Crown Holdings, Inc. ($CCK)

Good morning, and welcome to Crown Holdings' First Quarter 2026 Conference Call. [Operator Instructions]. Please be advised that this conference is being recorded. I would now like to turn the conference over to Mr. Kevin Clothier, Senior Vice President and Chief Financial Officer. Sir, you may begin.

Thank you, Al, and good morning. With me on today's call is Tim Donahue, President and Chief Executive Officer. If you don't already have the earnings release, it is available on our website at crowncourt.com on this call, as in the earnings release, we will be making a number of forward-looking statements. Actual results could vary from such statements. Additional information concerning factors that could cause actual results to vary is contained in the press release and our SEC filings, including our Form 10-K for 2025 and subsequent filings. Earnings for the quarter were $1.56 per share compared to $1.65 per share in the prior year quarter. Adjusted earnings per share were $1.86 and up 11% compared to $1.67 in the prior year quarter. Net sales for the quarter were up 13% compared to the prior year quarter, reflecting a 5% increase in global beverage can volumes, $234 million from the pass-through of higher raw material costs and $74 million from favorable foreign exchange. Segment income was $405 million in the quarter, compared to $398 million in the prior year, reflecting higher beverage can shipments in Europe and Asia Pacific, partially offset by lower volumes in Brazil and lower cost recovery in North American beverage. Second quarter 2026 adjusted earnings per diluted share are projected to be in the range of $2.10 to $2.20 per share. and full year is projected to be $7.90 to $8.30 per share with a $0.05 headwind in the second quarter and a $0.10 headwind for the full year due to the conflict in the Middle East. The adjusted earnings guidance for the full year includes net interest expense of approximately $355 million. exchange rates at current level with the euro at $1.17 to the $1, full year tax rate of approximately 25%; depreciation of approximately $330 million. Noncontrolling interest expense, approximately $145 million, while dividends to noncontrolling interest are expected to be $110 million. Share repurchases are expected to be approximately $600 million. We maintain our 2026 full year free cash flow guidance of approximately $900 million after $550 million of capital spending to support our growth projects in Brazil, Greece, Spain and India. The company's net leverage was 2.7x at the end of the first quarter, reflecting seasonal working capital build. The company expects year-end net leverage to be approximately 2.5x, in line with our long-term target. With that, I'll turn the call over to Tim.

Thank you, Kevin, and good morning to everyone. As Kevin just discussed and as reflected in last night's earnings release, the company had a firm start to the year with earnings per share up 11% over 2025. Global beverage unit volumes were up 5% in the quarter on the back of strong demand across Europe and Asia Pacific. And when coupled with 3% North American food can volume growth. That offset volume declines in Brazil and higher input costs in North America. The conflict in the Middle East continues to create volatility across energy, transportation and direct materials such as aluminum and coatings. The biggest direct impact to Crown has been in the Middle East where religious tourism has been significantly reduced, and some customers have not been able to export. Although Crown's March month shipments in the Middle East were up 19% over the prior year, as our operations in Saudi and Jordan supported the UAE. All Crown plants remain operational with adequate supplies of materials. Although for safety purposes, we have curtailed operations in Dubai from time to time over the last 2 months. As Kevin just discussed, we've included a full year $0.10 per share headwind with $0.05 a share in the second quarter and $0.05 a share in the second half to account for increased costs related to ocean freight, energy and direct materials. We are also mindful of building inflationary pressure on consumers, although can demand remains strong globally, owing to its many favorable characteristics. Turning to the operating segments. In Americas Beverage, sales increased by 16% in the quarter, primarily reflecting the pass-through of higher material costs. Unit volumes in the Americas were up 1% to the prior year first quarter, with North America up 1% and Brazil down 5%. Income was down about 10% in the quarter, in line with expectations owing to volume mix effects, Q1 cost timing and higher cost inputs not recover through our contractual pricing formula. We do expect the delta to prior year to narrow significantly in the second quarter. The aluminum beverage can market in North America is steadily growing across multiple categories due to new product launches and convenient packaging. We expect strengthening demand into what should be a very tight hand supply situation this summer with our current full year growth estimate unchanged at 2% to 3%. In Brazil, we forecast second quarter volume to be down with the full year showing modest volume growth. European beverage volumes advanced 7% in the quarter, with growth noted throughout Northwest and Southern Europe and the Gulf states, leading to a 28% increase in segment income. Capacity remains tight across Europe, again, leading to what should be a very tight can market this summer. As previously discussed, we have two expansion projects underway in both res and Spain to support future growth. Income in Asia Pacific advanced 10% in the quarter on the back of 17% unit volume gains. Growth was notable across Vietnam, Cambodia and China as results from our commercial adjustment strategy combined with recent cost reduction programs begin to bear fruit. Volumes across transit packaging held up well during the first quarter with equipment, plastic strap and film offsetting most of the declines in steel strap and protective. Margins were down compared to the prior year as input cost inflation ran ahead of our price recovery. We do expect to begin to recover cost inflation in the second half of the year. First quarter volumes in North American food cans advanced 3% and when combined with better results in food closures and beverage can equipment, income and other increased $18 million in the quarter. So just to recap before opening the call to questions, global beverage volumes advanced 5% in the quarter, and demand looks to remain strong for the balance of the year despite inflationary pressures on consumers. In what should be very tight market conditions across both North America and Europe. Food can volumes up 3%, following 5% growth in the prior year first quarter. Earnings per share up 11% and to $1.86. We returned in excess of $250 million to shareholders in the first quarter, and in the last 5 quarters, have repurchased approximately 6% of outstanding company common stock. The balance sheet remains strong. Cash flow is significant, which will allow for the continued return of value to shareholders. And with that, Al, I think we are now ready to take questions, please.

[Operator Instructions]. Our first question will be coming from George Staphos of Bank of America.

Just Kevin, I just want to give you a quick question first and congrats on the progress so far. The supply chain issues as they were building give you any volume opportunities you pointed to in the release that you're able to leverage your network globally, all your peers have global networks too, but did any of that make for maybe some extra volume that you maybe weren't considering to start the year if some of your peers were having issues elsewhere? And then the volumes have been very strong. You talked about it being tied into the summer, and that's terrific. Having said that, you're coming off tough comps already. We had very strong growth in the fourth quarter. Are there any factors out there that would suggest maybe there's a little bit of pre-buying going on in terms of this volume demand? And then I had a follow-on.

Okay. So let me -- the first question, George, I think we feel pretty confident that the answer to your first question is not yet. That is -- if there is going to be a tight raw material supply situation vis-a-vis the aluminum supplier fire that is causing some aluminum disruption to some of our peers. If there is a benefit to that, we have not seen that as of yet. I think what I would characterize is that this was always going to be, I believe, a tight summer situation this in both North America and Europe, notwithstanding the North American aluminum outage. So our network -- so -- we're all global -- well, careful how I say this, I don't mean this in the way it's going to sound. We're the only ones that are really global, Georgia, and that we have an Asian, a fairly large Asian footprint that we can supply and support other regions from when need be. And we will see that into the second and third quarter, depending on the length of the Middle East conflict and the straight or moves blockage where some suppliers cannot ship to India, we will pick up some cans into India from our operations in Southeast Asia. So that will occur potentially in Q2 and possibly even into Q3. So that would be one area. Now I think when we talked about leveraging the global network, it's more towards reflecting on the immediate circumstances and danger that was present in the United Arab Emirates and specifically in Dubai, where there is Crown and 1 other can manufacturer amongst a whole host of manufacturing companies that were threatened with drones and missile strikes. So we were able to leverage from the other operations in the Middle East and -- and obviously, we're able to reroute and redirect aluminum supplies from Asia and or the Middle East or European suppliers in and out of the Middle East to other locations. So that was basis of that comment. And since I just spoke for so long, you're going to have to remind me your second question, I apologize.

No worries. And I should have mentioned, I hope everyone is safe, both at Crown and your suppliers are when you circle with what's been going on in the Middle East. The question was, look, volumes have been strong for a while. Volumes were strong in the first quarter, up 5% globally. Any concerns on your side that this is pre-buying why, why not? And then I had a follow-on then I'll piggyback.

Hard to know. You know the North American market, George, as well as we do. You can cover the space as long as we've been at Crown. The customers are -- you want to talk about just in time, they keep absolutely 0 inventory. So they basically receive deliveries from us and they go right into the can wash or into the filling line within minutes, right? We have 15-minute delivery windows that we're expected to deliver into. So they don't they don't get shut down. So I don't think there's a lot of prebuy because they don't keep a lot of -- they don't keep a lot of inventory and they've got direct delivery right to the stores. So, in Europe, could there be a little prebuy maybe with some of the beer customers, but again, the soft drink guys not keeping a lot of inventory. And the growth in Asia has been -- if we just take a step back and talk about Asia real quick. The growth there has been growth in Asia for the last several years, mid- to single high digit range. We elected not to participate in that for reasons around the value. got our cost structure where we want it. We think we have the lowest cost structure of any producer in Asia. And we think we're now well positioned to afford us a different commercial strategy, and that's what you saw in the first quarter. So I don't think there's been any prebuy. I could be wrong, there could be some on the margin, but nothing large enough, George, to move the needle.

A quick one, and I'll turn it over just to be fair. And I'll leave some other beverage cans for the rest of the team. On Signode, any green shoots at all? I know you said you suggested that the margin was a function of timing of pass-through relative to your cost inputs. And obviously, we'll take that at face value. you're seeing some pickup in volume. But when do you expect we're going to see along with green shoots kind of a pickup in margin there? Because that's ultimately trapped earnings at some point that could leverage to the benefit. Anyway, I'll turn it over there.

Thanks for the question. So data January data looked pretty promising, although I saw consumer sentiment the other day. I don't know if it's University of Mission or who publishes it, but it was just dreadful. And I think the last 2 months are -- have been bad, and I think we're at the lowest level ever is what I read the other day. So having said that, volumes have held up fairly well on the commodity side, although there has been some margin squeeze on the equipment and tool side, where the margins are much higher. There has been volume lost over the last couple of years. Now in the month of April, we have seen order inflows at much higher rates, 10% to 20% higher than this time last year. that typically takes about 90 days for it to manifest itself into delivery. So we are hopeful. I don't tell you that because I'm promising you anything. But if we're looking for a green shoot order orders received in the month of April looked pretty promising across equipment and tools. So we're hopeful for a stronger third and fourth quarter.

Our next question will be coming from Phil Ng of Jefferies.

Tim, you mentioned the bev can market is going to be quite tight in the summer months in North America and Europe. Certainly, there's some supply chain dynamics at large. How comfortable are you in terms of meeting that demand if the market comes in a little better than, call it, low single-digit growth in the U.S. as well as Europe, give us some context or ability to potentially meet that demand?

Well, we're only because it's early in the year. And. As I said, we're mindful of the inflationary pressure building on the consumer. We've left our growth expectations for volume in North America at 2% to 3%. We certainly have certain room to do a little better than that. I'd like to wait to see how the second quarter unfolds and how the consumer reacts to what they're faced with, which is higher energy across the board, whether it's their home heating and electric bill for air conditioning and other gasoline build. So we can go a little bit above 2% to 3%. But let's be clear, Phil, we have limitations as well. We, like every other can supplier, have a limited amount of capacity. And if the market those gangbusters, which feels very strong now. When you look at the categories over the last 52 weeks, with the exception of beer in cans, beer is only down 1.1%. Every other category is up low to mid-single digits with the exception of energy, which is up almost 20%. So it feels like the consumers -- and then our customers recognizing that the consumers favor the positive characteristics that they can, things are really positive for the can right now. But we do have limitations, but we'll do our best to sell every can we can at the right price and satisfy the market. Certainly, contract customers come before spot customers.

Okay. The reason why I asked is because -- I mean, your volumes for looked a little muted. Certainly, you got tougher comps in Brazil. But it sounds like you have the runway to support that demand as we kind of think about how the year unfolds in March and April? How have transaction been trending? Whether it's North America, Europe and Asia, Middle East, I mean, certainly a lot of uncertainty on the macro front.

We've got off to a slow start in January. I mean, the month of March, I think, was the highest shipment month ever. for the company, which is surprising that happened in March, like a May month. Yesterday was our highest shipment day ever in the industry of the company. This is North America. So things are things are pretty firm right now. March was a strong month and April is going to be maybe not as strong as March, but April typically is a soft month, and it's going to be a strong month. Brazil, we had a difficult comp. I think we were up like 11% last year in the first quarter in Brazil. And not to place too much on the comp because I do think conditions in Brazil are different than conditions in North America right now. I think the Brazilian consumer not as resilient as the North American consumer. So I think we are post Carnival and getting into their winter months. We'll see how the market in Brazil reacts. And hopefully, the Brazilians and the Mexicans go deep into the tournament. We're pulling for both the Mexicans and the Brazilians to go as deep as possible, that will be really positive for can demand in both of those countries. And even in even among the Hispanic and broader Latino population across the United States.

Got it. And one last quick one for me. You talked about how -- just given some of the supply chain in Asia, that could be an opportunity for you shipping into places like India. Certainly, that could be an uplift on demand. Is there anything we should be mindful in terms of costs associated with that? Is that something you pass on to the consumer and that would be accretive to EBITDA and EBITDA margins? Or how should we think about that opportunity? that could be a good guide 2Q and 3Q?

Yes. Listen, I think if you sell more cans, you're going to make more income, right? You're going to make more earnings, more EBITDA percentages move around a little bit, as you know, with the pass-through of higher material costs. So you always have the denominator effect. But we -- if there's an opportunity for us to ship 10 million cans into the Middle East from Thailand or Cambodia, Vietnam. And the customers need support, we're ready and able to do that.

Our next question will be coming from Ghansham Panjabi of RW Baird.

Tim, just going back to commodity costs. Obviously, a big increase in oil and aluminum and pretty much everything else over the last couple of months. It sounds like you're still embedding a pretty intact volume outlook for 2026 apart from what you called out in the Middle East. But last time we had inflation a few years back, it was very tough for your end markets and the developed markets in particular. So I guess what gives you confidence in the implied resilience this go around? I know there's some distortion with the World Cup. But then the emerging market consumer, I would have to imagine is much more sensitive to fuel prices, et cetera. So just going back to the question on confidence on volumes.

Yes. So the big inflation that we have right now is principally in North America, it owes to the Midwest premium. We don't see that as much in that level of inflation in Asia and Europe. But your question is a good question. It's why we left our volume expectation unchanged from what we provided to you in February. We're always mindful of this. And you're right, it was the second half of 2022. Kevin and I went back when we looked at it, the big shot then was there was a rapid increase in LME from, let's say, 2,500 to 4,000 a ton. The LME has been more or less bouncing around 3,200 to 3,500 right now, it's been really the Midwest premium that's kind of in the proxy to absorb the tariffs. But having said that, as you've said, and as we've said earlier, pressure on the consumer from broader inflation and specifically energy-related inflation is there. But I just -- what we see right now, what we're feeling right now what the customers are asking for right now, at least through the end of the second quarter, it doesn't look like it's going to slow down now. If your question is, could we have a shock like we had in the third quarter of '22. Anything is possible. It just doesn't feel like it's going to happen this year.

Sorry, go ahead. Go ahead. Yes. No, I was just going to ask for the nonreportable segment, the step function in profitability. Was there anything onetime-ish that drove that? I know you called out strength in beverage can equipment and also North American food cans. And then finally, on India, can you just frame how big the market is from a unit standpoint and your current position in context of the greenfield capacity you announced.

So the market roughly 4 billion to 5 billion units and growing 15% to 20% per year. We supply very little into the market right now. We used to -- before there were can plants there, we supply them most of the entire market from Dubai, but -- so we have very little supply other than what we're shipping in now from Asia to cover some of the Middle Eastern supply. And then we're adding 2.2 billion units over a couple of years here. So with a large customer under contract already. So we feel pretty good about that market. Was there a first part of the question that I missed?

Non-reportable step function.

Non-reportable. I'm sorry. Bed can equipment, I think we tripled the income in the quarter compared to last year, albeit off a lower base. Food cans again, as I said, growing 3% and utilizing more capacity, and we had some new -- we brought new capacity on over the last several years, so utilizing that new capacity and a really balanced mix among seasonal vegetables, nonseasonal human food and pet food making up 40% to 45% of our mix nowadays. So a really good mix. And then food closures. Surprisingly, food closures performing quite well among nutraceuticals, other nutrition drinks and some human food. If you think about condiments and Charles, things like that. So spread out, could there have been some minor one-off, maybe not much more than a handful gosh, if you're trying to understand the impact of metal carryover, maybe a handful, if even that, not that much.

Our next question will be from Chris Parkinson of Wolfe Research.

Given all the moving parts in Asia over the last few years, and I know you've dramatically improved your operating base. Can you just give us kind of some insights on how you think about the sustainability of the inflection on a go-forward basis? It seems like there's still some mixed results on a country-by-country basis, but I'd love to hear your perspectives.

Well, I don't know that we have any mixed results on a country-by-country basis. Volumes are were strong throughout the division. The segment rather, particularly strong in Cambodia in China, as I mentioned. We have a number of large customers that we're partnered with some in joint ventures, some not in joint ventures. As I said in February, we agreed among all of us here at Crown that we were going to take on a new commercial adjustment strategy to go out and grab more volume, and it seems to have worked. There's been a fair amount of consolidation among the Chinese beverage can suppliers. So it does appear that there is a slight firming in China right now and we'll see how that progresses. But as I said to Ghansham's question, there's been growth in Asia for the last several years. We've elected by and large, not to participate in that because it was at prices that we said were not worth participating. That has changed a little bit. And so now we're participating again. Keeping in mind we make 16% to 17% operating income. It's a pretty healthy segment for us. So I'm always -- I saw your note, Chris earlier in the week. I'm always when people say they're disappointed when we're making 17% in the packaging industry, most packagers would like that. So that is a division that we're -- we have high hopes for and we continue to support and we think it will continue to be a really good asset for the company into the future.

Great. And just as a follow-up, obviously, you've gone through your expansions in Brazil, Greece, Spain, India. And at the same time, it seems like the developed market side of it, the U.S. and broadly in Western Europe, still seems pretty tight. Are there any other aspirations in terms of adding additional lines that you're considering? Is now the right time? Do you foresee others kind of taking the progress just given the constructive SD through the end of the decade? Just any quick percentages on that, and then I'll be happy to pass it over.

So we -- as you rightly point out, we have -- with Greece and Spain, we have some Western European expansion. Obviously, that's not Northwest, but it is Western Europe if you will, Spain is Western Europe. Very brief is Southwest Europe. And Brazil, North America, I guess your question is probably more specific around North America. At this time, we do not see the need for Crown to expand capacity in North America. That obviously could change depending on the market and specific circumstances, but the time being, no.

Our next question will be from Matt Roberts of Raymond James and Societe.

Tim, Kevin on -- on Americas segment income, for 1Q, could you help parse out what was a function of lower volumes in Brazil versus weather in North America versus general inflationary pressures? And on those inflationary pressures, how does 2Q compared to what you saw in 1Q in Americas? And how quickly are you able to offset those raws pressures with regards to freight, energy or coatings?

Yes. So you're generally well aware of the formula price we use using PPI as a proxy to recover our nonmetal costs on an annual basis. And PPI has been somewhat benign. The PPI adjuster has been somewhat benign over the last couple of years. So a little bit of a building pressure that perhaps last year, we spurred away from it, but this year, kind of call it. We kind of knew this was going to get us this year. And so you've got labor goes up every year. You've got the coatings fellows are facing pressure all the time. Especially right now with the Middle East crisis. Warehousing costs for us in the first quarter this year, about a handful or a touch more only as we try to warehouse more cans early on to meet what we expect to be strong summer demand. We had a little situation -- a little timing situation whereby we use some Chinese metal in some locations and the Chinese government in January or February of last year, removed the VAT refund on exported aluminum. So we had 1 or 2 months comparison this year that we didn't have last year. And then as you point out, the mix, obviously, depending on the customer and depending on the size of the can, the profit mix in Brazil sometimes is a little better than the profit mix in North America. So it's a whole bunch of things. And to the second part of your question, as we said in the prepared remarks, we will significantly reduce the delta between last year and this year, the second quarter. maybe not fully, but it certainly won't be $26 million.

I don't know if you want to quantify, but maybe take -- the January, February winter cost headwinds, was there a certain amount in 1Q from that?

I'm not sure I want to quantify anything. I would tell you that January volumes are down about 6%. And I think February volumes were up a few percent as well. So it was a tough few weeks in there where we had difficulty transporting. We had difficulty getting our own people to factories.

Makes sense. And if I could sneak one more in quickly. Kevin, share repurchases, I think that was -- I think you said 600 ml, I believe is $650 million before -- any change there? Is that future CapEx in regard to India? Just linking some more dry better anything that.

No change. It really -- the number is approximately $600 million. We have a little room to go higher than that. So it was just put a number out there, Matt. So no change.

Our next question will be from Anthony Pettinari of Citi Group.

With the hit from the Middle East. Is that primarily hitting your Europe segment where I guess those assets sit? Or is it sort of spread across the company? And then is there any kind of assumptions around you talked about ocean freight, energy, direct materials, those costs staying at current levels, maybe the conflict resolving at some point? And then maybe coming down or maybe going up further? I'm just wondering if there's any kind of color you can give around sort of the assumptions around that $0.10.

Most of it will be in the European segment. Depending on ocean freight, we could have $0.01 in the United States as we bring metal into [indiscernible], United States -- in the parts of the [indiscernible] business, not in the United States, but parts of the [indiscernible] business from China. And certainly, ocean freight as it relates to the Asian business because we do move cans and materials around Asia as well. So -- and then energy, if you think about diesel and some of the industrial gases, LPG, LNG, et cetera, into Asia. Many of the markets are subsidized where there's little impact to us, but there are some markets that are not subsidized. So we have forecast a bit of a headwind in the Asian, maybe $0.01 or $0.02 in Asia as well.

Got it. Got it. And just generally, I mean, directionally, you expect these costs to maintain at current levels towards the end of the year or some relief for?

Well, I think you're our leading assumption is probably correct that even if the conflict resolves itself, we're going to see elevated costs for some period of time. And we will Obviously, we're working on plans right now to minimize the cost and/or share costs with customers right now. But your assumption is correct. Costs will remain elevated for some period of time. They will ultimately fall back depending on demand and industrial activity, but we like you expecting the remain elevated.

Got it. Got it. That's very helpful. And then just one quick one on nonreportable. You obviously had a really strong first half or first 4Q, 1Q in North American food cans. And you talked about some of the reasons behind that with pet food and growing faster in the market. As you look to the second half, do those comps get tougher? Or is there anything from like a timing perspective? I'm just wondering the sort of the trajectory in North American food cans. And if you lap any kind of customer wins or if there's anything we should be mindful of in terms of modeling that maybe more in the back half of the year?

Yes, I don't think there's any notable customer wins on the food can side or the closure side, I think it's -- we have two customers that are growing. So they have wins and because they're crown contract punters we buy default, get their now. That will -- good question. Second quarter, I think we expect earnings and other be up in the second quarter and maybe the comps get a little bit more difficult in Q3 and Q4. So you're not likely to see the big outperformance in Q3 and Q4 that you see in Q1 and then a little smaller in Q2.

Our next question will be from Josh Spector of UBS.

It's Anojja Shah sitting in for Josh. Got FCA's question, we're seeing fertilizer prices increasing quite significantly this year right ahead of planting season. What does that mean for the pack season this year? Do you think that means the yield the bill plant less and have less of a yield this year?

Well, they'll plant as much as they think they can sell and they'll play as much as what the demand from the retail or the wholesale markets tell them that they have to plan. I don't know -- to be honest with you, I don't know if they hedge fertilizer or not. But I do think I do think we're going to see a stronger period of food can and at on consumption here as inflation begins to pull up the consumer. So as President Obama said, maybe sign people start eating their peas again. So one of my favorite lines from President Obama. So I don't think that our customers will necessarily plant less. They are, by and large, the food industry has become much healthier over the last decade consolidation to help them do that. They are broadly specialized among certain kinds of vegetables, soup, pet food. I mean, pet food, again, fertilizer has something a little do with that food not much. But -- so I don't think they're going to plant list, no.

Okay. That's helpful.

And then just a one thing I would say is that if you're hearing that in the market, you follow the cattle cycle. You know the cattle cycle is at a 75-year low, principally because of drought conditions in the Midwest. So when we talk about human food versus feed grains and feedstocks, there could be a different difference on how much feedstock is planted versus human stock.

And then switching over to Mexico. Can you just talk about -- I think your volumes just backing into were probably pretty strong in which is a little surprising to me because they just put that second sugar tax in. Maybe we could just get an update on what happened in Mexico in Q1 and then what you're expecting for the rest of the year?

So I think we're -- Mexico up about 4% in the first quarter, kind of expecting a flatter year, to be honest with you. So we'll see how the year those both glass and metal did well with cans up 4%. But we are currently modeling Mexico to be flat year-over-year.

And the figures?

We're hopefully a better supplier in Mexico.

Our next question will be from Arun Viswanathan from RBC Capital Markets.

I guess I apologize if I missed this, but maybe you guys can offer your thoughts on the tariffs and the potential impact, especially the 232 tariffs. Just wondering, I know that you guys have already absorbed some of the -- or the Midwest premium has already kind of increased the cost of the can, but any further impacts you expect here from -- and then also on the steel side, is there any impact there that would potentially impact food and aerosol. And how do you see that playing out as far as demand?

I mean, other than the Supreme Court striking down some of the liberation day tariffs 232 and 301 are largely unchanged, right? So demand remains pretty strong in both food cans and beverage. So I don't see any near-term impact. Tariffs, generally, my feeling about cars, they're not helpful. It's a distortion. The administration is picking one industry over several other industries to be a winner. If they think we're saving 300 at a steel mill or they're putting at risk 50,000 jobs across a whole host of other industries. So not helpful. But it is what it is, and we dealt with this in the first Trump administration, and we'll deal with it again. It's a poor policy by any measure. So but I don't think he's going to listen to a CEO a company if he's going to listen to anybody. So -- but we sold on. The good thing for us is that the he can -- if you think about frucans, still offers the best bargain, the best benefit, some of the highest nutrition levels of any packaged food or fresh food to the consumer. Especially in times of inflation. So we feel good about the product and the product line we're in. And only the beverage can side, I think, by and large, younger generations are embracing the can. Like they say, my father generation was a can here I was a model drinker and now my kids or can drinkers and they are the drinkers of the future. So it things look to be pretty positive. There are a lot of things to like about the beverage can and -- and I think the consumers are grasping that, and that's positive. So we've not seen any near term nor do I see any long-term damage currently as it relates to tariffs.

Okay. And then I guess, just as a follow-up, I just wanted to get your thoughts a little bit more on North American beverage. So where are you guys, I guess, on the PI I know that there is maybe a drag from that this year, but does that kind of subside and maybe reverse next year, especially given some of the inflation that we're seeing. And I guess, does that mean that you know that you weren't going to put in any capacity, but do you think next year you could kind of grow in that low single-digit volume and then segment income would be maybe above that, just given a reversal.

Well, let's say, we hope you're right. I think it's really early to talk about next year. We're only in April. So I'm going to pass on that.

Our next question will be from Hillary Cacanando of Deutsche Bank.

So could you just remind us how pass-throughs are designed in your contracts? How long are they lags? How much are pass-through and hedges that you may have on the ones that are -- the portion that's not passed through.

Generally, I'll say generally because it's not the same in every region of the world, but in the big markets, we have total pass-through on LME premium and conversion of ingot to can sheet. So on metal, think about metal has passed through -- and many of our customers elect to hedge aluminum, but we passed through. The formula for passing nonmetal costs through on an annual basis, we passed through a percentage of the PPI index and or CPI, depending -- again, depending on the region of the world not a perfect proxy for our costs every year, but it's designed to capture some of the increase. We do pass through freight and energy across many contracts. But non-freight nonenergy, if you think about labor, which goes up every year and then other direct material costs like coatings and other system costs like warehousing from time to time, the PPI is either more or less than our actual costs this year, our actual cost -- input costs are a little higher than the formula we had January 1.

Got it. Got it. That's helpful. And in terms of capital allocation, you mentioned really no change this year. we look out further, do we expect any changes in terms of CapEx, you have greenfield that you're planning any changes in buyback plans as we look further out?

Well, I think we're going to -- we have the great fortune of being in a packaging company, being in a can company. And we have the great fortune of having a portfolio of businesses that generates a lot of cash flow. And your hope and our hope is that we're not foolish with that cash flow. But we are going to invest to grow our business from time to time. And where we have greenfield and/or brownfield opportunities we look to do that to support our customers' growth objectives. Beyond that, currently, beyond our own capital needs as we declared we're going to pay a dividend, and we're going to buy back shares. And Kevin, do you want to talk about shares or

Yes. Look, I think as Tim said, the first thing we're going to do is invest in the business. After that, we're going to pay the dividend, which we just increased. And then with remaining cash that's left over, we'll repurchase stock. We'll do it someone on a program basis, but also when we feel that there's good value, we'll be opportunistic and buy a little more within each of the quarters. So look, our plans haven't changed. I think on a long-term basis, we'll average somewhere around $500 million of capital a year, which gives us plenty of money to pay the dividend and buy back stock.

Our next question will be from Mike Roxland of Joe Securities.

Thank you, Tim, Kevin, Tom. Tim, not trying to be a dead horse over here, but I just wanted to grab your thoughts on consumer elasticity. You mentioned the consumers have been resilient thus far, but it does sound like some of the larger CPG customers are all planning to raise prices this year. I know obviously, consumers are, as you mentioned, are contending with elevated costs. So how do you think about consumer demand in the next 12 months relative to possibly higher prices from your customers as well as increasing cost that consumers are facing?

Listen, I agree with you. There's only so much the consumer can absorb before they have to start making choices. And One thing they're not going to do is not put cash in their car because they have to get the work. So we know the choices that they make that they have to make first before they buy packaged goods. Fortunately, for us, people have to eat and drink. And as I said earlier, can food offers, by and large, the best value for a family to prepare nutritions. Food on a daily basis. So we're always concerned about demand, but we're less so concerned about that. On the beverage can side, again, you start making choices. You don't go out to dinner so much. Maybe travel is lower. I don't know. I'm looking at the price of airfares these days with jet fuel maybe people don't travel so much and they stay closer to home. And generally, we do much better with consumption when people stay closer to home. But it does feel, as we sit here today, I know Ghansham was circling around the same question earlier, like, so I take the point, we are equally as mindful as you are about the pressure on consumers. But as we sit here today, it feels like we're going to be into a very strong summer.

Got it. And then just one quick follow-up. You mentioned in a comment not too recently that you're working on plans to mitigate cost and/or share costs with your customers. Can you provide any more color around what those initiatives are, surcharges and the like. Just anything you could elucidate on in terms of sharing costs with customers?

Yes. I don't if you don't want to discuss too much of what our strategy and our plan would be in that regard. But there's a limit to how much any company or anybody within a supply chain can absorb. And depending on how long costs stay elevated and how elevated they are, there are different conversations that need to be had. That's all the points -- that's all that point meant.

Our next question will be coming from Jeff Zekauskas of JPMorgan.

Thanks very much. You talked about catching up to higher raw material costs in your transit business. Do you buy much polyethylene in that polyethylene prices in March maybe were up $0.10 a pound in April maybe they'll be up $0.30 a pound. So there seems to be a rising dynamic there. And for Kevin, in cash flows from financing activities, there was an other net use of cash of $107 million. What was that? And are there any positive offsets to that later in the year?

Okay. So Jeff, I'll address the financing item. So basically, that $100 million, a little bit less than that related to our North American securitization program. at the end of the year as we sell receivables, we end up collecting more on the receivables that we sold and as a result, we have to repay the bank. I fully expect that amount to basically reverse itself and be closer to 0 by the end of the year.

And then to your first question, Jeff, you're right. There is -- there are rising input costs all over the transit business. We don't have a lot of resin based -- we have some resin based, not a lot of resin-based businesses within transit, but there's rising costs everywhere, whether it's steel, paper resin. And we just have to -- we have to do a better job of maintaining and expanding margins in the business.

Our last question will be coming from Edlain Rodriguez of Mizuho.

I mean, Tim, you talked about the potential impact on the consumer because of inflation, but what do you think you could see the most impact? Is it in Southeast Asia? Where does to probably come in at much kind of pressure? Is it in Europe? Like what do you think you could see the most impact in terms of the consumer being impacted by inflation as much.

I think the markets you would expect would first be markets like Brazil, Mexico, maybe Southern Europe, maybe parts of Asia, although there's so much growth in Asia right now that it feels like we're going to grow through this in Asia. I think the only thing I worry about in Europe, I don't know how big the tourism season will be in the Southern Europe this year. airfares are really high. People are stretched anyway. Do they postpone the European vacation or not. So we'll see. But again, everything -- the demand we have right now in Europe is extraordinary. We don't see it letting up. We probably, at the beginning of the year would have expected mid- to higher volumes in Europe for the year, maybe they were -- we've haircutted our assumption out to 4%, but we're still expecting growth and the form might be too low as well. Let's not get ourselves. Things are pretty tough. Brazil, Brazil feels like it's -- there's a weakening in Brazil right now. And they have some elections. So we'll see how the market reacts. It's also a winter time, so it's hard to gauge it and we'll see if the World Cup bolsters it. In Mexico, we do expect -- we had a pretty strong start to the year, principally in beer, and we'll see how that holds up, although we are expecting a flatter performance in Mexico. As Ghansham pointed out earlier, 4 years ago, even in North America, the consumer bought the higher prices across the board when inflation shot up.

Could we see that again here in North America?

We could, although again, conditions feel really firm right now. And it just doesn't feel like we're in the same place as we were in 2022. Thank you very much, Edlain. Okay. Thank you. I think you said that was the last question. So that concludes today's call. As always, we thank you for joining us, and we'll speak with you again in July. Bye.

Once again, that concludes today's conference. Thank you, everyone, for participating. You may now disconnect, and have a great day.