Operator: Thank you. The next question comes from the line of Kyle White from Deutsche Bank. Your line is now open.
Kyle White: 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 as well as now where you would like?
Tim Donahue: I think with the exception of Asia, we are where we would 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 are working aggressively to bring down. So there will be some absorption and shortfall in Q2. That’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.
Kyle White: Got it. That makes sense. And then in North America, just how is the ramp-up of Martinsville going and then, as well as the expected startup for the Nevada plant? And then, more importantly, how should we think about absorption cost of utilization after those plants are fully ramped. Do you have the volume throughput for these plans in your overall network or do you need to see some underlying market growth in the United States is full absorbent?
Tim Donahue: So we are — we had an excellent startup in Martinsville. I would say, with the exception of the start-ups we have had in Brazil, historically, this might have been one of the better start-ups we have ever had and Mesquite is still on schedule to start up Line 1 in July. So, and 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. So that will be quite helpful. We do have — as others do a little slack in the system right now and so as we always do, we balance where we make cans based on the cost per 1,000 and where the customers need cans. But as I said in the prepared remarks, we are well positioned to support our customer’s needs, and that’s the number one goal to support our customer’s 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 have 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. But the number one goal is to make sure we are prepared to satisfy and serve the customers through the summer months, and I think we are there.
Kyle White: Got it. Thank you. I will turn it over.
Tim Donahue: Thank you.
Operator: Thank you. The next question comes from the line of Arun Viswanathan from RBC Capital Markets. Your line is now open.
Arun Viswanathan: Hey. Thanks for taking my question. I guess first question is just on volumes, when you think about, 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 now view them back to historical levels, say, 1% to 3% growth or is it 2% to 4%? And considering it would be maybe 2% to 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.
Tim Donahue: So starting with the premise that the market is flat this year and we are up 10%. I think we will also be up — if the — I do agree with you that we are going to return to, I have been more saying this than everybody else for the last couple of years that eventually, we are going to go back to history, right? So I think we would be quite happy with 120 billion can market, if it grew 1% to 3% every year. That’s the business we are 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 and it — while it doesn’t require — well, 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. So we are okay with that. I think that using your numbers, if we return to a 1% to 3% growth market in 2024, we will 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 will leave it at that, because I don’t really know where we are going to end this year, what promotions are going to 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.
Arun Viswanathan: Okay. Thanks. And just also another longer term question on free cash flow then. So assuming that you are in a kind of more modest growth environment 1% to 3% going forward, what does your CapEx kind of revert to normalize, does the $900 million come down to, say, $700 million and then…
Tim Donahue: We have already said in February and we reiterated it today that that we believe CapEx next year is $500 million and 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. So $500 million would be next year’s number and 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.
Arun Viswanathan: Sure. But just to clarify that, that would imply that free cash flow is closer to $900 million and plus as you move forward, is that right?
Tim Donahue: All else being equal. Yes.
Arun Viswanathan: Perfect.
Tim Donahue: All else being equal.
Kevin Clothier: Hey, Arun. One thing is, we have $100 million of inflow in this year’s number from working capital. So, clearly, that’s not something we will get over here, but your number is not far off.
Arun Viswanathan: Okay. Got it. Thank you.
Tim Donahue: Thank you.
Operator: Thank you. The next question comes from the line of Adam Samuelson from Goldman Sachs. Your line is now open.
Adam Samuelson: Yes. Thank you. Good morning. And I wanted maybe a 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. It sounds like you might be airing kind of lower on that at this juncture, but could you help just frame kind of how you think about the global market at this point?
Tim Donahue: Yeah. 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. We probably bring our overall growth, even if we hit, let’s say, the U.S. market is flat and we are up to 10%, even if we hit 10% in North America, we are going to be closer to flat to 2% for the full year based on some of the slowness we have seen starting in Asia and even the early slowness in Europe. That’s correct.
Adam Samuelson: Okay. That’s helpful. And then maybe just following up. In Transit, you obviously see a 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, don’t think about the growth trajectories where some of the more significant cost actions aren’t just big of a tailwind again?
Tim Donahue: Yeah. So, as I said earlier, the business is far more diverse than most people understand. It’s not as cyclical as want to discuss. The end markets might be but the business is not. But I think we will have a cost structure. Now that I think we have got some proper management, manufacturing management techniques into the business, we have got a cost structure it’s exceptionally competitive. And as the economy is going to make the turn at some point, whether that’s early 2024 or mid-2024, I am not an economist, but business is exceptionally well positioned to benefit from the economic turn. And I think that one of the One of the benefits we are seeing in that business right now is with things slowing down a little.
Some of the supply chain issues that we have 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. So as I said earlier, we are — for a business where we invest no money, we are exceptionally positive on the outlook for the business.
