Mike Leithead: Great. Thank you. And then second, just for Howard, I think you mentioned, if I heard correctly about $500 million for AR factoring unwind in 2024. I guess how much cost savings would you expect from that action? And where is that cost currently showing up in your P&L today?
Howard Yu: Yeah. So, I mean, basically we use the current spot interest rate associated with the savings. So, if you take $0.5 billion, let’s call it roughly 4% of that. And so, as it relates to the savings, we would see it come through in operating at the operating level in the SG&A line. And so that’s typically where we would see — the savings associated with that.
Daniel Fisher: And the two regions specifically building on that is where the higher cost programs are in South America and in North America, but South America even the current spot market interest rates.
Mike Leithead: Great. Thank you.
Howard Yu: Sure.
Operator: Our next question comes from a line of Edlain Rodriguez with Mizuho. Please proceed with your question.
Edlain Rodriguez: Thank you. Good morning, everyone.
Daniel Fisher: Good morning.
Edlain Rodriguez: Just a quick follow-up on the capacity closure question. I mean, yes, you have rationalized your footprint. Like, do you think the industry as a whole is where it needs to be? Like, do other industry players need to close some capacity? Or is the market balanced now given the expected recovery in volume?
Daniel Fisher: Yeah. I think the industry writ large in North America, I think is specifically your question is in a good spot, and keep in mind we’re probably holding on to the majority of the excess capacity given the beer brand. So, we’re managing that. We’re managing that on a cash basis. That’ll inflect over a period of time. But I think the industry — again, if we’re growing — if the industry is growing at 2% to 4%, I think this is a good equilibrium to operate from in terms of asset utilization and supply demand balance.
Edlain Rodriguez: Okay. And just one quick one on Argentina. We might not say again, like, what’s the exposure there? Like, how much is Argentina’s percentage of sales for the company? And do you expect people to be drinking less beer because of the currency devaluation? Or like — what are you expecting there?
Daniel Fisher: Yeah. So, the volume comment, there’s a joke in here. I would expect them to be drinking more. But in all honesty, what we’re seeing is — the beer space is quite resilient and can growth and aluminum packaging growth versus glass has been very positive over the last handful of years. Let’s see how folks get on there. But we’re looking at Argentina being essentially flattish, maybe a tick better year-over-year 2022 to 20 — excuse me — 2023 to 2024. And inflecting in the back half of the year, probably in terms of volume and into 2025. But they continue to drink beer and they continue to drink beer out of cans and I just don’t see a tremendous amount of growth or we shouldn’t be counting on tremendous amount of growth versus last year until things start to settle down a bit more there. I’ll let…
Howard Yu: Yeah. I think maybe just to go ahead and characterize the size of business for us. It’s roughly about a 1% of our operating earnings in 2023 and represents about 2% of our volume. And so, clearly, despite seeing 2023 negative volumes there in Argentina in the region, we still drove to 2%-plus growth driven by the strength of Brazil. So, hopefully that helps characterize a little bit about the size of that business.
Edlain Rodriguez: Okay. Thank you very much.
Operator: Our next question comes from the line of Phil Ng with Jefferies. Please proceed with your question.
Phil Ng: Hey, guys. You guys have been cutting on and off and I think Howard, when you gave your outlook, part of that was cut off. So, I just want to make sure I heard you correctly. So you’re guiding to $500 million of free cash flow for 2024, but from a normalized basis, that would probably look a lot better. Did you say Howard, it was like a $500 million headwind from factoring reversing and there’s some impact on the tax for aerospace? Can you kind of flush that out? Just make sure we understand what the true free cash flow of power of this business would look like.
Howard Yu: Sure. So, you’re right, Phil. I think that is correct that in 2024 we do anticipate about $0.5 billion of factoring. What that will do is essentially add back in working capital. So it’s out — it’s a use of cash in that regard. And then of the $5.6 billion total proceeds associated with the aerospace, we anticipate about $1 billion of that as a tax payment. And that also flows through operating, right? And so even though the inflow comes via investing, the outflow goes out of operating. And so I think those are a couple of the nuances associated with the year. Maybe if I just try to bridge for you guys from a 2023 standpoint, our operating cash flow in 2023 was about $1.8 billion, maybe a little north of that. Less the working capital in 2023, that’s about $300 million and let’s call it $360 million.
That gets us to a jump off point, a base of 2024 of about $1.5 billion. And then if you go ahead and take out the tax payment, that gets us to about the $500 million in free cash flow that I referenced.
Phil Ng: Okay. That’s helpful. And then on Europe, can you guys provide a little more color? The quarter is definitely a little softer from a volumes perspective. Profitability still look quite strong. How are things kind of shaping up to start the year? I think, Dan, you were kind of pointing to maybe that business inflecting positively from a volume standpoint, maybe sometime in 2Q, but just kind of give us a little more color on how things are progressing in Europe and what you’re seeing there.
Daniel Fisher: Yeah. Phil, I think you’re right. I think South America and North America ended the year inflecting favorably in terms of volume versus sort of our anticipation in Europe was softer. We started to see that at the third quarter call and signaled that, but it was even a bit softer than that. Places that we operate in that also contributed to that. I think Egypt and Turkey weren’t helpful in terms of volumes in the fourth quarter. So that was a bit of what you’re seeing in terms of a drag. Where we started the year, again, it’s four weeks. We’re a little bit better than what we thought. And we thought we’d be kind of flattish to down in the first quarter year-over-year for Europe. Right now, through the first four weeks, it’s actually a little better.
We thought that heading into peak season in the second half of next year, inflation would moderate in Europe and consumers would do a little better. I think you’ve seen a lot of retailers get pretty aggressive with CPG companies in terms of what prices they’re showing on the shelves. And I think that is that — all of those conditions should move favorably toward volume for us. So, hopefully that gives you some indication. We’re still looking for modest growth for Europe inflecting sequentially in the quarters in the back half of the year. And we might be able to do just a smidge better here in the first quarter if all of these things continue to manifest in the way they are right now that we’re seeing.
Phil Ng: Okay. Appreciate the color.
Daniel Fisher: Yeah.
Operator: Our next question comes from the line of Adam Samuelson with Goldman Sachs. Please proceed with your question.
Adam Samuelson: Yes, thank you. Good morning, everyone.
Daniel Fisher: Hi, Adam.
Adam Samuelson: Hi. So, I guess, maybe just going back to South America and I know Argentina had issues in the fourth quarter. Volumes in the segment were up 2%, profit was up 60%. And I’m just trying to make sure with FX and hyperinflation and the Argentine impact, I’m understanding kind of the magnitude of that profit growth in South America as we think about what that business will do or can do into the future if you don’t have some of those disruptive impacts by the end of next year.
