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

Scott Gaffner - Barclays Ghansham Panjabi - Baird Anthony Pettinari - Citi Mark Wilde - Bank of Montréal Tyler Langton - JP Morgan Chip Dillon - Vertical Research Arun Viswanathan - RBC Capital Markets Adam Josephson - KeyBanc Brian Maguire - Goldman Sachs George Staphos - Banc of America-Merrill Lynch Kyle White - Deutsche Bank Edlain Rodriguez - UBS Gabe Hajde - Wells Fargo.

Good morning, and welcome to Crown Holdings Third Quarter 2018 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. Now, I would like to turn the call over to Mr. Thomas Kelly, Senior Vice President and Chief Financial Officer.

Sir, you may now begin..

Thank you, Steve, 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 2017 and subsequent filings. Earnings for the quarter were $1.23 per share compared to $1.32 in the prior year quarter.

Comparable earnings per share were $1.71 in the quarter versus $1.46 in 2017. Net sales, excluding the impact of Transit Packaging were up 5% for the quarter, primarily due to increased beverage can volumes and the pass-through of higher material costs.

Segment income in the quarter improved primarily due to the Signode acquisition as higher global beverage can volumes were offset by lower food can volumes and continued inflation in North American freight costs. On the cash flow statement. Adjusted free cash flow trails the prior year through nine months, primarily due to working capital.

Inventory levels are currently higher than expected in European food cans due to a disappointing harvest and will be brought down in the fourth quarter.

In Americas Beverage, working capital balances are up over the prior year that support the 6% year-to-date increase in volumes over 2017 and will also be converted in the fourth quarter as we collect the increased receivables.

Net leverage at the end of 2018 is expected to be approximately 4.6 times, and we expect the ratio to decline by about half a turn a year, each year going forward, as we use cash flow to delever. As outlined in the release, we estimate fourth quarter 2018 adjusted earnings of between $0.97 and $1.02 per share.

These estimates assume a full-year tax rate of between 25% and 26% and that exchange rates remain at current levels. We are maintaining full-year adjusted free cash flow of approximately $625 million after approximately $460 million in capital spending. With that, I’ll turn the call over to Tim..

Thank you, Tom, and good morning to everyone. 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 strong with volumes up 3% in the third quarter; and when combined with firm demand and Transit Packaging, offset extraordinarily poor weather, which impacted almost all crop harvest and demand for cans across our European Food businesses.

Currency had minimal impact in the quarter with reductions of only $11 million and $1 million recorded on total sales and segment income, respectively. As a reminder and as discussed previously, double-digit increases in both, tinplate, steel and aluminum in 2018, have been successfully passed through.

Accordingly, as raw material costs are passed through on a one for one basis with no impact on absolute margins, there is a resultant decline in percentage margins. As you are aware, there were two significant hurricanes which hit the eastern seaboard and Gulf Coast, one in September, the other in early October.

Our sympathies go out to all that have been affected. The impact to quarter three results was small and any impact to quarter four is included in the guidance Tom has provided earlier. Our physical plant locations experienced no significant damage.

However, with numerous roads and bridges temporarily destroyed, we experienced a week of downtime at two large facilities in South Carolina, one, a beverage can plant and the other, a plastic strapping facility as employees, suppliers, haulers were unable to move safely to and from plants.

Paper supplies for the transit business were marginally disrupted, have since rebounded, and we continue to monitor the supply chain. In the third quarter, net sales advanced 29% over the prior year, largely due to the addition of the Transit Packaging business.

Adjusting for Transit, sales were up 5% in the quarter, primarily as a result of higher global beverage volumes and the pass-through of higher raw material costs, which offset lower European food can volumes.

Segment income improved 18% over the 2017 third quarter, due to the acquired business and higher beverage volumes offsetting weak European food can demand, and expected volume softness in our Middle Eastern beverage can businesses.

In Americas Beverage, overall unit volumes were up mid single digits with gains noted throughout North and South America. North American volumes increase ahead of a flat market and continue to reflect our underweighting to mass beer in that market. In Brazil, volumes were up mid single digits, in line with the market.

Segment income, down 3% to the prior year, continues to reflect costs associated with our oversold position in North America. Unit volumes in European Beverage were down 1% in the quarter as strong performances in Spain, Turkey and the UK were more than offset by expected demand weakness in Jordan and Saudi Arabia.

As discussed previously, income in the segment is impacted by the ongoing rebalancing of our portfolio more towards Western Europe.

Unit volumes in European Food were down 7% in the third quarter as very hot temperatures and prolonged drought conditions across most European production regions had a negative impact on the vegetable processing industry.

Compounding the effects of the summer drought was a longer-than-normal winter and a very wet spring, resulting in late plantings for many crops.

Unfortunately, the root systems of many crops were not adequately developed to handle the hot and dry weather, and what has been described as the most serious condition experienced by growers in the last 40 years.

With peas, beans and tomatoes and other crops yielding from 15% to 50% less product than the standard harvest, fewer products are processed and less packaging is required. Fortunately, cans do a bit better than other formats.

And when combined with exceptional cost management over the last year, the impact in our results was less than expected from such a crop shortage.

Segment income in Asia Pacific advanced 15% over the prior year third quarter as double-digit volume growth in Southeast Asia more than offset high-single-digit declines in China, the result of the late 2017 closure of our Beijing facility. Annual growth in China is expected to approach 10% in 2018.

However, our strategy to align efforts and investments to acceptable return environments remains unchanged. Net sales in Transit Packaging advanced 3.5% in the third quarter, as most businesses continue to see strong demand and building backlogs.

Increased depreciation expense, the result of updated acquisition step-up accounting, resulted in segment income being about level to the prior year, which is where we guided you in July. During the quarter, Bob Bourque assumed leadership of the Transit business.

Bob brings a proven record of sales and earnings growth to a business which we believe is certain to create long-term shareholder value. Income in non-reportables in corporate was level to the prior year for both the third quarter and nine months.

So, in summary, a solid quarter and nine months with comparable earnings up 17% and 24%, respectively; global beverage can demand has been exceptionally strong in 2018; and all signs point to a future where customers and consumers alike increasingly prefer the can over other formats.

The 2018 European food can harvest was poor this year, but the team continues to manage costs well. Production schedules have been realigned and inventories will be brought down to appropriate year-end levels to generate the free cash flow that Tom discussed earlier.

Just before we open the call to questions, we ask that you limit yourselves to two questions initially. You’re always free to jump back into the queue. And with that, Steve, we’re now ready to take questions..

Thank you, speakers. We will now begin the question-and-answer session. [Operator Instructions] Speakers, our first question comes from the line of Scott Gaffner from Barclays. Your line is now open..

Thanks. Good morning Tim; good morning, Tom..

Good morning..

Good morning, Scott..

First, quick question, I realize it’s a little bit nitpicky. But, midpoint of EPS guidance is down $0.02, which, right, is only 0.4% change to EPS for the full year.

But, is there incrementally anything, is it European Food, is it FX, what is it that you’re seeing that’s a tiny bit worse than what you would have seen, say at the end of the second quarter?.

Well, I think, you look at European food can harvest situation where volumes are down 7%. And you know the food can businesses as most everybody on the call does. We need to build inventories well ahead of the third quarter to supply customers in the third quarter.

And if there are no crops being grown in the field, there’s nothing to be packaged; they don’t need our cans. So, we need to do the best we can to right-size our inventories before the end of the year. So, we’ll have lower absorption in Q4 from just lower production schedules..

Okay. And then, if we move into 2019, looking at the North American beverage can business, you have two issues in 2018. One, you mentioned, the oversold position, which is leading to, I guess some spot rates in freight, but then also, you’ll have PPI pass through on some of your non-material costs.

What type of capture excluding any sort of commercial opportunities should we expect as we move into 2019 on the North American beverage can business from those two things?.

Yes. So, without being too specific, Scott, you do rightly point out that the formula pass-through for non-metal costs for the first time will be positive in a number of years. We had a perhaps a slight positive this year, but we’ll get a bigger positive next year.

And clearly, we’re looking at ways to regenerate acceptable margins in the North American beverage can space. So, that encompasses not just price but other terms and well and how we deal with the formula. But, perhaps it’s not appropriate to be so specific on this call. But, we understand, and the can is the preferred format. It’s going quite well.

We provide a great service and package to our customers. We need to be fairly compensated, and we are focused on realigning what we describe as a fair value for the product we provide..

Thank you. Our next question in queue comes from the line of Ghansham Panjabi, Baird. Your line is now open..

So, the lower absorption in 4Q for European food cans, will that continue into 1Q as well or do you fully anticipate to offset the [indiscernible] right-sizing by the end of 2018..

No. I think we should get most if not all of it out by the end of the year, Ghansham..

Okay.

Can you size the impact on free cash flow, just as we kind of think about where you are year-to-date versus your 6.25 guidance for the year?.

So, we’re a couple of hundred million behind where we were through nine months last year. And clearly, there’s a significant piece there that is within food. Some of that would have just been converted from inventory to receivable until it’s collected.

But, the larger impact is the inflation that we experienced on tinplate, steel and aluminum that’s just hung up on the balance sheet now until we collect the receivables through the fourth quarter..

Okay. And just my second question on maybe on Signode. I mean, obviously, there’s a little bit more growth uncertainty globally at this point, just given some of the peer commentary across different sectors, et cetera.

Have you seen any sort of change in volume trajectory in any of leading end markets for that particular segment, driven by the macro? And also, you mentioned increased backlogs for that segment. Can you sort of expand on that? Thanks so much..

Yes. So, the increased backlogs principally in the equipment and solution system part of the business, we do have in some of the strapping businesses globally some increase in backlog. We have not seen -- and we’re focused on trying to identify it as soon as possible, any slowdown in demand in several of the markets that Signode or transit sells into.

We actually have soldout positions. So, nothing immediately concerning, although obviously you’re always on the lookout for it. But the business year-to-date is up about 8% in revenue and in the quarter was up 3.5%. And this is a business that I think when we announced, we described to you that we thought organically could grow at GDP type levels.

And it’s certainly above that right now. And as we describe to everybody, for us, it was a platform from which to grow in the future, both organically and inorganically. And we continue to be pleased with it. It is a very large global business.

For those of you who’ve been to PACK EXPO this week in Chicago, there is a very impressive large exhibit, and you’ll have gotten a good view as to the breadth of the products that we provide, not only in North America but globally that we believe is unmatched in the transit space. So, we’re exceptionally pleased with the acquisition.

As we said last time, there’s a whole lot we’ve learned in the time that we’ve owned it that makes us even a bit happier than we were when we announced the acquisition. But nonetheless, we are always on the lookout for any slowdown that might affect the business.

And we’re looking for ways to introduce new products and solutions to customers, such that we minimize any impact of that in the future..

Our next question in queue comes from the line of Anthony Pettinari, Citi. Your line is now open..

Just following up on the full year guidance, I guess, EPS guidance has ticked down a little on European Food issues you discussed, but free cash flow guidance is unchanged.

Understanding it’s not a huge delta, I’m just wondering what are some of the offsets on free cash flow that allow you to keep that unchanged as core earnings or maybe a little bit weaker than expected..

Yes. I mean, the issues was -- we mentioned was in European Food, we had a seasonal inventory build followed by poor harvest. So, as we -- so, the inventory levels are elevated. And we plan to sell through those cans in the fourth quarter, so that will -- and reduce production at the same time, so that will benefit us.

And then, in Americas Beverage, we continue to see really strong volumes and we’ll monetize those receivables in the fourth quarter. So, really, it’s kind of what we lost was on food, but we’ll get that back with the decline in production in the fourth quarter and selling through those cans..

That’s helpful. And then, just regarding -- you mentioned the oversold position in North America and the cost there.

Is it possible to quantify the cost of that in 3Q and how that goes into 4Q, next year?.

Well, the answer is, it’s always possible to quantify it. I don’t think we’re prepared to do that on an open call. But, we’ve talked about freight in the past and we are buying cans from the competition. And the competition doesn’t sell you those cans for free. Right? So, there is two buckets of costs right there.

And within freight -- there is a number of elements within freight. We’re incurring more freight just to move cans around. And as you incur more freight, you’re incurring the freight at spot rates as opposed to contracted rate.

So, our plan is to have our inventory levels catch-up a bit in the late fourth quarter, early first quarter next year and minimize the impact that we felt this year as much as we can as we look at 2019..

Our next question comes from the line of Mark Wilde, Bank of Montréal. Your line is now open..

Tim, coming back to oversold position in North American beverage can, we were up at nickels recently. You’ve got a pad there for a third line.

Can you just give us some thoughts on kind of timing of a third one?.

Well, it’s a big facility, as you saw, Mark. And I wouldn’t read too much into the fact that you see pads there.

It’s just easier to put the pads in when you build a facility such that if you’re going to add another line, whether it’s in 2 years or 5 years, you’re not chopping up concrete and spreading dust all over the production floor, while you’re trying to produce. So, I think far too early to contemplate a third line in that facility right now..

And then, for just as a follow-on. Can you just update us on the conditions in the Middle Eastern business there? I know you’ve been dealing with sugar tax but also some self-manufacturing by clients.

And just, whether you need to do any restructuring in that business at all?.

No. I don’t think so. So, I think the Saudi sugar taxes and all of these taxes are something that we and the rest of the industry and many of our customers are going to have to deal with from time-to-time in certain jurisdictions.

They tend to have a temporary negative impact, but volumes bounce back as consumers understand that things cost more and their government is just finding a way to tax them in a different way. But, people do need to eat and drink. It’s one of the great things about supplying the food and beverage industry globally.

But, I think, the bigger issue would be the level of self-manufacturing that has occurred in Saudi Arabia and one of the other North African countries. In that, once a customer goes to self-manufacture, they’re probably not coming back to you. They can make their own cans.

And it happens to be a situation that’s unique to the Middle East, just given the amount of money and lack of other opportunities for those in the Middle East to deploy their money.

So, I think as we look at the Middle Eastern business going forward, I think we said in the second quarter of what you saw in the second quarter, you should expect in the third, fourth quarter, and you’ll see another downturn in Q4 ‘18 versus Q4 ‘17, similar to what you’ve seen in the last two quarters.

But, once we get to 2019, we’re kind of rebased and we move forward from there..

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

Just on freight costs in the U.S.

Are you seeing sort of any declines in the spot market at this point?.

Well, I would say, we’re not seeing any increases right now. It’s hard to feel like we’re seeing any declines, just given the amount of cans are moving around and the level of -- at which we’re enriching the freight companies right now. But, certainly, we haven’t seen any increases. It’s about where we expected when we talked to you in July..

And then, just with the Brazil, I think you mentioned your volumes were up mid-single-digits.

I mean, is that -- can is still doing better than sort of the overall beer industry and just kind of any sort of thoughts there?.

I think, we’re probably up in the 6% to 7% to 8% range. The market was up 8% or 9% in the quarter. For the year, the market is up 9% to 10% for the year, I’m not sure. But, they’re the kind of numbers we’re seeing, some extremely strong market. And the can continues to gain share in Brazil.

It’s -- at least for beer, it’s probably just over a touch of 50%. And as we’ve said before, we see no reason why the can share for beer in Brazil can approach over time the 70% level that we have here in the United States. So, still an extremely attractive market. And we continue to be pleased with the results and excited about the future..

Thank you. Our next question comes from the line of Chip Dillon, Vertical Research. Your line is now open..

Yes. Good morning, Tim and Tom. Could you talk a little bit about what’s going on, especially in North America with sparkling water? I think, we’ve been hearing tremendous growth there.

And sort of what is your place in that business? And how much more do you think we’re going to see after what seems to be a huge year this year with basically everything put into sparkling water now that we weren’t used to seeing in years past..

You’re right. It’s been a tremendous year for sparkling water volume. So, prior to this year, much of the sparkling water was private label and/or smaller branded regional companies who have extremely strong positions and franchises that are multi decades old. And in the case of one of the customers, it’s a company that’s probably 130 years old.

So, really, well-run businesses, well-thought out business plans. As they begin to enter into more national agreements with retailers, they have the opportunity to spread their brands on a wider scale.

And then, when you combine that with the entry of one of the majors into the sparkling water market this year, you’ve got promotional levels that are much higher than the smaller guys or the private label guys can afford.

And that benefits not just the large branded CSD companies which are promoting sparkling water, but it benefits everybody making sparkling water. And I think the consumer likes carbonation. The consumer likes flavor. Flat water is kind of boring after a while.

So, it’s always been the big thing about not wanting to drink soda is the boredom of drinking flat water. And so, sparkling water is -- for those people that are concerned about drinking too much carbonated soda, sparkling water’s a nice offset. So, I think we’re going to continue to see growth in this market.

It’s pretty exciting for the can industry and it’s a great replacement for boring flat water..

You mentioned that -- switching gears to beer, that 70% was packaged in cans. I assume that doesn’t include on-premise. I mean, you might correct me, or whatever’s bought on draft.

And also, how does it look with craft, as you look at it? Where is the share there, and where do you think that can get to?.

I’d say, the share in craft in cans is probably let’s say in the 25%, 30% range and growing. I think the guys who brew craft beer are very proud of what they’re doing. They’ve got a religion all among themselves. And they understand that the can protects the integrity of their product better than any other format. So, the can is growing in popularity.

The limiting factor for cans and craft beer quite frankly has been the can industry’s inability to supply more cans to them. I think, if we had an ability to supply more cans to the craft beer industry, that 30% would certainly be much higher..

Got you. And last quick question for Tom. When you mentioned the 4.6 times leverage at the end the year, I assume, that’s looking at net debt to the last 12 months EBITDA and of course adding in through the quarter, you did not owned Signode, so that it would be fair.

Is that the way to look at it?.

Of course..

Our next question comes from the line of Arun Viswanathan, RBC Capital Markets. Your line is now open..

I just wanted to I guess confirm, did you talk about Asia? What are you seeing there I guess, is it also continued strong growth, especially in Southeast? Any update there as well in China? Anything you can say there?.

Yes. So, you probably joined late. But in the prepared remarks, we discussed double-digit growth in Southeast Asia, and that number is probably about 12%. And in China, we were down 8%, and that reflects the fact we closed the Beijing facility last year. What we did say was that we expect that the Chinese market to be up 10% this year.

Having said that, our strategy is to certainly try to find returns, which are more appropriate for the product that we provide, and we’re not going to chase Chinese growth at this point given where pricing is in that market.

So, we’re extremely satisfied with performance in Southeast Asia and we continue to manage the Chinese situation as prudently as possible..

And just, going back to the idea of getting compensated properly for the product. There’s been a lot of inflation obviously, especially in the crate side. We’re seeing a lot in North America, but it’s obviously cropped out also as well.

So, are you in a position to just recoup those costs or is there potential for -- to actually get ahead on cost recovery? Will you still be kind of chasing that inflation next year or you think you can kind of make it up?.

I think for the contracts that come due at the end of 2018, we have an opportunity to recapture the value that’s been lost over the last several years as -- whether it’s freight, utilities, labor, coatings, all nonmetal costs that we intended to recover through a formula with the formula going one way and cost going the other.

So, we’ve fallen behind a little in that regard. So, we will have a chance to recover that and reset ourselves as we go forward. And then, for the other contracts, we’ve got to wait for those to expire. So, we have a chance to reset.

But clearly, as we said earlier, the North American beverage can market, the returns are not acceptable, and they need to be improved..

Our next question comes from the line of Adam Josephson, KeyBanc. Your line is now open..

Tim, just a couple on the last comment you made, just about the returns being unacceptable in the North American beverage can market.

For how long has that been the case for you? And why is it seemingly reached a tipping point now as opposed to a year ago or two years ago?.

I think if we went back two, three, four years, we wouldn’t have said that. But, you start layering on negative formula pass-throughs for 2, 3, 4 years in a row, while at the same time the specialty chemical guys are putting coating costs up to you.

And labor goes up every year and freight is being going up recently and utilities go up and other costs go up; other packaging materials go up. It starts to move compound and move in the wrong direction.

And there comes a time when if you’re going to be -- if the business you’re in is going to remain sustainable, you need to make a change, and I think we’re prepared to make a change..

Okay, got it. And just on the operating rates in the industry. I know, you’re oversold but the industry is flat to slightly down. To the best of my knowledge, there’s been no net supply reductions in the industry over the past couple years. Obviously, you added a plant, shut a plant, your competitor has added a plant, shut two plants.

It doesn’t seem like any supplies come out; demand is flat to modestly down. Have operating rates gone up at all over the past few years? And what would you say the operating rate is compared to where it’s been over the past several years? Thank you..

We’re clearly -- we, and I’m assuming one of the other companies are well over 100% as we’re sold out. One of the things that happens is, when we convert -- when we have -- we give ourselves the flexibility to make more can sizes, whether that’s higher diameter, we do lose some capacity output as you change lines over.

But, I’d say the real issue is that the market, while it is flat this year, it’s only flat because mass beer is down 3% to 4% in cans. And with the exception of mass beer, everything non-alcoholic is up a few percent.

And when you look at the decline in mass beer and the cans that are not being utilized throughout the entire system, those extra cans are located perhaps with a guy who makes his own cans. So, it leaves the rest of the market fairly tight..

Thank you. Our next question in queue comes from the line of Brian Maguire, Goldman Sachs. Your line is now open..

Hi. Good morning Tim and Tom. I just wanted to stick on the topic of the oversold condition in North America. You’re talking about having to outsource production to some competitors and spent a lot on freight to move stuff around, and if you had more cans, the craft beer market could grow faster.

Just trying to juxtapose that with your answer to Mark’s question about potential new capacity that you might think about adding. It seems like this might be the point where you would be normally thinking about adding capacity to satisfy some of the demand in those conditions.

Just wondering how you think about that versus maybe if you don’t, somebody else will, or is there anything about the current environment where you think some of the volume might go back to competitors or something over the next year?.

Well, we can’t control what others might do. And we certainly might be inclined to add capacity in the future. But, we need to be fairly compensated for the product we sell. So, as it stands currently, we don’t believe we’re being fairly compensated.

If customers want more units for what appears to be the preferred packaging format for beverages today and going forward, especially with a lot of the negative news you hear on one of the other packaging formats, they’re going to need to fairly compensate us, if they want us to invest more money in a market that we’ve been less than satisfied with over the last couple of years..

Okay. And then, just switching gears, on the industrial business, I know when you acquired Signode, part of the thesis was it was a fragmented, lots of opportunity to grow through acquisitions there. Just wonder if you could update us on acquisition pipeline.

What you’re kind of seeing, if there’s any deals where you’re feeling you might be -- have some visibility into them closing by year-end or early into next year or should we think of that being more of like a 2020 event when the leverage is lower?.

Yes. It’s a very good question. What we said last time, I think is, one of the nice things we found in the business after we owned it, was that there were numerous opportunities for acquisitions.

And I’m not talking about large, I’m talking about smaller bolt-on type acquisitions that fit nicely in the field that Signode already plays, and there could be some adjacencies in the future.

But, there are enough of those available such that as we’re delevering over the next couple of years, if we missed one or two, then, we’ll have plenty of opportunities in the future. Clearly, there could be one or two that pops up along the way that you wouldn’t want to miss.

And while leverage is a concern for many, right now, given our strong cash flow and our past history of generating cash and delevering post acquisitions, I am not as concerned with leverage as you may be with our leverage.

And I firmly believe that a year or two from now, we won’t be talking about leverage, we’ll be talking about what are the opportunities to continue to grow the Signode platform, such that if there was something that was compelling that made a lot of sense now that -- you’re right, we probably wouldn’t want to miss that opportunity.

You’d want to take on that opportunity. But, it’s only math, Brian, when you layer in a relatively small acquisition on our balance sheet. It doesn’t move the needle whole lot in leverage. So, we’ll continue to look at those. I don’t think I’d want to necessarily talk about anything, because that wouldn’t be the right thing to do.

But, we bought this business as a platform to grow in the future, one that we firmly believe is a leading platform globally. And it is one that will benefit from general economic and industrial growth. And it’s a tremendous business. But, it’s a good question, and we continue to look at the opportunities..

Our next question in queue comes from the line of George Staphos, Banc of America-Merrill Lynch. Your line is now open..

Thanks for taking my question. Most of them have already been asked, but, what had left in the toll, [ph] guys. When we look at the fourth quarter implicit guidance, it’s come in a little bit roughly $0.09, $0.10.

Is that largely just the food can under-absorption you expect in the quarters, is there anything else that we should be monitoring? And related to that, if you’re under absorbing whatever it is, by $0.09 $0.10, let’s say that’s the entirety of the variance.

Was there any overabsorption in the third quarter that we should keep in mind for comparisons next year? Was third quarter food can production more or less in line with your expectations?.

I don’t think there was any overabsorption in the third quarter. I think if we went back to the second quarter, George, we were -- I wouldn’t say, we were over absorbing. We were preparing and building inventories for what we expected would be a more normal harvest than what we expected.

But, assuming we get back to a normal harvest next year, then, there’s no reason to believe the second quarter next year won’t look like the second quarter this year. And the third quarter would look better and that we’re going to have profits on cans we sell as opposed to those cans sitting in inventory.

And in the fourth quarter, you wouldn’t be bringing production down as harsh as we’re going to bring it down this year. So, we’re hopeful for a more normal pack next year. I got to tell you, European-wide, they are hopeful for a normal pack next year. The filled inventories across the entire retail space are extremely low.

And consumers from region to region are going to feel it not just in price but in availability of products. So, this is not an insignificant event that’s happened this year. The last two harvests were not great either. So, filled inventories coming into this year were not great.

And so, our hope is for a much better harvest next year, and knowing that the food industry will pack everything they can possibly pack, which should yield very good results for the can next year. .

Sure. But, Tim, just to be clear, so fourth quarter, that’s entirely food can in terms of the variance where you would have otherwise been in prior guidance.

Would that be fair?.

The only other two small things, George, and they all are incremental. Right? So, when I say small, maybe it’s a $0.01 or $0.015 each. But, currency in the fourth quarter, I think the euro is about $1.15, $1.16 now. When we talked to you in July, it was $1.19. So, there will be a small impact there.

We could sit here all day and talk about all the pluses and minuses. So, we gave you the big one. And then, the only other thing is, we did lose production for a full week in South Carolina at our largest beverage can plant. And as we’re sold out, we can’t make those cans up, George.

Those cans that were not made, we can’t make again, because we’re already sold out. So, that’s a week’s production in an extremely large factory that we don’t get back and they would’ve been sold in Q4. So, that’s just another item. But, there is -- you’ve got pluses and minuses all over the place.

We gave you the big one, which was a rightsizing European inventory level..

And that’s a very efficient plant from what we remember too. So, that makes sense. Now, on free cash flow, again, we’ve largely covered it. And while you have to make up $650 million in the fourth quarter, that’s not unheard of for the company, just given the seasonality in your working capital. You mentioned inventories, you mentioned receivables.

Obviously, aside from when you report earnings in February for the fourth quarter, are there any things that we can track from where we sit in terms of public domain or key factors we should be asking about in terms of how you track against that free cash flow and net working capital conversion?.

No. I don’t think so. I think it’s largely, as we -- it’s largely has been executed in the past. We have the -- okay, we will bring Q4 inventories down in food, but one of the big items is the significant inflation we experienced in tinplate, steel and aluminum this.

It’s just -- that inflation is currently hung up on the balance sheet that will release in Q4. And when I say hung up on the balance sheet, whether it’s in inventory or receivables waiting to be collected through Q4..

Fair enough. And actually just one quickie. When will you get pack indications for Europe? Would that be kind of a March-April event, or will you get that earlier on? Thanks guys. Sorry for asking quick one at the end..

I’m sorry. Just explain that better, George. I didn’t understand the question..

So, basically growers in the field, when will they be coming back to you and telling you, hey Tim, we expect to be up 5%, down 5%, et cetera, for the upcoming year? Thanks guys. Sorry about that..

Okay. They can tell you whatever they want to tell you in March-April. It’s far too early at that time in Europe, certainly in Northwest Europe for them to be able to tell you how much they’re going to plant. I do believe they are going to plant everything they possibly can.

But, depending on how long the winter month is -- winter months are and how wet the spring is, it matters when they can actually get in the field.

My expectation, as I said earlier, given how low the filled inventories are throughout the entire retail chain, they’re going to plant everything they can possibly plant next year, and we just have to hope for a good summer next year..

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

Hey, guys. Good morning. It’s actually Kyle White on in for Debbie. Thanks for taking the question. I know it’s a smaller portion of your business, but I was just curious how you would characterize the North American food pack this year..

Well, I think we’ve had a fairly good campaign across all of what we describe as the non-reportables businesses, which is North American and European aerosols and primarily North American food and businesses is going well. We’re managing cost well. That business as well has rising input costs.

And despite that, we’re basically right on top of Q3 and full-year performance. And we’ve done quite well in that business. There have been -- depending on the region, we’re not in every region in North America in food. We’re not on the West Coast. We’re big in the upper Midwest and we had a couple significant customers in the southeast.

And one of those customers experienced a fair amount of damage to its crops from Hurricane Florence but the business is going quite well this year..

Got it. And then, shifting gears and looking at the global beverage projects that you have, you guys just started the Spain plant, you started the Myanmar plant and you’re starting the third one in Cambodia this quarter.

I’m curious as you look to 2019, you start beginning your capital budgets, what regions you think kind of most excited in terms of growth capital and how do you feel about your global footprint?.

I think the footprint is -- there’s some areas we’d like to be bigger in. But, you’re not going to get bigger without causing other issues. I think we have a very good footprint. There’s some regions we’re exceptionally strong in and we see those regions continuing to grow. There’s always concern over the emerging markets.

And we’ve been fielding questions about emerging market concerns now for 15 years. And boy, I’m glad we didn’t listen to all the guys who were nervous about it, because we wouldn’t be anywhere. These are markets that are going to continue to do well, they’re going to continue to grow in the can as a preferred format.

So, we’re excited about the future in the emerging markets. And when I say emerging markets, I mean, Brazil, South East Asia, Turkey, some of the other Mediterranean markets that just continue to grow. And little too early for us to describe what our capital plans might be for those regions.

But, we continue to talk to our customers and new customers in the region that are looking to convert from other packages to the two-piece beverage can..

Thank you. Our next question in queue comes from the line of Edlain Rodriguez, UBS. Your line is now open..

Thank you. Good morning, guys. Just one quick one.

I mean, with all the noise about the environmental impact of plastics, et cetera, like are you seeing any benefit from that yet, or how long do you think you will take before you start seeing some shifting from plastics into can also?.

Well, I would say that there’s a lot of discussion. There’s certainly a lot of discussion in Europe. There’s some discussion throughout Asia. In one or two of the states on the West Coast, there’s a lot a discussion. I don’t think we’re seeing any move.

Quite frankly, the can industry doesn’t have the ability to take on any meaningful change at this point. And our view would be that before we’re prepared to invest any meaningful amount of capital, we’d need to see meaningful change beginning to occur.

So, we have long held, and we’ve been strong proponents for a very long time as to the benefits of the can, not only to our customers and consumers in terms of cost and convenience but also in terms of the environment. And the can is the best package in that regard. And we’ll see where it goes in the future.

But, a big wholesale change is, that’ll take some time. And I’m not prepared to tell you when I think that may happen, if at all. It will be incumbent on governments, the suppliers of the other packaging formats, to try to actually have a package that’s actually recyclable as opposed to just talking about its recyclability.

And we’ll see where the brand owners go and how they want to market their product..

Thank you. Our next question comes from the line of Gabe Hajde, Wells Fargo. Your line is now open..

Good morning, Tim and Tom. Thanks for taking the question.

I guess, in light of sort of the commentary about diverging industrial economies across the globe, can you give us a little sense for maybe how the business, the Signode business, Transit Packaging is different today than it might have been 5 or 10 years ago? Whether you have more equipment and service in place today versus those time frames where your I guess profit centers might be coming from in that regard, and then maybe end market that you’re serving that that could behave differently today, just so we can model that?.

Yes. We probably talked a little about this in the past. I’ll do my best now and clearly at the Analyst Day we’ll give you a real good presentation on this. I would say that as compared to let’s just say 10 years ago, if consumable and equipment sales to the metals industry represented 20 to 30% 10 years ago, it’s probably 20% now.

Food and beverage is obviously a bigger percentage of the business today than it was then. The Asia Pacific region that the supply is probably a $150 million to $200 million more in annual revenue today than 10 years ago; the protective packaging businesses is a couple hundred million dollars greater today than it was 10 years ago.

So, there are number of changes that have been made to the business, as you would expect any business to evolve over time. Times change and good businesses change. And this is a good business and they’ve made changes, and they’ll continue to make changes. So, a lot different.

We don’t dispute that it’s more cyclical than cans, but it’s certainly not as cyclical as you saw in the 2008, 2009 global financial meltdown. But, it’s a tremendous business that offers exceptional opportunity for us..

Thanks for the color, Tim. The next one, I hate to go back to it. It’s always a delicate balance as it relates to supply-demand, and trying to predict what products are going to be successful and some of those weather dependent et cetera.

But, in North America beverage, can you give us a sense -- I mean, presumably you want to avoid having to outsource cans and incur out of footprint freight.

Is this a situation where better planning or better visibility in the order patterns can prevent that and in fact you have the capacity to serve little bit of growth next year, or part of it depends on where and how it comes?.

I think what you said -- you said it, inside your question is actually correct. We certainly -- it would help if we had some better forecasting from our customers. But, having said that, we’re here to serve customers. And anytime a customer wants more cans, we’re delighted and we should be delighted to sell more cans.

We need to do better job of forecasting and planning and building our inventories ahead of season. And we’re going to undertake that as we get into early ‘19. .

And our last question in queue comes from the line of Adam Josephson, KeyBanc. Your line is now open..

Just back to Edlain’s question for a second about cans versus PET, and have there been any market share gains for cans. Just couple points or questions.

Aren’t cans and PET bottles used for fundamentally different purposes? First of all that the PET is resealable on-the-go versus cans are more at harm because cans are not resealable for one thing? And just two, what are your customers saying about cans versus PET bottles in the relative attractiveness? Because we haven’t heard much from the beverage can suppliers about what their actual customers are saying about this..

So, I think, cans are used for beer. PET is used for flat water. That’s the only difference. Everything else, carbonated soft drinks, sparkling water, juices, teas, they are used for the same thing. They are resealable. But generally, the resealable feature is used on flat water.

If you can’t drink a 12-ounce soda, then you can buy an 8-ounce soda in a can. So, there are different packaging formats for cans today for carbonated drinks and cans. The one great feature that cans add over PET is they hold carbonation much longer as opposed to having a flat soda when you open it up later.

If you talk to the brand marketers, they would say, they like to have a nice mix and a nice balance among the two substrates. But, I don’t think they are used for different purposes. They are used for the same purpose. They are used to sell product.

One sales product that at much higher volume levels that helps them cover and run their system at the lowest cost possible, that’s the can. And then the other product, they use to price aggressively to those consumers who are more on-the-go who are willing to pay a very high price for one unit, at a convenient store or otherwise.

So, they use them differently in terms of their marketing, but they’re used for the same purpose in terms of the product..

Thank you, Tim..

Okay. So, Steve, I think that’s it. That concludes the call. Thank you everybody for joining. And we will look forward to speaking with you again in late January to talk about the full-year results and the outlook for ‘19. Thank you very much..

Thank you, speakers. That concludes today’s conference. Thank you all for joining. You may now disconnect..