Good morning. And welcome to Crown Holdings Second Quarter 2019 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 now begin..

Thank you, Maisy, 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 2018 and subsequent filings. Earnings for the quarter were $1.02 per share compared to $0.99 in the prior year quarter.

Comparable earnings per share were $1.46 in the quarter versus $1.55 in 2018. Net sales were in line with 2018 as increased beverage can volumes were offset by $180 million of unfavorable currency translation.

Segment income in the quarter was also in line with the prior year as improved results in Americas' beverage offset lower results in European food and transit packaging and unfavorable currency translation.

As outlined in the release, we estimate third quarter 2019 adjusted earnings of between $1.50 and $1.60 per share, and full year adjusted earnings of between $5.05 and $5.20 per share. These estimates assume exchange rates remain at their current levels and a full year tax rate of between 25% and 26%.

We currently estimate 2019 full year adjusted free cash flow of between $725 million and $750 million with approximately $440 million in capital spending. With that, I'll turn the call over to Tim..

Thank you, Tom, and good morning to everyone. I'll try to be as brief as possible, and we'll then open the call to questions. As reflected in last night's release and as Tom has just summarized, overall second quarter performance was about as expected, although the results were mixed across the operating segments.

Unit volume demand for food and beverage remained firm through the second quarter and was up in most geographies. In transit, overall volumes were down 2%.

We've summarized the major projects in progress and those recently completed in the release, all of which were on the same timing as we described in April with the notable addition of the two new lines in New York and Ontario.

In a supplemental table to the release, we have provided the currency impact on sales and segment income by operating segment. So my comments will focus on currency neutral performance. In Americas' beverage, overall sales units advanced 2% with North America up 1% and Latin American up 4%, mainly on the strength of Brazil and Colombia.

Segment income up $27 million in the quarter continued to benefit from a significant improved cost structure in 2019, as well as the higher volume levels. Lower freight costs and the lack of startup costs in third party can sourcing in the United States compared to 2018 are just some of the factors contributing to the improved cost position in 2019.

Can demand in the Brazilian market remains extremely strong, which our results to-date reflect. However, we remain sold out and we'll be short of needed capacity until the new Rio Verde plan comes online late this year.

From already very tight capacity, we have sold 6% more volume in Brazil in the first half, and we'll not have enough production capacity to match last year's second half volume outlook. There is a no can competitor now operational in Colombia. And beginning July 1, we will experience a significant reduction in can demand in that country.

The result in income loss, as budgeted and expected combined with our Brazilian capacity constraints, will flatten income results for the segment in the second half compared to the prior year. Unit volumes in European beverage improved 6% over the prior year with Europe up 8% and the Middle East down 0.5%.

Strong performances in Eastern Europe and the UK, coupled with volume from the new facilities in Italy and Spain, offset softness in Dubai and Turkey. Segment income up 3% in the quarter reflects the volume increase, lower startup costs in Italy and Spain compared to the first quarter, and the cycling of prior year Middle Eastern volume comparisons.

Sales unit volumes in European food increased to 0.5% in the second quarter, although, our mix was unfavorable to income across products categories. Growth in tomatoes was more than offset by decreases in dairy and fish, contributing to a segment income decline of $20 million compared to the prior year.

Selling price realization, while positive, was not enough to offset inflationary cost increases. While some of the seasonal crops were delayed up to two weeks coming out of the second quarter, we expect an otherwise normal seasonal third quarter pact.

And production levels, while flat for prior year in the first half, are planned to be up 8% in the second half, leading to significantly higher cost absorption than last year. As a result, we expect second half income performance to be in line to slightly better than 2018.

For the year, however, income will be down in the segment as we do not recover the first half short fall. Clearly, a disappointing result in 2019 following the poor harvest in 2018. But the business is sound, consumer demand for packaged food is strong and we will continue to reduce costs in the business.

Segment income in Asia Pacific advanced $5 million in the quarter as double-digit demand growth in Southeast Asia more than offset the volume impact from the closure of the two facilities in China.

Excluding currency, sales in transit were down 1.6% in the second quarter due almost entirely to 2% lower overall net volumes as price impacts were negligible. The impact of volume and negative mix drove the reduction in segment income compared to the record performance in last year's second quarter.

While down from the prior year, this is a business that has generated $90 million to $95 million of EBITDA per quarter in nine of the last 10 quarters. So, the second quarter was right in line with our expectations. Looking ahead to the balance of the year.

We are forecasting the third and fourth quarters to be in the lower part of that EBITDA band, so roughly $4 million to $5 million per quarter below last year as we make allowances for what could be slower economic activity. This is a very diverse business across end markets, product applications and geographies.

And while more cyclical than cans, it is nonetheless a stable business. The business continues to perform well, requires very little capital and generates significant cash. In non-reportables, 6% volume growth in North America food more than offset from softness in the U.S. aerosol market.

And looking ahead, it appears that in the markets where we operate that is the upper Midwest and East Coast, all conditions point to a firm North American food harvest.

A mixed operating results through six months, two non-operating items, currency and pension, which we identified at the beginning of the year, have been about $0.25 per share headwind in the first half or $0.12 to $0.13 in each quarter. Operationally, demand remains strong across our global beverage businesses.

And we are aggressively moving to install needed additional capacity, which is the main source of the free cash revision. Food can demand remains firm throughout. Although, below our expectations in Europe, following last years' drought conditions. Transit has performed according to plan in the first half.

And perhaps the team is being overly cautious heading into the back half, but we'll see. So in summary, continuing firm demand, strong cash flow and several projects underway to continue to service customers and drive future value. And with that, Maisy, we are now ready to open the call to questions..

Certainly sir. We will now begin the question-and-answer session [Operator Instructions] Speakers, our first question from the line of Anthony Pettinari of Citigroup. Your line is now open..

Tim, in transit, you sighted 2% lower net volumes. And I was wondering if it's possible to parse out how the U.S. business did versus the non-U.S.

businesses, maybe how consumables did versus tools and equipment? And then just sequentially, as you went through the quarter and maybe into July, did you see trends deteriorate significantly in certain regions or in certain categories any detail if you give will be helpful..

So, I think if we looked at consumables versus equipment in the second quarter, looks like we're down 2%. Equipment maybe makes up 0.7% of that and consumables are 1.3% of that, ex-currency I'm talking. I would say that in July, we are on track. Through the quarter, things were -- April was soft. May was fairly firm.

The first three weeks of June were firm. The last week of June was soft. But July has started off firm again. So, I think as we sit here today, we're only three weeks into the quarter.

But the guidance we've given you for the third and fourth quarters to be off about $4 million to $5 million per quarter, $8 million to $10 million for the back half in a $1.2 billion business back half business, so down to touch but not strikingly down.

And I think where we're at in July for the first 17 or 18 days, we feel pretty good about that right now..

And then just switching the European food. Is it possible to parse out how much of the miss was relative to your expectations was this weaker mix versus the inflationary cost increases that you referenced? And then just more of a big picture question, I think two of your large competitors now have sold or removed food can into a JV structure.

Just any thoughts you have on the business is placed with the portfolio?.

So to parse out mix and -- compared to the prior year, and then I'll give you compared to expectations. Compared to the prior year, volume up a little bit but mix negative and priced, while up as I said, not enough to cover cost.

And I'd say that's probably of the $20 million, let's say, eight of its price and 12 of its mix, if you just want some round numbers and I could be off $1 million or $2 million, one way or the other, but you get the gist there. I think the two transactions that the two competing companies have done in food are very different.

One was just a North American business and a smaller business. The other is a global business and a very large business. Both have the same -- both of the companies accomplishing the same thing. They retain a significant interest in the new company, going forward.

So they're not really exiting the business and they always retain the option to acquire the business or acquire a controlling stake in the business in the future, depending upon what their private equity partner does.

But in the near term, both acquiring significant proceeds in the near term, either to de-lever and/or to return to shareholders, and you're aware of what each of them are doing. I would say that our food can business is, while it is down in Europe this year and up in North America.

Currently, both of those businesses provide significant free cash flow. And given where interest rates are today, any move in that regard would be dilutive to free cash flow. And that the interest that you would save by paying off low cost debt, would not be enough to offset the free cash flow they give up.

So in the near term, we like the -- we always like the business. They are stable businesses. They've got their ups and downs. But they're more or less stable business. The European food business is far different than the North American food business.

But there is a place for food cans in both markets and we talk about sustainability a lot as it relates to beverage cans, there's not a lot of talk about food cans in regards to sustainability.

But one way, food can packaging in tetra, flexible and plastic, is even more of an environmental burden than I would say plastic bottles are in the beverage world. Plastic bottles, as you've heard me describe, are separable and recyclable. Tetra and flexible are all trash not recyclable in any great way.

And food cans, still food cans are entirely recyclable. So, the hope is that there is more momentum on the food packaging side to more fully embrace food cans from an environmental or sustainable standpoint, and we continue to like to business..

Thank you so much. Our next question is from the line of Ghansham Panjabi of W. Baird. Your line is now open..

So, I guess first off on the plant conversion. Can you take us through the logics, the conversion versus just building a new plant? And since you called out the new lines that's having the capability to produce specialty cans.

Should we expect further investments on your end to boost your capability in North America?.

Yes. So, the Weston -- I saw you note this morning, Ghansham, and we probably didn't make it clear enough in the release, so apologies. The Weston plant currently has two beverage can lines and one food can line. So the food can line, the pieces of the food can lines that are in good shape that is the washer, really use that for the beverage line.

But much of the equipment going into the third line in Weston for beverage will be new equipment. And so I would describe it to you that, if for spending X-dollars in Nichols to put a third food can line and that we'll spend X minus $10 million or $12 million in Weston and that minus $10 million or $12 million is using the washer.

And I think we've got a couple of pieces of equipment that are in pretty good shape from the recently shutdown Lawrence plant that we'll use but much of that equipment is brand new. And we'll operate as if it's a brand new line from front to back in Weston just as it will in Nichols, or any other brands line. So, we perhaps weren't as clear on that.

But it is a beverage can plant, it's not a food can plant. And as you've just rightly point out, it will have the capability, both of those lines will have the capability to produce sleek and 16-ounce, which we need in our portfolio and which we've been trying to catch up to the market. I think we were up year-on-year.

We're probably up -- our mix is probably up 3 to 4 percentage points from last year to this year, between standard 12 ounce and sleek and 16. And we'll continue to look forward responsible ways to improve our portfolio and our percentage of those growing portions of the market..

And then just a broader question on your North American capacity footprint. Pepsi, on their call last week, seem to indicate that they will push alternative can sizes for their sparkling water brand and also start to trial Stillwater on the West Coast. I guess, is your current footprint across the U.S.

able to supply these type of large customer initiatives, especially for specialty cans? I'm just trying to put your 1% volume growth you called out in North America in context as it relates to capacity footprint. Thanks..

Well, 1% volume growth, essentially we're sold out, right? And as we described in April, we are not sourcing cans from third-party. It's just to sell more cans.

We did, in an effort to try to correct or significantly improve the cost structure we gave up some business, so that we would focus on the business that we could actually produce, not just sell cans that we bought from others.

So, the additional capacity that we've announced last evening will obviously help us grow into contracted volumes that we already have next year beginning in January 1, 2020 and forward. And we would expect much more volume growth next year than the 1% we just recorded.

As it relates to supplying customers on a national basis for a variety of these sizes, our non-standard 12 ounce, capacity portfolio exists in, as we have described before, Texas, Mississippi, New York and now Ontario.

And in the future, we'll continue to review, is there something we should be doing in the Midwest or West Coast to further broaden our portfolio..

Thank you so much. Our next question is from the line of Edlain Rodriguez of UBS. Your line is now open..

A quick question on the transit. I think last quarter, you've talked about pricing competition growing in the industry. Is this accelerating and how do you deal with that? Do you have to compete on pricing yourself? So I think last quarter you say you didn't want to lower prices. So how do you deal….

Yes, so listen price was -- the impact of price compared to the prior year was negligible. I want to say far less than 0.5% in the quarter. So there was no price impact. The situation that I referred to in Q1, the principal U.S. competitor for plastic strap was sold to private equity. They were somewhat aggressive as they were in their sale process.

And so that’s now behind us. And so that situation has settled down. But it's a very diverse business. We don't -- we have not seen any price, any negative price consequences other than that one situation..

And in bev can, are you changing your expectation for growth, like what are your expectations for growth in the different markets? And then are they changing, given the environmental issues that need to be addressed out there?.

Well, I think we, like you and like many others, view the current environment for beverage cans globally to be the best we've seen in 30 some years, and so many of you were new to the industry. But for a long time, beverage cans were, let's be clear, were not a great business.

But this is now a great time to be in beverage cans, and I think that's going to exist for several or many years to come, given what we and you and many others see with the environmental sustainability or environmental impacts of the beverage can versus competitive packages.

We, however, are being somewhat cautious as we look to install new capacity until we see more concrete signs of demand or we get business under contract ahead of putting capacity.

And so, the capacity that we announced last night you should fully expect that that is fully under contract and is necessary to meet contract requirements, so it is not built on spec. So we'll continue to review each market.

But the markets -- all of the markets, Southeast Asia, Europe, Brazil, North America, seem to be extremely firm with conversions looking to happen to can, depending upon the can industries' ability to meet that conversion requirement. And so, we like others, are very fortunate and that we look forward to many good years to come here..

Thank you so much. Our next question in the queue is from the line of Chip Dillon of Vertical Research. Your line is now open..

Good morning, Tim and Tom. Thank you for the details. First question is it looks like we look at the new growth in Europe, and particularly not including the Middle East, I mean it's really, really great. 4.5% in the first quarter, you said I think 8% in the second.

Can you talk a little bit about what's going on there? Is that the market itself? Or are you just happened to be in segments where looks like you're gaining share when you look at the overall market?.

So, I think the market -- Chip, this is market driven and this is a continuing trend that we've seen for several years, or over a decade 15 years now with the exception I think of 2003 the German deposit legislation. And 2009, I think every year for the last 15 or 18 years, we've seen 2% to 4%, 4% to 5% market growth in Europe as the market grows.

Segments of the market continue to grow, whether that's Eastern Europe, Southern Europe, Turkey. And continuing conversions from glass to can and that's continue.

And why are we up so much in the second quarter? I think, as we described to you last year, we didn't benefit as much as some of the others benefited last year, because we were capacity constrained.

And at the time we told you we had two new projects coming on line and that in 2019 if we had an undersized portion of the growth last year that we would get an oversized or more relevant portion of the growth this year. And that's what you're seeing with the new two factories that came online..

And then just to be clear on the two new lines in North America, the Nichols third line and the one in Weston. I would imagine those will be considered specialty lines. And I guess if you ran them on one or two basic sizes, you could get up to about 1 billion can rate a year.

Is that is that ballpark correct?.

Yes, I'd say the Nichols line clearly could go to about 1.2 billion, the Weston line think more of in the 750 to 900 range. I would -- they have the ability to make a variety of sizes. But Chip, let's be clear, there -- we keep drawing this term specially around, there's nothing special about making a can other than the 12 ounce standard can.

We and others make them all around the world. And in some markets, the 12 ounce 211 diameter can doesn't exist anymore its sleek cans. So these are a changing marketplace in which the marketers of the consumer product companies are always trying to find ways to invigorate their brands.

And we're fortunate that we have the flexibility and the engineering knowhow in the industry to be able to accomplish that. And so while you may refer them as specialty, we just think they're alternative sizes..

And then the last one, just looking at the European food can business it looks like, as you mentioned, the volumes will be much better this year but there won't be an income increase.

And could you talk about the cost issue? Is it really just different in the matching of the purchases of metal? Is that the main factor that last year maybe you had favorable variances and this year you have unfavorable when you look at the price cost on that?.

So, as we look at the second quarter and the back half of the year, volumes will be up compared to last year, but nowhere near what we had expected given how poor last year's harvest was. So volume up but down versus expectations, so clearly that's disappointing.

And then we did get positive price this year but steel costs went up significantly and other costs are always rising, whether its labor or utility. So, when you put all of your costs into the cost to manufacture container bucket, we didn't get enough price to fully recover that. And that's also disappointing.

But we will endeavor to reduce our cost overall and next year is a New Year and we will have to do better next year..

Thank you so much. Our next question on queue is from Tyler Langton of JP Morgan and Chase. Your line is now open..

Tim, some of that last comment that you made in European food, and I guess you a lot of visibility at this point that you can overcome this cost inflation for next year, or any color there would be helpful?.

I think we have the opportunity to adjust price. We adjusted price this year in the market and clearly, that wasn't enough to offset the inflation. So, we'll see what the inflationary pressures are going into next year. And under contract, we have the ability to do that.

We had a number of contracts reset this year, so that's why it was a little bit more painful but they do have escalators in them. And then we do need -- we'll need to run better and we need to be a bit more accurate with our volume forecast. But overall, the market is healthy.

The demand is there for the cans, although, it's a little lower this year than -- volume will be little lower. One of the issues is volumes are little lower than we expected, more or less the harvest, look like they're going to be.

And when I say okay, I mean, let's say, 90% to 95% of what we expected, which is about 105% of last year, but last year was down. There are some markets where the weather was extremely rough. So for example, Eastern Europe, the weather was extremely rough, that's a very small market for us. 90% to 95% of our business is in Western Europe, Italy, Spain.

So, these are all items around the edge, which in a tight margin business, items around the edge have an impact. But we will do better on price realization versus cost next year. And we'll see where it brings us. But this year has been disappointing. But again, not a -- it's still a business.

We're making -- I think, in the third quarter, margins were 13%. The margin, I think, in the quarter last year, was probably 15% or 16%, it was a pretty strong quarter last year in the second quarter. But notwithstanding that, we are disappointed as we said..

And then just with transit, I think you'd talked in past about maybe doing smaller deals that didn't increase you leverage as you pay down debt over the next years.

And I guess, is that more of a strategy, maybe more on whole now, just given sort of weaker volumes you're seeing in transit and caution in that space or would you sort of still consider looking at a --.

Well, I think, we say smaller deals -- everybody gets nervous when we say this, right? I think you probably should -- if we did anything you wouldn't expect us to do total purchase price of more than $20 million this year, so we're talking at multiples that are 5x or 6x.

So, the multiples are right, it doesn't increase, but you're talking extremely low numbers across the balance sheet like ours. So, but that presupposes we find the right deal and it's in a market that's a growing part of the various markets in that they provide.

So, all of the -- as I've said, the business that transit serves is extremely diverse across end markets and products. And we would be looking at those products and end markets that are more stable and have growth, compared to other markets. So I wouldn't get overly concerned about anything we're going to do there.

If we do anything, it's going to be extremely small along the lines of the size, I just described..

Thank you so much. Our next question is from the line of Neel Kumar of Morgan Stanley. Your line is now open..

In Brazil, what do you think is driving the strong can volume growth that you're seeing there? Would you say that's due to glass essentially being sold out?.

Well, glass is sold out currently, but underneath that, there has to be demand growth coming from the consumer.

So I think the -- after a very tumultuous period with the last administration they had, they've had some a little bit of stability here politically and economically, they're doing a little better, so consumer confidence much better this year than over the last couple of years, driving continuing consumer demand for growth.

You do have a size change proliferation occurring from what you would describe as a standard 12-ounce can to the sleek 9.1-ounce can. So, when you think about consumed ounces, four 9-ounce cans are now -- and ends are now required to meet the same equivalent of three 12-ounce cans.

So, a variety of things happening, and but again the can well positioned to continue to grow share in Brazil, and if we're right around 50% of the beer market, and if North America is 65% to 70% of the beer market still considerable growth yet to come in Brazil in our opinion..

Great, that's helpful.

And then in Asia Pacific, can you just talk about what drove those 180 basis points improvement in operating margins for the quarter? And is that level sustainable for the second half of the year?.

Well, it's country mix, right? We closed two plants in China at the end of last year. So, our Chinese business is now roughly 60% of what it was before and the Southeast Asian business continues to grow, and you have heard Crown and others talk about challenging conditions in China for years.

And so, as you move away from China and you move back toward Southeast Asia with those firm growth, you get that improvement in percentage margin.

I think our, you know, the Asians have done well, through the first half, they've actually exceeded their own expectations, and we'll see how they do in the second half, they are traditionally pretty conservative in their forecast. So, I'm hopeful that we continue to outperform their forecasts..

Thank you so much. Our next question is from the line of Arun Viswanathan. Your line is now open..

So, it sounds like the additions that you've described in North America would bring another 1% to 2% into the industry on a can size base. If you look about 90 billion cans. I guess, is that right? And would you see any footprint optimization opportunities elsewhere in your portfolio that would be necessary? Thanks..

So the market, I think the market is more like 94 billion units to 95 billion units. But, you're right, it's on the order of 1.5% to 2% addition to the market, although these are sizes that are different than the standard 12-ounce size and sizes that are required in the market by our customers, by our contract customers.

I do not see any necessary portfolio adjustments or downsizing in our footprint..

And then as a follow-up, if we look out over the next couple of years then, does this position you, I guess to capture numbers that, for example, in Q1 that would have been closer to what the industry saw.

Would have put you in a position to have some extra flex capacity in case growth continues at such a robust base? What's your sense on future plans? Thanks..

So, it's a part of your question, is a great question, and I'm glad you asked, because I -- we oftentimes talk about here and we forget to talk about it.

So, it will allow us to grow our non-standard, non-traditional 12-ounce volume and so if were 16% or 16.5% now and the market is 22% to 24% or we can, I don't want to say rapidly, but we can responsibly approach industry levels for non-standard 12-ounce over the next couple of years.

But importantly as you point out, we've been in a sold-out position in North America for several years, we are operating extremely tight, and for us not to miss, or to not properly serve customers that requires us to sometimes be too perfect.

So, this will give us a little bit of flex, so that we're not having to be so perfect, and that as customers have short-term volume spike needs we can meet those needs, yes..

And just lastly on this issue, where do you characterize Nichols? I guess in general from a start-up standpoint. Do you feel that the learning curve is -- you wouldn't face any issues going forward.

And what is -- what are the existing lines running at these days, if you could help?.

Yes. So we, you know, it's a good question. We like some others from time-to-time, not all start-ups are equal. We have very good experience in a lot of places to start, Nichols is a little slower than we like, but I wouldn't say it was poor. But the lines now are fully through learning curve, and we are above 90% efficiency as we measure it.

So we're quite pleased with where we're at right now with Nichols. And I would expect the third line to have a much smoother start-up than the first two, given that we have an experienced workforce and plant management and plant supervisory personnel on the ground and they understand how to make cans now..

And just one last quick one, just to clarify the comment you made on the guidance. It sounds like about $40 million or so cut on the free cash flow at the midpoint. I mean, if you go through the EPS guidance that accounts for maybe about two-thirds of that and the rest is CapEx. Is that right? It sounded like that….

Well, I would say that at the midpoint, $40 million, you're probably, right, that's right. I would say about $30 million of that is capital, because we've gone from about $410 to $440 or $420 to $450 whatever the numbers are on the two lines. So we've moved some things around in capital. So we could accomplish this at a $30 million bump.

And the balance would be the shortfall in EBITDA that you mentioned, offset by some working capital initiatives. So non-CapEx related, about $10 million..

Thank you so much. Mr. Viswanathan, again I do apologize, if I say your last name incorrectly earlier. Thank you. Our next question is from the line of Mr. Mark Wilde of Bank of Montreal. Your line is now open..

Tim, is it possible to give us any sense of sort of the benefit that you're getting in '19 from just contractual changes in any perspective on what you might pick up in 2020?.

It's possible, but you're not going to give me to say it..

Okay. I thought I'd try..

I'd say a lot of crazy things, Mark, but I'm not that crazy.

Now, listen, we are -- look, I mean, well you've asked a question so you deserve some kind of answer and I don't mean to be cheeky, but there are some things we're not going to talk about, but you heard me say in April after a very long time of the can industry doing many great things for its customer base.

We make cans at speeds now that were unheard of 10, 15, 20 years ago. The industry is supplying relatively the same number of cans to its customer base, that it supplied 15 years ago with 40% fewer lines. So the engineering and the manpower and the efficiencies that we've all gain that we've worked so hard to do.

We deserve to keep some of that and we've given far too much although and more away to the customer base as an industry, which in short terms means we haven't been properly compensated for all we've done for the customer base.

And so the conditions are right for us to have a little bit of strength to try to recover some of that, but I'll be quite honest. We're going to recover a lot of that over the next couple of years it's still not enough in my opinion, because we're here to make money for our constituent base, not just for the constituents that own the customer base.

So we are going to do better. Some of that will come from price; some of that will come from terms, but it always requires us to meet the customer needs with service and quality and we continue to endeavor to do that..

Okay. Good answer.

I wondered just turning to capital allocation, you've talked about both share repurchase activity and a dividend in the past, and I wondered, if you could just update us on your thinking there after you reach an appropriate level of leverage?.

So we've continued to state to you that we believe will be a 3.5x leverage by the end of '20, which is where we were before the Signode acquisition. So two years and nine months we're back to the same leverage level. And I think at that time that's an appropriate time for our Board to consider capital returns to shareholders as you've described..

And, Tim, just thinking about this shift that we are all talking about between, kind of, plastic bottles and aluminum cans.

Do you worry at all about the perception of a lot of growth actually growing in not only new capacity, but really new competitors into the market?.

Well, Mark, I worry about lot of things, right? You can imagine, you worry about a lot of things. There are some things you worry about, because they're firmly in the control of the management and the teams within the company, and there are some things that are not in your control, whether it's legislative or what other companies do.

But we've endeavored to make offerings to numerous customers and service those customers over decades, and they entrust with us the ability to provide them quality and service and a product and meet their needs, and so we will spend money as necessary to meet those customers needs where we have contracts and as I said before, I can't worry about what others are going to do, what they might do or what they might not do.

But I would say that the capacity, we've announced is under contract.

It is necessary for us to supply and service our customers, but as you've heard me say we are being somewhat cautious in all of the markets on sustainability, because until we see concrete evidence of a much larger conversion then we're seeing now that it would be inappropriate for us or others to get too far ahead of ourselves..

The last one I had, just in terms of this view that the market is going to accelerate in terms of growth and we've got the -- all of these, kind of, foreign trade issues out there.

What are you seeing your suppliers in the can sheet market do? Where do you see kind of capacity moving there both in North America and abroad?.

I think in North America there are essentially three can sheet manufacturing locations across four suppliers. Two of them share one location or four locations maybe there's four locations.

I would say that for the guys that are still in can sheet in North America, they are committed to can sheet, they understand that is a very stable business, they understand that stable business especially in their environment, they can budget more appropriately.

I have taken the opportunity to remind them all that if they want to convert to auto sheet and they want to be an auto supplier they should keep in mind that most of the suppliers of the auto industry are bankrupt or have been bankrupt. So there are far better off supplying the can business and the auto business long-term.

But they've got visions of a volume growth with auto and trucks moving to aluminum sheets. So they'll continue to look at that, but I think they are committed to, they are committed to can sheet and there is a lot of can sheet capacity around the world, especially in China.

Now, we have some trade issues going on there, but the Chinese have brand new facilities, high-quality facilities, high quality can sheet. So there is can sheet available..

Thank you so much. Our next question is from the line of George Staphos of Bank of America. Your line is now open..

I know what I heard on Food Europe, but I just wanted to go over this, again. I think you parsed out $12 million in mix and $8 million from price cost, I heard you correctly to -- toward your earlier questions.

Now pricing is set more or less annually usually by April, so what else went wrong in terms of your view on pricing, and its ability to recover cost relative to what your expectations would have been back in April? And then in mix, again this is a relatively stable business, you called out dairy, called out fish, maybe the fish didn't swim in the second quarter.

But, and we know that, that happens sometimes in terms of the cash.

But can you give us a bit more detail because $20 million, I don't remember a quarter in a long time in Food Europe that was off that much versus the prior year and versus expectations?.

It's down the line, George, because you've asked a couple of questions here. So remind me the first question again..

Well, I mean, the first question. Pricing is usually set by April right, and so --.

Yes, so at one point I described, you've got comparisons versus the prior year and comparisons versus expectations. So the big challenge for us pricing was set, and while volume was up a 0.5% in the second quarter versus the prior year, it was far below what we expected in the second quarter.

And will below -- be below what we expected in the third quarter, considering how poor the harvest was last year. So with lower volume, George, you get lower recovery, right. Compared to expectations..

I understand, I mean, if you had mentioned it earlier, I missed it, where volumes versus your expectations for 2Q, and as we sit here today 3Q and Food Europe?.

So, up a 0.5%, compared to prior year and probably down about 8%, compared to expectations. And in the third quarter will be up as, you know, mid-single digits, I believe in the third quarter, but that will still be down, mid-single digits, compared to expectations.

Just, it did not -- it will be some recovery this year, compared to last year, but nowhere near what we thought we are going to get..

And did your contract negotiations give you any issues in terms of setting price or and not really relative to what you were budgeting?.

No, I think -- and we might have touched upon this in February or April, I -- you know the -- there are several smaller competitors. And so, they may have been on the edges, because they only compete on the edges, but they can hamper issues, they coming out of a very poor volume year last year.

Everybody including the small guys was trying to ensure they had as much volume this year. So it probably was a bit more competitive than we would have liked..

I know it's getting late in the call and maybe some others dialing-in, so I'll try to ask my remaining question just, kind of, in one shot, to expedite it.

Minority interest was up a lot, I'm assuming that's a high-class problem related to good volume around the rest of world in beverage, but could you confirm that or give us what the source of that was. And then with Signode you gave us guidance for the second half of the year.

What is embedded in that guidance? Is it the current July rate, which you said was, I think quite firm? Or something below that level? So, if you carry July into the back half of the year, there is upside to the guidance there?.

So, on the minority, Tom will correct me if I'm wrong, but very quickly on the minority. Net minority, operating minority is about the same year-on-year, the difference we had a large tax settlement in Brazil. So the Brazilian partner gets after that, but that's scheduled out in the -- not -- the reconciliation table that was just the capital item..

Yes, I thought it just whether your minority was up even with that, but I'll verify that..

$14 million or $15 million of the minority, it is still up, George. But for the full year, if you take that out, you're running about $23 million in the third, second quarter, which is about what we would expect and the full year will be low '90s.

And then on transit, we did the reforecast, right at the beginning of July based on activity that occurred in the second quarter and as I mentioned, everything is going pretty well into the last 10 days of June. So I don't know how conservative the guys were. And when I say activity is firm in July. It's firm to the forecast they presented.

So, they could be a little cautious, but we'll see. I think, all in all, as I said, it's a $1.2 billion business in the last half of the year, and if we're all $8 to $10 million, it's off a little bit.

We are all, you guys are sitting with your economic activity glass is on, it's not going to be off as much as you guys are worried about, it's fairly firm..

And last one for me. Recognizing you're going to get ultimately more earnings out of the beverage line conversion in Weston. What is that conversion to take out of, if you will, the food and non-reportable segment on an annualized basis. Thank you, guys..

We did announced it, but we will replace that food can capacity in another location. So might, you know, at the beginning of next year maybe a $1 million or $2 million per quarter in the first couple of quarters, but after that we'll be back in line..

Thank you so much. Our next question is from the line of Kyle White of Deutsche Bank. Your line is now open..

Hey guys, thanks for taking the question. Just curious on Brazil, I think called out volumes, up 4% in Latin America. I was just wondering how that compared to the overall market in the industry.

It sounded like maybe had to leave some sales on table just being capacity constrained there?.

You are absolutely correct. So, we were up 6% in Brazil in the quarter. The market was up firmly in double-digits. But, as you rightly point out, and as we said we were capacity constrained and we couldn't go any further..

Thank you. That's helpful. And then on the new competitor in Colombia. I know they've added some capacity in Brazil as well before. I'm just trying to get a sense of your view of this competitor. You can be with them over in Europe and just how discipline that you found them to be.

And just trying to get the sense of what kind of risk there is, that there is more moves or more investments to kind of take share from this competitor going forward?.

No, listen, they are a competitor like any other competitor and they have designs on running a global beverage can business and they had an opportunity to come to Brazil. I'm assuming, I'll just say, I'm assuming that's a safe way to put it. I'm assuming that the deal they made to get the Brazil was tied to the Colombian business.

We knew that a year ago or a little more than that. And we'll see where they go. But they are a competitor like any other competitor, they're a good competitor..

Thank you so much. Our last question on queue is from the line of Adam Josephson of KeyBanc. Your line is now open..

Tom, a couple for you to start, just on CapEx. I know, so, '19 guidance now is $440 just given the North American bev can projects. Do you expect next year to be similar up/down, can you give us any sort of perspective, I appreciate and it's still early days..

Well, we came into the year saying $400 to $425, we're essentially, I mean $440 is not that much offset number. So similar, let's say, at this point..

For next year, okay..

Yes..

And then on working cap for this year.

Any change compared to your previous expectations and same pertains to dividends and minorities on the cash flow statement?.

Yes, so working capital, we said, we thought we were going to be about flat at this point, I'd say we're expecting some contribution from working capital on real significant, but some contribution.

And on the minority dividends in response to George's question a minute ago, we were talking about the gain we had in Brazil from the tax, because of that gain we have the capacity to pay a bigger dividend, for the minority dividend whereas previously we are saying about $75 million perhaps that number is up $10 million or so..

And is that $85 then -- is that a sustainable number, Tom?.

Could be back to $75 or $80..

Adam, the tax settlement was a one-time settlement this year. So the -- get the money out of the country, so pay dividend..

And Tim, just one on Signode. So, obviously when you announced Signode, I think part of the rationale, correct me if I'm wrong. Was that beverage can growth was limited at that time and have been for a long time for that matter.

And now you're ramping up spending on beverage cans, obviously, because of the recent pick up we've seen in the North American market.

So, since the time you announced Signode, have your expectations pertaining Signode and beverage cans for that matter changed, fairly significantly just seems like you go from moving away from bev cans, and now you're kind of moving back to bev cans at a time with Signode is slowing.

So, I'm just wondering how your thoughts on those two businesses have changed since that time?.

So I would say, on beverage cans, the thoughts over the last 12 months to 18 months are, everything significantly more optimistic, just given the sustainability environment we're in.

But it will require capital and cash to build out more capacity in various regions around the world, but that's all positive thing, that's going to generate future value for everybody. On Signode nothing has changed. I think, as I said, nine of the last 10 quarters, you're describing the business declining.

Nine of the last 10 quarters, the EBITDA is in the $90 million to $95 million range. And last year's second quarter, for a variety of reasons, was far beyond anything they've ever done before. And we've talked about that last year, some of the reasons why. So, I don't think our view on transit has changed at all.

It's remarkably consistent on an EBITDA basis in '19 compared to '18 and '17 even in the face of some currencies. So really generating a lot of high cash flow, increases the cash flow yield and provides a lot of necessary cash flow to continue to build out the beverage can business..

Just last question, Tim on Signode at the Analyst Day, you talked about Signode's EBITDA going back a decade or more, I forget exactly what, but obviously, in '19 EBITDA was down a lot and then it was up similarly in 10.

Do you think the economic -- the sense -- the volatility in Signode's EBITDA is diminished at all from where it was, call it a decade ago. So in other words, in the event we go into what meaningful downturn.

Do you have any reason to think that EBITDA would be at least somewhat stable in that business?.

So I think two things are different, I think the global financial crisis of 2008-2009 was not a -- what you would describe as a normal downturn, we're the operating recession.

So I think everybody needs to remember that, right? That was, something far different, but I do think, and as we have described Signode, while it was still owned by ITW and then while it was owned by the private equity firm made incredible strides to try to change the business profile of the end markets, they were serving, they became much bigger in the protected space, less reliant on strap, much bigger than food and beverage, less reliant on the steel industry.

So, the business is far more stable today. Or let's say it's while it is cyclical, it's less cyclical than it was then, yes..

Okay, thanks a lot, Tim..

You're welcome. Maisy, I think you said that was the last call. So thank you very much. And that concludes the call today. Thank all of you for joining us and we'll speak to you again in October. Bye now..