I think overall, the estimates we gave you earlier for those businesses, certainly Mexico glass in line with the earlier estimate and the other businesses, I think by the time we get to the end of the year, if we’re not right on target of where the budget was, we’ll be within a few million, so.
Mike Leithead: Great. That’s super helpful. And just a quick clarification, the facility fire impact, was that contained to the first quarter? Is there any lingering impact as we continue into 2Q here?
Kevin Clothier: Mike, that’s contained in the first quarter.
Mike Leithead: Great. Thanks, Kevin.
Kevin Clothier: Thank you.
Timothy Donahue: Thank you.
Operator: Thank you. Our next question comes from the line of Adam Samuelson of Goldman Sachs. Sir, your line is now open.
Adam Samuelson: Yes. Thank you. Good morning, everyone. Maybe following up on some of the earlier questions, just trying to think about the full year, and you give it first quarter 102 [ph] that you’ve given the guidance for the second quarter. It implies a pretty decent step up in the second half. EPS versus the first half, which, based on the company’s recent history, is less common. And a lot of the bloodline items don’t seem to be a big mover either way. Just trying to think about the businesses that are going to be notably stronger in the second half versus the first half that would drive that uplift and transit, I appreciate, can be a part of that based on the framing, but it wouldn’t seem to explain the full magnitude. So can you just help me a little bit on the strength implied in the second half of the year at the EPS level versus what you’re implying for the first half?
Timothy Donahue: I think the big mover in the second half this year versus the second half last year would be Europe.
Adam Samuelson: Well, I appreciate year-over-year, Europe will be up a bunch, but I’m thinking second half versus first half, and seasonality wise, your business doesn’t have that seasonality historically, kind of halves versus halves as clearly.
Timothy Donahue: Well, I mean, the third quarter is always bigger than the second, and traditionally the fourth quarter is always bigger than the first. And so I, without going back and looking at what specifically happened in prior years, I do remember we had a huge destocking in Europe last year in the fourth quarter, and we don’t anticipate that this year. So there’s going to be a, we believe, a large step up in Europe in the second half of this year versus the second half of last year, principally around what was a very weak fourth quarter last year.
Adam Samuelson: Yes. Okay. I mean, let’s take that offline. I appreciate the year-over-year point and then maybe following up on transit and just some of the better market environment in the second half of the year. Is that based on orders and a book-to-bill that is now above one, or is that just thinking that your freight customers are talking about better freight demand in the later part of the year? What gives you the confidence on the improvement in transit?
Timothy Donahue: Well, as I look at the first quarter performance, the protective businesses, which largely serviced the trucking over the road intermodal businesses was down. Equipment slightly down, but offset by tools and service. Steel strap up a little, plastic strap down a little. I think if you look at the commentary from the trucking firms, the trucking firms are all talking about very strong fourth quarter and they’re talking about being fully contracted or more heavily contracted in the fourth quarter than they are right now. So that gives us a little bit of confidence as relates our protective products businesses. We don’t see anything on the equipment or tooling sign that would give us any pause for concern as we sit here today.
Adam Samuelson: So that’s all very helpful color. I’ll pass it on. Thank you.
Timothy Donahue: Thank you.
Operator: Thank you. Our next question comes from the line of Gabe Hajde of Wells Fargo Securities. Sir, your line is now open.
Gabe Hajde: Tim, Kevin, Tom, good morning. Tim, I’m going to try to take a stab at a high level question for you in the bev can business. During the pandemic, obviously it was about getting product on the shelf and servicing your customers. Post-pandemic, obviously there’s been some facility rationalization. You guys are obviously one of the bigger global players that are in Asia-Pacific. But my question is, we’ve had a couple of customers kind of move around choosing different suppliers. Again, historically speaking, you guys have won and lost with your customers. I’m just curious, on a go forward basis what your expectations are. I mean, talked about being mid-90s utilized in North America, got an announcement that there was another player here in North America, maybe a little bit bigger than what people we’re planning for.
Can you just remind us, bigger contracts that come up. Is it they renew in 2025 for 2026 or do you have something that renews for 2025? And then just from a competitive landscape and I’m really thinking about Brazil and Europe, if there’s anything that we should be mindful of thinking about.
Timothy Donahue: So North America, I would say that, as I said earlier to Ghansham’s question, we are very confident in our 2025 share as being no less, perhaps greater than where we sit today. And I’d probably tell you the same about 2026. So without commenting on customer contracts, I’ll say it that way. There’s always business that moves around in Asia. Asia with the exception of a few customers, Asia is more of an annual market. But we’re so big. We do have good coverage and good locations and high quality and service on the margin, you’re plus or minus the market. Some Brazil, Brazil is a healthy market. Brazil is going to get stronger. And I don’t think we’re overly concerned about Brazil. We have really good locations relative to most of the customers and Brazil markets looks like it might be inflecting a little bit from what was fairly poor last year or the last couple of years as glass was recovering a little, but we seem to be recovering against glass now.
And then in Europe, off the top of my head, I’m not aware of anything that gives me any great concern for next year. So there’s always, Gabe, it’s a business like any other business. There’s competition, and we’re prepared for the competition. That’s all I can tell you.
Gabe Hajde: Yes. Well, look, I mean, you talked about some of your customers value over volume, and it looks like you guys have elected to do that as you said you would. So that’s what we’re just trying to dial in on a little bit. A question about, I think I saw mandatory deposit laws going into effect, I think, in 2026 in the UK any context around that? I think Germany, and again, I know it was a completely different back pattern, but expectation for disruption, or does that tend to favor the can over time?
Timothy Donahue: Well, I think depending on which substrates are included in the mandatory deposit law. So we and others across the can and the aluminum industry working to ensure that we are not unfavorably challenged by new laws that go into place where they picked a can and they don’t pick all the other substrates, or they pick the can, which already has high recycling rates in an effort to subsidize other materials, which either don’t have high recycling rates or really don’t have any intention to get high recycling rates. So we’re aware of it. Generally, when you get deposit laws, initially, there’s a little bit of softness, but the market absorbs the, where the consumers in the market absorb it, and it returns to normal within a couple of years.
So we’re mindful of these changes. A lot of these changes are across Europe and would be good if we had one European law as opposed to a variety of them. But now, having said that, we generally are in favor as an organization, and I think as an industry, for deposits. I think as we think about the sustainability of the aluminum beverage can, I think using recycled material, we compare as favorably as any other substrate on carbon when we use higher levels of recycled content. So from where we sit, we’re very confident in the package we provide in terms of sustainability and the environment. I think you’ve now seen at least one very large global consumer products company step back their plastics reduction target. And in large part, I don’t think that has anything to do with, as I heard somebody call it pragmatism.
I think it has to do with, it was never achievable in the first place. The infrastructure is not there for plastics to be recycled at great levels, nor do the economics work for recycled plastics as they do for recycled aluminum. So, in general, we’re in favor of more recycling, and I think deposits give us more product to be recycled. We just need to ensure that it doesn’t unfairly punish the can, whereby the can pays for all the other products, which are not recycled or are not recycled economically.
Gabe Hajde: Agree. Based on our research, it looks like the aluminum can is sort of coordinating across the value chain, and you guys are doing good work there. One last point of clarification, I apologize for three questions. Asia Pacific, closing five lines, just is that, are those curtailments, or those are, in fact, uninstalling the lines? And then savings from that looks like maybe it’s $4 million to $5 million a quarter. Can you confirm that? Thank you.
Timothy Donahue: I’m sorry. What’s $4 million to $5 million a quarter?
Kevin Clothier: Savings…
Timothy Donahue: Yes. If you want to use $4 million to $5 million a quarter, that’s fine. I think we closed a plant in Singapore, which was a one line can plant with an end line. The Singapore market is a very small market, and we had used that for exports in the region as we built new plants or entered new markets until that market and the new plant was up and running. But a one line plant is really not efficient, and it’s a very high cost location. We had a plant in Saigon where the lease, the plant was built in 1993. We had a 30-year land lease. The government wanted the land back, so at the end of 2023, we had to terminate the operations, and we’re in the process of handing the land back now to the government. So, and we chose, based on where the markets are, not, to reinstall those lines currently.
And then we had another plant that also in the Saigon area, which is a combination of two companies that we purchased that we put together on the same site, and I think we probably were operating six or seven can lines on site. So we took two of the slower speed lines out just to modernize and make the plant more efficient. So…
Gabe Hajde: Thank you for the details.
Timothy Donahue: You’re welcome.
Operator: Thank you. We have our next question from Arun Viswanathan, RBC Capital Markets. Sir, your line is now open.
Arun Viswanathan: Great. Thanks for my question. Congrats on the strong results here. So I guess my first question is just around bev can growth in North America? You were up 7% this quarter, and that was off of a pretty tough comp. I think you made the comment of 0% to 2% maybe now for the year, I think. What do you think about longer term beverage can volumes, especially in North America? Do you think we have the ability to get into the 2% to 4% range as you look into 2025? I Just wanted to get your thoughts on kind of medium to longer term bev can growth.
Timothy Donahue: All right, so let me just, . apologize. Let me just take a step back and just clarify. We were up 7% in North America in the first quarter. Our estimate for our full year growth is 4% to 5%. We said the market for the year in the 0% to 2% range coming off as a flat performance in Q1. Just so we’re clear, I think that anything’s possible. I think that we’ll see where the market takes us if we get, if we return to a, a higher level of promotions. And perhaps some of the larger companies get a little bit concerned about share and they want to start promoting so they don’t lose share. They want to gain share. Then sure, we could get to the 2% to 3%, 2% to 4% range that you described. But if they’re going to stay with value over volume, we’re going to be in this 0% to 2%, 1% to 2%, 1% to 3% range.
You know there’s nothing wrong with that, right? That 1% to 2% growth that we’re describing now is coming off a base of 115 billion or 120 billion units. It’s no longer coming off a base of 90 billion units. So what I would tell you is, 2 billion units on 120. You can do the math. It’s 2.5 billion units. It’s two full can lines. So it is a new plan every year in the industry that somebody would need to put up. And as you’re well aware from, you’ve been around the industry a long time that we’re well oversold in the season. So we need to either make cans early and warehouse them, or we need to have more capacity so that we can run more balance. So I do think that even at a 2% level, especially where we’ve all been over the last 20 years, we all became very accustomed to running a flat to down business for 15 years before we had the uptick in 2019.
We all know how to do that, and it’s incumbent upon us to be responsible across the industry for our shareholders.
Arun Viswanathan: Great. Thanks for that. And then I guess, I just had another question around leverage and interest expense. So what is your longer term leverage target? I mean, would it make sense to maybe bring that down into the twos just so your interest expense will be much lower and you can see your EBITDA growth translate to nice EPS growth as well. And then just along those lines, I’m just curious if you are comfortable with the idea of pivoting to buybacks in 2025. Maybe you can just give us your thoughts on some of those issues. Thanks.
Timothy Donahue: So we haven’t changed our target range. We’re going to be at the low end of the target range. We’re pretty confident in that by the end of this year. To your point, you may be right. It may be as we think about a higher rate environment and in an economic environment where inflation, inflation could get bad again. I don’t know. We’ll see how the U.S. government does. If they got treasury auctions, they still need to sell bonds. At some point, we’re going to understand whether or not anybody wants to buy our bonds. If somebody thinks inflation is too high and they’re not getting well paid for inflation, which would tell us that if everybody else in the world believes there’s going to be more inflation, regardless of lower inflation right now, then perhaps it makes more sense for us to bring the levels down.
I do know, and you’re well aware that we have at least two competitors in the beverage can space. One, I think has leverage right around where we’re at right now. And they’ve described their long term goal, their historical long term goal in the low twos. And we have another competitor who’s probably stated they’re going to be in the mid twos by the end of this year, which would tell you that their view on rates and inflation and the economy is such that they believe it’s more prudent to bring leverage down. And so we’re mindful of that. It’s a topic we talk about with the board at every board meeting. And good question, though.
Arun Viswanathan: What about buybacks? Would that be of preference in 2025 next?
Timothy Donahue: Well, I think we can achieve both. We’re going to have significant cash flow, certainly as you pay down debt; you generate more cash flow, all else being equal. And so, yes, I mean, listen, we’ll review at the board what the uses of capital are and do they want to keep the dividend roughly where it is? Do they want to increase the dividend or not? Do they want to use all cash to pay down debt? Do they want to use some to buy back stock? You know, it’s a use of capital. Discussion we have at every board meeting. So at everything is available to the company. We have a lot of cash flow, so we’ll see what the board thinks. What the board believes is the most prudent thing to do in an environment, depending on what kind of environment we think we’re entering.
Arun Viswanathan: Got it. Thanks.
Operator: Thank you. Our next question comes from the line of Mike Roxland of Truist Securities. Sir, your line is now open.
Niccolo Piccini:
Niccolo Piccini:
Timothy Donahue: Well, I would tell you that the customer that we purchased the Mexican glass assets from, along with the Mexican can assets, the customer is core to crown. So as we think about the glass business in Mexico, we don’t think about the glass business separate from the can business. We think about the customer relationship. And I’ll leave that at that. But again, we’ve told you before, any business under the right terms and conditions would be considered as a yes or no in the portfolio. But as we sit here today, we have an excellent relationship with this global customer, and we view Mexican beverage as a business in which we service a very core customer to the global company. I think the joint ventures that we have around the world have served the company well.
