Thomas Kelly - SVP and CFO Tim Donahue - President and CEO.

Arun Viswanathan - RBC Capital Markets George Staphos - BofA Merrill Lynch Mark Wilde - BMO Capital Markets Adam Josephson - KeyBanc Capital Markets Debbie Jones - Deutsche Bank Anthony Pettinari - Citi Scott Gaffner - Barclays Bank Ghansham Panjabi - Robert W.

Baird Chip Dillon - Vertical Research Brian Maguire - Goldman Sachs Chris Manuel - Wells Fargo Lars Kjellberg - Credit Suisse.

Good morning, and welcome to Crown Holdings Third 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, Darren, 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 $1.32 in the third quarter and $3.02 for the nine-month period.

Adjusted earnings per share were $1.41 in the quarter and $3.23 year-to-date. Net sales on a currency neutral basis were up 5% for the year and 4% for the quarter due to increased sales unit volumes across all products and the pass-through of higher material costs.

Segment income was up 8% for the quarter and 5% for the year at actual rates as the quarter benefited from improved results in Americas Beverage and lower corporate cost.

You might remember in the first quarter of this year, we noted that we had elevated corporate costs due to some timing items and you are seeing the other side of that in the lower cost in this third quarter. Through the date of the release, we have repurchased 6.2 million shares of company common stock for $339 million.

As outlined in the release, we are estimating fourth quarter adjusted earnings of between $0.75 and $0.80 per share or $3.98 to $4.03 for the full year. These estimates assume a full-year tax rate of approximately 26% and that exchange rates remain at current levels.

We are also maintaining our full-year free cash flow guidance of $425 million after $450 million in capital spending. With that, I'll turn the call over to Tim..

Thank you, Tom, and good morning to everyone. I'll be brief and then we'll open the call to questions. As Tom just discussed, and as reflected in last night's earnings release, we had a good third quarter and through nine months are on plan for a solid year.

Global beverage can demand remained firm with volumes up more than 2% in the third quarter, and combined with global demand growth in both food and aerosol cans, helped offset operating disruptions from the two large US hurricanes and two earthquakes in Mexico.

The impact of foreign currency on sales and segment income has once again been provided in the release. So the following comments regarding third quarter segment performance will be on a currency neutral basis.

Currency, which had a $5 million positive impact at the segment income line, was neutral in the quarter to earnings per share, as the prior year measurement gain of 5 million did not recur this year.

In Americas Beverage, segment income advanced 9%, primarily as a result of 2% overall volume growth as strong performances across Central and South America offset low single-digit volume declines in North America.

The new beverage can plants in Nichols, New York and Monterrey, Mexico, along with the capacity expansion at the Tocancipa, Colombia beverage can plant are complete and are progressing along their learning curves. Our new glass bottle facility in Chihuahua, Mexico remains on schedule for a first half 2018 startup.

Segment income in North American Food was slightly behind last year due to a delay in the Midwest corn pack, which has extended into October. Sales unit volumes in European Beverage were up a bit more than 1% to the prior year as strong performances throughout most operations offset continued demand softness in Saudi Arabia.

Segment income performance was down $6 million or 180 basis points of margin from a strong Q3, 2016 performance due to geographic mix. Looking back to last year's third quarter, the margin was over 20%, reflecting strong shipments in the Middle East and soft demand in Europe with just the opposite being experienced this year.

Unit volumes in European Food increased 1% in the third quarter with a mix shift to smaller sized cans slightly reducing the margin.

Segment income in Asia-Pacific advanced 8%, as strong performances in beverage and food cans across Southeast Asia offset high single-digit volume declines in China, which was mainly the result of the closure of the Shanghai beverage can facility in the fourth quarter of 2016.

And during the third quarter of 2017, the company ceased operations at the Beijing, China beverage can facility. Before we open the call to questions, we would just like to ask you to limit yourself to two questions so that the others may have an opportunity to ask their question.

And certainly you're welcome to jump back into the queue for another question towards the end. And we thank you for that. And Darren, with that, we're now ready to take questions..

Certainly. [Operator Instructions] Speakers, our first question comes from Arun Viswanathan from RBC Capital Markets. Your line is now open..

Great. Thanks. Good morning..

Good morning..

Could you just describe some of the [Technical Difficulty] averaged a little better than we thought, as well as margins?.

Arun, you're going to have to say that again. You broke up on us..

I was just curious if you can give us a little bit more detail on the Americas Beverage performance. Your sales were a little bit above as were your margins.

Could you give us a little more detail for that?.

All right. Again, I heard the first part of the question and the end.

I'm assuming you asked why the margin and the sales were higher at Americas Beverage?.

Yes..

Okay.

Well, I think we had pretty good performance in Mexico and Brazil, and the margins in those regions have trended to be better than North America and we had lower volumes in North America, the result of prior year or a beginning of the year customer shift loss that we experienced and coupled with a very slow September, not just for Crown, but for the industry as a result of the hurricanes mainly..

Okay..

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

Thanks. Hi, everyone. Good morning. Thanks for the details, Tim and Tom. I wanted to get a little bit further into volume trends in North America and also then relate that to your current footprint.

This year, what is your volume trend year-to-date in North America north of Mexico, so US and Canada? What do you make of the beer can volume drop that we saw? How much of that was the storm? And so the last part of this question is, Nichols has come up and your volumes were down this year.

I think at one point Tom, you said Nichols would be net neutral to capacity as you adjusted your footprint elsewhere. Can you update us on your thoughts around that? Thank you..

Yeah, George, good questions. So first, our volume experienced this year year-to-date were down about 3%. If we exclude the customer loss that we had, we'd be up 4%. So entirely more than entirely due to the customer loss. I think if we look at beer, I don't have domestic gallons through September, but we have domestic gallons through August.

And it looks like domestic gallons are down about 2.5%, imported gallons are up 3.5% for an overall decline of 1.5%. I can tell you, you have the quarterly CMI data. Everybody has the quarterly CMI data.

What you don't have are the monthly data, but clearly the storms had a large impact on the month of September, if we looked at alcoholic in the CMI data.

And I get -- hopefully the guys at CMI don't get mad at me for telling these, but when I look at aluminum beverage cans for alcoholic in the month of September alone, we were down 12%, and that has to be highly attributable to the two hurricanes that hit Texas and Florida.

We have two large beverage can plants in the Houston area, one of which primarily serves a large beer customer. So yeah, obviously the storms had a big impact, but nonetheless, it does look like a large US beer, domestic beer, it continues its decline just based on the gallons through the end of August.

We're still coming up learning curve in Nichols, it's a large plant. And I would say that we don't expect any increase in our capacity long term or capacity footprint, as you say, but as we come up learning curve, we're not at the -- we don't have the ability or the desire right now to take capacity out until we're fully through learning curve..

Okay. Thank you. I'll turn it over..

Thank you, George..

Our next question comes from Mark Wilde from BMO Capital Markets. Your line is now open..

Good morning, Tim. Good morning, Tom..

Good morning, Mark..

Hi, Mark..

Tim, any chance you can give us kind of a look at where kind of CapEx may be running for 2018?.

Yeah, I think we're in the middle of the budget process now, and we'll have to get board approval for whatever we want, but I think we still maintain, as we've said, all along this year that you should expect at least $400 million..

Yeah.

Like how would you say the probability as of like another $450 million a year?.

Well, I can tell you it won't be 500, but I can't tell you, somewhere between 400 and 450, I feel pretty good about. I know that's a wide range, but it's $50 million, the delta there. Mark, is $50 million. And if you tell me that moves the needle in our valuation, so be it.

We think -- if we think it's the right thing to do and our Board agrees, then we're going to do it, right?.

Yeah. That's fine. No, I was just trying to get a sense of that, Tim.

Just as a follow-on, could you give us some sense of kind of how that kind of Saudi Arabia, Middle East volumes looked on a year-over-year basis, Tim?.

Yeah, not good, but I'll give you something more specific in a second here, let me find it. So you've got ongoing conflicts which you're all well aware of and it really has to do with several of the borders being closed.

But more to the point, currently it's just been complicated by the new soft drink tax that -- yeah, that's the Middle East in total, but Saudi is worse. Actually, most of the Middle East is okay. It's Saudi where we have the problem, which leads us to believe that it's primarily --.

Soda tax there..

Soda tax, and so if I look at our two operations in Saudi, I would say -- I'm adding numbers together, I'd say, about 12% to 13% down in the quarter..

Okay. All right. That's helpful. Thanks, Tim. I'll turn it over..

Our next question comes from Adam Josephson from KeyBanc Capital Markets. Your line is now open..

Tim, Tom, good morning..

Good morning, Adam..

Just one on Brazil, one on the US. Just on Brazil, I know Tim, you commented it was a source of strength in Americas Beverage along with Mexico.

Can you just help us with how much the beer market was up in the quarter? How much bev cans were up? And then how much you guys were up? And what you would attribute the strength to either for you or for the industry or above?.

I'm not trying to be evasive, Adam. I don't have any of those numbers in front of me. Tom, do we have any --.

We don't have total beer market..

Yeah. So I think -- I don't have the beer market. I think the -- it looks like the industry -- we believe the industry was up about 5% in Brazil, beverage can industry was up about 5% in Brazil, and we might have been up a point or two higher than that.

And I think we're obviously coming into the fourth quarter, which again we expect to be strong, notwithstanding all of the other challenges they have in Brazil. But as you know, the beverage can continues to gain favor and we pointed that out in the release and we truly -- we firmly believe that and we firmly see that.

And Brazil was one of those markets, specifically Brazilian beer where we see the beverage can continuing to gain traction. But I don't have liters or gallons consumed in Brazil, that I don't have..

And just to -- the bev can mark goes up 5% compared to up I think 2% last quarter, if memory serves..

Well, you're going to -- we're going to believe you because I don't -- that, I don't have in front of me..

All right. Yeah, take my word for it, yeah.

And then in terms of just the US and Mexico, so what -- I know you mentioned September was a particularly rough month, but what would you say the industry's operating rate is now in the US, and how does that compare to kind of where it was a year ago? And to what extent are imports right from Mexico in your mind offsetting the weakness you're seeing in the US beer market, and any long-term prognostication along those lines?.

Well, I think I would -- as it relates to the can industry, I would say that in terms of imports offsetting the weakness in domestic beer, I would say that there is probably -- we're not benefiting as much from that as one other supplier. We have some benefit from that.

Certainly, one other supplier has a large benefit from that, but then the flip side is, they also have a much greater exposure to domestic beer than we do.

But I think in terms of capacity utilization, I would say we're probably, as an industry, notwithstanding some recent plant closure announcements, which haven't yet taken effect, we're probably a couple of points lower, just given some of the weakness we had in the third quarter, but that's short term in nature.

And as you've heard us explain before, as we make different sized cans, by definition, we lose some capacity just given the nature of the time it takes to do changeovers for sizes. So I think we're still in a pretty healthy place. I would say it's -- if it's not low 90s, it's certainly very high 80s..

Great. Thanks a lot, Tim. Appreciate it..

Welcome..

Our next question comes from Debbie Jones, Deutsche Bank. Your line is now open..

Hi, good morning. My first question just US food. You called out the Midwest corn pack.

Was that the primary driver of the $2 million year-over-year decline in EBIT? And then can you just -- I realize you can't call the pack season going forward, but can you give us your sense of the stability of that business for you over the next quarter or next year as it relates to pricing and share?.

Yeah. So well, I don't -- I'm not going to talk about pricing, but -- and share is what share is. As you know, there has been a new entrant in the market, and to the extent you want to maintain your share, you're going to have to give a little pricing away because they've not been what I would call responsible.

I think the softness or the slight decline you saw in our margins in North American Food, two principal factors; a delay in the Midwest corn pack, as we said, and we see almost all of that -- all of those cans haven't already been taken in the first couple of weeks of October here.

So that we're going to have a -- we feel like we're going to have a fairly strong fourth quarter notwithstanding it's one of our smaller businesses and it's a small quarter, but that has been made up. And then the other small impact we had in the quarter was the chilly pack in Mexico was a little smaller than we had anticipated..

Thanks. That's very helpful. And the second question, Tom, you talked about corporate expense being lower, a reversal of what you were seeing earlier in the year. Is there anything specific you could highlight on that? It's just a bit lower than we had expected.

And then what is baked into your guidance for Q4 in that?.

It's really just a reversal, as I said, of what -- of the elevated expenses we had in the first quarter, and again, it was some costs we had in the first quarter that were essentially recovered, reimbursed in the third quarter. Looking at the full year, we're probably in the mid-140s for corporate costs..

35 million in the quarter..

35-ish in the quarter..

Great. Thank you. I'll turn it over..

Thank you..

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

Good morning..

Good morning..

Good morning..

You had previously talked about $0.08 to $0.10 of start-up costs in 2017 that don't repeat in 2018. And with the timing of Monterrey and Nichols, it seems to imply a pretty good uplift in the first half of '18.

I guess my question is, do you expect to get most of that $0.08 to $0.10 back then or there are other offsets from other projects, glass furnace or other stuff that would offset that?.

Yeah. I mean, we'll have some offsets in the -- with the new furnace. So I think it's a little too early for us to give you the phasing on the -- if there is a positive impact on start-up this year or next year versus this year.

But I would say we experienced all of $0.08 to $0.10 from those two factories this year and certainly we would hope that the number from those two factories is significantly lower next year so that gain -- there will be a gain slightly offset by Chihuahua, but hopefully there's still a gain in that regard..

Okay. That's helpful. And then in China, you talked about the closures in Shanghai and Beijing.

From a big picture perspective, how do you think about that market? Is it strategically important to stay in? Can you just kind of remind us what you have left there from an asset perspective and do you see opportunities to improve profitability in the next year?.

Yeah, the market stinks, and any company you invest in that tells you otherwise is either completely out of touch or is lying to you, and that goes for all products, not just cans. It's not strategically important for us to stay in, but we're there. We have significant assets. We run the assets very well. We have nice installations.

We have five can plants left and six can lines across those five can plants. All of our remaining plants are multi-size capable. The decision to close Beijing was largely around the fact that the customers in that region want to start converting to sleek. The Beijing plant is more than 20 years old.

It does not have sleek capacity and we were not going to invest any more money in China. So we decided we'd exit that region of China, which -- if you look at the map of China, we have a factory about 120 miles south of Shanghai. That's the closest we have to Beijing, and Shanghai and Beijing are long way away.

So it's not -- you're not able to serve it. So just the decision we're not going to invest any more money.

So we're going to continue to run the business as best we can, and we'll see where the market takes us over the next couple of years, but the idea is to try to remain as healthy and as profitable and as cash flow positive as possible while we're doing it..

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

Thank you..

Our next question comes from Scott Gaffner from Barclays. Your line is now open..

Thanks. Good morning..

Good morning, Scott..

Good morning..

I just wanted to talk a little bit about the -- Tim, you mentioned the September impact, the shipments relative to the hurricane.

I think you also mentioned the earthquake in Mexico, but historically when you've had these events, is it demand that's completely lost or is that more of a destocking event at the customer and how would you normally expect months following to react to those kind of events?.

Yeah, I think it's different, but -- event by event it's different, although this one here, I would think that this could be lost only in that, I think Hurricane Harvey, which hit the Houston area happened before Labor Day, and we're not going to get another Labor Day.

Put in other way, you're not going to sit down and drink six beers this weekend instead of three to make up for what you didn't drink over Labor Day. So I think this one here probably is more of a permanent loss in terms of the history of the world.

Obviously, we'll -- next year will be next year, notwithstanding any natural disasters, but I don't think we recover -- I don't think the beverage can industry recovers this volume in Q4 in terms of what the consumer will consume..

Okay. And just around, I mean, you obviously mentioned you are in the middle of your capital budgeting, but as far as capital returns to shareholders, I mean, the stocks moved pretty significantly since the middle of the year.

How are you thinking about -- and obviously it's a Board decision, but how are you thinking about repurchase versus maybe initiating a dividend at this point with not much M&A left in the near term?.

Well, the first thing I would say is we're -- we are very happy that the market has realized how undervalued we were and the stock had a relatively good move, as you say, to kind of almost catch us up to some others in our space. And I think we're very confident in the cash flow generating capability of the company.

So we have five Board meetings a year and I can assure you it's a topic, or it will be a topic at the Board meeting and we'll see what the Board's desire is on capital allocation as we go forward. But I -- we have a Board. I can't speak for the Board..

Understood. Thank you..

Thank you..

Our next question comes from Ghansham Panjabi from RW Baird. Please go ahead..

Hey guys, good morning..

Hi, Ghansham..

Good morning, Tim and Tom. I guess, realizing it's still early, can you just provide some more parameters as we think out to 2018? We're going to get there pretty fast. Maybe you can start up with an outlook for volumes by some of your major geographies and some of the variances that may impact the EBITDA as we think out to next year.

Tom, you mentioned the start-up issue year-over-year, so --.

Boy, volumes by region, is it? Okay. So North American Beverage, I would say that we would expect to be flat to slightly up. I think North American Food, we would say flat to slightly up. We had a -- our portfolio of food customers had a poor '16 just in their own markets.

They had a little better this year and we would expect them to do better next year within our portfolio. Mexico, clearly volumes in Mexican beverage will be up. Brazil, we had a -- the industry and we have had a pretty strong campaign this year. We're hopeful that the market continues to grow, we'll see, but for now, I'd say marginally up.

European food, flat; European Beverage, up. Beverage cans in the Middle East probably down again. Southeast Asia, up and with the exception of the Beijing closure, we'll be flat in China, but because of the Beijing closure, we'll be down year-on-year..

And in terms of how that perhaps may drop down to EBITDA?.

Well, I think from an EBITDA perspective, we'll have a lot more EBITDA, if -- for no other reason than the depreciation rolling off all of the new investment we've had over the last couple of years. How that rolls down to segment income after depreciation expense, I think it's still too early to say.

We don't necessarily know the final pass-through elements on inflation and everything else that we have with our customers yet..

Okay. And then just with the addition of Nichols, how are you thinking about the need for other investments to ramp up your capabilities in specialty cans in the US? There's been another capacity announcement from one of your competitors, adding a plant in the US next year. Just curious as to your thoughts..

I think, between New York, Mississippi and Texas, we have what we need right now. Perhaps we'd like to have capability perhaps in the Midwest or the upper Northwest, but that does not entail a new factory. That probably entails the conversion of existing lines.

So I think it's certainly too early for us to think about putting more capital into that market right now..

Okay. Thanks..

Thank you..

Our next question comes from Chip Dillon from Vertical Research. Please go ahead..

Yes. Good morning, Tim and Tom..

Hi, Chip..

My question has to do with specialty cans, especially in North America. And I know, I believe with Nichols, obviously you're looking to increase your percentage. I believe you're somewhere in what the low to mid-teens of total beverage cans in North America would be in specialty.

If you could verify that and then tell us where we might be in, say, a couple of years, what would be your goal in terms of the mix?.

I think low to mid-teens is correct. And a couple of years, you're talking two to three years. No, I'd like to be able to say 20%. Will we get to 20%? I don't know.

So if we're low to mid-teens now, 18% to 20%, understanding we try to do it somewhat responsibly, right?.

Yeah. Yeah, that's helpful. And then just a follow-up is on Monterrey. I think when you originally envisioned that expansion, it would have a second line. And it sounds like the first line is moving up its curve.

Would you say we are two year's away from a decision on we would have to build another line, or would that sound too soon or too late?.

I would say certainly within the next two years, we'll have a decision, but whether that's one or two years, I -- we're not -- I don't think we're able to say that right now..

Got you.

And that decision is likely a more of a go versus we're never going to do it?.

Well, it's certainly more of a go, Chip. We -- except for a few markets around the world, you never build a beverage can plant envisioning that it's only going to remain a one-line can plant. The economics just don't work.

When you build a can plant, you generally look at a market and you try to understand when you can expand it just from the standpoint of economics..

Of course. I would imagine that number is, if you spend X on a can plant with one line, you're going to spend probably 70% of X on that second line.

Is that more or less right?.

That's right. Most of the cost is equipment..

I understand. Thank you..

Thank you..

Our next question comes from Brian Maguire from Goldman Sachs. Your line is now open..

Hey, good morning, guys..

Good morning..

Hi..

Just wanted to dig into the margins on a couple of the segments. I think both of the food segments and European Beverage were down a little bit year-over-year.

I think European Beverage, you called out just a tough comp there as the issue, but just wondering broadly, are you seeing some costs, raw material inflation and any delay in passing that through? I think North America, you talked about maybe just some volumes getting pushed to 4Q, but just -- and if you could kind of is there any overarching theme behind the volume weakness in these segments or are they all really kind of just discrete events there?.

Well, I think if you're talking about percentage margins, what I would caution you on is that, in 2017 versus '16, simply steel, we experienced mid to high single-digit increases in the US and low double-digit increases in Europe.

So from the standpoint of margin, if you're passing that through to recover it, obviously it's just math and the percentage margin comes down. So we were discussing absolute margin. And certainly there was the delay in the crop a little bit here in North America.

And we've talked about before the negative inflation factor that we've been passing through to customers over the last several years, just a formula that is used across numerous contracts doesn't necessarily represent the cost that we and others are experiencing.

So while we are experiencing inflation in our -- some of the raw materials we use, we're passing through actually a price reduction, i.e., negative inflation based on the index. And so that certainly has an impact on the margins you see across all the North American businesses and to some extent the European businesses..

Okay, thanks. That helps. And Tim, at the risk of giving you a soapbox to stand on here, just wanted to come back to the soda tax issue. I know this Cook County recently repealed their tax there.

Just wondered if you think this might be sort of a turning point in the trend there and maybe some of the municipalities are coming around seeing some of the negative economic impacts of the taxes that they're putting in and maybe we've seen some of these municipalities and countries go a little bit too far on it..

Oh, you're going to give me a soapbox, you're going to give me the chance. Thank you, because I'm feeling crabby this morning.

So listen, I think in Cook County, I think they had a pretty good look at it and they had an honest discussion in their city council or however they vote as to what the real impact there was and who would feel the impact, the lower economic scale. And they probably had an honest discussion as to what causes obesity.

Is it just soda, or is it everything that we eat, and if you have a balanced diet, including soda, you don't have to be obese. I think there are other jurisdictions where they don't care, and we happen to be resident in one of those here. We have some of the most unintelligent, corrupt politicians in the country right here in Philadelphia.

So I don't think they really care who they impact. They need money. They lied about what the money is going to be for. It's going to be to fatten their pensions and they just don't care. So I think it's jurisdiction by jurisdiction.

And it's why companies and individuals move out of certain states to other states and they relocate businesses because they're tired of the corruption and the incompetence. And that's where we're at. So I don't think it's a harbinger of anything to come.

I think you're going to have certain jurisdictions and certain states and counties that they know better and they're going to tell you how to live your life. And if you don't live according to their terms, they're going to tax you to death. So -- and I think the soapbox, I --.

You're welcome down here in Texas anytime you want to think about relocating, but thanks again for the….

Have your governor give me a call with an economic assistance opportunity and we'll consider it..

All right. Sounds good. Take care..

Thank you..

Our next question comes from Chris Manuel from Wells Fargo Security. Your line is now open..

Good morning. Tim, I wish you'd be a little more clear about how you really feel about things instead of just guarded --.

Well, Chris, you know Chris, we can sit here all our lives and pretend that we're happy and have everybody pick our pockets, and with their confiscatory nature, steal everything they can from your paycheck or we can talk about it and try to make change..

Well, we like making America great again. So that's all part of the fun too..

Some of us do. I'm not sure about everybody but..

All right. So I do have a couple of questions for you. One, when I kind of come back and I think about the North American market, so we've had two years or so now that have actually posted up a percent or so volume. I appreciate that there were some unusual factors this quarter that made it pretty negative. I think you've mentioned beer down 12%.

But in your view, as you look forward to next couple of years, does this market remain flat? Does it continue to grow at a point or so? Does it kind of look back to historical? I mean, you've got a lot of factors here if you kind of think this through.

So how do you view the market? And then in light of that, what does that make you think about your footprint? Are you comfortable with size, scale you are? Do you want to -- you talked about potential of some conversion I think you brought. So if you kind of put those together and talk about the North American market for us..

Yeah, I think -- so I think it revolves largely around the replacement products for the decline in carbonated soft drinks. I think beer is pretty steady. We had an event here in September, which kind of makes the third quarter look worse than it really is, but notwithstanding that, I think we're going to be pretty steady in beer as we go along.

Beer drinkers are beer drinkers. And I think the real positive element for the can industry is that those who drink craft beer, and more importantly, those who brew craft beer have a real love of the brew and the process and they understand that cans protect the integrity of their product far greater than any other package.

So that's a real positive thing for the can. As it relates to declining carbonated soft drinks, we do continue to see declines in carbonated soft drinks. And fortunately for us, there are numerous other products that we're seeing in cans now, whether it'd be ready-to-drink teas and coffee, and certainly very importantly, flavored sparkling water.

And I think there is a lot of pushback on PET, water in PET. You know that the water in PET is nothing more than your garden hose that's been purified. It's not special. But if you want flavor, the carbonated soft drinks that they're serving in can, some of these are really quite refreshing. And so we have seen that and it is helping the industry.

Notwithstanding that, it would be nice to see some promotions from the carbonated soft drink guys to reenergize their brands. There should be no reason why anybody is ashamed to market or consume those products. They're actually very good products and very refreshing and very satisfying..

So I -- to kind of summarize it, you still feel that we're not going to go back to degradation, but it feels like kind of flattish with put --.

It's certainly -- yeah, as you remarked, the last two years' experience certainly feel a lot better than the decade before, and one thing the can does is it holds carbonation better than any other product. So we certainly feel a lot better.

We would expect to be flat to marginally up with GDP growth as we look forward and that would bode well for our industry..

All right. That's helpful. Last question or my second question is, when we look at a lot of factors this year, and I kind of think of earnings growth 2017, it's relatively flat, up a point or two.

And to the question earlier about opportunities for '18 with start-up costs potentially being similar or slightly down, and you think about the work you guys have done on repo, can we sort of get back on track towards double-digit earnings growth in '18, or are there headwinds that you kind of foresee?.

Well, I think there's always headwinds. And I think as we said, we're in the budget process now. So I think it'd be premature. And I don't like to promise double-digit or anything. We're only in the can industry. We're not selling iPhones, right? But we've had a number of years now where we've been positive.

We have not taken any steps back over the last five or six years in terms of earnings through one means or another and we feel very confident that we're going to be positive again next year. The level of that positive in percentage terms, I don't think we're prepared to put our necks out yet..

All right. That's helpful. Thanks, Tim. Good luck..

Thank you, Chris..

Our next question comes from Lars Kjellberg from Credit Suisse. Your line is now open..

Yeah. Thanks. Good morning. Just a couple of questions. Can you help us out just thinking a bit about the quantum of these inflationary negative deltas in 2017? And also if you can call out the impact from the disruptions, the hurricanes and the earthquakes in the third quarter..

Yeah. So let me -- I'd like to stay away from a lot of specific things as it relates to us for a lot of good competitive reasons, but as we said on the -- as it relates to the earthquake, if you look at -- if the quarter -- for the third quarter, alcoholic beverage cans were down 6.5%, the month of September was down 12%.

That's a pretty clear indication that the supply chain was extremely disrupted in September in the Houston area and in a lot of other areas. For example, the aerosol can business, many of the customers in the aerosol industry could not get industrial gases because Houston was shut down. So it didn't just affect the Houston area.

It affected aerosol filling throughout the country. But certainly in beer, you see a huge impact on beer. So we know it had an impact, but I'd prefer not to talk about the specific impact on Crown. As it relates to inflation, we've talked about inflation before.

We all experienced the same thing, but it's -- whether it's food or North American Beverage or European Beverage, it's millions of dollars that we're all looking to offset either with volume growth and/or other cost reductions in the system to offset what has been a negative inflationary environment in terms of our contracts, but to be any more specific, I don't want to do that..

As you're going to claw back some of those with these contractual agreements that you're currently having a negative impact from, I guess that's going to be turning around to be a contributor in 2018, I would assume..

Yeah. So as we look at PPI this year versus last year, it certainly looks like we're going to have a positive PPI pass-through in '18 as it relates to '17, yes..

And if I may just look at the cash flow forecast that you're talking about, it does look very conservative in a way. Should we not expect a meaningful working capital inflow in the fourth quarter? I mean, you called out the CapEx component in the earnings. So it does look to be earning on a quite conservative side. If you want to comment on that..

Yeah. You guys sit there and you say we're being conservative. We got guys doing this every day. It's -- we've had significant working capital gains to cash flow over the last four years or so. And at some point, there is a realization that you're not going to have as significant contribution, but we're doing our best. We hope to do better.

If we do better, we do, but what we really don't want to do is give you numbers which we think are -- they're beyond stretched targets, that they're unrealistic.

We're not in the business to give unrealistic targets, nor put unrealistic pressure on our operating people because we don't want them striving to hit something that's so unrealistic that they do something that's not beneficial to the business long term. So I think we're where we're at. We believe it's a very good achievement.

We hope to do better and we hope to do better next year..

Very good. Thank you..

Thank you..

We have George Staphos from Bank of America. Please go ahead..

Thanks, operator. Thanks for taking my follow-up calls. Two questions. One, following up on Lars' question, Tim.

So the reversal in the PPI inflator, do you think it will be not only positive, but positive or contributing relative to the actual cost it's supposed to be offsetting, so you actually get a positive relative to '17 from that?.

Very good question, George. So clearly the selling prices from the PPI pass-through will increase in '18 versus '17. Will they increase enough to overcome the cost increases in '18? And I don't think we're prepared to say that yet..

Okay..

I don't think we know yet. We're -- as I said, George, we're still in the budget process..

Okay..

George, just so we're all clear, right, we -- you follow the industry for a long time, you know the inputs we have. There has been consolidation among some of our suppliers and they pay pretty big premiums to make those consolidations occur. They are looking for price realization on top of whatever else they have and it's our job to push back.

So we're in that process now..

Okay. I understand what you're getting at there. The other question I had, and it -- the segues off of some of the other questions, I think Chris was getting at it too. Again, we've covered the industry for a while.

You've discussed your view that utilization rates are high 80s, low 90s and you describe that as being healthy in an industry that, looking out next year, is, if it performs as you commented, will be flat to up.

I mean, given our experience, healthy is probably a few hundred basis points better than that, but you're running business, I just push numbers around on a spreadsheet.

So what else goes into defining the market as healthy? Is it the margin benefit you're getting from custom cans? Is there some view that capacity as it's being realigned in North America that helps tighten the market for next year? What else is in that description of healthy other than the operating rate as you defined it? And maybe it's just that.

Thank you guys and good luck in the quarter..

I think, George, whether we operate at 91% or 92% or 94% utilization across an industry, if we're going to sit here and -- within Crown or the other guys are going to sit there within their own companies and argue to themselves that they need that other 2% utilization to act responsibly in the market, then, boy, we got a problem, right? We have -- as you look at utilization rates in our industry, probably some of the highest utilization rates of any industry.

So if we're going to fight and claw for every last utilization point, then, yeah, you're right -- you're probably right, we need even more because we're not capable to do it responsibly, but I would argue that high 80s, low 90s, low to mid-90s is more than enough utilization to have some kind of a responsible price realization going forward..

Okay. And I assume the other things that I mentioned really don't play into the -- your view there, or they do in terms of custom growth or any other --.

Oh, no, they do, but as you know, custom is still -- let's talk about custom very quickly. We talk about specialty cans, everything that's other than the 12-ounce, 211 diameter.

We have 16-ounce cans are -- more or less that are standard can, right? So if you took 16-ounce and you put them with 12-ounce 211, that leaves you with all the other slims and large sizes and that's a much smaller customer specialty segment than if you include 16. So yes, it is important, it is growing.

We understand why the marketers want it to grow. The cans look fantastic. We and our competitors do a wonderful job of meeting their needs, but by and large, the backbone of the industry is still the 211 diameter can, so -- whether it's 12 or 16-ounce..

Fair enough. So the game is ahead. You guys just have to execute. That's all..

Absolutely..

Okay. Good luck in the quarter, guys..

Thank you, George..

And that ends our question-and-answer session for today's conference. Speakers, please go ahead..

Thank you, Darren. As Darren said, that's the -- that concludes the call today and we'll look forward to speaking with you again in early February. Thank you very much..

And that concludes today's conference. Thank you for your participation. You may now disconnect..