Good morning, welcome to Crown Holdings' first quarter 2023 conference call. Your lines have been placed in 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, Marcia. 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 is contained in the press release, in our SEC filings and our Form 10-K for 2022 and subsequent filings. First quarter earnings were $0.85 a share compared to $1.74 a share in the prior first quarter. Adjusted earnings per share were $1.20 in the quarter compared to $2.01 in 2022. Net sales in the quarter were down 6% from the prior year, reflecting higher unit sales volumes in Americas Beverage, offset by lower unit volumes in most other businesses. The pass-through of approximately $100 million of lower raw material costs and $36 million from the impact of a stronger U.S. dollar. Segment income at $320 million in the quarter compared to $383 million in the prior year and reflects the benefit of contractual recovery of prior years' inflationary cost increases in European Beverage, cost reduction initiatives in Transit Packaging, offset by $60 million of year-over-year steel repricing in North America, in the North American tinplate businesses. That is $48 million of gains in Q1 of 2022 versus $12 million of losses in Q1 of 2023. We had a better than expected first quarter and remain optimistic for 2023. We reaffirm full year guidance as follows: We expect EBITDA to grow 8%-12%, and we expect full year adjusted EPS to be in a range of $6.20 and $6.40. Second quarter adjusted EPS is expected to be in a range of $1.60 to $1.70 per share. Our full year adjusted earning guide includes the following, which remains unchanged from our previous guides. Net interest expense of $400 million in 2023 compared to $270 million in 2022. $0.40 of incremental non-cash pension and postretirement costs. Average common shares outstanding to be approximately 120 million, and the full year tax rate to be between 24% and 25%. Depreciation of approximately $350 million compared to $301 million in 2022. Non-controlling interest to be approximately $140 million. Dividends and non-controlling interest are expected to be around $110 million. Free cash flow is projected to be $500 million, with capital spending of $900 million. We expect the majority of free cash flow to go to debt reduction until we get within our target leverage ratio range of 3 - 3.5 times. With that, I'll turn the call over to Tim. Thank you, Kevin. Good morning to everybody. I'll be brief. Then we'll open the call to questions. As reflected in last night's earnings release and as Kevin just summarized, first quarter performance was better than expected on the back of stronger results in European Beverage and Transit Packaging. Compared to the prior year, net results were impacted by prior year steel repricing and higher interest and retirement benefit expenses. Global beverage can volumes were down 2.5% to the prior year and reflect the impact of an inflation-weary consumer, as well as economic slowdowns in some markets. From 2019 through the end of 2023, we will have added more than 25 billion units or 30%+ of annualized beverage can capacity globally from which to serve local and regional customers. Our Americas Beverage and European Beverage can platforms are well positioned to continue to serve our customers' diverse and growing needs. As discussed with you in February and as Kevin just reiterated, we expect capital expenditures to approximate $500 million in 2024, with resulting incremental cash flows being used to delever and return cash to shareholders. In Americas Beverage, unit volume growth was 6% in the quarter, with North America up 4% and Brazil up 23% off an easy comp from Q1 of 2022. While promotional activity was lighter than anticipated in North America, we remain optimistic that summer selling season promotions will begin during the second quarter. We estimate the North American market was down 2% during the quarter, with the entirety of the decline found in imported cans. That is, domestic producers were flat in total. Importantly, from April 1st, the formulaic PPI increases are reflected in our selling prices, beginning the recovery of cost increases experienced over the past year. During the quarter, the second line at our new plant in Martinsville, Virginia began commercial shipments, and we expect the first line in Mesquite, Nevada to commence shipments in July, followed by the second line in October. During the first quarter, a Brazilian beverage can customer filed for bankruptcy protection, and we have adjusted our Brazilian sales outlook for the balance of the year to reflect this specific customer situation. We believe the registered collateral provides adequate security for our receivable balance. Income in the segment is still expected to improve meaningfully for the full year and as discussed previously, will be weighted towards the back half. Unit volumes in European Beverage declined high single digits during the quarter, with notable weakness experienced in Spain, Turkey and the U.K., primarily due to the impact of the earthquake in Turkey, retail price increases, as well as customers managing their working capital by deferring their purchase of cans closer to the summer selling season. Importantly, our efforts to restore margin with more appropriate contractual recovery mechanisms are underway, with the first quarter registering notable sequential improvement from the second half of 2022. We expect the business to continue to perform well, with improvement expected year-over-year in each of the remaining three quarters of the year. Beverage can volumes in Asia Pacific declined double digits, with declines noted in almost each market. The impact of higher retail prices, inflation in general, and slowing economies all contributed to lower overall demand. We do expect the segment's income to approach prior year levels, albeit weighted towards the back half of the year. Income and Transit Packaging improved almost 30% over the prior year as benefits from the overhead reduction program initiated last year, coupled with the mixed benefit of selective pruning of lower margin SKUs and accounts more than offset like for like volume declines. Margins were improved across commodity product lines and in equipment. As expected, headwinds from prior year inventory repricing gains coupled with weak aerosol demand offset the benefit of higher food can sales, driving income in other well below the prior year. During the quarter, we made provision to right-size headcounts in our U.K. can making equipment business to reflect lower expected activity. In summary, a solid start to the year and overall ahead of plan. Looking ahead, we expect the second quarter will continue to reflect improving results in European Beverage and Transit, with Americas Beverage beginning to show improvement by the third quarter. It's still early in the year, so we maintain our earlier guidance range of 8%-12% EBITDA growth despite the outperformance in the first quarter. With that, Marcia, I think we are now ready to take questions. Thank you. We will now begin the question-and-answer session. If you would like to ask a question, please press star, followed by the number one. Please unmute your phone and record your name and company clearly when prompted. Your name and company are required to introduce a question. To cancel your request, you may press star followed by number two. One moment please, for the questions to queue up. Okay, we have the first question coming from the line of Christopher Parkinson from Mizuho. Your line is now open. Great. Thank you so much. Could you just hit a little bit more on your specific performance in North America? I appreciate the market-driven remarks, but in terms of just what you're seeing in various substrates across, you know, energy, seltzer, non-alcoholic, to be clear, you know, CSD, you know, versus beer, and as well as the ready to drink launches. If you could just break things down and articulate how you see those substrates developing throughout the year and what that means for Crown specifically, that would be greatly appreciated. Thank you so much. You're welcome. I think that in North America specifically, we're not very big in beer. We have a significant craft beer presence in Canada, but in the United States, not very big in beer. We do supply some beer. I'm gonna stay away from beer for the time being. I think you're gonna continue to see ready to drink energy drinks. Those new launches, those new lines continue to grow, albeit off smaller bases than the bigger products that move volume. For example, carbonated soft drink teas, sparkling water. I think we'll see sparkling water do okay. Carbonated soft drinks, I think is going to be largely centered around the level of promotional activity we see over the balance of the year. As Kevin said, we remain optimistic, and albeit little ahead of our earlier forecast here in Q1, but not adjusting our full year estimate only because until we see some sign of larger promotional activity, it's really hard to step out and adjust the full year. We'll get a chance to do that again in July if we need to. I think everything revolves around CSD promotions, and we better start seeing that by the middle of May, before the Memorial Day holiday and straight through to the middle of June ahead of the July Fourth holiday. That's helpful. Just turning over to the Asian market. You know, one of what I presume to be one of your larger regional customers has been citing the fact that underlying demand growth has been very healthy, but obviously there's a bit of a, you know, destock going on between the fourth quarter and the first quarter. If you could just hit on the underlying demand trends, you know, in that marketplace. You know, what that meant for the first quarter versus what it means for the remainder of the year would also be incredibly helpful. Thank you so much. I think we have two different issues in Asia. One, the, as we described for you in February, the Cambodian market is exceptionally weak. A big part of their economy relates to the textile industry, with exports to Europe and elsewhere around the world, and that industry is struggling. As the Cambodian consumer and certain industries in Cambodia struggle, can sales are down. The issue you referred to with the one customer you're referring to has to do with the inventory, the filled good inventory that was built ahead of Chinese New Year. The sell-through at Chinese New Year was not as strong as they and others had hoped. There still is a fair amount of filled inventory in the system that has to be cleared out. You know, the slowness of the Chinese New Year and the wedding season in certain countries in Asia, largely a result of a stressed consumer. We'll see where that takes us. I think we will see as we get into the back half of the second quarter into the third quarter, we'll start to see some recovery in most of those markets, specifically Vietnam. Thank you. You're welcome. Thank you. We have the next question coming from the line of Ghansham Panjabi from Baird. Your line is now open. Hey, guys. Good morning. Morning, Ghansham. Good morning. Good morning. I guess, you know, first off, maybe you can give us a sense as to, you know, beverage can volumes in Europe as an industry. I know you broke that out for yourself. Your geographic mix is a little bit different with Turkey, et cetera. Just give us some color on continental Europe in terms of what you've seen, then, you know, some of your customers that have been reporting have pointed towards the consumer there just, you know, being increasingly cautious in terms of spending and so on and so forth, trading down, et cetera. How do you see the year unfolding for that region for you? I think I agree with everything you just said, Ghansham. I think beer has been exceptionally weak to start the year in Europe. Let's put the earthquake in Turkey aside. Let's just deal with the balance of Europe. For the most part, we're on the perimeter. We're not really up through the center of the heart of Europe. When we say the perimeter, we mean U.K., Spain, Italy, Greece, et cetera. But beer has been exceptionally weak. I think the consumer, specifically the U.K. consumer, is struggling with food inflation. The rate of inflation and the size of inflation over the last couple of years for food in the U.K. is exceptionally high. Lastly, as I pointed out, we are seeing customers trying to defer their purchases of cans as long as they can closer to the summer to manage their own working capital and their own interest costs. Putting all that aside, I do think we're going to have a reasonable summer. We'll cycle through this working capital issue, and we'll have a reasonable summer. We'll see if we have enough. If they try to buy all the cans in the summer that they should have bought some in February, March, and April, if they wait to buy them all, we'll see if we have enough cans for all of them. But it should be a reasonable summer through the end of the third quarter. We're gonna do Let's be clear. The most important thing that we were looking to accomplish this year in Europe was to adjust the contracts to appropriately recover our costs and de-risk our position in the contract. We don't sell to the consumer. We do not have any pricing power to the consumer. We need to get it from our customers or we don't get it. I think we've accomplished that. The first goal is to make money. Well, the first goal is obviously to serve your customers. The second goal is to make money. If we don't make money, we're not gonna be good at the first goal. I think we've accomplished adjusting the contracts. We're gonna have a good year despite whatever the volume happens here. Okay. Got it. Then for my second question, you know, going back to North America, I mean, obviously, you know, 1Q is a very small quarter. There's a lot of complexity on the horizon, et cetera, as it relates to the outlook for the consumer in the U.S. Have our customers, have they rebased their expectations for volumes, just based on your conversations with them for 2023 relative to initial plan, or do they see the year sort of unfolding pretty much in line at this point? Yeah. I think if they were being honest, they may tell us that they oversourced cans among Crown and the other can suppliers. I think we kinda feel we know where they're at. Again, it's largely dependent upon promotions, right? We've seen some promotions, but few and far between and not at levels which drive the consumer to stock up on cans and consume more of the products that our customers are selling. They are, as they were last year, they are, I don't know if they're satisfied, but they are, they're reporting lower volumes and higher profits, and that's a formula that works. We understand that. We understood it as the year unfolded last year. We understood it better, and we understand it from where we're at today. We have to deal with that changing dynamic in our end markets. Got it. Thanks so much, Tim. Thank you. Thank you. The next question comes from the line of Mike Leithead from Barclays. Your line is now open. Great. Thanks. Good morning, guys. Good morning. First question, Tim, just two real quick on Americas Beverage. First, can you just talk about what gives you confidence in the summer promotional activity hopefully occurring in this year versus not really occurring last year? Second, do you still expect to be up 10% Americas Beverage this year? Well, I think what we said, Mike, was that if the market is flat, we will be up 10%. I think we were pretty clear that if the market's down, we probably don't make 10%. If the market's up, we're probably a little better than 10%. Let's see where the market takes us. We were always more heavily weighted in volume growth towards the second and third quarters as more capacity came up. I don't think we're behind our original expectations with 4% in Q1, although we're gonna need to see some promotions to drive more sales at the retail level. You're confident in promotional activity or maybe it's from customer conversations? I'm not confident 'cause, you know, they have their own business model, and it's not for me to describe or I can describe, I guess. I don't really understand it as well as they do. They understand their business model better than I do, and what they understand better than I do is the consumer. I wouldn't say I'm confident. I'm optimistic that they will look to drive more volume. There's somewhere in between those two words, there's a difference, optimistic and confident. Fair enough. Thank you. Thank you. Thank you. The next question comes from the line of George Staphos from Bank of America. Your line is now open. Yeah. Hi, thank you. This is actually Kashan sitting in for George this morning. Just going off some of the prior questions, I guess, is there a way to discuss the exit rate on volume and margin coming out of 1Q, particularly in the regions where you have some pricing resets? Yeah. I think if we looked at North America, January and February were better than March. As we sit here today in April is not very strong either. That's why I said earlier, we're gonna need to see some promotions as we get to the first couple weeks of May through the first couple weeks of June. I think Europe is starting to exceptionally weak in January, February, looked better in March, and I think we expect Europe to be a little better as each month as we go through. Brazil, they're going into their winter months, so, you would naturally expect Brazil to be a little softer. We had a, you know, the market in Brazil in Q1 in 2022 was down, like, 25%, so it was an easy comp. You know, the markets in Asia are all different. I think, as I said earlier, we'll with the exception of Cambodia, we expect most of the markets to regain some strength towards the end of the second quarter. Got it. Appreciate that color. Then just, I guess, given you exceeded, you know, the top end of your guidance for the first quarter, I mean, ultimately, you know, why are you keeping kind of the full-year EPS guide here? What ultimately gives you confidence on that? Well, I think, you know, I think you put a forecast together for the full year, there's a lot of moving parts, we're more than just one business in one geography, right? We have a number of businesses which we believe serve the company and the shareholders well in terms of balancing out risk and generating significant cash flow as opposed to being too reliant on one product, which may be two up or two down in any one period. Having said that, we've just spent the last 20 minutes discussing our expectation and our confidence level in promotional activity in the largest market we're in. A little early in the year to really step out and raise the forecast. you know, as I said, until we see some indication of larger promotional activity in the North American market, just too early to adjust the forecast. We'll get a chance to do that again in July if we have to. Great. Thank you. Thank you. Thank you. The next question comes from the line of Phil Ng from Jefferies. Your line is now open. Hey, guys. Hey, Tim. Sorry, I missed the parts of the first part of the call. I had some technical issues. Did you give us an update on your outlook for volumes for the various markets for 2023? You sound optimistic, but obviously volumes are a little softer to start the year. How do you manage that risk? I know so 3Q last year was a big surprise in terms of how demand kind of fell off and we had, you know, excess inventory and costs. Like, how are you kind of better managing that, you know, in a very choppy demand backdrop? Yeah. Listen, Phil, the first thing I'll say, not to be defensive, but I'm gonna be defensive. Volume in the third quarter fell off, but it fell off for the entire industry, not just for Crown, right? I don't think we're the only- No. 100%, I agree. We aren't the only guys to misunderstand that. Having said that, well, if I sound optimistic, okay, optimistic is. As we said earlier, optimistic is different than confident. I'm optimistic because it'd be very difficult to run a business if you weren't optimistic. There are too many good people in the organization working too hard and doing too many good things and our customers are some really good people that are promoting their products and doing some really good things. You always, you always remain optimistic that we're gonna find the right formula between price and volume, and we're gonna drive more volume, which benefits our business, and the customers are gonna find a way to mix the price and volume to drive their business. The year is not without risk, as we just said to the last question. Why haven't we raised guidance? Well, because the year is not without risk. I think, as I said, I think we expect In Asia, we expect the market to turn the corner late in the second quarter into the third quarter. I think Brazil, fortunately for us, the customer bankruptcy that occurred happened at the end of March, so they'll have the winter months that are typically the slower selling months to work through their issues, their pre-petition and get everything resolved before they get into the heavier requirements that they may have in late in the third quarter, fourth quarter ahead of Carnival. That's helpful in Brazil, and I think we have a pretty well-balanced portfolio in Brazil. We have a variety of customers. We're not weighted towards one customer. We're still confident in Brazil. We're gonna have a year-over-year increase in Brazil. Europe, I think we're gonna start to see volumes firm up. It was exceptionally weak in January and February. It got a little better in March, but albeit still down. I think Europe, we're gonna start to see customers pulling more volume and we'll get into the summer tourism season, and we should do quite well. brings us back to North America, which is the one that you all care so much about and focus on so much. listen, I said earlier, we're in a flat market, we're up 10%. I could You know, I drive a pretty old car, but I'll bet my car on that. If the market's not flat, we're not gonna be up 10%. we'll see where the market takes us. We're gonna do better than the market, but that doesn't give me any great comfort. I'd like to see some promotional activity. we'll see. I think it's just too early to say what the fillers are gonna do with promotions. we'll know better in a few weeks. Okay. That's really helpful. From a cost standpoint, you called out $60 billion still ahead headwind in 1Q. Is that largely flushed out by 2Q? I know late last year you had some high-cost inventory in the international markets for aluminum. Just wanna make sure if that's flushed out at this point in the year as well. I mean, obviously, anything that was left in Europe got flushed through with the repricing of contracts, and you saw those numbers looking better than Q3 and Q4 last year. Asia probably had a handful in the first quarter, but that's done. Then we still probably have a handful in the other businesses, the North American tinplate businesses, which will come through here in the second quarter, and that'll be behind us. Okay. All right. Thank you. Appreciate it. Thank you. Thank you. The next question comes from the line of Gabe Hajde from Wells Fargo Securities. Your line is now open. Tim, Kevin, good morning. Good morning, Gabe. I wanted to dial in to Brazil, I guess first. You mentioned up 23% versus down 25 last year. Let's call it you're kind of back to flat-ish. I Well, I said the market was down 25. I think we were down 20 last year. Up 23 this year, so, you know, more or less in line with two years ago. You're right. Okay. We have this customer issue down there. It seems like most of your customers are still pushing a decent amount of price, at least from what we can ascertain, and the consumer is a little bit pressured. I wasn't clear, Tim, about your expectations, I guess, for the market down there. Do you see that evolving? I appreciate that we're really talking about September, October summer selling season and what your customers choose to do. Is it possible that we have two consecutive years of down demand in Brazil? Or Sure. Anything's possible. I mean, you're in an environment where unemployment and inflation are high and interest rates are high and anything's possible. You know, I think, you know, our estimate for Brazil is they're up, they're up a couple percentage points for the full year, which means sequentially, as we go through the year here, they'll come off the large increase in Q1 and be a little lower. I think we were up much more than the market in Q1. That, that has to do with mix of customers versus specifically being weighted to one or two customers as some of the others were. I think, you know, in total, you know, we still expect to be up in Brazil. The market will be up a couple percent, 2%-3% in our view at this point. We should be up more than that. Anything's possible, Gabe. I mean, it's a growing market and it's a big market. We and others have done exceptionally well over time there, and we remain invested, and we continue to expect that market will do well in the future. Is there anything unique to Crown'sSystem, again, depending on whatever the outcome is with this one specific customer that would make you advantage or disadvantage to service other customers down in Brazil, to capture that growth? No, listen, I think most of the business in Brazil is under contract. I don't really want to describe the other guys, but what I said is we have an exceptionally well-balanced customer portfolio in Brazil. To the extent that, if the customer who filed bankruptcy loses a little bit of volume and it gets picked up by others, we'll get some share of the other that the others pick up. We'll lose some share of what the bankrupt customer loses in the marketplace, and we'll pick up some share of what the others pick up. I don't. You know, in our forecast, as I said in the prepared remarks, we did adjust our full year sales forecast in Brazil and income accordingly to account for the customer bankruptcy and for what we believed is a reasonable time for them to work through their issues. We'll lose some and we'll pick some up. As it relates specifically to that customer pluses and minuses, maybe we're a little bit on the minus side, but we still expect to be up more than the market for the year. On Transit Packaging, you talked about having other diversified businesses. You guys crushed it relative to our model. The $60 million of cost out that you talked about, you're still on track for that apparently or are you ahead of that pace a little bit here to start the year? Could you be a little more specific on the volumes? I think you talked about pruning some lower margin business and something to the effect of volumes were down commensurate with that. I wasn't very clear. Yeah. I think I don't know if we said it. We probably, we probably realized $10 million or $12 million of the $60 million last year. Let's say we get another $40 million this year, and maybe there's a little bit $5 million or so spills in the next year. We are well ahead of our target to get the full $60 million. That's going exceptionally well. Combined with that, we went through a process to reorganize those products which we believed were the products we wanted to sell versus just trying to make everything for everybody. I think if volumes were down 10%-12% in Q1, I'd say a third of that was due to pruning of customers and SKUs, and two-thirds of that was market. Thank you. Thank you. Thank you. The next question comes from the line of Anthony Pettinari from Citigroup. Your line is now open. Hi, it's actually Bryan Burgmeier filling in for Anthony. Thanks for taking the question. Yeah, maybe just big picture, you know, it seems like the theme of this call has been, you know, volume's a little bit worse than expected, and you called out the customer issue in Brazil. Maybe what are some of the better than expected items that have allowed you to reiterate the guide for the full year? You know, is it solely the 1QB? Is there maybe a little bit of upside to Europe? If you can just maybe hit on some of those big picture things that allow you to keep the guide. Yeah. Bryan, that's a good question. You know, whether in the prepared remarks or to this point in the call, if we haven't made this clear, I apologize, but we are doing much better in Europe in Transit, not only in the first quarter, but our outlook for the full year for Europe in Transit better than we initially anticipated when we put the budget together and communicated to you in February. We've obviously adjusted, as I said earlier, our sales forecast for Brazil, and a bigger slowdown in Asia than we expected. There are offsets as well as we've made a little hedge in our internal guidance as relates promotional activity here in North America. I would say all of the negatives are If Kevin doesn't give us all COVID, we'll be talking to you again in July. Kevin's doing his best to try to kill us here. I apologize for that. All of that, all of the three negatives that I described more than offset by the improved results that we see continuing in Europe in Transit over the original forecast. Got it. Yeah, thanks. That's really helpful. Maybe just zooming in on Europe a little bit. You know, you mentioned volumes have been firming up. You know, I think on the last call, you said margins for 23 could get back to half of the 21 level. Is there a new target that we should have in mind? Is it maybe it's too early in the year to update that? No, it's not too early, and I knew somebody was gonna bring this up and, so why don't we, why don't we say instead of halfway back, why don't we say 75% of the way back? We're gonna do a lot better in Europe than we initially anticipated. The team did an exceptional job. Got it. Again, as I said earlier and, not to sound whatever it sounds like, but, the goal is to. We gotta make money, right? The goal is to make money, and the only way to do that is to properly price. I think the team did an excellent job redoing the contracts and, it's important that they were redone. We're putting a lot of money into the system into Europe and into the Americas to support our customers' growing needs in the future. We need to make sure we're healthy enough to do that in the future, and I think the team did an excellent job. Got it. Thanks, Tim. I'll turn it over. Stay safe. Thanks, Bryan. Thank you. The next question comes from the line of Michael Roxland from Truist Securities. Your line is now open. Thank you, Tim, Kevin, Tom. Hope you're all wearing masks appropriately. Just one quick question, Tim, for you. Do you mind talking about the competitive landscape? Have you seen any increased pricing actions, maybe discounting, maybe from some of your larger private peers, particularly as their balance sheets have become increasingly stretched? Well, I think you're specifically talking about 1 competitor only. Although you could consider the other one a private company as well, even though they're public. I think, you know, the one company is used to operating with leverage. The other one, the more private one that you're alluding to, is used to operating with far less leverage, and they've communicated that they wanna get their leverage down. You know, as we said to you in February, I believe we said to you in February, so much of the business is under contract for the next several years. We don't see large pricing risk over the next couple of years. Albeit, you know, the marginal business is obviously going to become more competitive as the market is a little bit slower than it was two years ago. We'll just see where that takes us. Gotcha. Can you any way quantify, like, when you say that marginal business become more competitive, how much of your book roughly is that marginal business? Or just broadly, a rough percentage just to get a sense of if so much as 85%, 90% under contract and 10% qualify as marginal, that could become more competitive. Yeah, I think That's, you know, without getting too specific, that's not too unreasonable. Okay. Gotcha. Appreciate that. Just one quick follow-up on the bankruptcy issue in Brazil. Just can you provide some more color on that customer and what gives you the confidence that you should be able to recoup most of their receivables that you have outstanding with them? We have registered collateral in one of their large new breweries, land and building. I don't, you know, I don't really wanna talk about what the customer's going to do via they haven't filed their plan yet. You know, a variety of things can happen when they file their plan. They can try to run the business as is going concern. They can sell one or two breweries. They can sell the whole company. There's a variety of things they can do. We believe that large new brewery where we have collateral is a brewery that they or somebody else will be more than happy to run and make beer in, so. Our hope is that they remain an independent going concern and we have a broader, you know, customer base that we continue to supply in the market. We'll see where it goes. I think from a collateral standpoint, as I said, we have comfort where we sit right now. Got it. Thanks very much, and good luck in the balance of the year. Thank you. Thank you. The next question comes from the line of Angel Castillo from Morgan Stanley. Your line is now open. Hi. Thanks for taking my question. Just wanted to follow up on the strength that you're seeing in Transit. In particular, you updated on, you know, what you're seeing now in Europe and how that maybe has impacted your outlook. For Transit, I think you had talked about mid-I, I think, was your improvement year-over-year in terms of earnings. Could you just update us on what that kind of looks like based on the strength that you're seeing for 2020? You're talking about Transit in total or specific to Europe? Transit in total. Sorry. Okay. I'm sorry. The only thing I was gonna say is Europe is a smaller part of the business. I think currently what we're seeing is commodity volumes a little softer. I think we still expect commodity volumes to pick up off of easier comps when we get to Q3 and Q4. Equipment volumes currently pretty strong. The order book is still really healthy, more than 1 year sales in the backlog. The tools are a little soft right now, but we expect that to pick up. That's the volume picture. I think the more important thing is we're well ahead of plan, as I said earlier, on the cost out. From a, you know, material margin standpoint, we're managing very well raw material inputs and pricing to the customer. The business, you know, Angel, I'm glad you brought it up 'cause the business largely described by many as cyclical. Some of the end markets it supplies are no doubt cyclical. This business is so diverse, it's remarkably stable. With the exception of the COVID year in 2020, if you adjust for currency with almost no capital invested each year, this business have been remarkably stable since we acquired it. This year will do quite well. My sense is that, if you, if you adjust for currency and the divestiture of the business that we had last year, that by the end of this year, we're up 10% over what the income was two years ago. It's that's adjusted for currency. Obviously, currency has an impact. I think, you know, the business is stable, and the cash flows that it generates are remarkable for the level of capital required to be invested. It's a contributor to the company. It's a contributor to delevering, a contributor to return of cash to shareholders. I think we're really positive in where the business sits today. We've got a new management team since last year in the third quarter, and, a lot of changes, and I think there's, more improvement that we can make in the business. Very helpful. Thank you. Just wanted to touch on capital allocation. Given the amount of uncertainty and how much maybe hinges on what happens in the second half, I recognize there's maybe some limitations as to what you can say. I think in the past, you've talked about levering and perhaps returning cash to shareholders once you get into that 3-3.5 kind of net leverage range. Given the uncertainty, would you want to be more solidly kind of at the lower end of that or, once we reach the 3.5 turns, should we anticipate that free cash flow will start to flow through to buyback and return to cash shareholders? How are you kind of thinking about that from a risk standpoint? I think that, I think given where the financing markets are generally, and that means the rate of what it's gonna cost us to refinance, coupled with an incredible number of issuers that have to refinance over the next couple of years, that we'd be well served to be towards the lower end of that range that we've previously discussed. I think Kevin may have said in his prepared remarks that we're gonna apply cash generated this year to delevering, and we'll pick up next year and see where we go. We do have a bond that comes due in September of 2024. Having said that, we can meet that with internal cash flow. When you think about the refinancing towers that we and others have over the next couple of years, it would be prudent to be at the lower end of that range. That's one answer. The other answer is that based on where interest rates are today, the accretion dilution analysis is much closer on paying down debt versus buying back stock than it has been in the past when rates were well below historical norms. Very helpful. Thank you. Thank you. Thank you. The next question comes from the line of Kyle White from Deutsche Bank. Your line is now open. Thank you. Good morning. Thanks for taking the question. I think last quarter, the beverage cans business, you were cycling through some lower cost absorption, in some of the regions given planned inventory reductions. I think it was mostly in Europe and Asia Pacific. Is this behind you or do you have inventory levels now where you would like? I think with the exception of Asia, we're where we'd like to be. As we described earlier, Asia came out of Chinese New Year. The customers came out with far too much filled good inventory, and we still have a little bit too much inventory in Asia that we're working aggressively to bring down. There will be some absorption shortfall in Q2. It's why I earlier said that Asia, we expect to be more or less, well, I don't want to say on top of, but more or less close to last year in total for the year, but weighted towards the back half of the year. Got it. That makes sense. In North America, just how is the ramp-up of Martinsville going? as well as the expected start up for the Nevada plant. more importantly, how should we think about absorption costs and utilization after those plants are fully ramped? Do you have the volume throughput for these plants in your overall network, or do you need to see some underlying market growth in the United States to fully absorb it? We had an excellent startup in Martinsville. I would say, with the exception of the startups we've had in Brazil historically, this might have been one of the better startups we've ever had. Mesquite is still on schedule to start up, line one in July. We need Mesquite to start up well because we have a fairly large customer commitment in the Southwest, that we would prefer not to be freighting cans all over God's green Earth to get them there. That'll be quite helpful. We do have, as others do, a little slack in the system right now, as we always do, we balance where we make cans based on the cost per 1,000 and where the customers need cans. As I said in the prepared remarks, we are well-positioned to support our customers' needs, and that's the number one goal, to support our customers' needs. I would say that over the last several years, we were running far too tight and far too exposed to any one problem in the system that could have happened that would've caused us to not meet a customer requirement. We have the luxury right now of having a little bit of slack, as perhaps some others do, the number one goal is to make sure we're prepared to satisfy and serve the customers through the summer months. I think we're there. Got it. Thank you. I'll turn it over. Thank you. Thank you. The next question comes from the line of Arun Viswanathan from RBC Capital Markets. Your line is now open. Great. Thanks for taking my question. I guess first question is just on volumes. When you think about, you know, say, being maybe up 10% this year in a flat market. When you look out, I guess, in the beverage can markets in general, do you, do you now view them back to historical levels, say 1%-3% growth, or is it 2%-4%? Considering it would be maybe 2%-4%, do you expect that your volumes in 2024 would be kind of within that range, or would you be down just given the tough 10% comp that you face in 2024? Thanks. Starting with the premise that the market is flat this year and we're up 10. I think we'll also be up. I do agree with you that we're gonna return to, I've been more saying this than everybody else for the last couple of years, that eventually we're gonna go back to history, right? I think we'd be quite happy with a 120 billion can market if it grew 1%-3% every year. That's the business we're used to. We know how to run a business like that. We know how to keep our costs down to drive more value in a business like that. While it's not exceptional growth, it doesn't require any capital. We generate a lot of cash. We pay down debt and return it to shareholders. It's an old tried and true model that works real well. We're okay with that. I think that using your numbers, if we return to a 1%-3% growth market in 2024, we'll also be up more than that in 2024 because of the Mesquite plant and some of the new business we have in the Southwest. I'll leave it at that because I don't really know where we're gonna end this year, what promotions are gonna look like this year, and then what our customers might say about, depending on how this year ends, what they might say about what their promotional intentions are for 2024. Okay, thanks. Just also another longer term question on free cash flow then. Assuming that you are in a, you know, kind of more modest growth environment, 1%-3% going forward, what does your CapEx kind of revert to normalize? Does the $900 come down to, say, $700? Then, No, we've already said in February, and we reiterated it today, that we believe CapEx next year is $500 million. In a market with 1%, 2%, 3% in North America and maybe the same in Europe, we have a platform that we believe is sufficient right now to support their growing and diverse needs over the next couple of years. The only growth capital we would see in the system would be some smaller expansion projects in Asia if they are warranted. $500 million would be next year's number. You know, as we sit here today, I would expect $500 million. Way too early to give you a number for 2025, but it's hard to understand how it would be more than that in 2025. Sure. Just to clarify, that would imply that free cash flow is closer to $900 million, and plus as you move forward. Is that right? Well, all else being equal, yes. Perfect. All else being equal. Arun, the one thing to note, we have $100 million of inflow in this year's number from working capital. Clearly that's not something we'll get every year, but your number is not far off. Okay. Got it. Thank you. Thank you. Thank you. The next question comes from the line of Adam Samuelson from Goldman Sachs. Your line is now open. Yes, thank you. Good morning. I wanted maybe it was in follow-up on that last question on market growth. I think previously you talked about a potential for a mid-single digit global market growth this year. Sounds like you might be erring kind of lower on that at this juncture, but could you help just frame kind of how you think about a global market at this point? I think that, given the challenges we see in one of the specific Asian markets, Cambodia and Asia getting off to a much slower start than we had initially anticipated, you know, we probably bring our overall growth. Even if we hit, let's say the U.S. market is flat and we're up to 10%, even if we hit 10% in North America, we're gonna be closer to flat to 2% for the full year based on some of the slowness we've seen starting in Asia and even the early slowness in Europe. That's correct. Okay. That's helpful. Maybe just following up on Transit, you know, obviously the strong start to the year and cost driven kind of offsetting some of the volume and market issues that you talked about. How do we think about as you get through some of these kind of more significant cost actions and they layer through the system this year, backlog on the equipment side and visibility to volumes kind of returning to growth in 2024? Just what are you seeing in the forward-leading indicators in that business to help think about the growth trajectories where some of the more significant cost actions aren't as big of a tailwind again? As I said earlier, you know, the business is far more diverse than most people understand. It's not as cyclical as people wanna discuss. The end markets might be, but the business is not. I think we'll have a cost structure now that I think we've got some proper manufacturing management techniques into the business. We've got a cost structure that's exceptionally competitive. You know, the economy's gonna make the turn at some point, whether that's early 2024 or mid-2024. You know, I'm not an economist, but business exceptionally well positioned to benefit from the economic turn. I think that, you know, one of the benefits we're seeing in that business right now is with things slowing down a little, some of the supply chain issues that we've struggled with in the equipment business over the last couple of years are starting to ease, which is allowing us to do a couple of things. Obviously, complete orders and get them out the door, but reassess our own supply chain to further protect ourselves from stresses in the future. You know, as I said earlier, we're for a business where we invest no money, we're exceptionally positive on the outlook for the business. Okay. I appreciate that color on that. Thank you. Thank you. Thank you. you. The next question comes from the line of Jeff Zekauskas from J.P. Morgan. Your line is now open. Thanks very much. Your accounts payable dropped $450 million sequentially, which is unusual for the first quarter. What's behind that? Are your payables and accrued liabilities higher by the end of the year-over-year or lower? Can you talk about that line? Two things behind that, one of which is the cost of raw materials are obviously lower right now than they were last year. As we're bringing materials in to prepare inventories for the season, they cost less, and then therefore, the payable is less. The other thing, we've been working real hard to bring inventory levels down, so we're not ordering as much as we would have ordered last year. We're far more cautious on the outlook and what our customers are telling us for the outlook than we were at this time last year. The cost and the actual level of inventory is therefore the purchases we're making far lower than we would've been making at this point last year. The value of inventory and the level of inventory even lower, trying to drive it lower than where we finished the year at the end of December. By the time we get to the end of this year, some of that will be depend on pricing in the market for raw materials as well as our outlook for 2024, specifically Chinese New Year throughout Asia and Carnival in Brazil, as those markets are more weighted towards, you know, our winter months than the typical northern hemisphere markets. What I should take away from your comments is that that's a representative number for the year. Maybe it's a little bit higher, maybe it's a little bit lower, but given where raw materials are, you know, that's where your payables and liabilities are running. Yeah. I mean, it might tick up a little bit. We're trying to drive inventory values down to take risk out of our system. We and others carried far too much risk into the third and fourth quarters last year as sales did not materialize. We're very focused on not carrying that risk anymore in the future. We're gonna be a little bit more cautious as to how much we carry. Great. Thank you so much. Thank you. Thank you. The next question comes from the line of Cleve Rueckert from UBS. Your line is now open. Hey, good morning. Thanks for getting me in here at the end of the call. I appreciate it. I just have two questions. I'll ask them separately 'cause they're not really very related. You know, just to start off, I wanna be a little bit more direct about the guidance and all the, you know, discussion that we've had around promotional activity. If that promotional activity does not materialize, is the guidance range still achievable? The range is achievable. That's why, I mean, it's a pretty wide range. I think if you the top end and the bottom end, there's probably, like, $70 million of swing in there. As I said earlier, even with, you know, optimistic as opposed to extremely confident in promotional activity, even with that, with the outperformance against original target in Europe and Transit, it will more than offset some of the internal caution we've placed against what we see as perhaps less or delayed promotional activity from where we would have liked to have seen at the beginning of the year. The range is achievable. Yeah. Thanks for that. I just wanted to make sure that was clear. I mean, I sort of got some tidbits of conservatism. It's pretty clear that promotional activity would represent upside to the plan for the balance of the year is what I'm getting. Well, it would present, you know. The high end of the range. It would. Yeah, it would represent the high end of the range. Maybe it ticks a little higher than the high end of the range. Let's just stay within the range. Yeah. Okay. All right. That's, that's clear. I just wanted to be a little bit more direct and explicit about it. You know, just looking a little bit longer term, and this is a question that's come up with sort of our conversations with the industry and investors over the past couple of weeks. I'm just wondering, you know, like, bigger picture, whether you're seeing your customers' filling capacity investments keeping pace with that 30% capacity increase that you were talking about over the last 3-4 years, or whether, you know, some of the investment that's required to absorb that capacity is being delayed such that you know, not on purpose necessarily, but it's just fading your investment a little bit, such that, you know, you would have a longer tail of growth to absorb some of the, you know, slack in the system that you're experiencing. I mean, I don't want to speak too much towards our customers. Our customers have more than enough capacity installed to meet. Let's just say that the North American beverage can market has about 130 or 100, you know, whatever the number is, somewhere between 130 and 135 billion cans of capacity. Maybe it's 128 or something. Our customers have more than enough can filling capacity installed in their plants to absorb that. The can companies run 24/7. Most of our customers do not run 24/7. They run 5/2. Listen, if they had to dial up more shifts, they could dial up more shifts to fill more product. That's not the issue. Yeah. Okay, all right. It's really a more of a market question than anything structural or, you know, investment. Yes. Yeah. Got it. Thank you very much. Appreciate it. You're welcome. Thank you. Marcia, do you have any more questions or is that it? That's all for the questions. Speakers, you may proceed. Okay. Okay. Well Yep. Thank you, Marcia. That, I guess that'll conclude the call today. Thank everybody for joining us, and we'll talk to you again in July. Bye now. Thank you. Thank you. That concludes today's conference. Thank you for participating. You may now disconnect.