tim Donahue, President and Chief Executive Officer. On this call as in the earnings release, we will be making a number of forward-looking statements. Actual results could vary materially from such statements.

Additional information concerning factors that could cause actual results to vary is contained in the press release and in our SEC filings, including in our Form 10-K for 2016 and subsequent filings. Earnings per share were $0.94 in the second quarter and $1.71 for the six-month period.

Adjusted earnings per share were $1.12 in the quarter and $1.83 year-to-date. Net sales for both the quarter and year were up less than 1% as increased beverage can volumes and the pass-through of higher raw material costs were offset by currency translation.

Segment income for both the quarter and year improved 3% at actual exchange rates and 5% at constant currency rates, with the largest contributions in Americas beverage and Asia-Pacific. Through the date of the release we have repurchased 5.4 million shares of company’s stock for $296 million.

As outlined in the release we are increasing our full year adjusted earnings guidance between $3.90 per share and $4.05 per share and project third quarter adjusted earnings of between $1.35 per share and $1.45 per share. These estimates assume a full year tax rate of approximately 26% and that exchange rates remain at current levels.

We used the euro rate of €108 for the first six months and our guidance assumes a rate of €111 for the full year. We are also maintaining our full year free cash flow guidance of $425 million after $450 million in capital spending. And with that, I'll turn the call over to Tim..

Thank you, Tom. Good morning, everyone. I'll be brief and we'll then open the call to questions. As Tom just discussed and as reflected in last night’s earnings release, we had a good second quarter and through six months are slightly ahead of our original plan.

In February we outlined for you two non-operating items, foreign exchange and interest expense, as well as startup costs, which would impact 2017 versus 2016.

At the six-month mark foreign exchange and startup costs have been a bit more of a headwind than we anticipated, offset by lower interest expense and higher global volumes across all product lines. Global beverage can demand has remained firmed with volumes up a bit more than 2% both in the quarter and for the full year.

The currency impact on segment sales and income is shown in the release, so my comments regarding performance will be on a currency neutral basis. In Americas beverage, sales units improved more than 1% as high single-digit volume increases across Latin America, that is Brazil, Columbia and Mexico, offset a low single-digit decline in North America.

Segment income was up 4% in the quarter as a result of the volume gain and improved mix, offsetting startup costs in Nichols and Monterrey, and the inflationary impact we have discussed before. Sales unit volumes in North American food were leveled to the prior year, with segment income benefiting from improved mix.

Initial indicators point to what should be firm pack conditions with beans and corn looking strong. Unit volumes in European beverage increased almost 2.5% in the quarter, as strong volume performance were noted across all operations with the exception of Saudi Arabia.

Volume performance in the quarter was also helped by the startup of the second aluminum can line in Custines, France during April. Segment income was off slightly due to geographic mix and a small startup impact from the second Custines line.

And in the Middle East volumes remain under pressure from ongoing conflicts in the region and more recent introduction of beverage taxes in Saudi Arabia.

Unit volumes in European food were leveled to the prior year in the second quarter, and is the case in North America we expect crop yields and the seasonal pack for most products to be strong this year.

The benefits of prior year cost reduction activities combined with improved operating performance offset a mix shift to smaller size cans to yield 3% growth in segment income.

Segment income in Asia-Pacific advanced 15% on the back of mid-single-digit volume growth in Southeast Asia and the cost benefits of last year’s Shanghai plant closure, which offset a 2% volume decline in China.

In summary and as Tom noted, the combination of solid first half operating results, some second half relief on currency and the frontloading of our share buyback program all lead us to increasing guidance at the midway point in the year. We still have the important third quarter food pack to come but currently all signs point to a good season.

And with that, Ang, we’re now ready to take questions..

Thank you. [Operator Instructions] Our first question comes from Brian Maguire of Goldman Sachs. Brian, your line is now open..

Hi, good morning, guys..

Good morning..

Good morning..

Just a quick question on the share repurchase, as you noted is probably little bit above your expectations maybe going into the year.

I think last quarter you commented on the M&A environment and multiples being a little bit elevated, I’m guessing that drove some of the thought process there, but could you maybe give an update on, how you see the M&A pipeline and the landscape and how you kind of prioritize or rank the options you’ve got for returning cash at this point?.

I think, I -- certainly, we believe multiples are elevated and that’s not just in the M&A landscape, and perhaps, it’s a resetting of where multiples are going to be long-term, just given low interest rates and the amount of money that’s chasing assets, specifically some of the private equity firms that continue to raise huge amounts of money.

Having said that, we’re always on the lookout for assets to add the portfolio that yield very good growth opportunities for us and have sustainable earnings and cash flow characteristics. I would say that, those opportunities across the metal space are limited right now.

So if you were to undertake that exercise you’re looking at expanding your portfolio of assets to add another leg to the stool, which obviously requires further thought and an increasing knowledge of a business that we don’t have enough knowledge about now.

Having said that, that’s not going to put us off from that, if we found an asset that we thought was really important to the future of the franchise. We look a certain way today, but that doesn’t mean we’re going to look that way in five years.

But I would say that, our efforts to buyback or frontload the share repurchase for the first half of this year were more in line with as we said before we thought certainly multiples were elevated. But more importantly we felt we were undervalued and I think unfortunately I made my feelings clear about that fortunate or unfortunate.

So we thought, lot of time we were significantly undervalued, perhaps we still think we’re undervalued, but not as significantly undervalued versus some of the peers that we have across the paper and packaging landscape..

Yeah. That makes sense. And good to see you’re putting your money where your mouth is on that one. Just one follow-up for me, just -- most of the volumes were strong outside of the Americas. Just wondering if you could comment or maybe outside of the U.S.

in particular, just wondering if you can comment on trends in the U.S., we just saw some weakness in some of the Nielsen data, as the quarter progressed and some of the comments from some of the large brand owners were sort of little bit negative on June, maybe commenting on weather and things like that? Just wondering if you saw similar trends there and what sort of the outlook is for the third quarter and second half for the U.S.

and North America?.

So we’ve -- we received the CMI data, I think yesterday or the day before.

It looks like the industry increased 0.4% in the quarter and we were down low-single digits around 2%, 2.5%, as you recall for the last several years we’ve been outperforming the market which was largely related to customer mix that we had or that we were enjoying versus the overall market, our customer mix performance.

There was a small customer shift at the beginning of this year. So I would expect our volume performance for the balance of this year to trend in line more with our experience in the second quarter and for that to be more than offset by performance in Latin America..

Okay. Thanks very much..

Thank you..

Thank you. Our next question comes from Scott Gaffner of Barclays. Scott, your line is now open..

Thanks. Good morning, guys..

Good morning, Scott..

Good morning..

Hey.

Just looking at the free cash flow for a minute, obviously you raised the earnings guidance, but the free cash flow didn’t change, is there more working capital requirements associated with Nichols or maybe some of the conversions in Europe?.

Yeah. Scott, the primary factor there is, we have a one-off cash flow item that we assume is going to hit us this year and that arose in the second quarter and you’ll see a reference to that in our non-GAAP reconciliation in the back of the release and also in that discussion you’ll get an idea of the magnitude of the amount..

And what is the item just -.

A litigation item..

So, if you go further into the release, you’ll see that we had a litigation item that related to pre-acquisition of Mabesa that has risen..

Okay. And as we think about 2018 around the CapEx, should we, I mean, I think, on the last call, you gave us the long list of projects.

Should we think about CapEx coming down a little bit as we move into 2018 just as Nichols rolls off and some of these other capacity expansions?.

Well, it depends what opportunities we’re presented with. I think, fortunately for us, we’re present in a number of markets which still exhibit very good growth characteristics. We are -- as you know we’ve not been ones to shy away from trying to take advantage of those growth opportunities when they arise.

So that in combination with the ongoing need to convert Spain from steel to aluminium, I would say that, what we have said, is you -- you should expect at least $400 million next year and I think that’s probably all we’re prepared to say at this point. We don’t have a finer point to put on it..

Okay.

Last one for me, just on Brazil in the quarter, I mean, can you reiterate what you said the volumes were in the quarter and are you seeing any shift away from cans to glass, given the macro backdrop there?.

So we look at Latin America as Mexico, Brazil and Colombia. I can tell you Latin America up high-single digits in each market -- each of those country is up. We have not seen a shift away from cans in Brazil..

Thanks, guys..

Thank you..

Thank you. Our next question comes from George Staphos from Bank of America Merrill Lynch. George, go ahead please..

Thanks. Hi, everyone. Good morning. Thanks for all the details. I guess my question segue off of what Scott was talking about with Brazil.

Can you comment on what the volume trends were in the Middle East, if you had mentioned I’ve missed it and what the exit rates look like into the third quarter? Similarly, if you can comment on what the exit rate for Latin American beverage can volumes looks like.

Are you still continuing around the high single-digit growth rate and I have a couple of follow-ons?.

So, I’ll do Latin America first, I don’t have -- you are talking the exit rate, you kind of want to know the last couple of weeks of June, I don’t have that.

I do expect the third quarter and fourth quarter to be fairly robust in Latin America, whether it’s mid-single-digit growth or high-single, I can’t really refine it more than that for you George, but....

That’s fine..

Somewhere along the line in our business, we forgot we are can companies. I think we are -- we naturally are more excited at mid-single-digit than you are, but remembering we are can companies. Mid-single-digit growth is really quite robust for a can company. So we are quite happy with that.

If we get high-single digits, I almost can do a back flip, but....

Yeah. I’m happy with better than zero typically, so anyway..

Well, that’s the point I’m trying to make, right. It’s -- so it’s all quite robust and you understand we put more units under the roof, the multiplier effect to that, so we are quite happy with that, whether it’s 3%, 6% or 9%. I can get happy at any of those numbers. In the Middle East, yeah, it’s all about Saudi.

I would say that our European operations were up high-single digit looking at the numbers now and the Middle East was down low-double digits, with the Middle East all being confined, that decline all being confined to Saudi Arabia and largely around lower can fillings from the conflicts, but more recently the beverage tax that has been introduced in Saudi.

And I’d -- it’s hard for me to project the Middle East, but I think on the beverage tax, we’re going to expect the next couple of quarters to yield soft volumes in Saudi, but I think over time, as we’ve seen, when they’ve introduced other taxes in the past, that it will come back.

Just probably take two quarters or three quarters for that to be fully seasoned before we start regaining..

Okay, Tim. So I seem to remember in the past broadly, Middle East, you’re looking at mid-single-digit declines and I think you just said low-double-digit, obviously due to Saudi and I know it’s hard to say what you’re seeing early in the quarter, let alone, last couple of weeks of June and your prior comments on Latin America.

But is your opinion that you’re running double-digit decline to Middle East right now for the foreseeable future as a result of what you just said?.

I don’t know. I think that as I -- I’m just looking at the other performances in the other countries, there are Jordan, Dubai and Tunisia. They were all pretty firm..

Okay..

It’s hard to believe Saudi is going to be down as much each quarter as it was in the second quarter, but we’ll see. Certainly, they didn’t fill, so their level of inventory coming out of the second quarter is quite low. I -- it’s -- well, what I will say is that, despite all that we’re earning our way through it.

So I don’t want to leave a negative taste, right. We basically are right on top of last year’s number with a big headwind in Saudi. So, I’m not so concerned about it, obviously you’re always concerned, but we’ve got a pretty broad business and we’ll earn -- we’ll continue to earn our way through it..

Okay. Second question just on working capital and the one that you mentioned in terms of litigation, I wasn’t able to find it in my version of the press release.

But has that more or less, is that taking care of it or is it going to be an ongoing event, if you can comment? And then I seem to remember last year you had a better than normal if you will working capital year in part because you’re extending payables and that sort of thing.

So I remember that being one of the reason that this year you weren’t expecting as much of a working capital benefit and the operating cash flow was where it was going to be, but if you can comment around those points that’d be helpful and I have one last one?.

Yeah. So, if you -- we have an eight page earnings release and if you go to page six, its footnote two..

Yeah..

That’s where you will find that. Just remind me that the other, oh, oh..

It’s a one-off....

It’s a one-off. It’s not ongoing..

Okay..

And then working capital generally for the first six months using more working capital than last year and that really has to do with the pass-through of much higher tinplate costs across the food and aerosol businesses in North America and Europe this year compared to last year.

So building inventory, higher receivable balances, but I think we’re anticipating working capital performance. Tom has given me the level sign this year as compared to last year, so not the benefit that you would have seen last year.

Is that what you’re saying, Tom?.

That’s right..

That’s right. Okay..

Okay. But flat more or less and aside that one-off, more or less where you expect it to be..

Yes..

Okay. And my last question, just taking a step back, the last couple of years there have been several headwinds, foreign exchange being one of them. The company has continued to plough ahead with its investments and strategy.

If -- as you sit here today, there are no guaranties in life, so we just want to know what your thoughts are as opposed to holding this something specifically.

But what gives you the most confidence in your ability to see growth in EBITDA and returns over the next two years to three years? And what gives you as we sit here July of ‘17, the most pause in answering that question or concern? Thank you, guys. I’ll turn it over..

Thank you. But, George, I think, as we’ve said before, you -- we could take the strategy that we’re not going to spend money to grow the company, we’re just going to generate cash and buyback stock. That’s not a long-term strategy. You’re going to wake up in five years and you’re not going to have the business you thought you have, things change.

You become less competitive in the environments that you’re in, because you’re in a number of markets with the number of different competitors in several markets. And you’re going to find in five years you have less cash flow than you thought you’re going to have, because you’re just not running as well or you’re not as competitive..

No. Yeah. Tim it was less of a capital allocation question is really more markets and so....

Oh! So we look at some of the markets we’re in and all of these markets from time-to-time have their downs, but on balance for the last 10 years, when you look at Latin America, Southern Europe, Southeast Asia, the demand trends have been really robust. And Brazil is a big country. There’s 200 million people.

They add about 2 million or 3 million people every year and extremely young population. They’ve had certainly some political and social issues, a bit of instability and despite that they keep -- they live their lives. They’re out having their celebrations and living their lives and demand has remained strong. It’s -- it may not be up 10% every year.

It might have a year where it’s a down a couple percent or flat, but on balance it’s been very robust. So we are -- we remain positive. And then, you come to a market like Southeast Asia, there’s a lot of people in Southeast Asia and they become wealthier every year.

So our -- we remained bullish on Southeast Asia as do many other companies and we’re extremely well-positioned in a number of those markets. And we are not -- I will tell you George, we’re not just taking capital and throwing against the wall, hoping that we’re right 6 times out of 10 times.

We are --if we’re not 10 for 10, we’re always very disappointed and I’ll be honest, we’re not always 10 for 10. We know we have some -- we’ve had some clunkers in there or I shouldn’t say clunkers, we’ve had some disappoints.

The disappoints, we talk about it before China and I’ve said before, everything we anticipated about China on the volume side, we were actually little light, the demand has actually been much more robust, it just we didn’t anticipate the level of state sponsored funding that all these other smaller companies could come into the market with and the other whatever funding they get to offer prices that are really kind of ridiculous.

So, but other than that, I think, we remain fairly optimistic about the opportunities over the next several years and it’s why we’re -- it’s why we continue to put capital to work in several of these markets and I think, from time-to-time we have a hiccup, but I think generally over time the trend line in markets like Brazil and Turkey and Southeast Asia, not only for demand but our segment income performance is quite positive..

All right. I’ll turn it over. Thank you for the thoughts..

Thanks, George..

Thank you. Our next question comes from Ghansham Panjabi of Robert W. Baird. Ghansham, your line is now open..

Hi. Good morning. This is actually Matt Krueger sitting in for Ghansham.

How are you guys doing today?.

Very well..

Good. Good.

Could you provide some added detail on what specifically drove the outperformance in Southeast Asia, compared to your initial expectations? And then, can you also comment on the pricing environment in China with maybe an outlook as well?.

Yeah. So, the outperformance in volume, I think, we were up mid-single-digit. So, I say mid-- so I think we’re up like 6.5% in Southeast Asia. I don’t remember what we modeled, but I guess, I think, the Asian team had a number more like 4% in there probably for the first half, so it’s a few percent better.

And as I said earlier, you put a couple percent growth under the infrastructure you have, it’s quite powerful from a leverage standpoint. As to China, pricing is where it is right now. It hasn’t changed really from the beginning of the year. I mentioned earlier that it was a bit firmer this year than it has been in past years.

That is as aluminum from the Shanghai Exchange went up this year. We actually saw the ability to pass most of that through and so it gives me some optimism where at the time it gave me some optimism that perhaps there’s light at the end of the tunnel and I think I told you I don’t know how long that tunnel is, but I do see a light.

It really remains to be seen. I think there’s still far too much capacity in China. The market is expected to grow again this year, albeit it’s going to grow at much lower rates than we’ve experienced in the past.

I -- what our guys are suggesting is that, Chinese growth is going to be in the 4% to 5%, 6% range this year, which is a much lower growth rate than we’ve seen in the past. And normally 4% to 5%, we’d be quite pleased with, but given the amount of excess capacity in China, it -- we’ll see what that means in terms of price yield going forward..

That’s definitely very helpful.

And then, were there any notable startup cost during the quarter and then how do you -- how would you expect startup costs to trend for the remainder of the 2017 and heading into 2018 as well given all your investments?.

I think what we said last time, the only startup cost we were really calling out as an impact ‘17 over ‘16 were Monterrey and Nichols only because they are very large projects in markets where we have not had recent startups.

I think that on balance, while there are a number of projects that we’re continuing to do in Asia and some in Europe, we’ve had startups. So year-on-year, there is no -- we don’t really see any impact year-on-year. There is a startup impact, but it’s not too dissimilar to what we’ve experienced in the past.

As to Monterrey and Nichols, I made mention in my comments that the startup -- a little higher startup costs than we had modeled this year and that’s just the startups are going a little slower than we anticipated, but they are beginning to come up the learning curve. So, hopefully, we can stop talking about that and move forward.

But even with that, we’re through the division we’re earning our way through that. So I like to use the word earning our way through. We all have challenges but we continue to earn our way through it..

That definitely makes sense.

And then, finally, what type of impact did raw material costs have in your various regions in 2Q and then and what type of environment is baked into your outlook for the remainder of the year?.

Well, I don’t -- there’s not been any raw material change in Q2, nor do we expect in the balance of the year from what we outlined in our guidance at the beginning. Steel is set for the year and aluminum while it floats is largely a pass-through item..

Okay. That’s helpful. That’s it for me. Thanks..

Thank you..

Thank you. Our next question comes from Mark Wilde of BMO Capital Markets..

Good morning, Tim..

Mark, your line is now open..

Good morning, Tom..

Hi, Mark..

Hi, Mark..

Hey. Tim, just to start-off, there’ve been some reports about you building a new plant in Spain.

Can you talk about that?.

Sure. We’ve talked about for at least a year, our need to have aluminum beverage cans in Spain. Currently, we have two factories with five steel lines. The market -- we’re the only manufacturer left with steel in the Spanish market. There still are a number of customers who prefer steel cans. There are customers who want us to go to aluminum.

Depending on the price, the relative price of aluminum is still they change their mind from time-to-time. However, we know we have to get to aluminum. The question is, how do we get to aluminum from the two factories that we’re in. One of the factories in the north is a very old three-line factory. It’s a steel factory.

It’s there because it’s close to the steel mills in that part of the country. The other factories in civil. It’s a relatively new factory built in 2001 and I think the second line probably went in five years later.

So how do we best go about getting ourselves to aluminum? We’re relatively sold out in Spain, so it’s not like we can shut lines down and convert them without losing them. And then, we look at where the customers are and where the customers want us to be and so we’ve circled a little spot on the map, pretty nice place in Spain called Valencia.

And we’re analyzing if and when we should begin the process of acquiring land and putting a factory in Valencia initially with one aluminum can line to slowly get ourselves over to aluminum from steel..

Yeah. That’s helpful. Just straggling over to Southeast Asia, because it’s been a big growth region for you, I just wondered if you could give us some sense in the countries that you’re in in Southeast Asia of sort of what the per capita penetration rate looks like and where you think we are in terms of the potential growth in those markets..

Yeah. Mark, I don’t have any of that in front of me. So anything I say is, boy, I am wiping that off that part of my body..

Yeah..

I will tell you that when we look at Southeast Asian growth, we’re currently in six Southeast Asian countries and going towards seventh next year. So we’re currently in Vietnam, Cambodia, Thailand, Malaysia, Singapore, Indonesia with the new factory and we’ll go to Myanmar next year.

We are -- as we look at penetration rates in a country like Indonesia, it’s very, very low. I think, the market is 2 billion units to 2.5 billion units and the Indonesian market is 200 million people, so largely a Muslim population.

So the markets that we’re serving our soft drink, juices and tea is largely with a small amount of beer in Bali, which is Hindu, not Muslim. But we do expect that to increase over time. Specifically as the glass flow becomes older and more expensive to replace the returnable glass flow.

Cambodia, Vietnam, as those markets have exploded, they’ve really bypassed glass and gone straight to cans, only because of the initial returnable bottle for the glass float is far too expensive, they found it better to be in cans than glass. One other important thing is most of the shopkeepers there are still very small individuals.

They call them shop fronts. They don’t really have any room to store returnable glass, when somebody brings the glass back to them. They don’t want to use up valuable retail space to store empty bottles that they can’t sell, waiting for the producer to come and collect it.

So I think, we remain really quite optimistic on Cambodia, Vietnam, Thailand, Indonesia and even Myanmar into the future. I think that Singapore obviously is a very mature market, Malaysia mature less so than Singapore, but still really quite bullish on the region..

Yeah.

I guess, Tim, I’m thinking about Cambodia, because you got three plants there and it is only about 16 million people in the country, which I think implies that the per capita there is already up around 100 cans per capita?.

No, no, no, no….

I can’t do that math that well. I can’t do the wet math that well in my head. But I think, as I said cans are bypass glass, PET is not a big package in that market and I’ll give you the anecdotally, what we’ve been told and what you see when you’re there. Used PET bottles are used for fuel.

So many of these markets people transport themselves via motorbike and it’s really the case where..

Couple liters of fuel in the PET bottle..

It comes out of the PET bottle. So people don’t trust the PET bottle in the market because they’ve seen fuel in it. It’s -- one thing it’s market specific.

But it’s been a great market for us and it’s been a really good market for our customers there and there are two, there is a large international brewer growing there, but there are two local Cambodian brewers that are really quite successful and the future of that market looks quite bright..

Okay.

Last question I had is, can you give us just any general sense of contract renewals this year and next year in North America and Europe, like what percent of your business would be renewing in each region this year and next year?.

Well, I’m guessing again. I’ll endeavor to get you a better answer in October, just -- not able to do that for you right now, honestly..

Okay. All right. Great. Thanks, Tim. I’ll turn it over..

Thank you, Mark..

Thank you. Our next question comes from Chip Dillon of Vertical Research. Chip, go ahead, please..

Yes. Hi. Good morning, Tim and Tom..

Good morning..

Good morning..

First question has to do with -- you mentioned the volume in the Americas or at least in the North America would be lagging a bit this year, the market I guess because of some adjustments at the beginning of this year. Would you expect or how would you expect the U.S.

business or the North American business to fair volume wise in ‘18 versus ‘17? In other words, is there more to come in terms of this adjustment you mentioned or will it pretty much flow through we see all things been equal to company grow with the market next year in the Americas?.

I think that this is a one specific issue that by the time we get to ‘18, we’re in line with the market plus or minus our customers performance versus the overall market, but in line with the market, yes..

Okay. Okay. So this one for Tom. And then you mentioned the net working capital, contribution from last year would be flat this year.

Is there anything that either foreign exchange related or interest rate related that would lead you to think that, it’s going to be tougher to get squeeze more cash out of working capital or is it something else?.

No. I don’t know if there is any foreign exchange or interest really impact on our ability to squeeze more working capital. I don’t think we’ve squeeze so much out over the last several years.

We continue to take working capital out, but as you grow the base business and you add new factories, there is an element that every time you add a factory, you probably have at minimum $20 million of working capital in each factory or the associated warehouse to that factory. So you’ve got a growing business and I think growing business has needs..

Got you. Got you. And then, speaking of adding plants, I know there is probably a bit of spend left that will fill fee in ‘18 for Myanmar and the glass plant in Mexico? But between the potential to maybe see another line at Monterey and you mentioned the Valencia opportunity and your optimism on some of the Southeast Asian markets.

With all that being said, could we see the CapEx number stay at a similar level in ‘18 as to where we are in ‘17?.

Yeah. Listen, you asked a good question, you’ve kind of identified a couple of projects and then a couple of potential opportunities, which we’re not prepared to discuss yet, only because they’re only potential. What we’ve said is expect at least $400 million, but maybe, I don’t' know it’s hard to say.

I -- we are -- we have -- a big part of our business is a growth business.

This is not the -- as we were talking with George before, this is not the same old zero percent growth can industry, there are a number of markets around the world that are embracing the can, both the consumers and the customers, as well as the market, the local markets for a number of really good reasons and we continue to benefit from that and so we’ll see where it takes us..

And then lastly, there’s no question I think in most folks minds that you all have been and correctly so, of course, more aggressive in the buy back so far this year? And I didn’t know if there is any view you had toward what you think the normalized leverage should be, given changes in the industry environment, industry structure, I know you typically wanted to approach 3 times I think on EBITDA and net debt basis, but if you could flush what your thinking is there?.

Yeah. So, we have had a lot of discussion around this and you can imagine all of our friendly bankers with their fancy Ivy League educations have a lot of opinions on where we should be as well. But I think -- let’s be honest, three times is more comfortable than four and two is more than three.

Now having said that, I think given the strong cash flows and the confidence with which all can companies have in their cash flows, it would be not prudent to have a spare amount of leverage on the company. So it’s not to punish the shareholder. I think using leverage is very appropriate to reward the shareholder now.

Now is that number 3% or 4%? I don’t know. There are a couple companies in packaging land and paper and packaging land that have leverage rates much higher than that and they continue to trade very well. Every company’s situation is different and we continue to look at that.

I would tell you that three is better than, is more comfortable than four for Tom Kelly, but somewhere between three and four is not inappropriate, I would say in my view..

That’s very helpful. Thank you..

Thank you..

Thank you. Our next question comes from Anthony Pettinari of Citi. Anthony, you may go ahead..

Good morning..

Hi..

Just following up on Mark’s question on Southeast Asia, we have seen some announcements from other companies about capacity additions in Thailand, Vietnam and Myanmar.

Just wondering have you seen or do you anticipate any kind of change in competitive intensity in Southeast Asia or do you think generally the region is growing fast enough to support the new supply?.

Yeah. So, the one we’ve seen in Thailand is kind of interesting. It’s a Japanese company, that’s partnering with an energy-based drink to be promoted in Thailand and that energy drink company is going to take Red Bull on head on and we’ll see how they fair. Myanmar, I don’t believe the rumor we’ve heard in Myanmar.

Frankly because they have no business to get, everything else is under contract with us or the other can company for a fair amount of time.

And Vietnam, yes, the Vietnam market continues to grow and I think the announcement there was the addition of a second line, as well as for one guy in the south and then another guy talking about a new factory somewhere in the middle of the country and we’ll see if they go ahead with that and we’ll see what business they really can get with it.

So, I’m not too concerned, but Vietnam continues to grow. Myanmar, as I said, I don’t believe and Thailand is specific to customer’s intention to take on another customer head on..

Okay. That’s very helpful. And then, on Nichols, is there a rough timeframe for when you think Nichols could be fully ramped? And then, can you remind us what your specialty mix is in the U.S.

presently and where you think that could go as Nichols is running full out?.

So, I think, there is -- we’re about 14%, 15% specialty. We say specialty, we’re saying everything other than the standard 12-ounce can. There’s a debate as to whether or not 16 ounce cans should be considered specialty or not. But let’s just say they are. So we’re about 14% or 15%. The market is probably in the low 20%s.

Our ideas we kind of need to get to where the market is, otherwise we’re going to fall behind. So that will happen over time depending on how we fill Nichols with standard cans or specialty cans and more that will be specialty. I would expect Nichols to be hit its full ramp up sometime mid next year..

Okay. That’s helpful. Maybe one last quick one if I could. During the quarter, I think you sold the Philadelphia headquarters.

Is there any timeline for finding a new headquarters or any thoughts on that process in terms of what you’re looking for?.

No. Not at all. I feel no pressure to make a double decision.

The first decision that we made was to sell a piece of real estate that -- and for many of you who’ve been here, you recognized quite frankly, it’s far too big for us and it costs too much money and we are overwhelmingly confident that we’re going to be able to cut our headquarters costs significantly with the move wherever we moved to..

Okay. Thank you..

Thank you..

Thank you. Our next question comes from Debbie Jones of Deutsche Bank. Debbie, your line is now open..

Hi. Good morning.

How are you?.

Good morning..

I want to ask a question, just in general about capital allocation overall. Obviously there has been a decent amount in there for new capacity additions in some of the other projects that you’ve talked about.

Can you give us a sense how much you’re reinvesting in your existing asset base and whether or not you think kind of going forward, that level needs to tick up in certain regions or if you’re comfortable with that?.

Well, that’s a very good question. I’ll try to answer it as follows. I think new capacity, let’s Tom can correct me if I’m wrong on the fly here. Let’s say new capacity is 50%. There’s an element of compliance safety and environmental, but it’s not very large, because we’ve done a lot of that in the past.

And then reinvestment takes the form of a lot of things, cost reductions, conversion from standard cans to sleek. So across the European footprint now, more than 50% of the market and more than 50% of Crown is using non-standard cans. So I would call that reinvesting in the business.

Investments made to factories across several pieces of equipment in the factory to allow us to lightweight the cans.

Yeah, so 50% is growth and reinvestment, I’d say, buoy 45% with 5% being compliance something like, you agree with that Tom?.

Yeah. In terms of beverage….

Yeah..

And so, if we think about kind of going looking ahead are you comfortable with that level or is there a need to think you might have to step up that reinvestment?.

Well, I think, when we get out of the, when we get out of the conversions in Spain and keep in mind, we just did a two-line conversion in France over the last couple of years and we need to get through the conversion in Spain over the next couple of years.

When we get beyond that, depending on the growth opportunities, it could still be 50-50 or it could be more skewed to growth, we’ll see..

Okay. Thanks. That’s helpful. And then just, one point of clarification on guidance, the level of share repurchases in Q2, was that expected in the kind of initial range.

And then as I -- for Q2 and if I think about the back half, you said that was front half loaded, so does the back half still assume some share repurchases or should we think they’re going to be more opportunistic in nature?.

Yeah. So, yeah, I don’t think it was particularly that much front-loaded compared to what we had in our modeling anyway. So I think came in at more or less where we expected through the six months. As far as the rest of the year, we may do additional share repurchases as the year goes on, but the amount and timing of those, we still have to determine..

Okay.

And so as it relates to your guidance for the year, you assume that you will not do share repurchases?.

For the remainder of the year?.

Yes..

I don’t think you’re going to see repurchases of the magnitude we did in the first six months, but again, perhaps, we may do some addition around the edges..

Okay. Great. Thanks. I’ll pass it on..

Thank you..

Thank you. Our next question comes from Philip Ng of Jefferies. Philip, your line is now open..

Hey. Good morning, guys..

Hi, Phil..

Topline in Continental Europe, that was actually pretty strong, just curious how much of that was Custines versus just the overall market strengthening and are you seeing that momentum carry through into the third quarter?.

Again, I -- it’s far too early to talk to you about the third quarter. I don’t think there is any reason to think we’re going to see a slowdown. Well, I don’t think that there’s any reason to think that the third quarter is not going to be strong, whether it grows at the rate that it grew in the second quarter, I don’t know.

Let me just -- I’m taking a look here, it’s hard to -- Custines, we had a -- let’s say, Custines is up high-single digits in the first quarter and it’s still down mid-single digits for the full year, which implies that we restock that we -- we were able to restock or regain business that we weren’t supply during the conversion period.

But we saw growth across almost every market, the U.K. and specifically across Southern Europe whether that’s Spain, Italy, Turkey, it was pretty broad based..

Okay. That’s helpful..

Keep in mind, we also I think was at last October that we doubled Osmaniye in Turkey. So, we have a new -- we have a second line running in the Osmaniye plant in Turkey at this time of the year that we didn’t have at this time of the year last year, so..

Okay. But overall it sounds like after seeing some soft growth in Continental Europe last year, it seems like it’s strengthening a little bit and so we bought this, so that’s encouraging. Wanted some color....

Yes. Phil, as we’ve said it, Europe continues to be a growth market for beverage cans. I mean, it’s -- with the exception of one or two seasons over the last 15 years and they are specific to two issues, the global credit crisis and the German deposit system.

With the exception of those two issues, the European beverage business is grown tremendously over the last 15 years. This is a growth business for beverage cans. It may not be the levels of growth in terms of percentage that you see in some other markets, but it’s off a big base and it’s low to mid-single digits depending on the year.

So, yeah, we continue to be -- as our competitors do we continue to be very bullish on Europe..

Okay. That’s helpful. And then question for Tom, just wanted some color on the cadence of earnings in the back half of this year? I know your 3Q guide is obviously above where consensus was shaking out, not to say we’re modeling correct, but it does look like 4Q to touch later.

Is there anything that we need to be mindful of that in the fourth quarter like any drawdown production for working capital stuff or any other incremental startup costs we were anticipating?.

Yeah. So nothing really have any ordinary, I mean, the entire year, as we gave our guidance, we said we’ll be effective by things like currency and interest and that remains the case. But there’s nothing particularly unusual about the timing of the quarters this year..

The only thing I think -- Phil, I think, we had a pretty strong performance in Brazil Q4 last year. I’d have to go back and look. We’re not expecting Brazil to weaken. We’re expecting Brazil to continue to be strong. It’s just how much will it outperform last year’s Q4. But it will outperform, but how much I don’t know.

I think if you model through to the midpoints we’re still up in earnings in Q4 and just it’s around the modeling, right, you’re now trying to pin this down to being really fine on every item..

Okay. That’s helpful color. And just one last one for me, I guess, piggybacking off of Mark’s question earlier. Just curious as contracts are up forward, towards the end of the year, this time of the year actually, are you seeing any more big opportunities this year versus years past or any change in the behavior by some of the major players? Thanks..

You said, actually bidding opportunities?.

Yeah.

Just more opportunities for you to bid for a new business this year versus years past, any change in behavior by some of the bigger market players?.

Well, I would say that you’ve always have bidding opportunities, so there’s no more or no less opportunities. How you behave in that process is a different issue. But I would say that we have not seen any change in behavior..

Okay. Thanks..

Thank you..

Thank you. Our next question comes from Adam Josephson of KeyBanc. Adam, you may go ahead..

Tim and Tom, good morning. Thanks..

Good morning..

Tom, just a couple of housekeeping items, just to make sure, you’re assuming above €14 in the second half, is that right?.

Yeah. And combined with the dollar rate that we had in the first six months that would put us about the $1.11 for the year, that’s right..

Okay.

And then, just in terms of earnings increase, the guidance increase $0.75, is that, I know there’s some FX, there’s maybe a little bit of frontloaded buy back, are there any other items in there that we should be aware of?.

No. I mean the operation did a little better in the first six months here. So that’s in there. Our interest expense a little bit lower, we had factored in some potential rate rises having half in at least yet, so little bit of each of those..

Okay. And so you’re bumping up your net income guidance by call it $10 million. You have that litigation of I think its $15 million net of tax.

So that’s why you’re saying there is not really, you don’t think you’re free cash flow guide is overly conservative in light of that litigation, is that an appropriate characterization, Tom?.

Yeah. That’s right, Adam..

Okay. Thank you very much..

Thank you..

Thank you. Our next question comes from Chris Manuel of Wells Fargo. Chris, your line is now open..

Good morning, gentlemen. Thanks for taking my question.

Tim, I wanted to -- Tim and Tom, I guess, I wanted to center around what I kind of perceive as maybe some potential opportunities here the next year or two and if you could help me kind of frame those, that would be helpful? So I’ll kind of read off the list and then if you could kind of address each.

First, you’ve talked a little bit about startup costs.

So just remind us what the absolute level last year, this year and what -- at least what the delta is year-over-year and how that might perhaps look the next couple of years as you still have some projects that you’ve highlighted is underway? Second item being China, I know you mentioned it’s a far out tunnel, but help us size the business.

I want to say it was like $400-ish million if memory serves, but is that a potential $10 million, $20 million EBIT lift if pricing and things kind of resume there? And then kind of final piece is I think you’ve already talked about Spain, but if you could also address either Mexico or that you have a one line in today thoughts of a second and Nichols that getting that to a running full specialty versus kind of a mix today.

So if you could kind of run through those items or any others you see?.

So, startup, I think, what we said in February was that, we expect the startup to impact us about $0.06 this year versus last year and that was specific to Monterrey and Nichols.

As I said, we generally don’t look at incremental startup from new projects in Asia, Latin America, Southern Europe, only because we’ve had projects ongoing and they kind of offset, they’re kind of equal to the prior year.

That $0.06 has probably been -- we’re probably -- we probably feel like it’s more like $0.08 or $0.09 or $0.10 this year and we’ve been able to offset that in other ways. So that’s an opportunity going forward.

What was the second question?.

China..

Oh! China..

EBIT….

China, yes, so, China is a, I think, our revenues in China, you’re much higher than we are. Our revenues in China are $250 million to $275 million depending on the price of aluminum.

We’re still profitable at segment income, albeit at levels we’re not satisfied with my view, Chris, given the overcapacity, it’s unlikely that you should add $10 million to $20 million or $30 million whatever you describe to China over the next couple of years, we’ll see how that plays out..

Okay..

And then….

Nichols in Mexico..

Yeah. We -- I prefer not to comment on Mexico and Nichols only because they’re really market specific to other people in the market for competitive reasons, so..

Okay. But those are still regions that Nichols, I think, you’re running closer to full, but it might not be at specialty. And then in Mexico it’s one line.

I think the thought was always you would go to two lines at some point, is that still accurate?.

Yeah. I think that when you build the can plant with one line, you’ll always have the thought in your mind, you’re going to get it two lines absolutely. So, yeah, we’ve always thought we might go to two lines. It’s just when do we might do it. When it make me might do it, when it make sense. Nichols is not running full right now.

As we said, we are -- units are down 2% and 2.5% in North America in the second quarter. And but we are -- as I said we think we’ll be through that by the middle of next year..

Okay. That’s helpful. Thanks guys..

Thank you..

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

Great. Thanks. Good morning..

Good morning..

Just back on Asia, looks like the margins were quite strong this time around.

Maybe you can just reiterate, how that kind of flow through and what your expectations are for future margins out of Asia?.

Yeah. Well it was a good performance. We had -- we closed the Shanghai factory, I want to say Q4 last year. So, we’re starting to get the benefits of that closure come through China, while things remain extremely competitive in China.

Our income performance in China this year is level to last year on a quarter and year-to-date basis, a little up actually on a year-to-date basis. So, we’re not having the China offset through the Southeast Asia performance we experienced in the last couple of years.

I can’t -- Arun, I can’t put that find a comb on it whether we’re going to be 15.7% or 15.9% or 15.2% or 14.8%, it’s -- from quarter-to-quarter things move around depending on customers’ demand trends, what they’re seeing from the consumers and the promotions they have and the weather and different events that they have.

As you know, the different, the different countries celebrate Chinese New Year and/or celebrations that they have at different times. So, but I think generally things are all moving in the right direction. We are -- we continue to be pleased with the performance in the region..

Okay. Great. And then on the startup cost real fast, I guess, would you say that the all of the new lines that you’re starting up this year are accretive to earnings after startup costs or would that be more of an ‘18 kind of….

I think several of them are, but I think, it is more of an ‘18 characterization for all of them..

Got it.

And then just lastly, for Americas, any kind of view on volume growth going forward, it sounds like your comments indicate that you’re pretty optimistic that, things can continue to grow from an organic standpoint, I know it’s going to vary by 12-ounce and non-12-ounce, but are you guys just kind of feeling little bit more optimistic on developed market growth?.

I think Latin America is going to keep growing and North America, we had a one situation this year, it will season itself as we get into the next year and we will be back to in line with the market. Now the market has studied itself over the last one or two years after several years of declines.

The market has been fairly firm, we actually had I think growth in North America of 1.5% last year, so….

All right..

We don’t see why we shouldn’t be right in line with the market..

Great. Thanks..

Thank you..

Thank you. Our last question comes from Tyler Langton of JP Morgan. Tyler, you may go ahead..

Good morning. Thanks. It’s for Tim, just had a quick question on Europe. I know the volumes were up high-single digits, and you mentioned, and your profits were down just due to a few one-off items.

Can you just give couple of details on those cost pressures?.

Well, what I said was, we had geographic mix. So we have better margins in the Middle East than we have in Continental Europe. And Middle East was down in total, all in Saudi Arabia and that has a much bigger impact than the up in Continental Europe..

Okay. Perfect.

And then, Tom, just last question for you, can you list what you’re planning for interest expense for the year?.

Interest expense for the year is about $225 million to $230 million, Tyler..

No. It’s going to be more than that..

I’m sorry. Net cash -- our net cash interest, you’re right..

That will be $250 million or $245 million..

No. No. Mid $230 million on the expense and about $225 million, $230 million on the….

Yeah. Yeah..

Got it. Okay. Thanks so much..

Thank you. Ang, I think that was the last call you said. So that concludes the call today and we thank everybody for joining and we look forward to speaking with you again in October. Thank you very much..

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