Good morning, and welcome to Crown Holdings Second Quarter 2022 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. Kevin Clothier, Senior Vice President and Chief Financial Officer.

Sir, you may begin..

Thank you, Nicole, and good morning. With me on today's call is Tim Donahue, President and Chief Executive Officer. If you do not already have the earnings release, it is available on our website at crowncork.com. 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 are contained in the press release and in SEC -- in our SEC filings, including our Form 10-K for 2021 and subsequent filings.

The company recorded diluted earnings per share in the quarter of $2.43, compared to $0.95 in the prior year quarter. Adjusted earnings per share in the quarter were $2.10, compared to $2.14 in 2021.

The second quarter of 2021 included $0.30 per share related to the discontinued European food operations, net of the interest savings, share buybacks and equity earnings from our remaining 20% stake.

Net sales in the quarter were up 23% from the prior year, primarily due to the pass through of higher raw material costs and increased beverage can volumes.

Segment income was $432 million in the quarter, compared to $395 million in the prior year, primarily due to improved profitability in the North American tinplate and can-making equipment businesses, and 4% Global beverage volume growth.

As of June 30, we have repurchased $600 million of Crown common stock under the current $3 billion board authorization. For the balance of the year, we assume that headwinds from a stronger US dollar and higher European energy prices will persist.

We are forecasting a full year average euro-dollar rate of $105 million, which assumes euro dollar parity for the balance of the year. This compares to an average euro rate of $118 million in 2021. Using the euro as a proxy for all currencies where we operate globally, each $0.01 move in the euro-dollar rate equates to $0.02 per diluted share.

We now estimate energy costs to be up $45 million for the year with the bulk of the increase in the second half. Adjusting for the strong dollar and higher energy costs, we currently project EBITDA of $1.9 billion, adjusted earnings in the range of $7.65 to $7.85 per share.

Both figures in line with previous guidance, excluding the impact of the stronger US dollars and the higher energy cost. The company currently expects third quarter adjusted earnings to be in the range of $1.75 to $1.85 per share.

Also, it should be noted, the third quarter of 2021 included approximately $0.12 per share related to the discontinued food operations, net of the interest savings, share buybacks and equity earnings from our remaining 20% ownership stake.

Our recovery of cost related to the December tornado in Bowling Green is proceeding according to plan and our full year estimate assumes all losses from Bowling Green will be recovered by year-end.

Our target leverage remains at 3.25 times and assumes $1 billion of capital spending, $400 million of free cash flow and total share repurchases of $1 billion. With that, I'll turn the call over to Tim..

Thank you, Kevin, and good morning to everyone. As reflected in last night's release, and as Kevin has just summarized, overall second quarter and first half performance was positive. Global beverage can volumes increased 4% despite capacity limitations in the United States and improving, but still soft conditions in Brazil.

Transit performance was in line with the prior year and our North American tinplate businesses continue to benefit from food can capacity added in 2021. Globally, customers continue to add can filling lines, leading to higher demand from can suppliers.

As outlined in the release, we have numerous projects underway or announced to meet this global demand. I use the term global more than once to remind ourselves that this is not just a US business but a global business. And we have an excellent manufacturing footprint from which to grow in some of the most exciting markets.

Reported revenues increased 23% in both the second quarter and first half, primarily due to the pass through of higher raw material costs and increased sales unit volumes offsetting unfavorable currency translation from the stronger US dollar.

In Americas Beverage, unit volumes advanced 1% over the prior year with 1% growth in North America, coupled with 6% growth in Mexico, offsetting a 3% decline in South America. Inflation continues to have an impact on consumer behavior and demand for cans is not inelastic.

Having said that, supply demand remains tight for Crown, and if we had more cans we could sell more cans. The impact of the Bowling Green tornado on our system capacity has been a greater challenge than we initially estimated, but the plant has restarted and we are working our way through learning curve.

Looking ahead, with Bowling Green further through learning curve and coupled with commencement of operations late this year in Martinsville and mid next year in Mesquite and also based on contracts in place, we currently project 10% volume growth in North America for 2023 over 2022.

Conditions in Brazil improved during the second quarter with industry volumes up 1% over the prior year. A strong second half is forecasted mainly in the fourth quarter as the first winter World Cup coincides with the summer selling season in Brazil.

Segment income for the six months reflects approximately $10 million in unrecovered incremental system operating costs related to Bowling Green, compared to $20 million unrecovered at the end of the first quarter. Unit volumes in European Beverage advanced 2% over the prior year, with shipment growth noted throughout most operations.

Supply demand conditions remain very tight and recently announced projects in Italy, Spain and the UK will provide much needed capacity to our system beginning in 2023. Volume growth and location mix led to better than forecasted first half segment income.

However, we expect the second half comparison to prior year will become even more challenging in view of US dollar-euro parity and rising energy costs. Beverage can volumes in Asia Pacific advanced 12% in the second quarter on strong shipments across Southeast Asia.

Adjusting for currency and the sale of the Kiwiplan business, performance in transit was leveled for the prior year second quarter. Strong performances across the protective packaging and tools businesses, combined with the initiation of cost recovery price increases offset steel inventory holding losses in the [strat] (ph) business.

As disclosed in last night's release, the Transit segment has initiated a cost reduction program focused on administrative overheads only. The program does not result in any reduction to production footprint or capacity. Strong performances continued across our North American tinplate and can-making equipment businesses during the second quarter.

Unit volume sales of 2 piece food cans advanced 13% in the quarter. And as highlighted in the release, we shipped 43% more self-made two piece food cans than in the prior year.

Our equipment businesses, both can making and transit continue to face supply chain delays and disruptions, mostly as it relates to display panels, chip, circuit boards, motors, but strong order flow continues with backlogs at record levels.

In summary, we are pleased with the overall first half performance and excellent performance by the entire Crown team to continue to overcome the numerous challenges faced, whether that be supply chain, inflation, energy or currency among others.

We do expect energy and currency headwinds to be a bit steeper during the second half, but we are focused on managing the challenges within our control to help our customers grow their franchises and in turn grow our businesses and grow shareholder value. And with that, Nicole, we are now ready to take questions..

Thank you. We will now begin the question-and-answer session. [Operator Instructions] Our first question is from the line of Chris Parkinson from Mizuho. Your line is now open..

Great. Thank you very much for taking my question. Can you just add a little bit more color on the outlook for Latin America, inclusive of the second half of Brazil just versus your expectations a few months ago? And then also just basically do the same for APAC, just given all the noise in the -- during the second half of 2021? Thank you..

I'm not sure I have that in front of me, but it's -- I think we expect both the second half in Brazil, and Asia to certainly be up compared to the prior year. Asia has had a very good start already.

I mean, I would say that second half Asia, if I'm looking at something here, it looks like it's -- we're going to have some significant growth in Q3, just due to the lower shipments we had last year in Q3. I think it's probably a fair statement related to COVID shutdowns.

And Q4, obviously, having growth like -- if we were up 12% in the second quarter, I would suggest that the combination of the third and fourth quarter will be at least 12% up in Asia in the second half. As it relates to Brazil, we expect -- we’re down a few percent here in the second quarter, the market was up 1%. That's just a customer mix issue.

We haven't lost any share just that particular customer perhaps temporarily losing share in the market, they expect to get that back. But we expect significant gains in the second half. We'll see how that manifests itself through the balance of the year. Certainly inflation having a very big impact in a market like Brazil.

Disposable income, not as great in a market like Brazil as it is in the United States.

So spending on can beverage products certainly much more discretionary in a market like that than we're used to, but we are forecasting increases in the market, and for the full year, we have a small increase forecasted and that's certainly several percent lower than we would have estimated at the beginning of the year..

Got it. And just as a quick follow-up. When we're looking at the current status of European energy prices, just versus the $20 million that we were all discussing during the first quarter call.

How should investors think about that for the second half given the current run rates? And is there any consideration already for the first half of ’23, just given your adjustments to contracts? And if we just kind of held that steady for the next year or so, is there just anything you can add to help our thought process there would be very helpful.

Thank you..

So, yeah. Hey, Chris. Listen, for the energy guide for the year, I would say, the bulk of the energy increase is going to be in the second half of the year, as I said earlier. Probably about a quarter of it basically went through the first half. The first half, we benefited from hedges that we had in place, but at the current prices.

We see a strong headwind here in the third and fourth quarter on energy. So I would say 75% of the increase is going to be felt in the third and fourth quarter..

And as it relates ’23, I don't necessarily want to comment on what I think the energy markets in Europe are going to do in the first quarter next year. I think some of that has to do with the Ukraine-Russia situation, and we'll see where we get to.

But as it relates to contracts, as we've said, we are in the process of amending contracts as they come due going forward to properly recover the costs that are born upon us to manufacture projects -- products. So I don't want to get into the parsing out right now all the ins and outs of European Beverage segment income for ’23.

We haven't done a budget yet, but certainly we expect segment income to be up significantly in ‘23 in that segment, compared to ’22..

Understood. Thank you so much..

You're welcome..

Thank you. Next question is from the line of George Staphos of Bank of America. Your line is now open..

Hi, everyone. Good morning. Thanks for the details and taking my question. I guess to start off, we appreciate the guidance.

Is there a way, Kevin or Tim that you could help us bridge from 2Q's earnings per share to the $1.80 mid-point in the third quarter? Is that largely energy? Any other things that you would have us keep in mind as we, again, look at that sequential decline? And I had a couple of other follow-ons..

Yeah. So, George, I -- Kevin will give you maybe some more detail on energy, but if you think about currency, currency is going to have a bigger impact as we get through each quarter. I think on average, as we said for last year, we were a $1.18, but we're I think a $1.9 right now through six months.

And if we stay at parity you have $1.9 through six months, which was whatever the number was in Q2, but you're at parity already. So you're looking at a $1 in Q3, that's EUR0.09 or $0.09 against the euro, which all comes through Q3, which is one of the bigger quarters.

And as we said, we use the euro as a proxy to give you an estimate, because we're not just in euros, right? We are in a number of global currencies. So, Kevin, I don't know if you have anything further on energy than you've already said..

George, I would just say, look, 25% of the cost between energy and FX we felt in the first half related to the guidance. And I would say it’s equally split, the back half of the year between Q3 and Q4 the energy and FX. So –.

Okay. And just factually, Kevin, I just want to make sure I got it. So that $0.50 headwind that you called out, 25% of that you've already felt in the first half or is that true incremental, i.e. it's all felt in the second half..

25% of that we felt in the first half..

Got it. Thank you for that. Now, second question I had and recognizing you haven't done a budget for next year. But Chris’s questions also sort of piggyback this. So I figure -- I raise it now. So as we look out, you've got a very tough comparison in tinplate from the first quarter.

We obviously have a what will be even if there is no change in FX, probably a pretty negative run rate and therefore an average on FX into next year. Energy, obviously, who knows, but let's assume no change.

At this juncture what do you think you could see in terms of benefit from price recovery on these reset? And how likely is that -- is it that you think earnings per share next year actually can grow given those tough comparisons 2023 versus 2022. A - Tim Donahue I understand the question, George.

So just I'll try to take them as I remember them and if I forget something remind me. FX will be certainly a headwind in Q1, a little bit less in Q2. And then assuming we stay at parity, right? In Q3 and Q4 we're going to be at parity here and let's just assume we stay at parity next year. So you might see a bit of a headwind there.

On the energy, it is a European issue and that's a beverage can issue only. We have -- we don't have a whole lot of energy headwind in the transit business in Europe. We don't use a lot of natural gas in transit, it's mostly electricity.

So, but again, too early to call the energy market, but we do have a number of contracts that have been or currently being renegotiation -- renegotiated as we start [1123] (ph) coupled with higher volume from some of the new projects that are coming on.

So we're pretty confident that segment income in the European Beverage segment is going to be better. As it relates steel, we can break -- let's break up and you're going to -- you're going to use the assumption that the steel market is flat to down for tinplate in 2023 versus 2022.

So if we start with that, your premise is that, if we had steel related gains in our food and aerosol can businesses that we won't have those next year. So let's just for purposes of this discussion agree with you.

That will be offset by further two piece food can growth as we bring on Owatonna, and we push Hanover even further through learning curve and produce more cans and incur less startup cost in Hanover. So I think on the food can side, we're going to displace most of that steel headwind.

And then frankly, the balance of the steel headwind overall in the company will be displaced by the fact we won't have this -- the steel headwind next year that we have currently this year in transit.

So we buy -- historically, we have bought steel and sold our steel products under a different mechanism than we do in our packaging or tinplate steel products businesses. And we're in the process of changing that. Nut nonetheless, we've incurred significant steel headwinds this year. We characterize them as inventory holding losses.

We do not expect to have those next year..

Okay. And lastly, I will turn it over. Do you have a view like you have in North America for growth next year? What your rough cut volume could look like in Europe and in Brazil based on customer commitments and project coming on. Thank you, and good luck in the quarter..

Thanks, George. So I said 10% in North America and whether it's 8% or 15%, I don't know, but 10s of number that as we sit here today based on contracts, we can easily see our way getting to their.

Brazil, we're hopeful that the market returns and the consumer returns in a stronger way and they begin their celebrations, and especially in the first quarter that the fillers look to replenish their inventory supply chain after the severe drawdown that we believe they're going to have here in Q4 with the World Cup.

So on balance, as I sit here, if we project that in Brazil, this year we might only be up 2%. I would hope we're up a minimum of 5% next year, but that -- but we don't have the budget yet for that's so I can't give you that.

And in Europe, as you appreciate, any of the can manufacturers growth from year to year is a bit lumpy, depending on when any one of us brings on capacity. And we do have a pretty good amount of capacity coming on later this year in the next year.

So we would expect next year in the 6% to 8% to volume growth range, whereas this year being capacity limited, we're much flatter in the 2% range..

Thank you very much..

Thank you, George..

Thank you. The next question is from the line of Mike Leithead of Barclays. Your line is now open..

Great. Thanks. Good morning guys..

Good morning, Mike..

First, I just wanted to clarify. I think you talked about $1.9 billion of EBITDA, which is about $70 million revision.

Is that all currency in European energy or is there anything else in that?.

No, listen. I think, you were looking at the page I was looking at. You'd see the majority of that -- the vast majority of that is currency and energy in the second half. And then certainly within the businesses, you've got pluses and minuses, but more or less the businesses offset each other and the estimate revision is currency and energy..

Great, thanks. And then second. Tim, I just want to dig into kind of your commentary around North America. I think you mentioned volume was up only 1%, but if I'm understanding you correctly, the key limiting factor has been your production capacity, not demand as you have more plan to be selling more cans.

Is that correct? And is Bowling Green the only limiting factor to your existing plants or is there any can sheet availability issues right now?.

So we have -- we have no supply chain -- I shouldn't say, we have no. Listen, there's always supply chain issues, but I will say that as opposed to the supply chain for our equipment businesses where we like many others are having problems with circuit boards, chips and things like that.

We do not see any challenges -- a significant challenges in the can business, be it tinplate, steel, aluminum, and even I know we're going to talk about magnesium, we don't see any impact from magnesium on our supply chain.

I would tell you that, the suppliers that we have to our beverage can and food can, aerosol can operations globally have done a remarkable job navigating all the challenges. They have, especially, in light of some of the Chinese port situation. So not supply chain related. Bowling Green, as I said, has been a bit more disruptive than we would like.

We also added second or third -- I shouldn't say second, third production can lines to several plants in the United States and some have gone better than others. If I was to characterize for you when we say we could have sold more cans if we had more cans, maybe instead of being up 1% we would have been up 3%..

Great. Thank you..

You're welcome..

Thank you. The next question is from the line of Phil Ng of Jefferies. Your line is now open..

Hey, Tim. How are you done? Thanks for all the great color. I guess, there is certainly some concerns that from a macro environment consumer is getting a little weaker and you kind of alluded to elasticity of the can and just consumption..

Well, Phil, I didn't say -- I didn't say can demand was elastic. I said it's not inelastic..

That's what I meant to say, not inelastic. But you seem pretty confident, Tim, for growth in North America next year, as well as Europe. So just kind of give us some color on, if the macro does soften how much line of sight, I guess, some of the volume guidance you had to provide.

I mean, certainly some of that is tied to some of the contracts you have coming up in North America and Europe.

So just give us some color on conviction levels and securing that how you're set up from that standpoint? And just your broader view on how your business would hold up if the macro was a little slower?.

Yeah. I think -- so I'd characterize North America for you as 8% to 15% and I pegged [indiscernible]. So I'm trying to hedge what I think -- what we think versus what might happen in the macro environment, but we're in the process of building a can plant in Nevada.

We have not been in the Southwestern part of the United States for almost 30 years now, since we closed the [indiscernible] facility. We have in the past shift a lot of cans in the Southern California market from Texas and/or Wyoming.

There are contracts that we've had in the past with fillers in that region that are tied to national contracts that perhaps we will gain in the future. And I'll just leave it at that. I don't want to say too much, but we are more confident on growth in North America perhaps than you would believe. And I'll leave it at that.

I do understand that consumer may be week and we'll see how long the so-called transitory inflation lasts. I think that's a funny comment. I unfortunately repeated that transitory comment I think 12 months ago. So I'm sorry, I took some of our fine government leaders term to describe inflation. I don't think it's transitory.

I think it's here to stay for a while. So, I think ultimately the consumer will adapt -- the consumers going to want to go back to enjoying the small pleasures in life. So I don't think we're going to see demand suppressed for a very long time. I think we're going to get it back.

But nonetheless, I have, as I said, I've hedged what I thought our growth would be by giving you the 10% number..

Okay, that's helpful. On transit, it sounds like -- the results been little choppier than we expect.

It sounds like it's mostly supply chain, but curious to get your thoughts on how you're thinking about that demand profile as we kind of look at the 2023? And certainly you're taking actions to take out costs from the outside looking, we would think that might glue maybe to your view on the demand profile being a little softer.

So kind of help us unpack those things? And then help us think about how that $60 million cost out program ramps up in the next few quarters? Thanks..

So, listen, I think the supply chain challenges that we face in our Transit equipment business is very similar to what we faced in our can-making equipment businesses. But those supply chain challenges are not the reason for me any underperformance you might see in transit year-on-year.

I mean, we are in the second quarter ex-currency and the divestiture of the business were basically flat. Now, for the full year, we're probably going to be down compared to our earlier expectations.

But that's not supply chain related, that's entirely related to these inventory holding losses that we have in our steel business, which we don't anticipate next year.

We got ourselves into a situation where steel was tight late last year and we went out and we procure too much deal and then steel market collapsed, and so, we're pushing through higher price steel in a lower price steel environment to our customers. So that won't recur. But for the most part that's that.

As you think about the demand profile, the demand continues to be strong across almost every one of our businesses in transit. The overhead reduction program has nothing to do with anything related to demand. As I said, we're not taking out any production capacity, we're not reducing the footprint whatsoever, this is purely administrative overheads.

This is getting their S&A more in line with what the S&A should be for a manufacturing company. And I understand now that we've owned the business for four years, and maybe I'm on a little thick. I should have understood this a little earlier.

I understand there's a different go-to-market strategy for the Transit business than there is for the can making business. Nonetheless, it's still a manufacturing business and it only requires a certain level of overhead. So you should view this overhead reduction program as pure gravy coming off the top.

Thinking about the $60 million, let's assume we get about $12 million in the second half of this year and we'll get the balance of that through next year..

And then, Tim, on the inventory holding charge that you talked about this year on steel, anyway to quantify that for us this year?.

There is a way to quantify it. It's a big number and we're not happy, but I'd ask you to think about and perhaps we -- I think we said in the first quarter, we might have told you it was $5 million, we probably had the wrong number.

It was probably more like $10 million or $12 million and it was probably $10 million or $12 million here in the third quarter.

So absent these steel losses, we would actually had a pretty good performance in the third quarter, which may really underscores the demand that we've seen in protective packaging and the tools businesses, which has been quite strong and the backlog in equipment also quite strong as we look forward. So we have less concern.

I understand that you may have concern about the macro environment and what it might do to a business like our Transit business, but demand has been exceptionally strong and the underperformance to use yours and other analyst terms in that business is entirely related to a steel procurement issue that will not recur next year..

Okay, thanks a lot. Great color, Tim. Thanks.

Thank you..

Thank you. Next question is from the line of Ghansham Panjabi of Baird. Your line is now open..

Thank you. Good morning, everybody..

Good morning, Ghansham..

Good morning. I just wanted to pick up on Phil's question on elasticity or whatever -- however you describe that. What about the impact -- comparable impact as it relates to some of the other emerging markets that you have exposure to, including Asia? And then back to the US, understanding that you're still sold out at this point.

Has there been any change whatsoever that's measurable in terms of new business inquiries or new product development, new categories, et cetera, in context of the consumer.

And just lack of clarity as to how the consumer evolves in North America as well?.

Yeah. So I -- it's a good question, Ghansham. I think I was -- I understand, let's say, the concern within your question about the emerging markets. And it's why I was a little hesitant or I hedged on my response on the Brazil question earlier. I do think Southeast Asia is going to continue to perform exceptionally well.

The markets do continue to grow, they are certainly not immune to inflation. They certainly have far less disposable income then we have in Western Europe or the United States.

Having said that, again, the small pleasures like consumption of beer and the can being not only the preferred package, but in many markets the only package to deliver growth for the consumer products companies and to deliver product to the ultimate consumer. We're pretty bullish on Southeast Asia as we look ahead.

Will there be quarters where we -- where growth is slower than others? Yes, sure. But I think looking at blocks of three year or five year periods, the one market you see around the world where you see exceptional growth prospects over the next five or 10 years has to be Southeast Asia. I’m getting old so I forgot the other part of your question.

I apologize..

Yes, sure. It was on North America.

Any change in terms of business momentum there, backlogs, inquiry?.

Yeah. That's also a good question. I think the one area where I -- we're not real big in the craft market, but we do supply craft. And if I was to look at one end market where we have seen a slowdown in demand, it would be craft beer here in North America.

Other than that, I think any of the declining retail data that you've looked at is going to be coming from the larger CSD companies as they, obviously, look to manage their own inflationary environment through price and that price having an initial shock to the consumer who perhaps is adjusting everything they buy.

But I do think longer term, the consumer gets used to paying more for a lot of things and we will return to a demand profile that's really quite healthy for beverage cans, not only in the United States, but globally, especially in light of ongoing sustainability pushes..

Got you. And then for the second question. In terms of the EBITDA reduction, I mean, obviously, there is reasons for that with FX and gas, et cetera. But you're still down $100 million in a very short period of time versus your original guidance.

I'm just curious as to whether that changes, how you think about share buybacks? And then separately, can you just also touch on aluminum access and there has been some force majeure announcement specific to magnesium, et cetera? Thanks so much..

Yeah. No impact on aluminum access.

As I said to Phil's question, I got to tell you, the suppliers into the can business, be it aluminum coatings, whatever, they've done a tremendous job and there is a -- one of our suppliers on the aluminum side has a small little conflict with the magnesium supplier, but they're not the only supplier globally for magnesium.

And they're not our only aluminum suppliers, so we are -- we don't foresee any challenges as it relate to aluminum supply to us. I forgot the other part of the question..

The share buybacks..

I’m sorry, share buybacks. Yeah. Listen, I think that we targeted $1 billion in share buybacks this year, we're going to achieve $1 billion in share buybacks.

We're going to be down $100 million in EBITDA from what we forecast at the beginning of the year, but the debt also comes down as well as you consider the translation, Ghansham, of euro debt to dollar. So EUR100 used to convert to $115 of dollar debt, now EUR100 is only $100 debt.

So it doesn't -- the offset on leverage is pretty unremarkable, so we're not necessarily -- we're not concerned with our previous forecast and the level of share buybacks we committed to..

Awesome. Thanks so much..

You're welcome..

Thank you. Next question is from the line of Mike Roxland of Truist Securities. Your line is now open..

Hi, Tim, Kevin. Thanks for taking my questions..

Hi, Mike..

Can you just remind us what current power -- energy hedging policy in Europe.

I think Kevin, you mentioned that you hedges in place in the first half, but I believe so you have hedges in place in the second half?.

So, historically, we would have hedged a greater percentage of our energy costs coming into 2022. I think the thought process was that, there were elevated costs and the expectation was that we would see the cost come down throughout the year. So we did not hedge.

And then the power -- the actions we took in not hedging were obviously impacted by the war in Ukraine. So at this point, we have some hedges in place for the fourth quarter, we have minor hedges in place for next year. As Tim said, we're looking to change the European contracts.

And to be honest, that's going to be the best way to actually hedge this cost, because if you hedge for this year it is a one-time hedge. So, at this point the solution is that, we're going to have to pass the cost on to the customer..

Got you.

And is there any percentage that you aim to -- historical you aim to hedge and would you be able to share that with us?.

Say again..

Is there a particular percentage, I guess, of energy you’d able to hedge historically?.

Yeah. Historically we’d have done closer to probably -- as much as we could, to be honest. It's probably -- in the energy cost, you have to look at, there's two components of the energy costs, gas and electric, but you also have different markets you dealing, you have regulated markets versus unregulated markets.

So in the regulated markets we typically would not hedge, in the unregulated markets we typically would. I don't have the split in front of me of what those markets are, but we would typically look to hedge the unregulated energy exposure..

Got it. And just one quick follow-up, Tim. It seems that a number of beverage companies have start to build their own can plant adjacent to their beverage operations. I think Heineken building -- or is reported to be building a beverage can plant adjacent to its brewery in Mexico.

You have AmBev, which is building a plant in Brazil and Modelo as well has -- is ready to have the share a plant near its brewery.

So I wonder if you could just talk about that trend and what it ultimately means for cans demand for the beverage industry? And do you think that growth -- can growth will slow as this trend accelerates?.

Yeah. I mean, historically most fillers that had can operations look to sell those can operations as margins in cans are certainly less than margins are in beer, for example. And they look to take the proceeds from that and use it for marketing and/or other expansion of filling operations.

The Mexican plant that you described, the Mexican can plants to be built that you described is going adjacent to a brewery. We do not supply that brewery with cans. That doesn't mean it doesn't always circle back to the whole market, but initially it's not a concern for us, and it remains to be seen whether that can plant actually gets built.

And I would just leave it at that. It remains to be seen whether all of these announced projects by some of the fillers actually get built..

Got it. Thanks very much. Good luck in the quarter..

Thank you..

Thank you. Next question is from the line of Angel Castillo of Morgan Stanley. Your line is now open..

Hi, good morning. Thanks for taking my question. Could you just give us an update on how you're thinking about free cash flow, just given the changes to the EBITDA? I think last number I kind of recall is a $400 million number.

So could you just update us on how you're kind of seeing that with other puts and takes to working capital, et cetera?.

Yeah. So we're sticking with the $400 million. As Tim said, we kind of got caught up in the Transit business with higher inventories at the end of last year. There were some other businesses where inventory was a little bit higher than we'd like.

So we're looking to fill the hole basically with working capital initiatives that we've started to put in place..

Got it. That's helpful. And then just in terms of the Bowling Green dynamic. I was wondering if you could give us a little bit more color as to maybe what the timeline of that is? Typically I think of as kind of six months to ramp up an asset. Obviously with the tornado there is perhaps other aspects to go through.

But one, is it fair to assume that by year-end you will be kind of 100% up and running? Or just more color as to what's happening there and any implications as the inventory levels for you as we go through the year here?.

Yeah, I'm not sure who told you that it's six months to ramp up a beverage can assets, but the learning curve for or the timeline to get through a learning curve and a new beverage can plant is anywhere from 12 to 18 months depending on geography, the size of the plant, products we're running in that plant, size changeovers, et cetera.

So we had the plant running for a couple of months on line one, just brought up line two when the tornado hit. So the restart, if you will, was like a brand new opening where we basically started learning curve all over again. So we're continuing to improve.

And fortunately for us, we've got a good team in Bowling Green and almost everybody stayed with us while the plant was down for a couple of months. But we are in the process. It's a brand new learning curve process and it will continue to get better through the end of the year and into next year.

I do expect our inventory position in North America beverage will be far lower than we would like at the end of the year..

And maybe just a quick follow-up to that, any level of kind of allocations to customers to try to rebuild that inventory or no impact on that?.

Well, listen, nobody likes to say what I'm about to say or hear what I’m about to say. But if we're somewhat fortunate that perhaps inflation is slowing demand for some products in some small way and that as I described earlier, we had 1% growth and really we were limited by our ability to make cans for a couple of reasons.

And I described how many cans did we lose because of our capacity limitations as perhaps another 1% to 2%, whether that was 1% to 2% or 8% to 10%. It doesn't matter, we still couldn't make them. So in some small way perhaps this helps us catch up a little bit..

Very helpful. Thank you..

Thank you..

Thank you. Next question is from the line of Arun Viswanathan from RBC Capital Markets. Your line is now open..

Great. Thanks for taking my question. Good morning. I guess, first off, could you just remind us maybe where we are on demand and installed capacity in North America.

Was it kind of around installed capacity around 115 billion units and maybe demand of 125 billion? And if that was the case, I think you called out maybe 8% to 15% growth in North America next year, maybe 10% at the midpoint or as a base case.

Again, could you just reiterate, is that your expectation and what's driving that? Is that just kind of the contracts that you have in place? And is there any risk to that forecast?.

So, I think your demand number, you're saying 125 billion and whether it's 125 million or 127 million, 128 million, you're not too far off. I think your installed capacity number by the end of this year, that number is probably closer to 120 million than 115 million. And certainly imports are significantly down this year versus last year.

I would tell you that the growth we are discussing for next year is based on contracts in place and I described for you customer contracts that we used to have in Southern California that we haven't had for the last couple of years related to other national contracts that we will have next year. That does not mean that it's market growth.

That means, it's growth for Crown..

Okay, that's helpful. And then if I could just kind of take this little bit further. So I think you noted that Europe will be up. I don't think it'll necessarily get back to '21 levels. But segment income in Europe beverage should be up, North America should be up. Signode you won't have or transit you won't have the steel inventory issues.

So I understand that you're still kind of preliminary on your '23 outlook. But given all those things, it should be up materially.

I mean, do you expect that to be right and maybe grow maybe 5% or 7% and eclipse to the $2 billion down level?.

It's not, you're going to remind me later. But -- I'm joking. I am I think everything you just described, we would agree with. I think we see the North American business continuing to improve on the back of higher volume next year.

And as we season more plants through learning curve, I think our North American food can business is going to continue to push more volume, specifically in two piece cans. We’re primarily a two piece can producer in North American food and we have a very large pet food presence, which is a market that continues to grow.

We do expect Brazil will perform better next year than this year, although I can't really put a pin on that as to how much better. Notwithstanding currency and energy, we do expect the European business to have a better year next year. We're going to push more volume through and we're going to recover cost with contracts that are being renegotiated.

So it certainly should be a better year. And Southeast Asia is going to continue to grow. I'm exceptionally bullish on Southeast Asia over the next five years and our footprint is really unmatched in the region. And on the transit side, guys can write it anyway you like.

We had a big screw up on steel procurement this year, we're not going to have that next year, that's not an insignificant number. So you put all that together and, yeah, we should have a pretty good year next year..

And just -- if you could just quickly help us out, when does your CapEx, I guess, get lower? Is that '24 or '25? And do you think that will settle in just, say, $500 million or what’s the new kind of level of --.

Let's just-- let's discuss our CapEx. I used the term global earlier and I made a point to remind you that we have a global business, not just a US business. I think that it's fair to say that after Martinsville Mesquite we do not have currently any plans to add any more capacity in the North American beverage can space currently as we sit here today.

That does not mean that there are not several other great global opportunities as the beverage can continues to grow in other markets, be that Europe, Southeast Asia or elsewhere.

So I would think that this year we got a $1 billion, really too early to say, but next year could still be the same $1 billion and then we'll see what '24 and '25 look like. Arguably, it could be lower, but on the same hand, you're going to get cash flow of all the new capacity that’s going in.

So, the business is more capable with higher cash flow from previously installed capital to support that higher capital number as we go forward, should the global markets require that..

Thanks..

You're welcome..

Thank you. Next question is from the line of Anojja Shah of BMO Capital Markets. Your line is now open..

Hi, good morning..

Good morning..

I wanted to go back to transit for a little while. I think you have achieved margins in the 14% level back in 2018.

Just thinking ahead, once the inventory issues behind you and you've implemented the cost reduction initiatives, do you think you can get back to that 14%? Is that a good long-term level to think about or is there more opportunity?.

I haven't done the math, but putting aside the cost savings from administrative overhead reductions, which are well underway. I should add.

If you just put back the $20 million to $25 million of steel losses that we had this year into our first half performance, I'll bet you, you get a -- I even done the math, it's got to be 2% or 3% based on what we had already, or maybe it's not that much, but it's not insignificant. And so, the answer to question is, certainly margins can improve.

I caution you just like in the beverage can business where we're pushing through higher aluminum and while absolute margins can improve, percentage margins go down just because of the denominator. We do push through different commodities, be it paper, plastic and/or steel in that business.

But now we expect margins to return more towards historical levels in transit. Yes..

Okay, great. Thank you.

And then for my other question, can you give us a sense of what industry volumes were in North America in Q2, like what the CMI number would have been?.

So I saw -- it's a great question. I saw CMI released food and aerosol volumes the other day. I have not seen CMI release beverage can volumes. So I don't know. And we will all need to take into account, they're going to release a number and then from that number you also need to add on the import-export numbers, I guess, but I don't know.

I know in food cans, it look like two piece food can for the market was down about 3%, now we were up 13% and that's just customer mix and end market mix, but I can’t -- without guessing I can't give you a CMI beverage number, because it's not been released yet..

I thought you guys got it internally, but thank you for that..

You're welcome..

Thank you. The next question -- I'm sorry..

Anojja, did you have another question?.

No, all set. Thank you..

Okay, thank you..

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

Hi, good morning. Thanks for taking the questions. In North America, I appreciate the preliminary look into 2023.

But are you providing kind of a full-year volume outlook for this year for that region and kind of what you expect in the second half?.

Yeah. So I think we're looking at -- we'd like to say that we think for the full year we will be up 5% to 6%, that's a bit off of -- I think last time we talked we probably told you 8% and we're seeing 5% or 6% now. And that's just capacity limitations and other.

Just looking at the market right now, where we think we will be, but I do think we're going to continue to perform better. And improved performance -- and improved performance means more salable cans off the end of the line. So that's been one of our constraints here..

Yeah. Got it.

And then just to clarify, the 5% to 6%, that's not a product sort of adjusted number for Bowling Green? That’s just what do you actually think actual volume is?.

That's an absolute number. Yes..

Okay.

And then Kevin, on the insurance proceeds, any kind of update there in terms of what you expect from the insurance proceeds on Bowling Green? And then do you have any of those benefits included into the 3Q guidance or should we all roll it into the 4Q number?.

Yeah. There's no benefit in Q3, it would have to come in Q4..

Got it.

Are you providing kind of a total benefit, what you expect from that that's included in the full year EPS guidance?.

I mean, look, what we're saying is, we're going to cover all the costs related to Bowling Green..

So, Kyle, what I said earlier is that, we are -- through the end of June we have $10 million in unrecovered costs. So to use Kevin's terminology that we're going to recover everything, there is $10 million that's been incurred not yet recovered.

So if you're thinking about what we're going to recover over and above incurred costs based on our forecast for the balance of the year, it's $10 million and Kevin is saying that will occur in the fourth quarter, not the third quarter..

Yeah. So I thought the $10 million was just 2Q. I thought the number was a little bit higher in 1Q. I could have been mistaken –.

That's right. So what I said was, we had $20 million unrecovered at the end of the first quarter, we now only have $10 million unrecovered at the end of the second quarter. So we did recover $10 million incremental in the second quarter.

The other recovery of $10 million to get us back to $0 million will occur in the second half, primarily in the fourth quarter..

Got it. That makes sense. I'll turn it over. Appreciate it..

Thank you..

Thank you. The next question is from the line of Adam Josephson of KeyBanc. Your line is now open..

Tim, Kevin, good morning. Thanks very much for taking my questions.

Kevin, do you have handy what -- of the $1.9 billion of EBITDA to which you're guiding, how much you estimate belong to your JV partners?.

I don't have that Adam..

I guess it’s fair to say, it's less this year than last year only because of Brazil being down, but I don't have it in front of me..

Is 150-200-ish Tim a reasonable range you think?.

Sure..

Okay. Okay..

And Kevin, on your guidance just thank you for laying out the currency sensitivity and your assumption of parity in the second half. On the energy side, can you talk about what exactly you're assuming. I think today European natural gas features fell below EUR150 per megawatt hour because North Stream One is open again.

What are exactly your energy assumptions as part of that $45 million drag for the year?.

Yeah. So, Adam, we will be a little careful. So in terms of natural gas, natural gas is probably, call it, 25%, maybe 30% of our overall energy cost. So we like to peg it towards the GTF, which as you say, is around 150. I would say we were right in that range, where we were for the -- the guidance is right in that 150 range.

And it uses -- it's similar to how we use the euro as a proxy for all the other currencies. You could use the [TTF] (ph) as a proxy of what we assumed for the electricity as well. The only thing I'd caution you there is, there's regulated markets and unregulated markets, so they don't necessarily move the same way all the time.

So just be a little careful with that..

I appreciate that. And Tim, then just one last one on -- back to Anojja’s question about the North American market.

If you had to guess would you think the market was up quite a bit more than what you are up or you think it was probably similar range? I think we're all just trying to get some rough sense of the extent to which market growth has slowed, either in the second quarter, year-to-date, any sense you have along those lines..

Well, I think the market was up in Q1. I'm pretty sure it was up in April and May, and maybe it was a little a touch softer in June, but I -- Adam, I don't know. And I don't know the impact of imports. I mean, the impact on imports year-on-year we know was lower. How that feeds into what, CMI is going to tell us, I don't know.

But I bet you for domestic shipments year-on-year are certainly up in the second quarter. But again, how much and then the offset for imports, I don't know..

Got it. Thanks a lot, Tim..

You're welcome.

Nicole, do we have any more questions or is that it?.

We don't have any questions in queue..

Thank you very much, Nicole. So everyone, thank you for joining us. Call is concluded for the day and we'll speak to you again in October. Bye now..

Thanks everyone..

Thank you. That concludes today's conference. Thank you for participating. You may now disconnect..