Brandon Potthoff:

Thank you, Christine. Good morning, everyone. This is Ball Corporation's conference call regarding the company's second quarter 2024 results. The information provided during this call will contain forward-looking statements. Actual results or outcomes may differ materially from those that may be expressed or implied. Some factors that could cause the results or outcomes to differ are in the company's latest 10-K and other company SEC filings as well as company news releases. If you do not already have our earnings release, it is available on our Web site at ball.com. Information regarding the use of non-GAAP financial measures may also be found in the notes section of today's earnings release. In addition, the release includes a summary of noncomparable items as well as a reconciliation of comparable net earnings and diluted earnings per share calculations. References to net sales and comparable operating earnings in today's release and call do not include the company's former Aerospace business. Year-to-date net earnings attributable to the corporation and comparable net earnings do include the performance of the company's former Aerospace business through the sale date of February 16, 2024. I would now like to turn the call over to Dan Fisher, CEO.

Howard Yu:

Thank you, Dan. Turning to our results. Second quarter 2024 comparable diluted earnings per share was $0.74 versus $0.61 in the second quarter of 2023. Second quarter sales were influenced by the pass through of lower aluminum prices as well as lower volumes in South America, offset by increased volumes in North America and EMEA as well as favorable price/mix in South America. Second quarter comparable net earnings of $232 million were up year-over-year, primarily due to strong operational performance, including improved year-over-year performance in North America, EMEA and South America, lower corporate undistributed costs and lower interest expense. In North America, segment comparable operating earnings exceeded our expectations and offset year-over-year headwinds associated with the US beer brand disruption. Benefits of effective cost management and plant efficiencies across our well capitalized plant network will continue to support incremental volume growth. We continue to anticipate year-over-year earnings improvement during the second half of 2024, driven by improving operational efficiencies, lowering cost and effectively managing risk. In EMEA, overall segment volumes were up stronger than anticipated. Recent demand trends remain favorable and the business continues to be poised for year-over-year comparable operating earnings growth throughout the remainder of 2024, driven by improving operational efficiencies and volume growth. In South America, our segment volumes decreased 3.2%, following a strong first quarter where volumes increased 26.3%. During the second quarter, consumer conditions in Argentina deteriorated further, though we appear to be beyond the most difficult comparisons given the timing of Argentina's 2023 slowdown. Despite these challenges, strong demand in Brazil of mid single digit volume growth and our customer mix continue to drive our business. We continue to monitor the dynamic economic situation in Argentina and potential scenarios that could impact results. We remain optimistic about Brazil and our ability to deliver sequential earnings and volume improvement as we enter the summer selling season in South America. Moving on to additional key financial metrics and goals for 2024. Very consistent figures to those provided during our first quarter earnings call and June Investor Day commentary. We continue to anticipate year end 2024 net debt to comparable EBITDA to be below 2.5 times. While we are currently at 2.3 times at the end of the second quarter, net debt to comparable EBITDA may nudge slightly higher by the end of the year as the company continues payments of taxes due on the gain from the sale of the aerospace. 2024 CapEx is targeted to be in the range of $650 million, a year-over-year reduction of $400 million and largely driven by carrying capital related to prior year's projects. We are on track to achieve our adjusted free cash flow target. And share repurchases are expected to be in excess of $1.4 billion by year end. Through today's call, we have repurchased approximately $800 million in shares year-to-date. Our 2024 full year effective tax rate on comparable earnings is expected to be approximately 21%, largely driven by lower year-over-year R&D tax credit associated with the sale of the company's aerospace business. Relative to the estimated tax payments due on the aerospace sale, the first payment was made during the second quarter and the remainder of the approximately $1 billion in taxes due will be paid throughout the second half of 2024. Full year 2024 interest expense is expected to be in the range of $300 million. Excluding the noncomparable aerospace disposition compensation costs, full year 2024 reported adjusted corporate undistributed costs recorded in other non-reportable are expected to be in the range of $90 million. And last week, Ball's Board declared a quarterly cash dividend. Looking ahead to the rest of 2024, we remain laser focused on operational excellence, driving efficiency and productivity across our business, cost management and monitoring emerging market volatility. We are committed to maximizing the full potential of our company over the long term. We have executed on derisking the corporation through recent debt retirements and we have no significant near-term maturities. The runway is clear for us to activate near term initiatives to consistently deliver high quality results and generate compounding shareholder returns. With that, I'll turn it back to Dan.

Operator:

[Operator Instructions] Our first question comes from the line of Ghansham Panjabi with Baird.

Dan Fisher:

I think a little bit of it. As we were transitioning out of Q1 into Q2, we were starting to see some relief, some inflation relief. So the end consumer was strengthening in pockets and couple that with a little bit more aggressive pricing by some of the customers that I would consider that we're in a more of a partnership relationship than just a customer supplier relationship. And so we benefited a bit from mix. I think this is something going on over here consistently now and I was saying it all year, it's like winners and losers or if you're a little ahead of the market, a little below, it probably has more to do with mix region by region right now than it does with winning or losing contracts in many respects. And we have the opposite mix in Europe that we do in the US where we have a heavier CSP -- heavier energy portfolio over there than when you contrast that to our North America, which is heavier on the beer side. And so we benefited from it in Europe. We anticipated some good pull through on the euro competition. It's interesting. We were actually ahead in Europe and there was some pretty crummy weather in the Nordics, in the UK and Ireland and places like that, and it's ahead of the holiday season, which can really give you a bit more of a tailwind. So it was a surprise on multiple fronts, incremental surprised, not a significant surprise. We continue to -- and you've heard us say this, we continue to be very bullish on Europe over the medium and long term just because I think the can has a lot of runway there. But some nice signs that folks are fighting for some volume there probably -- maybe even more so than they're doing in places like North America, and we benefited from mix there and expect to continue to do well there for the balance of the year and in the foreseeable future.

Dan Fisher:

It is -- I mean in the US, I think the US is different than the rest of the world. It's a pretty stark contrast. You even see it in one of the major brewers, they're growing at the high end brand and they're growing at the low end brand. It's kind of the premium light beer segment, that's the one that folks are trading down from. But we've seen this now Ghansham, for like 18 months. It's like we've been living this and that's kind of -- candidly, that's why we've been adjusting our cost structure, we've been doing different things with the operating model. You see things like slower growth in -- you see things like slower growth at the energy drink level. This is signs that you see this in the past, this is when you're kind of touching the bottom end of kind of these recessionary points and the health of the end consumer. So we're operating in that environment. We're still growing and we're making more money. So that all feels good. If you get a little -- if you get an interest rate cut, you're potentially in September and a little bit more clarity on the election, all of those things tend to translate into a bit more optimism probably from us and our competitors based on where we are, because to your point, I don't see a lot more downside on the end consumer. We've been living it though for about 18 months. So we've seen the trade downs and then we've seen the less frequent purchases. And I think what you're also hearing as a result of that is from our customers and from certain categories in certain segments, they're going to have to address that via different pricing mechanisms to drive volume. So I think we're kind of -- we're in a good spot relative to that, believe it or not versus how we've been operating in the last 18 months as an industry. So I'm a bit more encouraged than pessimistic.

George Staphos:

I just want to pick up my first question, piggy back on topic Ghansham raised. So at this juncture, are your customers talking about doing more incremental net promotion price reduction, et cetera [indiscernible] variable end market, or do they see kind of the next way to grow out of this really on innovation? And kind of the context, if we go back not quite 10 years ago but sort of post Rexam, especially in alcohol, there was a lack of volume growth and it was innovation that drove growth, at least in part. At this juncture, innovation comes at a higher price. Is this the wrong time to drive innovation? So really the only way to deal with this to drop price and raise promotion, how are your customers thinking about that? And what are you doing to help them in that evaluation?

George Staphos:

So what does that mean for your mix as you layer those two or three or pull those two or three levers that your customers do into the back half of the year, what are you seeing in terms of volume trends to start 3Q? And how do you feel about the plant network overall as it exists relative to those trends as you see them?

Operator:

Our next question comes from the line of Jeff Zekauskas, JPMorgan.

Dan Fisher:

Yes, we have more capacity. We're selling more. We have more capacity and there's additional envelope and room for us to grow capacity further.

Dan Fisher:

That's correct. Our customer portfolio on the CSD side was a benefit to us.

Josh Spector:

I was wondering if you could square kind of your short term view here around growth versus your long-term view. And just given kind of some of the outperformance here in 2Q, do you think you could start to see, call it, high single digit to 10% plus growth in EPS in the second half, considering you're starting to face some easier comps, or do you need a more favorable backdrop to really drive more of that?

Howard Yu:

Yes, that's right, Josh. We did have -- on the R&D tax credit side, we had a pretty meaningful impact in Q3 of last year. This was associated with the aerospace business and so those to the tune of nearly $40 million. And so obviously, that will make for the comps in Q3 to be a bit more challenging. But as Dan said, I think going into the fourth quarter and certainly beyond, we've said that we'd achieved 10%-plus EPS in 2025 and each year after that.

Howard Yu:

And I think just even despite the tax credit, I think that we will be up as it relates to third quarter EPS. And so that $40 million or nearly $40 million is a pretty meaningful impact. But despite that we’ll still be up year-over-year.

Dan Fisher:

I think our inventories are going to be a bit stronger moving forward, will lift a little. They're a bit too low. As you recall and this going back to Q1, we helped one of our beer partners significantly in Q1. So we kind of overshipped in one and now we're operating at lower inventory levels. So it's a rebalancing because of that for us that will settle out by the end of the year. And then I'm encouraged about kind of the trajectory of flight on a couple of the beer brands in particular. So yes, I'd say it's yet to be determined. But for us, in particular, no, we will still have some uplift in the second half of the year because we were operating so low in the first half because of some unique anomalies with uni negotiations and things like this.

Arun Viswanathan:

Good to see the results. So I guess just a couple of questions on South America. So obviously, some challenging conditions in Argentina, some volatility down there. Do you still expect a very robust second half in your South America business, especially Q4? And what gives you that visibility? I mean, I guess, again, there is a lot of volatility on there, but are there any specific drivers that you'd point to?

Arun Viswanathan:

And then maybe if I could just ask a follow-up. So I appreciate the long term comment on greater than 10% or 10% or better EPS growth. In our models, it seems like we're modeling kind of mid single digit or better EBIT growth in '25 and the rest is coming from lower interest expense and share buyback. Assuming that's correct, are you saying that you're able to maintain that level of growth in '25 and beyond. So are you kind of implying that you will continue to buy back stock and pull on some other levers other than just volume in order to the feedback level of EPS growth. Maybe you can just elaborate on what gives you the confidence that you'll continue to maintain that greater than 10% EPS growth rate?

Howard Yu:

think that's right. And Arun, we are committed to buying back shares. I mean we're increasing how much we're buying back even this year. We've talked about it in the context of over $1.4 billion that we'll get through and essentially since mid-February, since the sale of Aerospace. And so obviously, that will have a meaningful impact on the share count going into next year and we'll continue to do that as well. The other thing I think to point out and we talked about during the Investor Day is the cost savings, gross cost savings that we're going to be undertaking. We've seen great traction. You're seeing some of that readout even in the numbers this quarter. You saw some of that in the first quarter as well. And you'll continue to see that well into 2024 and into 2025. And so there's no reason to expect that we're going to deliver anything less than 10%-plus, and probably ahead of that for the next couple of years, for sure, on the EPS side.

Mike Roxland:

On this call and in some prior calls and also on the recent Investor Day, you mentioned improving plant efficiency, centralizing best practices, standardizing them, documenting processes, ensuring that all your facilities are sort of benchmarked with one another. How far along are you in that process right now? And if we think two to three years from now, what do you think this standardization, focus on cost takeout efficiency, what do you think it can add to the business in terms of dollars and profit?

Mike Roxland:

And then just one quick question in terms…

Howard Yu:

And I think we've laid out that of the $500 million of gross savings, I mean, we're going to have a meaningful part of that will be front end loaded here in 2024 and 2025. But certainly, going into '26, '27 and beyond, as we aspire to be a best-in-class manufacturer, we will continue to see efficiencies there. I mean, as Dan said, we're early innings but we're putting up runs. And so that's a good thing to see as it relates to the corporation and what we're doing operationally.

Dan Fisher:

Yes, I would give us somewhere in that two to three year range is what [indiscernible] myself are talking about, and it won't be 100% standardized, but 80%. And the reason I say that, you know this business is we got 40-year-old plants, we've got brand new plant. So we're not going to recapitalize to standardize everything. But the performance, the meeting cadence the S&OPs, all of that should look and feel like you're walking into a Ball plant everywhere in the world.

Dan Fisher:

So two brands are growing within their portfolio. You mentioned one, the other one is, I believe, Busch Light. And so both of those are growing nicely. And so yes, they are filling some of the brands -- the portfolio whole. I'm encouraged by promotional activity in both those brands. And I think anything that Bud Light comes back and recovers is great, but they've got two real winners within that portfolio that they're leaning heavily into. And I think that's more probably the route that that wins and it also speaks to sort of brands on the different ends of the end consumer spectrum as well.

Mike Leithead:

First, just on aerosol. The business saw a nice, I think, 6% volume growth. I guess my understanding was this overall market is still a bit soft. So is there some competitive share gains, is it a mix with your extruded bottles? Just if you could help unpack that a bit, that would be helpful.

Mike Leithead:

And then I wanted to circle back to the US. Dan, you've given a lot of really helpful color around the different product category dynamics. But I want to circle back, I'm not sure if I heard in the answer to Ghansham's question earlier. But in 2Q, how did your US business for Ball perform relative to, say, the overall segment up one?

Operator:

Our next question comes from the line of Edlain Rodriguez with Mizuho. Our next question comes from Anthony Pettinari with Citi.

Dan Fisher:

Honestly, we're looking at the same thing you are. More constructive on the plus side of our guide. And when I hear the entire competitive landscape and our entire customer landscape, all saying similar things that we’re going to be delivered despite a little bit more volatile second half given the election, et cetera. I've been encouraged every month this year by the performance of the business and our commitment to doing the things that we can control, and those are going to continue. And then we have benefited a bit from mix in North America. Does that continue? I suspect it will. So yes, we're leaning to the plus side of that algorithm for sure.

Dan Fisher:

The destocking and restocking event that happened sort of December and then January and February. So Q1 had a little bit of that favorability in it. But what we've seen is this is actual consumption that's happening, a more aggressive pricing environment in some instances. I think if you talk to anybody in our industry, everybody is tight. We're getting very close to can allocation scenarios. So this is 100% consumption at this point, benefit from the euro, benefit maybe from the Olympics, but more of a benefit from just inflation dissipating in a different return of value equation by our customers needing to price differently. So all of that's been a healthy dynamic in Europe and fingers crossed that continues here for the foreseeable future. We do have some can share that's also helping in pockets of the EU, specifically the UK, they continue to move more into cans. So there's some different dynamics that are unique to each country and each category in each geography. But overall, yes, I'm really pleased with our performance in Europe and constructive on Europe at large right now.

Phil Ng:

Pretty encouraging to see Brazil still up mid single digits. Argentina has been [problematic], it’s a little noise in general just all the movement. How would you like us to think about the back half? And certainly, you had outsized earnings last year from some mix dynamics in Brazil in the fourth quarter. So just kind of give us a little more color on do you have enough levers for your volumes to be up in South America given the weakness in Argentina, and then your ability to kind of drive earnings in the back half in South America as well?

Phil Ng:

So on balance on earnings is kind of muted is how I should think about it for Argentina [Multiple Speakers] margins might be better at budget…

Phil Ng:

I mean, I think certainly, there are some concerns coming into the quarter that mass beer in the US would be a drag, and you obviously put up really strong results in that segment in North America. If I heard you correctly, Dan, you sound a little more upbeat on the plus side of your mid single digit type growth. Does a lot of that come from North America or is it more Europe, some of the other segments, just because you're lapping that tough ABI comp, right, and you still put up 1% volume growth in 2Q. It sounds like your customers are promoting a little bit. Is that enthusiasm more on North America? And then are you expecting volumes perhaps to pick up a little bit in the back half?

Operator:

Our next question comes from the line of Chris Parkinson with Wolfe Research.

Dan Fisher:

So for -- I would say -- you're almost at a point where you can take COVID out of the equation. I think what happened in '23 -- so just '23 to '24 first half of the year, let me walk you through a comparative, right, for Brazil. In Brazil, the third largest brewery had a blowout 2023 first quarter, which we don't participate with. They filed for bankruptcy in Q2 of 2023. So they did virtually nothing in that quarter. So when you're looking at comps depending on who's with who and the mix trajectory in that category portfolio that there was volatility in one, we were up 26% in 1. So we benefited from that comp one. We didn't benefit from it as much in 2. But Q3, Q4 and Q1 of '23 and '24, the behemoth that we're with did well in the market. We continue to think that they will do well in the market based on innovation, based on share, based on their long term positioning. We're the number two player in the entire South America. They have been doing well as well. So I'm encouraged by the second half and I'm encouraged the economy in Brazil and the GDP is what really matters most at this point, to answer your follow-on question for '25 and '26, I think they have things going in the right direction, moderate-to-low inflation, employment continuing to improve, no sudden movements in terms of fiscal or monetary policy, all of that has a positive tailwind. And then the only thing that really comes out of COVID would be the substrate shift from glass into cans, and we're early innings on that. So we picked up probably 2 points of the 7 points that were lost and we expect to continue to pick up more of that in the back half of '25 and into '26. And then for us, our exposure to Argentina will be meaningful if there's abrupt recovery in Argentina in '25 and '26, that will -- obviously, we'll get 100% of that. So I'm constructive on the outlook. I think it will be at the higher end of our longer term growth algorithm based on the underlying conditions. And then Brazil, I think, starts to normalize a bit more. And it will be about mix but it will be less so about mix than what you saw in Q1 and Q2.

Dan Fisher:

You do find it at places like that. I think ultimately, the backdrop, if you've got a weakened consumer and it's going to impact the volume on a project like that. And so we continue to gain traction but it's not near what we thought it would be two or three years ago. And so that's probably all I'll say about that for now. And we'll do one more question, Christine.

Stefan Diaz:

I hope everybody is doing well. In the release for Europe, you mentioned seasonal and sustainability trends should improve demand throughout the year. Does this mean you're expecting mid single digit volume growth for the second half as comps look favorable? And then maybe sort of following up on Bryan's question, considering can shipments seems like they were ahead of scanner for the latest quarter, are you worried about any potential destocking like we saw late in 2023?

Stefan Diaz:

And then given strong volume results in the past couple of quarters, I was just wondering if you could remind us if you still have any capacity curtailed within your network. And if so, maybe what do you need to see to bring that back online? And then maybe if you could also just quickly comment on what you think utilizations are by region?

Operator:

I would now like to turn the floor back over to management for closing comments.

Operator:

Ladies and gentlemen, this does conclude today's teleconference. You may disconnect your lines at this time. Thank you for your participation, and have a wonderful day.

Howard Yu:

Thank you, Dan.

Daniel Fisher:

Thanks, Howard.

Ghansham Panjabi:

First off, obviously, congrats to Ann, a huge resource for all of us and more importantly, a real class act and also our congrats to Brandon and Miranda also.

Ghansham Panjabi:

Yes. So I guess, maybe, Dan, you could start off with just the updated thoughts on the outlook by the various regions. And obviously, there's lots of issues with comparability and customer issues and so on and so forth. So what is the market -- what do the markets feel like at this point?

Daniel Fisher:

Sure.

Ghansham Panjabi:

Is that included in EBITDA, sorry to interrupt, but...

Howard Yu:

Yes. In the corporate line, that's right.

Howard Yu:

Yes. And then as it relates to debt, yes, we anticipate that we would have paid down about $2.8 billion. Remember, the initial thoughts that we had in the quarter was that aerospace was being closed sometime after March 15. And so there was a European -- Euro-denominated debt that came due in the middle of March. And so we paid that down. So you couple that with the $2 billion that we referenced earlier around proceeds and where that would go. And so that's why you see the $2.8 billion debt retirement as well as knocking out some of the short-term debt and revolver and things like that, that we had. Clearly, with the cash on hand, we were going to go ahead and neutralize some of that interest expense as well.

Anthony Pettinari:

Congratulations to Ann and to Brandon and Miranda. I think I can't say enough good things about Ann and the job that she's done over the years. So congratulations.

Daniel Fisher:

I will take a shot at this and then ask Howard to just -- I think it's twofold. Yes, it's the fixed cost absorption. Straight line from the immediacy of the closure of the facilities and its improved performance across the portfolio. I think we've commented on this before. Probably versus 5 years ago, we've lost a couple of points, potentially 3 points of efficiency across our portfolio of assets in North America, and now we're gaining on that. So you're seeing the combination of the fixed cost benefits of the plant closures and the higher-cost facilities, coupled with the fact that we're running better. So a lot of folks that are now 2 or 3 years enroll in a number of these plants and they're performing better. So I think it's the combination of those two things. But one-offs, no. I mean, there were some -- there's always a few that are positive, and there's always a few that are negative. So I think it's really the underlying performance of the facilities in the region. They're doing a really nice job.

Howard Yu:

Yes. Sure, Anthony. Let me go ahead and take a shot at that one there. I think South America was in its peak season. And so the way we think about it was -- and we talked about it in the Q4 earnings as well, Brazil was performing very well in that quarter as well. So really, you got to think about it in the context of the entire season and some of the mix and timing will change. And so if you think about what we said in Q4, the performance we had in Q4 in South America, we had about low single-digit growth of something around 2%, 2.5% growth and operating earnings was up 60%. And so coupling that with the performance here in the quarter at 26% volume growth and then 10% operating earnings. If you look at it holistically for both those quarters, we're up about 12% and over 40% as it relates to operating earnings. And so that's the way we think about it. Mix as it relates to cans and ends, those things will obviously play into this particularly in South America, and we're seeing that overall. So I think of it more in the context of the overall busy season for them and how successful it's been holistically.

Operator:

Our next question comes from the line of Arun Viswanathan with RBC.

Daniel Fisher:

Yes. So we've spoken about, and I think it's well known within the industry that there was a share shift one brewer to the tune of approximately 2 billion units, that's already happened. That's in our numbers. So we lost the 2 billion and multiple competitors picked that up and incremented up. And we've got line of sight to fill that hole this year. If you go back to previous call and the assumptions we laid into North America for 2024, we thought we'd be negative obviously, in the first quarter, not only for the lapping the major brewer disruption, but the dislocation of this volume. And then we would -- which we've already won a couple of big chunks of business, and you will start to see that flow in, in the back half of the year. So that's where we geared toward flat in North America. So last -- the 2 billion pick up, roughly a similar amount and you'll inflect in the back half of the year with volume. Obviously, the size of that volume and the mix of that volume now plays out within the next couple of quarters, but you should still see increments of volume lift here out through the balance of the year in North America.

Arun Viswanathan:

Great. And then we've obviously seen some volatility on the aluminum price side. Maybe you can just comment on how that would impact you going forward? I mean I'm not sure if your customers -- I think they have some hedging programs in place, but would that also impact demand levels if they opt to push price to cover some of that inflation? And especially in Europe, I guess, I'm just curious if there would be any potential headwinds from metal premium pass-through? Or -- and how would you kind of characterize that in the context of -- it sounds like Europe is getting better from a supply-demand standpoint?

Operator:

Our next question comes from the line of George Staphos with Bank of America.

Daniel Fisher:

Yes. We've got, George, latest numbers that I've seen. We picked up probably 1% of the 3% we've got back. And it's showing -- where it's showing up, principally, it's showing up in reduced over time. It's showing up in spoilage. The older assets that were retired, I would say, have contributed 80% of that improvement, okay? So there's still -- I think we've just scratched the surface on getting to the other 2%, 2.5%, if you will, across the existing portfolio of new assets.

George Staphos:

Okay. I mean, I guess, we'll talk about it in June, but a pushback could be, okay, well, you got 1 point because you shut a facility and then the remaining 2 or 3 is going to be tougher to get at because it's got to come from ongoing. So do you have any comment on that? That would be great, if not, we can stay with the June.

George Staphos:

Next question. So in Brazil and sort of piggybacking on what Anthony had teed up. Was there any sort of operating issues in terms of the lack of profit leverage versus the volume leverage? Again, I know you said we should look at it holistically. Were there -- did you lose any share to your knowledge with any customers recognizing in a quarter where you're growing 18% or whatever the number might have been depending on the customer or the market, the answer is probably no. But any operating issues that we should take away? Any customer loss issues or if things were very much as expected in the quarter in South America and in Brazil?

George Staphos:

Understood. My last two ones quick. Number one, just piggyback again on the aluminum question, recognizing it's a watch out, but not something you're terribly concerned about. I know over the last couple of years, 3 years, you've probably been working on supply chain, clearly, with a lot of this inventory now showing up -- or a lot of this aluminum showing up in inventory and warehouse that might not be able to be used because of the sanctions. What are the risks and how are you planning against it that if there is some sort of mill disruption somewhere around the world that we don't see some spike, some tightening in an aluminum therefore can sheet, what are your thoughts there and how you're planning against that?

Daniel Fisher:

Thank you very much. So we've learned a lot. This may be a little long-winded answer in terms of our price cost and managing the risk, managing tariffs, managing sanctions as it relates to your inventory supply. We've gotten a lot better at this since the tariffs were put in place in 2016. We've got 21 different metal programs. So metal that would be of concern on sanctions, we're really not shipping it to countries where that's even in conversation. So it will be going to places that it can be used, where there's trade relations with those countries that may have some concerning trade routes or unintended consequences for what -- exactly what you described.

Operator:

Our next question comes from the line of Edlain Rodriguez with Mizuho.

Daniel Fisher:

Great. Yes. So I think it's twofold. I wouldn't say end consumers are spending more. I would say the relative inflation versus payroll mechanism and then the promotional activity for our customers is impacting and influencing volume. And the other piece is the -- I think there was an unwind to an unnatural inventory level by retailers, by our customers at the end of Q4. And so they built that up a little bit. So it's probably half of Q4 to Q1, if you will, inventory stocking, getting back to a more normalized baseline. And then some -- really some more aggressive behaviors from the customers. across Europe that has enabled a little bit more volume. It's not incredibly exciting, but it's better than we anticipated heading into the year.

Edlain Rodriguez:

Okay. Makes sense. And another one, in terms of like the share repurchase, I mean then, like how do you balance the pace of that share repurchase? Like with your commitment to buy back shares versus like a higher and higher share price. I mean, of course, it's a high-class problem to have, but how do you balance the pace of that?

Operator:

Our next question comes from the line of Adam Samuelson with Goldman Sachs.

Howard Yu:

Yes, Yes, no problem, Adam. So yes, we did retire $2.8 billion of debt that was -- we had talked about it from an apples-and-apples standpoint of about $2 billion, but recognizing that, that was anticipating the sale of aerospace sometime after the March 15 date. March 15, we had to do about EUR 750 million denominated debt that was retired. And so that equates to the essentially additional USD 800 million of that gets us to the $2.8 billion in the quarter. .

Adam Samuelson:

Okay. That's very helpful. And if I could maybe just follow up as we maybe take a step back because there's a lot of moving pieces within comparable EPS growth off the $2.90 last year that obviously had aerospace earnings in it. You pay off debt, there's interest income, reduced factoring expense, share repurchase, tax rate inches up. Maybe if we step back and we think about the 3 core beverage can kind of operating units, globally, Dan, you talked about low to mid-single-digit volume growth, what should we think about the operating profit growth in those core business units off that level of growth? Obviously, in the first quarter, especially North America, had some -- had some favorability, but help us think about what that core operating leverage to look like with that kind of volume growth this year?

Daniel Fisher:

Yes. I think for the core beverage business, if you -- it's significantly higher than the historical 2x leverage if you were to back out the nearly $40 million of onetime purchase power agreement. So it's still in excess of the 2x leverage. I think somewhere in the neighborhood of $100 million of operating earnings we're going to get out of the beverage business and an improved result year-over-year and that obviously has the lapping of the $40 million -- $30 million, $40 million onetime benefit.

Philip Ng:

Congrats on the strong quarter. And like everyone else, I wanted to thank Ann for all her help over the years, and congratulations to Brandon and Miranda as well. I guess my first question is really the free cash flow power of the business, certainly noisy with the aerospace sale this year. Can it be helpful, Howard, perhaps to give us a little more perspective on how you think about CapEx as we look out to 2025 and beyond, maybe 2026? It's been a big growth CapEx cycle. So just give us a little more context on how to think about that, the free cash flow and certainly a high-class problem to have, but how should we think about buyback as well? Pretty steady dose every quarter, more opportunistic if the pullback? Just kind of give us a little playbook and how you're thinking about the pace of buybacks.

Daniel Fisher:

Yes, Phil, I would say -- I would -- in the simplest manner, we are running our business, the expectation of running our business enterprise-wide is that net income equals free cash flow. So as I don't want you to think about locking us in at $900 million of free cash flow. As our margins expand, we will mitigate the working capital build associated with the growth. And if you're in that 2%, 3%, 4%, you should be able to manage that. We got room to do that. We spend that GAAP D&A levels and some years it will be less, some years it might be a bit more. But this -- we should be generating a steady diet of free cash flow and returning that back to our shareholders consistently. To your point, there may be some opportunities with a pullback where we can do some more. But I think you should be locking in that you're going to get an overwhelming majority of that free cash flow coming back to you in the form of dividends and share buybacks, over $1 billion share buybacks for the foreseeable future.

Daniel Fisher:

Yes. Entering the year, it was really the comments were more macro related and end consumer and the strength of the end consumer. We got the benefit of the restock and a little bit more favorable behavior by our customers kind of pushing volume. But we thought that there would be a natural tendency for inflation to come back and for the regasification projects that come online. So there would be more room for optimism in the second half of the year, and that's really what we heard from our customers as well.

Daniel Fisher:

Yes, I'll let -- Howard, why don't you cover the earnings, and I'll get back over to the union issues.

Daniel Fisher:

Yes. I think the shelf resets have been communicated really well from -- there's been a couple of folks that have won disproportionately, and we anticipated that in our numbers. So nothing's moved up, down or sideways. I would say, even with -- even with the shelf reset, I think the beer category is down. So I think it's less about the category reset, and it's more about beer and how they get on with promotional activity in the peak season, are they going to drive value -- excuse me, volume.

Operator:

Our next question comes from the line of Pamela Kaufman with Morgan Stanley.

Daniel Fisher:

Yes. It's a good question. So we're always -- I guess we have an underlying thought process that we're always investing. There's a combination of R&D that transition that hopefully in the commercial innovation projects. And I think you'll hear this from just about everyone that the opportunity set for us is different by region, but innovation as it relates to getting a constructive package and vehicle that can really attack, if you will, plastic. And the big linchpin there is going to be resealability. And I think there's a lot in that area that's being worked on and it's being worked on by everyone in the industry and all of our customers. So that -- those will be the big unlocks.

Daniel Fisher:

Yes. Peak season dependent. Just to be abundantly transparent. I mean if I'm talking about 3.4% growth versus 3.3%, I think the 3.3% starts to look like mid-range versus -- so I would say we got out ahead of the gate. We had favorable mix in South America. We're a little ahead in Europe. Scanner data is a little behind in North America. So the balance of that seems like net-net-net, that's a little favorable. Until we get through peak season on 70% of our business, I think I've ranged it appropriately. And regardless of whether it's low single digits or mid-single digits, you're going to see cash flow generation, EPS mid-single digit plus share buyback to the tune of nearly $1.3 billion. So we're really confident in the underlying performance and behavior of the business. Let's see how peak season gets on.

Daniel Fisher:

Yes, April is largely in line, a little softer than March, but in line with our expectation. And as you know, Easter fell a week different last year than it did this year. And so that plays into it a bit. So it's -- I think it's there or thereabouts. And it really -- a couple of weeks before Memorial Day is when things really start to pick up. So it's really the back half of the second quarter where it's most meaningful.

Operator:

This ends the question-and-answer session. I would now like to turn the floor back over to management for closing comments.

Operator:

Ladies and gentlemen, this does conclude today's teleconference. You may disconnect your lines at this time. Thank you for your participation, and have a wonderful day.

Daniel Fisher:

Thank you, Christina. Good morning, everyone. This is Ball Corporation's conference call regarding the company's fourth quarter and full year 2023 results. The information provided during this call will contain forward-looking statements. Actual results or outcomes may differ materially from those that may be expressed or implied. Some factors that could cause the results or outcomes to differ are in the company's latest 10-K and in other company SEC filings as well as company news releases. If you do not already have our earnings release, it is available on our [email protected]. Information regarding the use of non-GAAP financial measures may also be found in the Notes Section of today's earnings release. In addition, the release includes a summary of non-comparable items, as well as a reconciliation of comparable net earnings and diluted earnings per share calculations. Before we discuss Ball's strong earnings and cash flow performance, I would like to remind call participants that on August 17, 2023, the company announced an agreement to sell its aerospace business. The transaction is subject to regulatory approvals and certain closing conditions and adjustments. Relative to the company's aerospace divestiture, which is projected to close in the first half of 2024, certain forward-looking financial metrics provided in today's earnings release and conference call commentary may differ from those expressed or implied due to the timing of a successful closing of the timing of the proposed use of proceeds. Today I'm joined on our call by Howard Yu, EVP and CFO. I will provide some brief introductory remarks. Howard will discuss 2023 financial performance and key metrics for 2024, and then we will finish up with closing comments and Q&A. Our team delivered strong operations-driven fourth quarter results and for the full year. We achieved double-digit comparable operating earnings growth and generated $818 million in free cash flow. 2023 also delivered a dynamic set of strategic decisions and factors that influenced results and sharpened Ball's vision for the future, including our decisions to sell aerospace for a premium valuation and to reduce fixed costs by adjusting our manufacturing footprint and factors that influenced year-over-year results, such as a large U.S. customer experiencing major brand disruption, an $86 million comparable operating earnings headwind due to the Russian business sale, and the effect of Argentine hyperinflation and currency devaluation. Late in 2023, we also had the good fortune of welcoming Howard to Ball. Many of you listening have already had the pleasure of meeting with Howard at multiple conferences and our investor community welcome reception in November. His financial expertise, engaging nature and fresh eyes are adding value out of the gate and activating another stage of continuous improvement actions at Ball. Over our 144-year history, each year has presented its opportunities, challenges and changes, and the legacy of how the Ball team continuously adapts to position the company for long-term success is the reason we are all here today. I'm proud to say that the resiliency of our team and our chosen substrate, aluminum packaging, combined with improving plant and program execution, more than offset the earnings impact of challenges experienced in 2023. And there were and are many more things to be done to make the most of our opportunities. Reflecting further on 2023, our customer mix and inflationary effects on end consumer demand drove our shipments. Global shipments ended 2023 down 3.3%, excluding Russia sale impact, and shipments would have ended the year roughly flat versus 2022, absent the U.S. brand disruption issue. All-in, the aluminum package industry continues to outperform plastics and glass packaging. For Ball, continued volume strength in Brazil and better than expected volume in North America to close out 2023 offset regional softness in Argentina and EMEA. For a complete summary of regional shipments for the fourth quarter and full year of 2023, please refer to today's earnings release. Looking ahead, our global teams are energized by recent commercial wins and other constructive customer discussions to continue packaged mix shift to cans. We will continue to advance sustainability of aluminum packaging by accelerating our pathway to carbon neutral and leveraging the scale of our footprint, innovative portfolio, and value chain partnerships to expand opportunities for our customers over the long-term. Given seasonality, our customer mix, and the April 2024 anniversary of the U.S. customer brand disruption, we anticipate year-over-year volume growth to favorably inflect after first quarter 2024 and accelerate further in 2025. Significant opportunity lies ahead to offset the financial impact of the projected aerospace sale and to drive compounding value creation for our fellow shareholders. Key drivers in 2024 will be the utilization of net proceeds from the aerospace sale to deleverage and repurchase stock, improving operational efficiencies and fixed cost absorption, leveraging our well-capitalized plant assets to grow the use of innovative, sustainable aluminum packaging across channels, categories, and venues, in addition to further actions to strengthen the balance sheet and reduce long-term liabilities. Based on our current demand expectations and the potential timing and benefits of the aerospace sale proceeds, we are positioned to grow comparable diluted EPS, generate strong free cash flow, strengthen our balance sheet, and accelerate return of value to shareholders in 2024. We look forward to showcasing our team and unveiling our future operating model and long-term growth plans at our biennial Investor Day scheduled for June 18th in New York City at the New York Stock Exchange. And with that, I'll turn it over to Howard.

Operator:

Ladies and gentlemen, please stand by. Your conference will resume momentarily. Again, ladies and gentlemen, please continue to hold. Your conference will resume momentarily. Ladies and gentlemen, your conference may now resume.

Daniel Fisher:

Thanks Howard. As we continue to make progress in 2024, we anticipate growing our EPS and offsetting the divestiture through growth in our aluminum packaging operations, interest income, lower interest expense, and the benefit of a lower share count. Looking ahead, we are focused on executing our enterprise-wide strategy to advance sustainable aluminum packaging solutions on a global scale by accelerating our pathway to carbon neutral and unlocking additional value from within the organization by driving continuous process improvement and operational excellence. Together, we will strive to deliver innovative aluminum packaging solutions that can lead to a world-free from waste and embark on a path to deliver compounding shareholder returns in 2024 and beyond. We appreciate the work being done across the organization and extend our well wishes for a prosperous 2024 to our employees, customers, suppliers, stakeholders, and everyone listening today. Thank you to everyone listening, and with that, Christina, we're ready for questions.

Ghansham Panjabi:

Thank you, operator. Good morning, everybody.

Ghansham Panjabi:

Morning. Dan, maybe you could just start off just kind of giving us the base case for volume assumptions across the different geographies you have exposure to for 2024. I know you made some comments on the first quarter, but how do you think the full year is sort of going to unfold with all these ups and downs across the statements, Europe starting to decelerate and obviously comps in North America?

Ghansham Panjabi:

Great. You need Taylor Swift to push cans.

Ghansham Panjabi:

And then second question, the call kind of cut out during -- I just want to make sure I understood the free cash flow was $500 million for 2024. And if so, what are the embedded assumptions in there? I know you gave cash interest, I mean, interest expense, because we're having a tough time getting to that number with $650 million.

Ghansham Panjabi:

Fantastic. Thank you so much.

Operator:

Our next question comes from the line of Arun Viswanathan with RBC. Please proceed with your question.

Daniel Fisher:

Sure.

Daniel Fisher:

Sure. I think speaking to -- I think your question leans a little bit into am I seeing any promotional activity? Is there anything different just in the domestic landscape here? I'd say what we're hearing from our customers and it's manifesting slightly, you don't see a lot of promotional activity in January. You do as we -- now the next two weeks as we lead in the Super Bowl is typically when you would see some traditional and we are seeing some of that. But I think writ large, what everyone of the large CPG customers is acknowledging is that they're going to have to fight for top line this year. And that should benefit. It should benefit us. That should benefit the industry. We're seeing some inflections of growth, as I mentioned in the four week and the one week that look different than I think the last 18 to 24 months. So that's all positive. And then relative to kind of filling the Bud Light hole, if you will. Yes, there's some incremental volume that's helping to net impact that. But for us, we do a lot of that product and they have a vertical. And so, we're exposed to that brand. The things that were exposed to elsewhere are much smaller. They're growing. They're filling in some of the hole, but it's not -- it's not material, I would say it's incrementally better, not materially better. It's still the best thing is going to be other products from that particular brewer to grow. And so, I think that with a combination of you are seeing that brand kind of bottom out and starting to increment up. So, all of those things we anticipated it looking like this probably for the last six to nine months. And we've indicated that. There's nothing meaningful different from a guidance standpoint that I could really share at this point. We may see a little bit more now that we're heading into Super Bowl and some more traditional promotional activities. But I don't think you completely close the gap on this until we see other brands, other products kind of close that gap for us here as we lap the April sunsetting of that marketing issue.

Daniel Fisher:

Yeah, sure.

Daniel Fisher:

Yeah. I think within North America, we're satisfied. I think we're seeing other industry participants kind of model our behavior. What we've done just at a high level, and I appreciate the question is we've really retired candidly older, less efficient assets that we're going to require a lot more maintenance CapEx to get them up to where we need to be to perform in the marketplace. So we've got, if you will, a more fit for purpose structure in North America. And as you see volumes inflect, we won't need cost out what we just need to do is continue to run these facilities as we are continue to ramp up the learning curve. Some of these are still new with new lines. And all of that will lend itself to a more productive and a higher profitable leverage fall through as we see the ramp up. Europe, I think we think we've got -- we've got to continue to look at Europe. I think we've got to continue to look at South America just be cognizant of the fact that there's a lot going on in those regions. There's a couple conflicts in Europe and the Middle East. So all of that will certainly play a role. Inflationary pressures, whether or not the regasification takes place in the mirror in which we think in Europe. So, a lot going into those conversations and decisions, but I think our footprints really solid to deliver on the plans that we've built here, pretty modest growth for this year. And just trying to take advantage of all the actions that we've laid in place and continue to see plants perform and more productivity to be generated as volumes inflect.

Daniel Fisher:

Yeah.

George Staphos:

Hi. Thanks very much. Good morning everybody. Thanks for the details.

George Staphos:

Hey, Dan -- good morning. So, first question I had. Thanks for the rundown on what you're expecting. I know you're focused on Ball Corporation obviously, but what do you think the market, particularly North America will grow at this year if you had a sense? Should we assume kind of the -- what your normal growth would be two to four, or do you think it's a little bit less than that or more than that.

George Staphos:

Okay. No, I appreciate that Dan. And one question I had in terms of impact. It's having other positive or negative for you in terms of your operations and demand. There's been some discussion in the trade about some of the beverage companies having their operational issues to plan around which may have led or may lead to disruptions? Will that be a help ultimately for you to that impact fourth quarter at all? Just trying to peer there to extent that we can. And then my last question, I'll turn it over. When you talk about carbon footprint, what we've seen is, and we've talked about this in the past, the plastic guys beginning to push on carbon footprint. What's your one to punch in terms of why you think aluminum is better on that metric versus plastics when we look about carbon footprint through the supply chain? Thanks guys and good luck in the quarter.

George Staphos:

Thanks Dan. And just on customer disruptions and what it might mean for you.

Operator:

Ladies and gentlemen, please stand by your conference will resume momentarily. Again, ladies and gentlemen, please stand by your conference will resume momentarily. Your conference may now resume.

George Staphos:

Thanks Dan. That's great.

Mike Leithead:

Great. Thank you. Good morning, guys.

Mike Leithead:

First question just on North America. I think for the full year, your volumes were down about 7%, but your operating EBIT was up about 11%, which suggests your unit economics got quite a bit better this year. So, if we do return to say a 1%, 2% volume type environment, I guess what sort of incremental margin should we expect on actual volume growth here in the business?

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?

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.

Howard Yu:

Sure.

Edlain Rodriguez:

Thank you. Good morning, everyone.

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?

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?

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.

Operator:

Our next question comes from the line of Phil Ng with Jefferies. Please proceed with your question.

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.

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.

Daniel Fisher:

Yeah.

Adam Samuelson:

Yes, thank you. Good morning, everyone.

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.

Howard Yu:

Yeah. I would add just a couple of comments. Obviously, when you're in more volatile emerging markets, quote unquote countries, you get paid really well to be there. So, when that volume is off, your margins will dissipate just from a country mix standpoint. That's the environment we're in probably versus where you saw us a couple years ago and specific to Argentina. So that volume matters. And as that comes back, we'll inflect up and we'll leverage up and you should see that improvement. Brazil has been very resilient here. The second half, we saw that inflect. We continue to see a strong January and our folks are calling for a decent and improved Q1. And that will help. Things that matter in Brazil then are going to show up in terms of product mix. The way we -- the way we sell our can and ends to our major customers have pretty big tax swings and impacts there. So that will matter. But in terms of the full year, quarter-to-quarter, maybe a little choppy, but the full year will continue to deflect, see a more profitable business there and see mid to single digit growth. Chile is off to a decent start. Paraguay is off to a decent start. So, I'm feeling good about South America. Argentina is meaningful for us though in terms of the question that you posed. So, we just have to -- we're holding to kind of flattish earnings year-over-year. And so, as we get growth from other areas, the margins won't look, I think on a mixed basis as good, but the earnings will flow through consistent with those regions and what those customers have delivered historically.

Howard Yu:

Yeah. We saw a -- I think we saw a year-over-year 40% improvement in operating earnings for the aerosol business. We're going to see double-digit growth in earnings next year. The team has done a phenomenal job turning that business around and it's inflecting the growth and a lot of that has to do with this reuse category that's emerging in places like Europe on the personal care spot, even the beverage spot side that we're taking advantage of and very disciplined contract management in terms of inflation and things of that nature. So that business will have doubled in earnings over about a 36-month period. We continue to see nice growth there. Cups will be incrementally better. We've seen foodservice grow. Retail has come off. It was a difficult retail year, but we should see continued tail -- tailwind in terms food is really the big opportunity set for cups, but negligible margin improvement, maybe taken the terms of 5 million to 10 million better year-over-year there.

Daniel Fisher:

Thanks.

Mike Roxland:

Thanks, Dan, Howard and management [ph] for taking my questions.

Mike Roxland:

A lot of ground cover today. And just wanted to follow up quickly on the business development efforts you're pursuing. You called it out in the press release. Any reason why you felt the need to call it out? Is this something that you've recently accelerated?

Mike Roxland:

Got it. And does that require any headcount?

Mike Roxland:

Got it. And one quick follow-up, Dan. Just in terms of the retailers resetting shelf space, any early signs of how that's going to play out and when you can start -- maybe using some of that underutilized capacity that you have?

Mike Roxland:

Got it. Thanks very much and good luck in 2024.

Operator:

Our next question comes from the line of Gabe Hajde with Wells Fargo. Please proceed with your question.

Daniel Fisher:

Hi, Gabe.

Gabe Hajde:

Somewhat of a fact check here, Dan. You mentioned growth would have been flattish, I guess on the volume side, had it not been for the brand disruption. Is that directionally then about 3 billion units that we should be thinking about?

Gabe Hajde:

Okay. Thank you for that. And then I feel like we've hit each segment sort of in different answers to questions. But I think I heard you in response to two questions ago. Segment earnings in South America, flattish on the full year, despite the mid single digit earnings growth -- or excuse me -- volume growth that you're talking about. And then in Bev, I guess North Central America, we have a $30 million bad guy from the energy contract. Let's call it 10 to 15 of a good guy for the unwinding of AR factoring, depending on timing. And then flattish volume growth. You mentioned the PPI should be positive. And I think there's a mid-year reset on your prior, I don't know, $180 million or so that was contracted. So, maybe a little bit more prescriptive there. And then low single digit growth in Europe translating into some operating earnings improvement at the segment level in Europe.

Daniel Fisher:

Yeah. Gabe, I think I've got it, sorry.

Daniel Fisher:

Let me start with South America. No, we should see an inflection in earnings year-over-year. Some of the factoring that we're retiring will help contribute to that. And we will see earnings growth off of the volume growth. And so, it will more or less mirror 2X the volume growth. It may come in a different form via AR factoring retirement and some interest expense being retired within our SG&A bucket. But it will -- if we grow 5%, we should grow close to 10% earnings in that range. We'll have mixed that a lot of said it country to country, but we have mechanisms to -- continue to inflect profitably on that growth, which we're encouraged by. And then your other question, I said the bridge, let me help you with some bridge items in North America. I think there's one piece that you didn't cover, which is in the first quarter. And Howard made this in his opening comments. The VP Fp&A [ph], you got $30 million. There's a like amount associated with the brand disruption. So, the unit volume we sold and the absorption we got from that brand that had the marketing issue in April is a like amount. So it's closer to $60 million in the first quarter in North America. You will get the PPI benefits and the other things I think the way you laid out, it was in a very constructive manner. And we're not anticipating anything inflecting mid-year. Right now, I think if PPI -- excuse me -- if inflation continues to be in a moderated position, it won't be a plus or minus like we've been talking about here the last two and a half, three years. I think it'll be more or less, we can offset whatever inflationary pickup via productivity gains. So, it won't be a bridge item, but you're right. We have to carry-in for the first six months. You've identified it correctly in terms of the quarter capture on the numbers. But the only thing that I would call out is the additional $30 million disruption probably from the brand issue in Q1.

Daniel Fisher:

Yeah.

Jeffrey Zekauskas:

Thanks very much.

Jeffrey Zekauskas:

It's been reported in the press that Carrefour, the French retailer, is pushing back against Pepsi because Pepsi wanted to increase prices, I don't know, 7% for 2024. And so what Carrefour is doing is moving away from Pepsi products across the board. When you see something like that, do you think that the consumer products companies may be following different strategies and different geographies? And do you see that as a sign that there's still an emphasis on increasing prices by the consumer products companies for next year?

Jeffrey Zekauskas:

So would that mean that your better outcome for volume in Europe is more of a 2025 event rather than a 2024 event?

Jeffrey Zekauskas:

Okay. Great. Thank you so much.

Operator:

Thank you. Mr. Fisher, we actually have no further questions at this time.

Daniel Fisher:

Okay. Thanks everybody. And we'll hopefully see most of you at the Investor Day here in June. Thanks very much.

Dan Fisher:

Thanks, Frank. Good morning, everyone. This is Ball Corporation's conference call regarding the company's third quarter 2023 results. The information provided during this call will contain forward-looking statements. Actual results or outcomes may differ materially from those that may be expressed or implied. Some factors that could cause the results or outcomes to differ are in the company's latest 10-K and in other company SEC filings as well as company news releases. If you do not already have our earnings release, it is available on our website at ball.com. Information regarding the use of non-GAAP financial measures may also be found in the notes section of today's earnings release. Historical financial results for the divested Russian operations are reflected in the beverage packaging EMEA segment. See Note-1, business segment information. For a quarterly breakout of Russia's historical sales and comparable operating earnings. In addition, the release includes a summary of noncomparable items as well as a reconciliation of comparable net earnings and diluted earnings per share calculations. Before we dive into our discussion about Ball's solid third quarter earnings and cash flow performance, I would like to reference some important announcements made recently by the company. On August 17, the company announced an agreement to sell its Aerospace business to BAE Systems, Inc. for $5.6 billion in cash proceeds, achieving a premium multiple for a premium business. The transaction is subject to regulatory approvals and customary closing conditions and adjustments. Therefore, prospective estimates for certain financial metrics provided in today's earnings release and conference call commentary exclude any potential impact of the Aerospace business sale. The process to achieve necessary regulatory approvals is underway and when appropriate, a progress announcement will be made. Also, in early September, the company announced Scott Morrison's well-deserved retirement as Ball's CFO; and then Howard Yu has assumed the role of EVP and CFO. To ensure a smooth transition and to enable a successful close to the aerospace transaction, Scott has agreed to stay on with Ball as an adviser until September of 2024. It is a pleasure to have both Scott and Howard joining me on the call today. I'll provide some brief introductory remarks and provide Howard an opportunity to introduce himself. Scott will execute his last earnings call for Ball and discuss key financial metrics, and then we will finish up with closing comments and our outlook for the remainder of 2023 and Q&A. First, let me begin by taking a few minutes to thank Scott for his 23 years of service to Ball and his 13 years of serving as Ball's CFO. Some of you may not know that Scott has been an integral part of every Ball M&A deal since 1998. Pre-Ball, he was actually one of our outside bankers arranging the financing for the Reynolds Metals acquisition. In 2000, Scott joined Ball as our Treasurer and the rest is history. He has executed multiple transformative M&A and record-setting bond deals, successfully navigated ball through numerous economic cycles, always stepped up when called upon and he's completed 55 of these wonderful earnings calls now. Scott is sailing off into the sunset, literally. Our company is better because of Scott Morrison and personally I am thankful to have worked with him since 2010. At my request, Scott agreed to stay on a bit longer as CFO than he originally planned. And I'm so grateful he did. Nothing like a multiyear global pandemic land wars, the steepest rise in interest rates and inflation since the '70s and helping onboard a new CEO to finish off your incredibly successful career. Scott, thank you for your commitment to Ball, for being a friend, a trusted year, for being a candid mentor, a leader who surrounded himself with a capable team and someone who bled Ball blue. On behalf of the entire team, we wish you a long, happy and healthy retirement. I'm excited to introduce Howard Yu. Paul welcomed Howard as our new CFO in late September. Howard joins Ball with a wealth of experience as a public company CFO, and a CV packed with global experience and fresh eyes to unlock even more value for our stakeholders. Howard's focus on continuous improvement and passion for operational excellence will help lead all for the next decade. Howard, I'll turn it over to you to say a few words.

Dan Fisher:

Thanks, Howard. Our team delivered strong third quarter results, improved operational efficiencies, inflationary cost recovery, the benefits of cost-out actions and a lower effective tax rate offset the impact of tough year-over-year volume comparisons. $43 million of higher interest expense and a $14 million operating earnings headwind from the Russian sale. I'm proud to say that our team did an excellent job of managing both costs working capital and isolated volatility across supply chain partners in our packaging and aerospace businesses during the quarter. Our overweight positions to the ongoing mass beer brand demand disruption in the U.S. and past regional customer mix decisions are evident in Ball's volume performance. Double-digit volume growth in Brazil and better than industry volume performance in EMEA helped to offset some of the North American headwind resulting in our global shipments being down 3% in the third quarter, a sequential improvement versus second quarter 2023, which was down 5%. Moving forward, our actions to tighten supply demand domestically, lower costs, improve operational efficiencies, leverage the sustainability attributes of our innovative aluminum packaging portfolio and our ability to lean into our well-capitalized low-cost plant assets will position Ball to win commercially and improve returns on invested capital. In addition, our actions to unlock value via the announced sale of our Aerospace business and utilize net proceeds to rapidly leverage in the range of three times, strengthen the balance sheet and return substantial value to shareholders via share repurchases and dividends will provide financial flexibility and drive value creation now and in the years to come. I would also like to extend my gratitude to our employees for working with the utmost level of respect, care and concern for one another while adapting to the recent company decision to sell Aerospace and further reduce fixed costs across our plant network. We're beginning to see some sequential improvement in our global beverage shipments, particularly in Brazil, as we head into their busy summer selling season. Given the current in-consumer demand trends in North America and EMEA, we will continue to run the business for cash and with an eye on reducing fixed costs and being fit for the future in the current macroeconomic environment. In our Aerospace and Aluminum Aerosol Businesses, demand for our products and technologies continues to grow. In Aerospace, our backlog and one not booked backlog both increased. And in our Global Aluminum Aerosol Business, third quarter shipments increased 10.4%. Our growing extruded aluminum business continues to serve new categories and offer reuse refill bottle innovations to a broader set of customers and occasions, emphasizing aluminum over other substrates. Very late in the quarter and as mentioned in the press release, Ball experienced a fire at its Verona, Virginia aluminum slug manufacturing facility, which is part of our extruded aluminum aerosol business. We are thankful that all plant personnel were evacuated safely during the incident and that no injuries occurred while first responders extinguish the blaze. Unfortunately, the fire damaged 95% of the plant's equipment and the structure is a complete loss. The extruded aluminum team continues to support the well-being of our colleagues and it's also working very hard to try to meet our customers' demand from our remaining global aluminum slug facilities. Insurance coverage will handle the majority of the financial impact. However, we have determined that going forward, we will be unable to operate at the current site. Employees and key stakeholders were notified of this decision yesterday evening. Consistent with our prior commentary, we remain positioned to deliver on our cash flow, deleveraging and return of value to shareholder goals. Based on our current expectations for end consumer demand trends in EMEA and North America, and other activities and items referenced on today's call, we anticipate growing comparable diluted EPS low to mid-single digits in 2023 and look forward to discussing our growth targets for 2024 on our February earnings call. We appreciate the work being done across the organization and extend our well wishes to our employees, customers, suppliers stakeholders and everyone listening today. With that, for the last time, I'll turn it over to Scott.

Dan Fisher:

Thanks, Scott. We continue to believe that the actions we have taken in 2023 and will continue to execute in 2024 and beyond will improve earnings, generate cash flow enable low-carbon best value innovative aluminum packaging offerings on a global scale and will expand shareholder value creation for many years to come. Thank you to everyone listening today. And with that, Frank, we're ready for questions.

George Staphos:

Thanks, hi everyone, good morning. Thanks for the details. Scott and Howard, congratulations on the next chapters and Scott, really on behalf of, frankly, all the analysts and the investors on these calls over the last number of years, I just want to thank you for all the support you've given everyone's research and trying to understand the industry and understand Ball, so thank you.

George Staphos:

It's been a pleasure. I want to get to the capacity closures and how it might impact your prior comments on the fact that you had a couple of years of capacity, maybe I'm paraphrasing a little bit there, but I don't think too much to grow into at the time that you made those comments. So in a couple of years - or let me say it differently, do you still have a couple of years of capacity to grow into even after these closures, is the market now tighter, and so you have less than a couple of years to grow into? And if it's still the two then have any of your longer-term growth rate expectations by region change at all? And if so, any color there would be helpful.

George Staphos:

Dan, that's great. I had two other questions and I'll turn it over. One, Brazil turned very quickly for you, and that's good news. Can you talk a bit about what was driving that? Obviously, you're laying the tracks in the second quarter and prior. But if is there anything that you could add in terms of color how much you can continue that, what kind of earnings trajectory you think you will see in the fourth quarter, you talked about it inflecting? And then the release talked to some lighter weight returnable or reusable package, I believe, in the Aluminum Aerosol side, where you're using the technology there. Can you give us a bit more color on that, how you might use that within beverage and how it may affect your trajectory down the road? Thank you, and good luck on the quarter.

George Staphos:

Dan, yes, no, could it help your single-use in water and other beverages down the road? Thank you, I'm sorry for the triple dip there.

George Staphos:

Thank you, very much.

Operator:

Our next question comes from Mike Leithead with Barclays. Please proceed.

DanFisher:

Yes, thank you for that. Let's start with South America. South America is actually a much easier market. There is - if you're looking at it quarter-to-quarter, you're going to see swings and it is 100% a result of who's partnered with who. Big volumes from very few players and in the case of us, our strategic Partner One in the marketplace in Q3. So we have a big position with them. They won in the market, our volumes look better. In North America, it's less about share shift in terms of contract movement, and it's more our exposure to mass beer. I mean, that's it in a nutshell. And we had a very strong Q3 last year whereas some of our competitors had a very weak Q3. Destocking, inventory movement started about the third quarter last year and some of us have had impacts from that point until now. And when you look at year-over-year comps, it can be a bit noisy. All of that is, I think, normalizing. So as you're moving forward in Q4 and beyond, what you're going to see, I think, across the industry, writ large, is customer mix and in alignment with scanner data. I think it will be a much more transparent way to look at the marketplace and volumes for that matter.

DanFisher:

Yes, I can't give too much detail, but I would characterize it as constructive where we're at with our discussions. And we signaled first half '24 closure. We still believe that is well within executing boundaries. We referenced that number based on the most recent transaction that we took about seven to eight months. So we're hopeful that we don't have as much overlap as that deal did and it will be a more efficient process. But I think the guidance of first half '24 is the appropriate one at this stage.

DanFisher:

Thank you.

Ghansham Panjabi:

Yes, good morning.

Ghansham Panjabi:

I just want to echo my congrats to you, Scott, and Howard as well. Best wishes to you both for the future.

Ghansham Panjabi:

Yes, thanks Scott. Dan, going back to what we witnessed over the last couple of years, right? So quite a bit has been done in terms of permanent capacity reduction at your end in North America between last year and this year. And I'm just trying to reconcile, is that a function of just a lot's been done. Capacity has been - your footprint has been modernized to some extent. The market has recalled for different reasons and so on and so forth. And are you just anticipating that the market sort of resets for a while before we start the reacceleration and to sort of support that reacceleration, you'll be doing a lot in between with productivity to match up against that to support that growth eventually. Is that the right way to think about it?

Ghansham Panjabi:

Okay. And then for my second question, just in terms of Europe, I think this was the first negative volume quarter since the second quarter of 2020, if I looked at the model correctly.

Ghansham Panjabi:

Yes, what's happening, I think you called out the U.K. maybe just jog us through the different subregions of Europe.

Ghansham Panjabi:

Okay, thanks so much.

Arun Viswanathan:

Okay, thanks for taking my questions. I guess my first question is just on the footprint. And would you think that after all of these industry moves, including your own, I think you've noted that the industry will continue to grow at a low rate. Would you think that at some point, just given the low barriers to entry that there could be some new entrants as well and potentially some further capacity additions, I mean, we are seeing some strength in ready-to-drink in some other categories? Or is it still absorbing capacity, I guess?

Arun Viswanathan:

Sure, and then - thanks for that. And then I guess just - I also wanted to just get your thoughts on post the Aerospace sale I think that the plan was to use the proceeds for deleveraging as well as for buybacks. Is that still the plan? Would you be considering metals investments as well to secure more aluminum can sheet? Or how are you thinking about the proceeds used at this point? Thanks.

Arun Viswanathan:

Great, thanks a lot and Scott thanks for all your help over the years.

Operator:

Our next question comes from Mike Roxland with Truist Securities. Please proceed.

Howard Yu:

Thanks. Thank you.

DanFisher:

That's a great comment. I'm not a big UFC fan. So I don't know if those are huge, Bud Light drinkers or not, if that's a white space, but in all seriousness. It's going to take a period of time the beer on shelf in retailers in C-stores, we will - it will be there. And so, folks like Constellation, they continue to grow, they continue to add capacity, and they're a big partner of us. We're partners with all the major brewers. And so, as they step into taking share and taking volume, it will be somewhat of a natural offset. Obviously, the fastest return for volume for Ball is that Bud Light or Budweiser figures out, something to put on the shelves at selves in place of that. We are - there's a minor reset that happens in the fall with retailers. So we're seeing some uplift in terms of a favorable mix with some of the other brewers, but it's not going to substantiate until the first half of next year when there's bigger resets. So that will be indicative of how folks within the - in the industry and the space are going to play that. I do think the amount of money being spent by Budweiser on Bud Light, they've said it publicly. They're spending a lot more. I think four times is the number in terms of reestablishing that brand and yet to be determined, but over 12 to 18 months, I think the beer space, ready-to-drink cocktails, all of these will start to find their way on to those shelves and we'll benefit from that, we'll benefit from that disproportionately as we have been adversely impacted by the Bud Light. So I think our recovery is going to look good. It will start in the second quarter of next year, second, third and fourth quarter will become easier comps for us. The first quarter will be challenged because of Bud Light, in particular, did well. Budweiser did well in the first quarter. But I don't think we're going to have to make any further network changes. I think we're in a really good spot. We're managing that and we've got dry powder for what we believe will be a resurgent top line here over the course of the next two to three years. So that's probably more than you wanted, but I know it's a big topic, and it's certainly a big topic for Ball.

DanFisher:

The biggest one is going to be reduction in interest expense.

DanFisher:

Yes, interest expense and improved operating earnings out of our core business, we'll give you more detail. I mean, we're certainly going to be shooting for offsetting that as soon as we can in terms of the run rate. So you'll have a far better cash-generative business on the sales output. We'll be spending a lot less capital. So it should - and then we'll be buying back a lot of stock and so the combination of those are - should be great return of value to our shareholders moving forward.

Mike Roxland:

Got it. Thanks very much, and good luck in 4Q.

Operator:

Our next question comes from Phil Ng with Jefferies. Please proceed.

Howard Yu:

Thanks, thank you.

DanFisher:

Yes. So with the Kent facility, that was a leased facility. Maybe I'll give you a little bit about that facility. It's a leased facility. We acquired this, as you know, as part of the Rexam acquisition. It was started in 1971. We've got 126 folks there, two lines, 12-ounce standard and this will cease operation in the first half of '24. Typically, a facility of this size is in the $20 million, $30 million savings range. We'll offset some of that savings with a little bit of additional freight. So yes, somewhere in that neighborhood of $20 million next year, $20 million to $30 million. I guess how you should be thinking about it for a half year of that, I've given you an annualized number.

DanFisher:

That's a great question. The timing of the close will matter and how fast we buy back shares will matter. But I - as we sit here today, that is certainly our goal is not just to get back in that range but to exceed that.

DanFisher:

Right now, we have enough supply to manage. So from an EBITDA standpoint, we'll be in good shape. We are thinking about what we do with that footprint because this is something, Phil, where you can send this product over very long distances. So not to go down a rabbit hole there, but we're going to evaluate that and the insurance proceeds will be more than enough to potentially recapitalize that facility. We just need to figure out what's the best place to do that and serve our customers.

DanFisher:

You bet.

Unidentified Analyst:

Thanks very much. I think you have $1 billion coming due in the fourth quarter and maybe $790 of low-cost debt in the first quarter of '24. How do you plan to approach that?

Unidentified Analyst:

Thank you for that. When you sell the Aerospace business, does it perfectly carve out? Or are there stranded costs that are left over or opportunities to reduce overhead?

Unidentified Analyst:

It's like $10 million or $20 million?

Operator:

Our next question comes from Gabe Hajde with Wells Fargo Securities. Please proceed.

DanFisher:

Okay. Let's start with South America. So South America we were down slightly versus our expectations because of Argentina, it's Argentina. That's what it is. So, I wouldn't read much more into it. The volumes were in line in Brazil, maybe a little better. Our earnings were in line, maybe a little better in Brazil, but it's just the deterioration of Argentina and some unique taxes also that the government put in place. So we're going to be dealing with a little bit of volatility there for a period of time. But like I said, we'll have a significant inflection in Q4. South America is in a much better shape, obviously, than it was even at the beginning of the year. So we're very constructive on South America with the exception of the carve out of Argentina. In Europe, the volumes are going to be a little bit softer. I'd say the biggest difference between what we called out at the end of the second quarter what we're calling out today is like a weaker Europe, and I think you're hearing that from all of our competitors as well. It's a bit softer in consumer. I'm not overly concerned. It doesn't take much for growth. That market has grown for 20-plus years consistently, and it will return to growth, but the end consumer is a little weaker right now. And I do think the periodic shift six months is your characterization. I don't think you're far off there. And then in North America, I do believe, just to parse out my comments. We're not growing at 2% to 4% in the industry. It's 0% to 2% in that range right now. And it's because, obviously, the pricing behavior that we experienced in the last 18 months and a significantly weaker in consumer, which everyone is commenting on. So, I do believe there's a return to the 2% to 4% growth. But whether it happens in 2024 or the second half of '24 or in '25, I'm just being completely honest, is like what - where the end consumer is right now and what the pricing behaviors with our customers, we'll be the instrument, which it inflects up or down. Good news is, like I've said, we're running for the lower end of that range, both from an industry and from a Ball specific perspective, and we'll make more money and we'll flow more cash. But until that end consumer gains a little strength returning to the growth levels that I indicated a year or 18 months ago. I don't see that in the near term.

Scott Morrison:

Yes, you're directionally right on the working capital number. And actually, one of the things that Howard and I and our team has talked about is unwinding some of that factoring. So that could be part of the whole use of proceeds. The end of the day, leverage is leverage, whether it's on balance sheet or off balance sheet. So we may take an opportunity to do some of that.

Gabe Hajde:

Okay, thank you. I apologize for George here. The early crystal ball...

Gabe Hajde:

Just real quick. The crystal ball on working capital then for next year, it kind of things play out that we would expect?

DanFisher:

So there's the cash flow comment, which I totally agree with Scott, and we're getting to our balance sheet, it's going to be in great shape at the end of the year. In terms of the working capital, so if you're looking at DSO, DPO, ITO, that's how we run our day-to-day, our average working capital level will be significantly less next year than our average this year because of all the great work the teams have done to get our balance sheet in order. And that's how I get paid at the end of the day. So that's how EVA works. So yes, I don't know endpoints if we'll be able to improve much. I think the focus will be to it's always to get better, whether it's spare parts, inventory or finished good or coil stock or on and on and on. But the average will be better, significantly better year-over-year.

DanFisher:

Thank you.

Adam Samuelson:

Yes, thank you. Good morning, everyone.

Adam Samuelson:

Morning. There's been a lot of ground covered. Maybe just as we think about especially North America and Europe, a lot of discussion on beer. Is there any more distinction by customer category you would make in terms of actual pockets of strength versus areas where you've been surprised at where demand has surprised the downside apart from just the regional point on Europe, specifically and mass beer, obviously, in the U.S.?

Adam Samuelson:

Okay. No, that's very helpful. And then as you - in the other nonreportable business, you talked about the growth in aerosol, obviously, there's the main issue with the manufacturing plant in Virginia. I'm not sure I heard anything about kind of where things stand with the cups business and the march of that business towards profitability and kind of how close you're maybe getting to some bigger customers that could fill up that capacity.

Adam Samuelson:

Okay. All right. That's very helpful color. I'll pass it on. Thanks.

Dan Fisher:

Great. All right. We'll let this - thank you, Frank. We look forward to talking to you at year-end. Hope everybody has a healthy and safe holiday season. We're certainly thankful and appreciative for everything that Scott has done for the company. I look forward to introducing more of you to Howard here in the near future. So enjoy the holidays, and hopefully, we'll see most of you here in the next couple of months. Be well.

Dan Fisher:

Thank you, Malika. Good morning, everyone. This is Ball Corporation’s conference call regarding the company’s second quarter 2023 results. The information provided during this call will contain forward-looking statements. Actual results or outcomes may differ materially from those that may be expressed or implied. Some factors that could cause the results or outcomes to differ are in the company’s latest 10-K and in other company SEC filings, as well as company news releases. If you do not already have our earnings release, it is available on our website at ball.com. Information regarding the use of non-GAAP financial measures may also be found in the Notes section of today’s earnings release. Historical financial results for the divested Russia operations will continue to be reflected in the Beverage Packaging EMEA segment. See Note 1, Business Segment Information, for additional information about the sale agreement and a quarterly breakout of Russia’s historical sales and comparable operating earnings. In addition, the release also includes a summary of non-comparable items, as well as a reconciliation of comparable operating earnings and diluted earnings per share calculations. Late in the quarter, the company also announced that is considering options for its aerospace business. There are limitations regarding the depth of commentary we will provide on that topic today. If and or when additional comments are necessary, they will be made via a separate public press release. Joining me on the call today is Scott Morrison, our Executive Vice President and CFO. I'll provide some brief introductory remarks. Scott will discuss key financial metrics and then we will finish up with closing comments. Our outlook for the remainder of 2023 and Q&A. Let me begin by thanking our employees for working safely and with the utmost level of agility while fulfilling our customers' needs. On our first quarter call, we said that our second quarter would be choppy and that was the case. Our team delivered solid second quarter results amid tough year-over-year comparisons, including $47 million of higher interest expense, the $40 million of operating earnings headwind from the Russian sale and global beverage volumes down 11% driven by the Russian sale impact and a notable domestic beer brand experiencing demand disruption in North America. I'm proud to say that our team did an excellent job of managing both costs and working capital levels to deliver the quarter and position the business for a stronger second half. Looking forward, we will continue to benefit from notable inflation recovery, cost-out actions, and improved operational efficiencies. Our inventory levels are in good shape with plans to improve further. Our North America team is managing in real-time the balance of the U.S. mass beer brand [Indiscernible] and our improved demand forecast of other customers which should unlock additional opportunities during the second half. Cash flow is kicking in and we are studying opportunities to accelerate deleveraging and the multi-year return of value to shareholders, while also developing additional innovative packaging solutions to grow the business going forward. Around the globe, beverage cans continue to win relative to other substrates and we continue to leverage the contributions of our two new facilities in India, our customer mix, scale, plant footprint, innovation, and capable teams across the organization to ensure the best outcomes for all our stakeholders. In our aerospace and aluminum aerosol businesses, operational performance and demand for our products continue to grow. In aerospace, our one-not-book backlog increased one billion and the unique technologies we provide to support environmental and national security needs remains in high demand. And in our global aluminum aerosol business, we continue to serve new categories and offer reuse, refill bottle innovations to a broader set of customers and occasions. As we look ahead, all of our businesses will continue to unlock additional value for Ball stakeholders in 2023 and beyond. Consistent with our prior commentary, in 2023, we remain positioned to deliver approximately $750 million of free cash flow to deleverage and return value to shareholders, and in 2023, we anticipate the potential of achieving the low end of our long-term goal of 10% to 15% comparable diluted earnings for share growth, including the Russian business sale headwind and exceeding that long-term comparable diluted EPS growth goal, excluding the Russian sale headwind. During the Q&A, Scott and I will strive to provide additional clarity on the external environment and cadence for the remainder of 2023 based on what we know today. Our global beverage teams continue to position our businesses to deliver the year and have an eye on the future. For the full year and incorporating year-to-date trends, our customer mix and excluding Russia, we now estimate flat global volume growth for Ball, with North America being down low single digits, South America volume up mid-single digits, and EMEA volume up mid-single digits. We appreciate the work being done across the organization and extend our well wishes to our employees, customers, suppliers, stakeholders, and everyone listening today. With that, I'll turn it over to Scott.

Dan Fisher:

Thanks, Scott. We continue to believe that given the economic environment and global dynamics impacting our world, it is a great time for investors to get up to speed on Ball. Our improved results following the challenging 2022 is progressing. Our products and technologies are resilient and provide solutions for our customers. Our focus remains on delivering earnings, free cash flow and high quality products to our customers and consumers. And as leverage continues to come down and free cash flow expands, our return of value to shareholders will grow in 2024 and beyond. Thank you to everyone listening today. And with that, Malika, we are ready for questions.

George Staphos:

Hi, thank you. Hi, everyone. Good morning. Thanks for the details, and congratulations on the performance. I guess, the first question I had, can you talk -- I haven't tried to reverse engineer the full-year volume guidance relative to the year-to-date, but what kind of volume trends are you seeing early in the third quarter across the region? And are there any regions left with any notable filled product that needs to be destock? How would you -- have you think about that, guys?

George Staphos:

Okay. And actually, what I was getting at to some degree was what you were seeing in South America. So in South America, you -- from your vantage point, not a big amount of de-stocking, if anything, that needs to get done at the customer level. That would be fair?

George Staphos:

Other than you large -- I'm sorry, go ahead.

George Staphos:

Okay, Dan, thanks for that. I want to sort of come back to part of the question as I asked it and ask you to follow and then I'll step down just to be fair to everybody else. So what trends are you seeing early in the quarter volume-wise across the regions if you can talk about, put a number on that if that's possible? And then from our research and contacts, we've seen an uptick in promotional activity. We haven't necessarily seen a pickup in consumption yet. How would you have us think about the efficiency and the yield on promotion and the level of promotion that you're seeing into 3Q? And are we beginning to see some finally, some uptick in beer just based on what we're seeing out of the scanners and why, if that's the case, would you be confident about that continuing the rest of the year? Thank you.

George Staphos:

Thank you, Dan.

Operator:

Thank you. Our next question is from the line of Anthony Pettinari with Citi. Please go ahead. Your line is now open.

Dan Fisher:

Yes, why now is, if you look back five years ago versus today, the business is much bigger, much healthier, much more profitable, and it could fundamentally stand on its own. Those are the key cruxes for why you could potentially do something else with this business. It's really a manifestation of that business has performed tremendously and gotten to a point where it's an incredibly valuable asset. We believe that was the case. And so, we ran a process to validate that. Early indications are it is a valuable business. If and when I've got more to talk about, I'll let you know. It's really nothing about capital allocation and return threshold. It is just that it's a valuable asset. It's increasingly so. And we always need to look at our shareholder value equation and make sure that that asset is sitting in the right spot for the long-term generation.

Dan Fisher:

There's been very minimal movements in terms of retail displacement. I know those questions are being posed. There's a significant reset that happens kind of tail in the Q3 heading in the Q4 across most of the major retailers. So you will see this net impact fully manifest. Probably not until the first half of 2024 will all of the shakeout happen. So I'm not looking at anything appreciably changing in Q3. But the customers that have the opportunity to take a broader position in the retail, they will be gearing up their supply chains. They will be entering into these new retail positions over the course of the third quarter. And then you will start to see Q4, first half of 2024, where things start to settle out.

Dan Fisher:

Thank you.

Adam Samuelson:

Yes, thank you. Good morning, everyone.

Adam Samuelson:

Good morning. Maybe just a starting point on, as we think about the guidance and think there was a new kind of qualifier this quarter around kind of the potential to be at the low end of the 10% to 15% long-term kind of range. And I guess help me. Is it just a volume question more in the back half of the uncertainty with some easier comps and the magnitude of bounce that drives kind of the introduction of that qualifier? Or is it further disruption in the U.S. beer? Or just help me think about range of outcomes that drive potential versus actually achieving?

Adam Samuelson:

Got it. Now, that's very helpful. And as you look at -- start to think about 2024 in that context, and start working with customers, obviously, some of the market share shifts could present incremental opportunities. And I guess as you think about the mass beer channel in 2024 volumetrically, if that rebounds, do you think you gain disproportionately from that? Or is it some of that potentially grew back to the one of the captive can makers that are known by one of your big customers?

Adam Samuelson:

Okay. All right. Now, that color is very helpful. I'll pass it on. Thanks.

Operator:

Thank you. Our next question is from the line of Christopher Parkinson with Mizuho. Please go ahead. Your line is not open.

Dan Fisher:

Yes. So what we've stated in an inflationary environment, recessionary environment, which is clearly what Brazil's been saddled with here the last couple of years. Two or three times when we've had similar macro events in that country, we've seen shared shift to returnable glass in the five to high single digit range. We experienced the same thing from second half of 2021 all the way through today. As -- a lot of it has to do with the economics, lot of it has to do with the per unit price point of aluminum, the aluminum package in the hedge positions that were constructed by our customers. The cost of aluminum has come off, the hedge positions have come off, the economy is rebounding, inflation is declining, interest rates are coming off. So, all of those things point to we should normalize back to mid 50%, low 50% can penetration in Brazil. So we're betting on can penetration improving in Q3, Q4 and stabilizing in Q1 for 2024. We haven't done a ton of work on 2024 right now, but I would think about it's principally an improved economy and a returnable glass shift that took place during inflationary period, which has always come back to cans, because that's the preferred choice and the preferred choice of our customers. We expect the same thing to happen. It's too early in the process given, excuse me, in the year given it's winter there to see much movement if anything, but we anticipate that tailwind into Q3 and into Q4, more in Q4. Hopefully that helps.

Dan Fisher:

We began the year with the expectation that we wouldn't see promotional activity, but promotional activity does not generate volume momentum. We thought volume momentum would come in Q4 when there are more challenging comps. We still anticipate that. We didn't build in much in terms of volume momentum happening in the first three quarters of the year. And even though you're right, there's increased activity on promotion. It hasn't been enough to move volume. There has been share shift from the major CSD players into private label over the last four weeks. That is usually a light bulb that goes off and folks behave differently as a result of that, but I'm encouraged that what we built into our plan heading into the year will manifest in the fourth quarter. I don't see any appreciable movement in the third quarter, because the promotion to your point is happening, but it's not manifesting in volume momentum yet.

Dan Fisher:

Thank you.

Ghansham Panjabi:

Hey guys, good morning.

Ghansham Panjabi:

Good morning. Obviously a lot going on. If food is just going to step back and you know the first quarter beverage packaging North and Central America, you know volumes were down roughly 5% and then in 2Q down 8.5. Is that delta purely mass beer or is there anything else that perhaps was a little bit worse on a year-over-year basis?

Ghansham Panjabi:

Okay. Thanks for clarifying that and then in terms of the curtailment that you're doing in terms of managing supply et cetera across multiple regions. What was that number for 2Q and how are you thinking about that for the back half of the year as well?

Ghansham Panjabi:

Got you. And then just one final one. You seem generally constructive on Europe on beverage packaging side based on what you've seen so far this year. Just judging by the commentary and just some of the macro news. It seems like the European consumer is just much weaker in terms of spending and trade-downs and so on and so forth. Has your view changed at all in terms of the outlook for Europe specifically as it relates to the beverage can or is it pretty much the same?

Ghansham Panjabi:

Thanks so much.

Mike Roxland:

Thank you, Scott and Dan, thanks for taking my questions.

Mike Roxland:

I might as well jump on the mass beer right over here and ask the question just you know. How are you just thinking about your portfolio and your end market exposure going forward. I think so, you made the comment that you could see some you know some shares shift later this year until 2024. So you could see you know mass beer improved and then your volumes are probably not possibly dead out but if there isn't that recovery in mass beer what happens to your volumes then. And so, I guess the question really is, one, let's assume that mass beer doesn't recover what happens to your volumes then. And two, are you actually considering trying to shift your production to other product categories. I made a comment in the press release that you said you're trying to align yourself with customers that are experiencing higher growth, so that means, you're trying to really shift or minimize your exposure to mass beer relative to other categories that maybe have more potential on a go forward basis.

Mike Roxland:

Got that. Thank you for the color. And then just one quick question I think you recently restarted production Avital [ph] and Venus, George. And so wondering, I think that plan was taken down due to the weak macro and also because you lost a customer contract. So wondering is you need to bring them up and restart the plant because of your anticipation of better Brazil demand. Did you win new business? Just wondering why you've went up and restart. And I think that was done within the last month or so?

Mike Roxland:

Got it. Very clear. Good luck for second half.

Operator:

Thank you. Our next question is from the line of Arun Viswanathan with RBC Capital Markets. Please go ahead. Your line is open.

Dan Fisher:

Thanks for the question. As we sit here today, we haven't spent a whole lot of time on 2024, I think for both Europe and South America, given they're growing, we continue to believe that growth will persist. So the question mark will obviously be North America, but as I stated several times in this call, I think Q2 and Q3 we're at a trough. So we should see improved volumes over these periods. I believe that will be enough to push us into growth territory. So the aggregate position and the answer to your question is yes, I believe we will be in that low single digit growth for 2024. We've also stated several times that the capacity we've put in place over the last two to three years is enough to grow into at that range. And so, we should see nice lift in terms of profitability and performance without having to spend additional growth capital. We've spent the growth capital we need and I don't anticipate much in the beverage business over the next two years from a growth CapEx standpoint.

Dan Fisher:

Yes, I'll have Scott.

Arun Viswanathan:

Thanks.

Operator:

Thank you. Our next question is from the line of Phil Ng with Jeffries. Please go ahead your line is open.

Dan Fisher:

Hi, John.

Dan Fisher:

No pressure on the contracts at this point. I think a good reflection of that commentary would be the fact that we're passing through the inflationary mechanisms. So, if you weren't seeing that come through, I think you could probably could see that there's been some negotiation that's taken place. And that's not the case. The way I would look at volume, I think we're in a short-term dislocation for the second quarter and the third quarter because of mass beer. That correction relative to curtailments or decline shipments will revert in the second half of the year, but more meaningfully in the first half of 2024. The other thing that we've done is we've managed to inventory. So we built too much inventory last year. We've worked that off. So there's been an elevated level of curtailments relative to versus 2022. We'll be running much closer to scanner data in 2024 and Q4 likely to be a lot closer to scanner data. So those are the things that are well understood within the industry and with our customers. I think the theoretical excess capacity versus the reality versus the intentionality of running to cash, all of those things stabilized heading into 2024 in a, what I believe is a much tighter marketplace with growth underpinning every industry participant moving into 2024.

Dan Fisher:

Thank you.

Dan Fisher:

No, we have what we were referring to as, you know, we've generated a lot of cash here in the back half of the year. We're sitting out a lot of cash. And so we have the flexibility to, you know, pay down whatever piece of the debt we want to pay down. And so that's really what that's about.

Operator:

Thank you. Our next question is from the line of Gabe Hajde with Wells Fargo Securities. Please go ahead, your line is open.

Dan Fisher:

Morning

Dan Fisher:

Yes, maybe let me start with Europe. Everything is coming in line with what we anticipated heading into the year. Inclusive of the large energy player. The one area that's softer is beer. I think that's related to the macro environment there. So the higher single digits that we anticipated having the year are going to be closer to mid single digits, but still nice growth. And it's not a function of bringing on the capacity. The capacity that's being brought on is in the growth areas. It's going to be the capacity that's a little less utilized in the beer space. That's what's happening in Europe. Relative to North America, we had a decline, as you mentioned, of roughly 5% in the first quarter. We are in that eight and a half range for decline in the second. We will see declines in the third with a return to some volume momentum in the fourth. What happens in the mass beer space will be the indicator of is it growth? Is it flat? But that's fundamentally, it is the mass beer impact and it is the fact that we're overweight in the beer space and overweight to one customer within that space. So that's the delta.

Dan Fisher:

Yes, I think the overall marketplace in North America down slightly, 1%. And so the delta between that and our customer mix is really the delta there. And then on the Cup side, we're seeing incremental improvements. I think an LA Boston Series versus a Denver Miami Series would have helped the cup a little better, believe it or not, but making good ground and good traction in the food service space, things are breaking our way in terms of the regulatory environment as well on that product with Hawaii and now the mid-Atlantic's either banning or contemplating banning single-use plastic cups. So we're looking for trajectory over the second half of the year. I would not say that we will make a $20 million improvement in that business year-over-year, but we will continue to improve against it more in the $10 million range.

Dan Fisher:

Thank you.

Dan Fisher:

All right. Thank you very much. We will look forward to talking to you again in the third quarter. Everybody enjoy the rest of your summer.

Dan Fisher:

Thank you, Tina, and good morning, everyone. This is Ball Corporation’s conference call regarding the company’s first quarter 2023 results. The information provided during this call will contain forward-looking statements. Actual results or outcomes may differ materially from those that may be expressed or implied. Some factors that could cause the results or outcomes to differ are in the company’s latest 10-K and in other company SEC filings, as well as company news releases. If you do not already have our earnings release, it is available on our website at ball.com. Information regarding the use of non-GAAP financial measures may also be found in the Notes section of today’s earnings release. Historical financial results for the divested Russia operations will continue to be reflected in the Beverage Packaging EMEA segment. See Note 1 Business Segment Information, for additional information about the sale agreement and a quarterly breakout of Russia’s historical sales and comparable operating earnings. In addition, the release also includes a summary of non-comparable items, as well as a reconciliation of comparable operating earnings and diluted earnings per share calculations. Joining me on the call today is Scott Morrison, our Executive Vice President and CFO. I will provide some brief introductory remarks, Scott will discuss key financial metrics and then we will finish up with closing comments, our outlook for the remainder of 2023 and Q&A. Let me begin by thanking our employees for working safely and efficiently, while fulfilling our customer’s needs. Collectively, we delivered strong first quarter results amid tough year-over-year comparisons, driven largely by business divestments executed in 2022. In the first quarter, every business either achieved or exceeded their operating plan. Our aluminum beverage and aerosol shipments were in line with our regional expectations, and our aerospace technologies continue to be in high demand. Notable inflation recovery, benefits of cost-out actions, improved operational efficiencies and performance in every business offset higher interest expense and taxes. With near-term macroeconomic conditions continuing to pressure consumer demand, Ball’s year-to-date global beverage can volumes were down 1.4% in the first quarter, in line with our expectations. Looking ahead, the breadth of retail summer promotional activity across our customer mix in North America and the continuing successful ramp-up of our two new facilities in EMEA, will be the key drivers of our ultimate 2023 shipment growth. We started 2023 with a conservative view on annual global beverage shipment trends, and we maintained that conservative second half weighted view. We have a lot of the year ahead of us and we look forward to serving our customer’s needs. As we sit here today, in advance of seeing quantifiable promotional activity, we are proactively managing our beverage operations in North and South America for cash and supply-demand balance, as we continue to bring down raw coil and finished goods inventories and return to our just-in-time supply chain management versus the just-in-case supply chain requirement during the pandemic and extended period of higher than planned growth for beverage cans. Around the globe, beverage cans continue to win relative to other substrates and we continue to leverage our customer mix, scale, regional plant networks, innovation and capable teams across the organization to ensure the best near-term, medium-term and long-term outcomes for all our stakeholders. In our aerospace and aluminum aerosol businesses, operational performance and demand for our innovative products and technologies are accelerating. In aerospace, our technologies are well positioned to deliver unimpeachable data and monitoring capabilities for both environmental and national security needs. And in our global aluminum aerosol business, we continue to serve new categories and offer reuse, refill bottle innovations to a broader set of customers and occasions. As we look ahead, all of our businesses will continue to unlock additional value for Ball stakeholders in 2023 and beyond. Consistent with our prior commentary in 2023, we remain positioned to deliver our long-term goal of 10% to 15% diluted earnings per share growth, inclusive of the Russian business sale headwind and we remain well positioned to generate strong free cash flow to deleverage and return value to our fellow shareholders. As we indicated in our prior call, the second quarter will remain choppy in North and South America metal beverage as we continue to work through higher inventory and manage regional production with an eye on cash. In addition, the positive momentum in our EMEA, aerospace and aluminum aerosol businesses will continue. During the Q&A, Scott and I will strive to provide additional clarity on the external environment and cadence for 2023 based on what we know today. Our global beverage teams continue to position our business to deliver the year and have an eye on the future. For the full year and incorporating year-to-date trends, our customer mix and excluding Russia, we now estimate low single-digit global volume growth for Ball, with North America being slightly down, South America volume up mid-single digits, EMEA volume up mid-single digits plus and our other non-reportable beverage business volumes up mid- to high-single digits. We appreciate the work being done across the organization and extend our well wishes to our employees, customers, suppliers, stakeholders and everyone listening today. With that, I will turn it over to Scott.

Dan Fisher:

Thanks, Scott. Given the economic environment and global dynamics impacting our world, it’s a great time for investors to get up to speed on Ball. Our significantly improved plan following a challenging 2022 is kicking in. We produce products that consumers use daily, we deliver unique technologies to analyze, observe and defend what we value most, and employee owners are showcasing incredible resiliency, while delivering earnings, free cash flow and high quality innovative solutions to our customers and consumers, and as leverage comes down and free cash flow expands, our return of value to shareholders will grow in 2024 and beyond. Thank you to everyone listening today. And with that, Tina, we are ready for questions.

Ghansham Panjabi:

Hi. Good morning, everybody. Thank you, Operator. Dan, maybe you can just start off with how the volume outlook by region has changed relative to your forecast three months ago. I mean, clearly, a lot has changed in the last few weeks, months, consumer spending in certain regions including the U.K., seem to be much weaker. So just curious as to how that’s impacted your thought process for the year?

Ghansham Panjabi:

Okay. Perfect. And then just so I understand this correctly. So you are benefiting from inflation recovery this year versus last year, right?

Ghansham Panjabi:

Maybe you can touch on where you are seeing -- how inflation is tracking this year, 2023 versus 2022, and if there is any element of deflation, would that mean that in 2024 you would pass it on to your customers, just to clarify.

Scott Morrison:

No. There’s not deflation typically built in our contracts. There might be something unique in certain contracts where it’s tied to maybe an energy index somewhere. But, in general, we are not seeing deflation, we are seeing inflation slow down and that’s…

Scott Morrison:

That’s usually a really good environment for us. D Yeah.

Dan Fisher:

Thank you.

Unidentified Analyst:

Hi. This is John [ph] on for Chris. Thanks for taking my question.

Unidentified Analyst:

Can you expand on the promotion -- hi. Can you expand on the promotional trends that you are seeing around the globe, particularly in North America? And then also, can you please break down the various categories that you expect to drive growth going forward? Thank you.

Unidentified Analyst:

Perfect. Thank you so much. I will turn it over.

Operator:

Thank you. The next question comes from George Staphos of Bank of America. Please go ahead.

Dan Fisher:

Hi, George.

George Staphos:

How are you doing?

George Staphos:

So I wanted to come back to the question on end markets and trends you would expect for the rest of the year to the extent that you can comment. One, are there any categories without giving away information as proprietary that you expect will be particularly helpful and particularly a headwind to your volume outlook for the rest of the year? Relatedly, you mentioned, Dan, the beer category and there’s been lots of news there. What are you seeing in terms of your relative share of beer relative to what is happening to perhaps your mix or your customer mix? And then I had a couple of follow-ons.

George Staphos:

And on the end market trends and it’s been a long earnings season, so we are trying to help you…

George Staphos:

…ask them later this weekend but…

Scott Morrison:

George, the only thing I would add is, long-term, the positive -- the best positive here is the can is winning, new product introductions are still heavily weighted to cans and so that bodes well for the can in the long run and that’s we are playing a long game here.

Dan Fisher:

Thank you. So aerospace, I think the way you think about aerospace is that, I wouldn’t do a run rate on sequential improvement, meaning quarter two being better than quarter one. But I would say the quarters year-over-year will be improved. There is real underlying improvement in performance. In the second half of last year we had some pretty significant supply chain disruption. So that has been fixed. And then what you saw in the first quarter was a really nice performance execution and a couple of nice breaks in terms of just efficiency gains and just a better run enterprise there in the first quarter. So I think that will continue to be a tailwind in each quarter. It just -- it won’t be sequential lifts, right, it will be dependent on the projects and the mix. But that business is poised to do have an exceptional year this year. And I will let Scott tackle the efficiency question.

George Staphos:

Okay.

George Staphos:

Okay. Got it. Got it. Thank you for that. And operating rates this year?

George Staphos:

Understood. Thank you, guys.

Dan Fisher:

Thank you.

Angel Castillo:

Hey. Sorry. Can you hear me?

Angel Castillo:

Hey. Thanks for taking my question. Just wanted to follow up on the commentary around downtime in 2Q. Could you quantify what the drag will be from that and kind of related as you think about the kind of -- just cost or operational leverage that your business has to volumes potentially improving as kind of promotional activity returns. Just could you talk about maybe the degree to which some of that is maybe variable and comes back as you bring assets back online versus how much is just operating leverage that would be upside to our volume?

Angel Castillo:

Thanks.

Scott Morrison:

And Angel, just to give more granularity in the prepared comments, I said, in North America, we would essentially be flat sequentially first quarter to second quarter given the downtime of things that we are going to do and getting our inventories right. In South America, the negative will be larger than that. Given the volume, the mix and the absorption, it will be softer than it was in Q1 and then we expect to be in a better position as we move into the busier second half of the year.

Dan Fisher:

Our aerosol business is doing really well. We continue to win business. We continue to have nice volume growth. That business is seeing -- during COVID it was really impacted, I would say, volumes globally and we are seeing that really come back nicely. We are seeing -- and new products and innovation is driving a lot of that, both kind of in the typical aerosol personal care space, but also in the water space and the refill and reusable side. And in aerospace, I think, somebody mentioned, we had a choppy year last year. We had supply chain challenges that cost us money. And the business is performing exceptionally well. They are stepping into these newer contracts that we were confident would be good and they are good, and we will see the benefits of that for the full year. So we are really excited about those businesses.

Operator:

Thank you. The next question comes from Cleve Rueckert of UBS. Please go ahead.

Dan Fisher:

Good morning.

Dan Fisher:

Well, we are working -- in North America and in South America, we are working them down. So that’s why you see a big swing in payables. We are not ordering as much metal, both finished goods and coil, raw material. And so we have got another quarter of that to do in Q2 and then we think we will be in a much better position from an inventory standpoint. In Europe, it’s not -- we are turning on a couple of plants, so it’s a very different dynamic there. But in North America and South America, it’s about getting our inventories down.

Dan Fisher:

It’s both. Yeah.

Dan Fisher:

It’s both. I mean and we are talking…

Dan Fisher:

In North America we are talking days of finished good inventory. But we -- a lot of this -- the raw material piece is still a bit of an overhang from last year, because we were bringing in a lot and anticipating growth at this time last year. So we have held on to larger raw material stores and we have been working that off. We are continuing to work that off. And the finished goods, it’s not significantly different than what we anticipated heading into the year. But a few days of additional curtailment is meaningful in a quarter and I think that’s what Scott’s signaling to you.

Dan Fisher:

No.

Dan Fisher:

Yeah.

Dan Fisher:

Sorry. Maybe -- one -- maybe this will help for further Q&A regarding that question. We didn’t last year either. So there was a 21 to 22 bridge at each quarter for that. But we have originated all that production last year and you won’t have any of that commentary. For North America specifically, we did have a little bit of Saudi into Europe last year and that’s now gone away and we have got origination production now in Europe.

Dan Fisher:

Yes. I mean, absolutely, I mean, promotion works really well for us from a volume perspective. The degree to which the promotion is, I think, is the big question. And we are really not trying to avoid this question. But I think here’s the backdrop that we are facing relative to going into much detail or fully understanding the real impacts of what a promotion would look like and how it would react consistent with kind of historical norms. If you look at a 12-pack of CSD cans, three years ago it was about $4 on average, today it’s $8. So is $1 off going to move it? Is $2 off going to move it? So it’s not just promotion. It’s the elasticity in and around the price of the promotion that is very difficult for us to characterize and I think it’s difficult even for our customers probably to understand. So at this point, we need to plan to deliver cash and deliver earnings and the end consumer strength or weakness is also something that’s very difficult to understand right now just given the stimulus packages and higher interest rates and all of those things. It’s just -- it’s ambiguous and difficult to quantify right now. So we are running for cash and we are managing what’s in front of us and until something changes substantively, I think, that’s the best tone for our corporation and our employees to manage to.

Dan Fisher:

Thank you.

Operator:

Thank you. The next question comes from Anthony Pettinari of Citi. Please go ahead.

Dan Fisher:

Hi, Bryan.

Dan Fisher:

You bet.

Dan Fisher:

You are correct. It will be up year-over-year, but flat with the first quarter. In terms of the virtual power purchase agreement and when we had our previous call, we were negotiating the settlement of it. So we weren’t really going to discuss it. Part of that was built into our first quarter numbers because we knew we were going to settle it, we just didn’t know what the amount would be and that amount would have run through our P&L over time and in last year. But the provider wanted to exit the contract and we were able to extract a very favorable outcome for us and all of that outcome hit us -- benefited us in the first quarter, but that will not repeat. We have entered into other virtual power purchase agreements to make up for the lost clean energy that we were buying and so we are in a pretty good spot.

Dan Fisher:

Yeah. I would say in terms of filling out your model, I wouldn’t count on anything in 2023 relative to an uptick in fixed cost savings. We said we were entertaining closing it. I think we are committed to closing that facility now. That’s a subtle change. And the other thing is there’s just not a lot to talk about at this point, because we are entering into effects bargaining now. As we know more, we will update you. But you will see capacity coming out at some point this year and you will see that tailwind in 2024 is what I would anticipate, but I don’t know the specifics of it at this time.

Dan Fisher:

You bet.

Dan Fisher:

Thank you.

Arun Viswanathan:

Great. Thanks for taking my question and congrats on the strong quarter.

Arun Viswanathan:

I guess, first off, in North Central America -- in the Americas region or North Central America, you were able to kind of hit very high levels of segment income in Q1 that I thought would be more likely to materialize in Q2. So just wondering now as you look into Q2, do you expect kind of flat performance there? And maybe you could comment also on Brazil, obviously, we have seen some inroads on the glass side. But what are your expectations, I guess, as far as substrate mix as you look into Brazil for the rest of the year? Thanks.

Dan Fisher:

In terms of the glass versus aluminum substrate penetration or shift that we have seen here in the last 12 months to 18 months, it’s in line with what’s happened historically. In a higher inflationary environment, you do see a return to returnable glass, somewhere in that 5% to 6%, 7% share shift. That’s what we saw last year. As Scott indicated in his comments at the outset, and I think, we characterized what we believe to in the second half, as inflation dissipates and some of the actual cost and hedge positions of our customers down in Brazil, allow them to step into what the true cost of aluminum are. We are anticipating a strong peak season that will show up in the second half of Q3 and Q4 for us. We are not hearing anything different. I will actually be down in South America next week. So I anticipate to hear more of the same. But that -- I don’t see it as a permanent shift, I guess, would be the answer if that’s the underlying question there.

Scott Morrison:

A lot of that was already done. The European business has done a really good job both on the commercial front and the supply chain front to manage our costs. So that’s -- and you are seeing that in their performance, too.

Arun Viswanathan:

Great. Thanks a lot.

Operator:

Thanks. The next question comes from Mike Roxland of Truist. Please go ahead.

Dan Fisher:

Hi, Mike.

Dan Fisher:

Yeah. You were a bit choppy there. But I think the question is kind of what’s the underlying demand profile or assumption built into our current North America projection. And you are correct, we believe it will be slightly down at this point as we look out over the course and the balance of the year, given really very little insight into the actual decision for process related to pricing and volume. It’s a volume business at the end of the day and we are going to need some. But the teams -- we are -- all of the cost actions we took, all of the fixed cost actions that we took as difficult as those were, all of those give us the ability to execute against our earnings and our cash profile more importantly based on kind of a flat to slightly down volume profile and that’s what we currently anticipate and that’s what’s in our model. Second half weighted in terms of things like the PPI pass-through mechanisms and even some additional cost savings that we anticipate in the second half of the year. But, yes, second half weighted plan, whether volume moves meaningfully off of our current run rate, that would be upside, correct, and we would -- yeah, we look forward to seeing that upside. We can step into it, as I commented earlier in the call on both safety stock and our operational and performance. So there’s room for upside, but we need to see that the end consumer health and pricing behavior will play a role and a significant role in that.

Dan Fisher:

Yeah. We -- the only permanent closures we have had, we have announced. So we have got dry powder in that marketplace. Some of these assets are being contemplated to open back up depending on what happens in the market, as you indicated. There was share shift in Q1 and there was one -- one of our competitors benefited, because they had outweighted exposure to one of the beer brands there. A weaker beer customer or beer mix may shift around as it does from time to time. We believe that the customer relationships that we have, they are excited about the second half of the year more so for the cost shift and their hedges rolling off and us being able to step into our aluminum profile. But, yeah, it was a little choppier because of customer mix for us in the first quarter.

Mike Roxland:

Got it. Very clear. Good luck in 2Q.

Operator:

Thank you. The next question comes from Phil Ng of Jefferies. Please go ahead.

Dan Fisher:

Thank you.

Dan Fisher:

Yeah. Thanks for the question -- I do. In fact, it’s probably a little softer than Q1, but that’s anticipated and we are managing against that. But, yeah, as we sit here today, there’s not a lot of movement by the customer base to shift what’s currently happening. April is usually not the month that you usually see activity. So you get to the second half of May and June, that becomes really important as you head in the peak season. But as we sit here today, I think, the way you characterize it is correct. It’s largely in line with Q1 and pockets depending on customer mix may be a bit softer.

Dan Fisher:

Yeah.

Dan Fisher:

No. I think it’s a great question and it is. We built our plan on it second half loaded because of everything that you just outlined and indicated. The conversations that we are having with our customers, I will be down there next week has all been. You should count on that. That’s what they are planning for. But plans aren’t absolute. So at this point, I haven’t heard anything, I don’t have any insight that would suggest anything other than what we have laid out, what we have characterized. But I think your point is valid, I mean, there’s certainly risk in a significantly elevated volume position. But our contracts also have backstop provisions in there that give us a little bit more teeth than maybe in years past.

Dan Fisher:

Yeah. It’s -- right now, I would -- how we get there is slight declines in the first half and flattish in the back half.

Dan Fisher:

I think there’s opportunity for more to have in the back half, but that’s not what’s built in our current plan.

Dan Fisher:

Yeah. Thank you.

Mike Leithead:

Hey. Thanks. Good morning, guys.

Mike Leithead:

I just wanted to actually follow up on Phil’s last question there, just thinking about the North America earnings cadence for the year. I think, Scott, you were fairly clear on the 2Q outlook. So just how should we think about the magnitude of the second half step-up just as you think about the new contracts rolling in?

Mike Leithead:

Got it. Fair enough. And then second briefly, you talked a lot about North America and South America earnings outlook, but could you maybe speak to the earnings outlook for EMEA into the second quarter and beyond?

Dan Fisher:

Yeah. I think how you look at Europe is FX stabilized, inflation stabilized, big headwind first half of the year in terms of operating earnings from the divestment of Russia and then you step into the two new facilities in the second half of the year and we are still seeing growth in that business on improved contractual terms. So it will be continued improved performance once you step out of the second quarter with the drag from a $40 million Q2 in Russia.

Operator:

Thank you. The next question comes from Kyle White, Deutsche Bank. Please go ahead.

Dan Fisher:

Yeah. Kyle, first of all, congratulations. A lot of the information we are getting on new product innovation is coming from Vane [ph], your new baby girl -- boy, sorry.

Dan Fisher:

So, yeah, he -- I am sure what he’s going to be wanting is ready-to-drink cocktails and -- but nutritional energy drinks. In all seriousness, lots of innovation still happening and continuing to see share gains from our ready-to-drink cocktails. I think a couple of customers have really benefited in that space. And there’s almost a forcing mechanism here, like, if beer is declining, those alcohol companies or new beverage companies are going to have to step into things to sell and they are innovating at the fastest rate. And then we have seen some of the historical CSD companies that have introduced alcoholic beverage and they have really done well. So you will also see -- the other part of this is you are -- there’s a greater opening as the price increases have been the lever with which folks have pulled, our customers have pulled. It creates a disruptive space for innovation to come in. That’s always what we have seen and so it’s ripe for more innovation and more disruption and you are starting to see that. And now that we have cans available, cans will win and those tailwinds will manifest here more in the medium-term, but we are having all those conversations. So I think that will continue to be a benefit and a tailwind for the can. Still seeing new product introductions at those 70%-plus levels. So nothing’s changed in terms of that. The can continues to win. So we are excited about the future prospects and new product introductions.

Kyle White:

Got it. And I appreciate the remarks. Maybe a soft sell-through here for the little guy here shortly. But next question I want to focus on the start-ups related to Europe. Just curious how the U.K. and the Czech Republic plant are doing, any kind of -- how the ramp-up there is going and any start-up costs to call out?

Scott Morrison:

We probably had about $5 million of cost -- start-up cost in the first quarter. There will be more of that in the second quarter. But I was just looking last night actually at the start-up curve for each of those plants and it’s been phenomenally well executed. We are right on where we thought we would be and we are really happy with the performance and the execution of those projects.

Dan Fisher:

Thank you.

Gabe Hajde:

Dan and Scott, good morning. Congrats.

Scott Morrison:

Good morning. Thanks.

Scott Morrison:

For the first side of your question, I would say, you are directionally correct where you are coming out. On the second part and are you speaking to the second quarter EBITDA?

Scott Morrison:

Yeah. Now the second quarter EBITDA will be down and then it will accelerate in the back half of the year. And we explained both -- we got a $40 million drag from Russia. We are getting our inventories right in South America. So we will take absorption hits. We will have negative mix in the second quarter. In the second quarter, in North America, the plants will perform very well and we will make more money than we did last year, but we don’t have the PPA thing that we had in the first quarter. So I think I explained exactly how it should shake out.

Scott Morrison:

No. The rate -- the $425 million is kind of built in with any actions that we would take and when we would take those actions to deal with the maturity in November. We will generate a lot of cash in the back half of the year. So our debt paydown really doesn’t happen. This is kind of the peak leverage right now in kind of April, May timeframe, stays fairly even until through June and then it starts to come down, but most of it will come down in the fourth quarter. So that interest expense assumed kind of anything we might do on the debt front. What was the other part of the question?

Scott Morrison:

Yeah.

Scott Morrison:

Yeah. And then next year we are going to delever more. I think we can both delever and start buying back some stock next year. But sure in the higher interest rate environment, you probably want a little less debt. The world has started to stabilize, so that’s good. But I am a hell of a lot older than you Gabe, but these rates are still not that scary. I was around when we were doing 8%, 9% debt. So 6% debt is really not -- it’s something we have to deal with, but it’s not something that changes the direction or changes what we are doing.

Scott Morrison:

Oh! Yeah.

Scott Morrison:

Yeah. I think we got to manage both the supply side and the customer side from a working capital standpoint and we do that every day. And every new contract negotiation, those are key points. It’s not just about price and volume, terms matter and so we focus on that every day, and we have meetings on cash flow every month. So we are very keen and focused on it. But, yeah, in a higher interest rate environment, anything that has a time element of money is more expensive.