Tim Donahue - President, Chief Executive Officer Tom Kelly - Senior Vice President, Chief Financial Officer.

Matt Krueger - Robert W.

Baird Tyler Langton - JP Morgan George Staphos - Bank of American/Merrill Lynch Scott Gaffner - Barclays Bank Chip Dillon - Vertical Research Mark Wilde - Bank of Montreal Adam Josephson - KeyBanc Capital Markets Arun Viswanathan - RBC Capital Markets Anthony Pettinari - Citi Group Debbie Jones - Deutsche Bank Brian Maguire - Goldman Sachs Chris Manuel - Wells Fargo.

Good morning, and welcome to Crown Holdings, Fourth 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. The loss in the fourth quarter of $0.67 per share included a non-cash tax charge of $177 million to recognize the accounting impact of U.S. tax reform.

We do not expect any cash tax impact from the deemed repatriation provisions of the lax due to available tax credits that will fully offset any tax that would otherwise be paid. Adjusted earnings per share were $0.79 in the quarter and $4.03 for the year.

Net sales on a currency neutral basis were up 8% for the quarter and 5% for the year due to the pass through of higher material costs and increased beverage and food can volumes. Segment income was up 4% for the quarter and 5% for the year at actual rates.

Adjusted free cash flow for the year of $503 million exceeded our earlier guidance, primarily due to working capital improvements and a weaker dollar, as strong fourth quarter cash flows came in at higher translation rates.

This improvement was partially offset by higher capital spending, largely due to an acceleration of spending on our glass bottle plant in Mexico. Adjusted free cash flow excludes the impact of $241 million voluntary pre-funding payment to our U.K. defined benefit and pension plan that will reduce future contributions.

As outlined in the release, and excluding the impact of the Signode acquisition, we are estimating first quarter 2018 adjusted earnings of between $0.75 and $0.85 per share and full year earnings of between $4.30 and $4.50 per share. These estimates assume a full year tax rate of approximately 26% and that exchange rates remain at current levels.

To be consistent with the scenario that excludes the Signode acquisition and as most analysts have modeled, these estimates assume share repurchases in 2018. To be clear however, we fully expect to close the Signode acquisition in which cash we would not repurchase shares in 2018.

Again, excluding the impact of the Signode acquisition, we are projecting full year adjusted free cash flow of approximately $500 million after $425 million in capital spending.

Also included in the release and as previously disclosed in our 10-Q filings for 2017, this information on the potential impact in new accounting guidance may have on our reporting and disclosure in 2018.

I won’t repeat the information from the release, but will say that we do not expect that the changes required by the new guidance will materially impact our net income earnings per share and that they will have no impact on cash flow available for debt pay down, but will impact how certain items are reported on the income and cash flow statements.

And with that, I’ll turn the call over to Tim. .

Thank you, Tom and good morning to everyone. As reflected in last night’s earnings release and as Tom just discussed, we had a solid fourth quarter and full year 2017 performance.

For the year we outperformed our initial expectations by about $0.15 per share as strong global demand for beverage and food cans offset higher than anticipated startup costs. Headwinds from currency translation reversed during the year, also contributing to the outperformance.

In response to increasing global demand for beverage cans, we completed five major can projects and have three more currently underway for completion in 2018. Additionally and earlier than expected, we completed and commercialized the new glass facility in Chihuahua, Mexico early in 2018.

We refer you to last night’s release for the progress and timing on the major projects underway or recently completed.

The positive impact from foreign currency translation accelerated in the fourth quarter reversing earlier headwinds to end the year with an overall negligible impact and as has been our practice recently, we had included the currency impact on sales and segment income in the release, so my comments on performance will be currency neutral.

In total, net sales advanced 8.4% at constant currency in the fourth quarter and 4.8% for the full year, with a pass through of higher raw material cost accounting for about 50% to 65% of those increase.

With tin plate steel up double digits in 2018 versus 2017 and delivered aluminum up some 33% currently versus January of 2017, we expect significant reported sales gains in 2018 from the pass through of raw materials. In Americas Beverage, fourth quarter sales unit volumes advanced 4% over the prior year and for the full year were up 2.6%.

Strong demand throughout Latin America drove the volume gains with North America flat in the fourth quarter and down 2% for the full year.

Segment income benefited from the additional volume, which offset higher than anticipated startup costs at Nichols and Monterrey, and the pass through of our contractual inflation index which for the past few years has been negative.

In North American food sales unit volumes increased low to mid-single digits in both the fourth quarter and for the year and were partially offset by a weak chilly crop in Mexico.

Unit volume demand in European beverage increased 3.6% in the fourth quarter and 2% for the year as strong performances throughout most operations offset continued demand softness in Saudi Arabia; the result of ongoing border closures and recently enacted beverage taxes.

As expect, segment income was off slightly from strong 2016 levels due to geographic mix, which we anticipate will continue into 2018. Unit volumes in European Food were level to the prior year in the fourth quarter and increased 1% for the full year, with cost reductions offsetting the mix shift to smaller sized cans.

Segment income in Asia-Pacific advanced 10% for the year as continued strong demand throughout Southeast Asia, combined with cost savings from recently closed beverage can plants in Shanghai and Beijing offset our continued pruning of non-profitable business in the Chinese market.

Segment income in our non-reportable businesses was in line with the prior year as our global aerosol and machinery businesses continued to perform well. So in summary, a real productive year in 2017; numerous projects completed and some others started.

We have bracketed our 2000 [ph] EPS guidance right around a 9% to 10% growth over 2017 and free cash flow at $500 million excluding the impact of the Signode acquisition. As always, we will try to do better than that.

Specifically to Signode, we do not yet own the business, so it isn’t appropriate to comment on their business other than to reiterate what we have previously communicated to you; that is a full year pro former incremental cash flow of $165 million and earnings accretion after the amortization of acquired intangibles.

We do expect closing to occur in the late Q1 early Q2 timeframe. Before we open the call to questions, we say Billy-Billy, Filly-Filly and we ask you to please limit yourselves to two questions initially so that everyone will have a chance to ask their question. You are always free to jump back into the queue.

And Darren, we are now ready to open the call to questions. .

Certainly. [Operator Instructions]. Your first question comes from Ghansham Panjabi with Robert W. Baird. Your line is now open. .

Hi, good morning. This is actually Matt sitting in for Ghansham.

How are you doing?.

Good morning, Matt. .

Good morning.

So give your strong working capital performance and strong free cash flow, how much did lower production or inventory destocking impact your EBITDA during the fourth quarter? And then if it did impact that, can we expect any lingering impact in the first quarter of 2018?.

We – and I’m assuming you are asking this question based on what some others may or may not have done. We made no changes to the production schedule in Q4 and so there was no impact in Q4 nor would there be any lingering effect from something that didn’t happen in Q4 in the next year. So it’s a non issue for us..

Okay, very helpful.

And then touching on the outlook for 2018, can you provide an updated outlook for regional volumes for the year, and with a particular emphasis on Latin American given the new market entrance on the beverage can side in Brazil that would be helpful?.

Yeah so I think, you know Latin American, there are a number of different markets in Latin American. We participate in Colombia and Brazil. We would expect Colombia to be up mid-single to low double digits, and Brazil we expect the market to be up you know low to mid-single digits. Our volume should be similar to that.

There will be – there always is you know price pressure. Obviously there is competitor in the market and hopefully there will be enough growth over the next couple of years to absorb that and to absorb their aspirations and hopefully they are going to enter our market and they are going to be somewhat responsible; we’ll see how it goes.

But yeah, there will be some pressure, but there is always pressure in every market and every business we are in. .

That’s helpful.

And would you mind touching on the remainder of the regions as well?.

So North American Beverage, you know I think we anticipate the market to be largely flat. It was somewhat flat this year down a touch, but largely flat plus or minus 1%.

You know that’s slowing declines in carbonated soft drinks offset by the growth in sparkling waters, albeit my comments anticipate that mass market beer in the United Sates recovers from what we’ve seen here in the third and fourth quarter.

European Beverage, we expect to see you know growth in the order of 3% to 5% as we’ve been consistently seeing as an industry over the last decade or more and South East Asia, again depending on the country we are talking about could be low single digits to mid to high single digits, low double digits.

China, we would expect the Chinese market to grow on the order of 5% to 10%, although we will not participate in that growth as we are – we closed two plants recently and we are being very careful about which customers we extend credit to. .

That’s very helpful. Thank you for all the detail. .

Sure..

Our next question comes from Tyler Langton of JP Morgan. Your line is now open. .

Yeah, good morning thank you. .

Good morning. .

Tim, could you just – I guess you know with the guidance for the year of the $4.30 to $4.50, can you guys talk I guess about some of the puts and takes, and what could kind of get you to the higher end where the risks that you see there could put it towards the lower end?.

Well, the big item that puts you to the higher end will be foreign currency right. I think we’ve seen the dollar weaken and I think whether it’s the administration specifically and/or the other forces, it seems they want to have a weaker dollar policy than the previous administration, which happens to be very good for us.

I think this time last year we were probably talking about a euro that was $1.07 or $1.05 and we are sitting at $1.22, $1.25 something like that today, and the Sterling which was in the $1.20’s is now back into the $1.40’s, so currency is clearly an opportunity and we like many multinationals have faced significant headwinds over the last three, four years from currency.

So we’re hopeful and we are looking forward to getting some of that back. I think we’ve baked into – into our interest expense model we have baked in three more rate rises this year. So you know I think we think we’ve been prudent there, but that could drag that down a touch.

But you know another quarter point or half a point is not going to move the needle too much when you consider post tax divided by the number of shares. And then obviously demand. We had a real good, real solid demand profile globally in ’17. We see no reason why that shouldn’t continue in ’18.

The can continues to be the preferred package by beverage marketers and consumers globally for a number of reasons and so we feel pretty good about the business. So it’s a $0.20 band.

I think we give you a $0.20 band every time in the first quarter just to give ourselves a little leeway for a lot of things that we don’t know that might happen during the year and then we generally shrink that to a dime or a nickel later in the year, but it’s the band that we have right now..

Okay now that’s helpful.

And then just with the closer of the Lawrence plant, can you give us a rough sense of how much savings you could generate from that?.

No, you know on the order of – just if you wanted to pencil a number, in the order of $10 million. .

Alright, perfect. Thanks so much..

You’re welcome. .

We have George Staphos from Bank of American/Merrill Lynch. Please go ahead. .

Hi, thanks everyone. I appreciate the details. Congratulations on the year and to the Eagles. I guess the first question I had is a two-part question on guidance.

Tim or Tom, can you relate us what you would have baked in for repurchase in terms of the EPS guidance and in your comments Tim, I think you said your guidance assumes some recovery, at least sequentially from the down draft that had been occurring within the beer market.

Could you provide a bit more color in terms of why that’s the case and I had follow-on..

Yes, I’ll take the shares George. So without share repurchases we think we would be about 135.5 million shares. With the pro forma share repurchases we are at about 132.5. So it’s about $3 million difference – I’m sorry, 3 million shares, $350 million of repurchases spread throughout the year. .

George on the beer, I didn’t make that comment in my prepared remarks. It was in an answer to Matt’s question as to our volume estimate for the North American market.

I said you know plus or minus 1%, which would imply that the decline, the rapid declines we saw in Q3 and Q4 in mass market beer in North America would be, keeping in mind we’re not extremely exposed to mass market beer in the United States.

We have one factory in the South West that is specifically a beer customer and you know we generally have been experiencing better can beer sales in Canada over the last couple of years, so we would expect to see that as well..

Okay, so it’s more of an expectation or extrapolation as opposed to something that you’re seeing real time and obviously its less important to you I guess..

It was more a comment on the market in general as opposed to Crown specifically..

I’m with you. The other question I had then, you know obviously you haven’t closed Signode, but you expect to close Signode and you’ve talked in the past about you know what that provides to you, presumably in terms of a platform. Meantime we look at the number of projects in beverage cans this year.

I think you called out three – one that you’re completing after five. The last should – implicitly or explicitly should we then expect that the organic growth spending on beverage cans is probably at a lesser rate in the next several years and if you could provide some parameters around that, that would be great. Thank you, guys. I’ll turn it over..

You’re welcome.

So I think you know what we said in December when we had the call to announce the Signode transaction, that this would not change our strategy with respect to our existing can businesses, be it a beverage food or aerosol, and so where we see opportunity to grow the business organically, we’re going to continue to try to win as many of those opportunities as we can, but from time to time capital might be plus or minus $25 million or plus or minus $50 million one year to the next depending on the number of opportunities and the rate at which we complete those opportunities at any given year.

But you know I think the good thing about the beverage can industry, we and our competitors, I think we all realize we’ve all known this a while and I think others realize that the can is the increasingly preferred package and we are presented with more and more opportunities each year and it’s really a good thing.

So we’re very positive on the beverage industry; we’re positive on the opportunities we see going forward. The rational for the Signode acquisition was not in any way to replace what we theoretically don’t see in the future in the can business.

It’s a great business that we got a really attractive cash price and it offers us opportunity to continue to grow our overall franchise. It’s a franchise business that’s the clear leader in their industry and it has pockets within their own business that have tremendous opportunity for growth.

So it was purely looking at the future and continuing to look at how we can continue to grow Crown as an enterprise..

Our next question we have Scott Gaffner from Barclays Bank. Your line is now open..

Thanks. Good morning Tim and congrats on the Eagles. Hopefully the team let you out of the office for a couple of minutes to get to the parade..

We will not go anywhere near that parade, you can be assured of that. That will be a circus like you’ve never seen..

I can only imagine. I just wanted to talk for a minute about Latin America, you know going back to this new capacity that’s coming online in the market there and really revisit you know your Crown strategy in Brazil.

Because if I look back, I think the last major facility you added in Brazil if I’m correct was in 2014 and you had added sort of ahead of the market growth just given the growth profile there.

What’s sort of the go-forward strategy there? Are you a little bit more maybe conservative than you have been historically with capital in the region or is it just something that you looked at as far as this new capacity and maybe got out bid?.

I’m assuming, are you talking about the plant in Paraguay or are you talking about the new entrant in the market?.

The new entrant in the market..

Oh! The new entrant in the market was not an opportunity for any of the existing can makers. They bought a small one line, one can, one in-line factory that was making steel cans in the North East part of the country. We and the existing can makers probably would not have been able to buy that, nor would we have wanted to.

They use that as their entre into the market. They converted it into aluminum and with the sponsorship of one or perhaps two other, two customers they built another plant more towards the center of the country, so I don’t think any of us were out bid.

It was more, they’ve been looking at coming into the Brazilian market for a number of years and they were offered an opportunity and sponsored by one or two customers to come in..

Okay, fair enough. As far as you know substrate mix in that region, what are you – are you seeing anything that gives you pause as we had here in to 2018, around you know cans ability to gain share in the region..

No, I think in soft drinks – on the soft drinks side the cans seem to be stuck right around 10% of the mix and it doesn’t seem to move a whole lot more than 0.1% or 0.2% one way or the other each year, so that’s right around 10%.

On the beer side you know we’ve rapidly ascended from 25% and if we’re not at 50% we’re real close to 50%, the can versus the other you know one or two way glass and draft.

So if anything, we continue to see a creep up in Brazil towards cans, you know certainly not at the two-thirds or 68% of the market like we have in North America, but creeping in that direction and you know we’re real positive on the Brazilian market. Yes, there’s a new entrant.

They’ve got socio political issues from time to time like a lot of places in the world. They’ve got a consumer that sometimes is weaker or stronger. They’ve got unemployment that perhaps is a little higher than you’d like to see right now.

But all in all it’s a great market for cans and it’s a great market for beer consumption and cans do real well with beer..

Alright, thanks for the color Tim and good luck in the quarter..

Thank you, Scott..

Our next question, we have Chip Dillon from Vertical Research. Your line is now open..

Yes, good morning. Congrats again on the Super Bowl. I’m sorry about last night though. What a shocker in basketball..

Well, you’re probably not sorry than St. John beat Dup the other day, if I know you..

Oh my goodness! That made up for a lot for sure. So listen, I had a quick question on the Signode deal since that was announced since the last call and I just want to be clear on a couple of things.

One is, you mentioned $165 million in incremental free cash flow and I am just wondering if that is something that we should see starting day one and so let’s say you close for example on the end of March, would we see three-fourths of that this year or is it going to take its time to ramp to that level?.

No, I think we should see three-fourths of that this year. Their business is not as seasonal as the can business.

There is some seasonality and you know so we got to get into it a little bit more and understand the cash flow seasonality, but it could be that they – for example Chip they could have a slight working capital build in Q1 that when we make the working capital adjustment in purchase price, we pay them a little more purchase price and the working capital comes out and we get a little more cash flow.

But the pro forma, as if we owned it from January 1 is 165, so roughly three-quarters of that, yes..

Okay, and then I know, not to get in the weeds here. When you guys came out with the very good details in December there was a free cash flow slide that indicated or suggested as I see it that you see maybe growth from the 590 level pro forma recognized and that’s a full year pro forma, so 775 by 2019.

Is that sort of a mid range of kind of your best guess as to how, based on what you see in the business, how free cash flow could evolve? How should we think about that 775 number for ’19?.

Yeah, so I think you know the 590 implied 4.25 plus 165 to get to 590 and I think whether we’re talking about ’17 or ’18, we’re 500 plus one, so that’s 665 and so we’re looking for another you know roughly $100 million between ’18 and ’19 and I think given the capital we’ve put in the ground over the last couple of years and continue to put in the ground, we’re going to have earnings growth in Crown that’s going to yield much of that right there, and there’ll be some small – we’ve only modeled very small improvements to the Signode business, although that could be much better than we modeled.

But you’re looking at 665 roughly in ’18 which could be better than that as well, so..

Got you. And then the last question is, you guys do a great job of matching you debt domicile I guess, so currency exposure to where you have operations. It seems to be that way.

How are you positioned if rates do rise? You mentioned you’re putting in three rate increases and I guess the first question is, where do you see interest expense this year, number one? And number two, how much of your debt is exposed to short term rates and is there any thought towards fixing more of it?.

So our interest expense for 2018 ex-Signode is about yeah, let’s say mid 240, 245 and then beyond that we have about two-thirds of our debt, excluding Signode fixed and then you know you’ll obviously layer in Signode above that and we’re happy with the mix right now and post Signode would be floating versus fixed..

Got you, thank you..

You’re welcome..

Our next question we have Mark Wilde from Bank of Montreal. Your line is now open..

Good morning Tim. Good morning Tom..

Hi Mark..

Hey Mark..

First just on the North American beverage can, I wondered Tim if you could give us some sense of where the business will be operating with the closure of warrants.

What kind of operating rate you’re looking at there and then also maybe just an update on the ramp-up up at Nichols?.

Yep, so I think post Lawrence we’re in the low 90’s on a full year basis, which obviously implies you know from April through August or March through September your well over 100% when you’re in the season. So we think that we in the industry are pretty good relative balance as it relates to demand on our capacity.

Nichols, you know I mentioned twice I think in the prepared remarks. We had higher than anticipated start-up costs. It’s been – you know we’re a can company, we’re a manufacturing company. We’re supposed to be able to make cans.

We built a lot of plants around the world and we probably struggled a little bit more in Nichols than we would have liked, but it is coming up now. But last year the performance was disappointing.

The manufacturing performance was disappointing and the guys in Nichols and the guys in our beverage manufacturing team know they have to do better and they are going to do better, so it is getting better..

Just in terms of like filling the plant with specialty volumes, I am just curious about what the timeline is looking like there?.

Well, so its specialty. You know as we’ve said before, for us specialty is everything other than standard 12 ounce. So you got 16 ounce cans as well and we have a large proportion of the Canadian beer business that we supply. We only make 12 ounce cans in our two Canadian facilities.

So all the 16 ounce will come from Nichols and then obviously the growing slim cans or sleek cans are for the entire North East, Mid West are coming out of Nichols as well and then to the extent that we have displaced 12 ounce standard capacity from Lawrence, that will go out of Nichols as well..

Okay, right the other question I had is just you know over the last few months there have been some concerns around European beverage can pricing and I wondered if you could just update us about how you see the competitive market and pricing in Europe?.

Listen, I don’t – there are – you know let’s be clear, we’re in a competitive business. Every business is competitive, every industry is competitive. If our industry wasn’t competitive, there would be other people coming in to make it competitive, so that’s just the nature of the business.

I haven’t seen anything in European beverage cans that tells me that that markets any more competitive than any other market, say for China, which is an anomaly brought on by government subsidies. But Europe is, yeah its competitive, but it’s no more competitive than North America, Brazil or anywhere else in the world..

Okay, that’s helpful, that’s what I was looking for. Good luck in the year..

Thank you, Mark..

We have Adam Josephson from KeyBanc Capital Markets. Please go ahead..

Good morning everyone..

Good morning Adam..

Tim, I’m sure you had abiding faith that falls would lead you to the promised land, right..

Well, I don’t think anybody could have played better in the Championship game at the Super Bowl than he did, so that was fun to watch..

Amen. Tom, just one regarding your guidance.

Would you expect the inclusion of Signode to be any more or less accretive than the buybacks that you penciled in now?.

Yes, the buybacks were – well the buybacks would have been about a few percent of our shares where Signode could be about 5% accretive, and remember that Signode accretion is after large amortization charges as well..

Non-cash amortization..

Non-cash amortization..

Okay, so it would be a little more accretive than the buybacks it sounds like..

Yes, definitely. Particularly if you exclude the amortization, you have it..

If you exclude the amortization – yeah, if you exclude the amortization which we are not excluding, you know you’re talking about $0.90 to $1 per share of accretion, but after you know when you deduct the amortization and your accretion perhaps is in the, as Tom said, 5% range..

Got it, that’s perfect. Just one on Brazil, Tim. Demand has fluctuated pretty substantially over the last, I don’t know three or four years. I know its picked up of late.

Can you just compare what you’re seeing now to where it’s been over the last three or four years, you know both the ups, the downs and where you see it going from here?.

Well, I think the good news is when you look back, if you look back three years or five years and you look at the volume that the market had, the canned volume that the market had three or five years ago and you look at it today its up significantly and by significantly its certainly in the double digit range.

In some years that could be plus 7%, plus 12%. We had a year in there that was flattish or minus 2% or 3%, but all in all the market keeps moving in the right direction. You know we run a business where we can’t – you guys can buy and sell stocks on a daily basis. We can’t buy and sell our businesses on a daily basis.

We have to take a much longer term view of the market and you know you look at a market like Brazil with a longer term view and you feel really good about the market, so I wouldn’t – we expect to see you know 3% to 5% growth again in ’18, but I wouldn’t look at ’18 and make my decision on Brazil based on ’18.

I would look at over a three to five, six, seven year period and as we do that we feel equally as good looking forward as we do when we look back. So it’s one of those markets that’s been real healthy for the can industry and we see no reason why it shouldn’t continue to be so..

Thanks and just one, I know Mark asked about Europe. Can you just kind of characterize what you think demand and supply are growing by in continental Europe and he asked about the pricing issue? So that would relate to the extent to which demand and supply are growing.

So just any more detail there about what you think is happening there?.

There is supply coming into the market, any number of lines or factories being added. But the market is growing and it grows as I said, 3% to 5% on a base of 60 to 70 billion cans, so that’s fairly significant. You know 3% on 60 is 1.8; that’s roughly two lines a year that need to be added to keep up with that.

So in large part the market is sold out in Europe. Certainly in the shoulder seasons of Q1 and Q4, you know they are the low seasons and much lower in Northern Europe, North West Europe than we experienced in North America. But in the summer there you know they sell cans like we sell cans.

They are flat out and overall the market is generally demand and supply are pretty well in balance. Your always hesitant to say your sold out, you could always sell more if you had to. But we’re pretty close to sold out I think as an industry. I know at Crown we are and I think as an industry.

Should pricing be better given the demand/supply characteristics, we think so, but you know it’s a competitive business and as you know our customers have a lot of power and its incumbent upon us and the industry to make sure we get the proper returns for the assets we employ in our business, but pricing could be better, but it’s certainly no worse.

It’s obviously better. but it’s no worse or no more competitive than other markets..

Thanks so much, Tim. I appreciate it..

We have Arun Viswanathan from RBC Capital Markets. Your line is now open..

Great, thanks. Good morning..

Good morning Arun..

Just some questions on I guess the volumes.

I don’t know if you explicitly are in a position to give out volumes by region in Q4, but do you have those sir?.

Yeah, I think we said them in the prepared remarks, but I’ll repeat them very quickly for you. Americas Beverage up 4%. North America was flat. Brazil was up low teens. Mexico, mid single digits. Europe, was up high single digits. Sally was down mid-teens. China down mid-teens. Asia up low double digits.

Who did I miss here? That’s about everybody, right? I think I got them all..

Okay, and just on North America then, just going back to that issue of cost, do you expect you know that the Q4 was result or do you think the Q4 result was negatively impacted by those higher startup costs and fixed costs and so do you expect margin expansion I guess in American Beverage in 2018 as you fill the lines and probably see some of those startup costs roll off.

.

Well, I think one thing to keep in mind when you are looking at percentage margins..

The pass through right. .

The pass through of raw materials is not going to be insignificant. We had huge pass through of raw materials in Q4 and so that’s dollar for dollar so there is no margin expansion on that.

If I was to look at Q4, in total for the company our pass through, if sales were up two hundred and some million, FX was $80 million or $85 million and I think pass through alone was probably another $80 million or $85 million, so big numbers on pass through and we expect to see that again.

So you know percentage margins probably don’t expand just because of the math with a larger denominator.

We do expect absolute margin, that is segment income in every business, that all of our reportable segments to be up year-over-year with the exception of European Beverage, which we continue to see the mix effect of more sales in Europe at lower margins being offset by lower Saudi sales that have higher margins. .

And Europe Food lastly, some nice performance there. Was that kind of versus our model? You know what’s your expectation for ’18? I guess continued growth in some of the....

You always allow me the chance to say your model is wrong. I love that Arun when you – now so....

Well, we don’t know how to model you guys, so..

No, I know. I’m joking, you know I’m joking. I think Europe Food, you know I read a number of the reports this morning and everybody was surprised at how well we did in Europe Food. I got to tell you, excluding currency I think we were flat for the prior year. So weren’t at happy as you were. You know it’s a big business.

It’s a $2 billion business and depending on my mood from to day to day I can get pretty gnarly around the fact that at a $2 billion business you should be able to find a lot of cost reductions or perhaps more than you found. So we have been generating cost reductions; we are running the factories well.

You know like any manufacturing operation from time-to-time we have production problems or claims and so we need to get better and we know we need to get better. But we would have – this year we were probably less excited about our performance in European Food than you were. I was a little disappointed that we were even year-on-year.

We would have expected to do a little better and we do expect to do better next year or next year being ’18, I’m sorry..

And lastly if I may, on cash flow what’s the opportunity to potentially exceed your working capital again in ’18 and post a slightly better free cash flow number?.

You know at some point we generally try to put targets out there that we think are prudent. So we don’t mislead you or investors to believing we are going to better than we actually think. So this is, you know this is where we think we are going to be for the year. The business is expanding and obviously we are in a competitive environment.

There is pressure everywhere and so we modeled what we think cash is and as we say we hope to do better, the problem with that is the last several years we have done better or significantly better than we told you initially.

But this is where we are at right now and other than that I don’t think Tom wants me to say we are going to do better, other than to say we are going to try to do better. .

Great. Thanks a lot. Good turn over..

You’re welcome. .

We have Anthony Pettinari from Citi Group. Your line is now open. .

Good morning..

Good morning. .

The industry saw very strong volume growth in North American food cans in 4Q. I’m just wondering if you were seeing pre-buying in 4Q ahead of steel prices going up or if there was something else driving that, and is that something that could maybe be reversed or impact 1Q volumes.

And then just looking at North American Food Cans broadly in 2018, you know in previous years we’ve seen a decent pricing pressure, a competitor ramping capacity, some share shifts. Is pricing pressures may be stabilized somewhat in that business as you think about ’18 or any kind of color if you could give would be helpful. .

So on the pre-buy, the answer is in both of our food business, Europe and North American we did see accelerated shipments in Q4 if you want to call that pre-buy; yes, there was pre-buy. We didn’t see any negative impact from the December - November, December activity in January.

So not clear that we are going to see any negative impact there, so it looks like that’s okay.

I think there is always in that business, specifically North American Food, there is significant excess capacity and there has been other capacity brought on by not just a new entrant, but the largest entrant in the market and there is going to continue to be pressure in the business.

So it’s a smaller business for us and we are going to defend our turf and do what we need to do to protect our business. .

Okay, that’s helpful. And then just a follow-up I guess on Arun and Mark’s questions. You know you had five projects last year and you talked about the higher than expected cost at Nichols.

Is it possible besides the benefit from the roll off of all of those project costs that you might see in 2018?.

You know I think it probably is. I don’t really want to give it out, because we are going to have cost again. We’ve got a large factory we are building in Spain, a large two line factory in Spain. You know we’ve got another line going into Cambodia which is similar to what we did this year in Danang or last year in Danang.

We’ve got a one line plant going into Myanmar, which is similar to the plant we built in Indonesia.

So there are similar projects we are doing in ’18 like we did in ’17 and some of the later projects that we completed in ’17 such as Danang and Indonesia still have a little startup associated with them or drag associated until they get the full production in ’18.

But as you are sitting there, I wouldn’t – you know the problem with giving the numbers incrementally, you guys just keep adding all the stuff incrementally up and we’ve given you a number which has everything in the blender and incrementally if you want a number, $5 million but that number can move around alright. .

No, that’s helpful. And then maybe just one last one; in the Middle East you talked about that business being negatively impacted by the Saudi tax and also broader closings. I guess the tax anniversaries or laps this summer.

As you think about the second half and maybe prospective for Middle East being better in the second half of the year, just wondering if you could size how much of the headwind is Saudi tax and how much of the headwind is you know kind of boarder closing and just for general instability in the region. .

Yes, well that I can’t parse out for you, other than to say we were down mid-teens in Saudi and it could be the same again in – at least in the first half of ’18 and I don’t have a clear view right now for the back half of ’18.

So other than what we communicated to you was that as part of our overall guidance we see the European Beverage Business declining in terms of segment income in ’18 versus ’17 and that has to do with Saudi. .

Okay. I’ll turn it over. .

Thank you. .

We have Debbie Jones from Deutsche Bank. Your line is now open. .

Great, thank you. One more question on North America. When you ramped down Lawrenceville do you feel like you will be happy with your footprint at that point.

I’m asking this partly because you are seeing some growth with some customers and not with others and I’m just curious how that kind of changes the other regional needs for you?.

Debbie, I think post Lawrence we have a footprint that we are very satisfied with. You know over time we probably, if and when sleep can sizes continue to grow, we perhaps need some more sleep capacity either in the Midwest or upper North West, but post Lawrence we are right where we need to be. .

Okay, and thanks for the sideline number, but I was just curious on the guidance for Q1. Could you just give us some sense of what is baked in in terms of you know ramp up or ramp down impact.

Is it meaningful in the quarter?.

Well, you know everything is meaningful, but the answer is I don’t know. .

Alright, thank you. I’ll turn it over. .

Thank you. .

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

Hey, good morning guys. .

Good morning. .

Just to come back to Lawrence one last time, is there going to be any volume hit form that or do you expect to just replace that volume from other plants, which I’m assuming is the case.

And then just related to that, is the $10 million number you gave in savings, is that just fixed cost savings from that or is that net of any additional freight or logistics you might have to support those customers from plants a little bit further away. .

So no business expected to be lost and the $10 million is net. .

Okay, great. And then just Tom one for you; on the accounting changes in the pension, just want to make sure I get it right.

So the EBIT and EBITDA will be reduced by about $67 million, but that will be offset by a little bit of an add back below the line, is that right?.

Yeah and exact add back below the line, so no net impact. But yes it comes out of operating income and we pick it back up below the line. .

Okay great. That’s all I had. Thanks again. .

Thank you..

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

Good morning gentlemen and Dilly-Dilly..

Dilly-Dilly, how you are doing Chris?.

I’m doing alright. You know I was hoping that you would have been able to get them to use some of your shaped steel cans to spray WD40 instead of Crisco or Hydraulic Fluid or things like that, but... .

Well, we were hoping that you actually had an offensive coordinator in Pittsburg, so we could have beat the Steelers in the Super Bowl, so….

Well that would not have happened, but we will allow you to dream. Anyway, question for you, working capital side. So the assumption for 2019 or 2018 is relatively flat I’m guessing. But we are seeing aluminum going up, but at the same time you guys are closing come plants, you’ve added some plants.

How should we think about overall levels? Is this something that could end up being a drag if aluminum continues to run or how do you think about that?.

Well, it’s one thing for aluminum to go up. It makes our revenues look higher and as long as its rising, there generally is no negative working capital impact because you have payables that offset your carried inventory and typically in the beverage business we don’t – we either factor or securitize the receivables, so we are not out on that.

The challenge with rising aluminum and I think some of the guys on the aluminum aerosol business are seeing it, because the aerosol customers, some of them are talking about going to back to tin plate.

But the challenge is that the product becomes less competitive and you know having said, the all in delivered cost from manufacturer filled through warehousing and distribution is still cheaper with cans than it is with glass. But we don’t necessarily see any working capital headwind coming from the rising aluminum.

Obviously the expanding business, every time we build a plant we probably do add $15 million or $20 million in inventory or repair parts just to have a factory that can service customers. So that is something that we always have to work to offset, but you know we’ve doing that for several years. .

Alright, that’s helpful. And then, when we think about our about Signode.

So that still is slated to close end of the quarter or any update on timing there?.

Yeah, so as you might imagine, there is no vertical or horizontal overlap, right. This is a complete different business than cans and so it should be pretty routine, but these are anti-trust reviews. Its more really just bureaucratic fillings as opposed to anti-trust.

We’ve received clearance from several jurisdictions already and we are waiting on some others, it’s hard to predict. It could be March 1 or it could be April 1, I just don’t know. It’s out of our control. .

Okay, last question. Historically you guys have always kept a pretty good slug of cash on the balance sheet that have been trapped different places. With some of the repatriation stuff that’s going on and been able to cycle it through and I think Tom you mentioned via NOLs or other tax treatments you had; there won’t be much of it in it.

Is this something that going forward instead of having a year’s worth of free cash flow kind of sitting there, is this something that we might see down to a much, much smaller number?.

No, because I wouldn’t call it trapped first of all. Its cash that builds up and then it’s kind of timing, you just take some....

It comes in later..

Yeah, it comes in later. And if you are just looking at the end of the year, the other issue is we’ve built working capital in the beginning of the year, so we needed the cash for that. I don’t expect the tax law to materially change the amount of cash we carry on the balance sheet. .

Alright. Thank you guys, good luck..

Thanks Chris. .

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

Thank you, Darren. As Darren said, that concludes the call today. We look forward to speaking with you again in April to discuss the first quarter. Thank you very much. Bye now..

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