Crown Holdings, Inc. (CCK) Earnings Call Transcript & Summary

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

Thank you, Michelle. Good morning. With me on today's call is Tim Donahue, President and Chief Executive Officer. If you do not already have a copy of the earnings release, it's available on our website at crowncort.com. On this call, as in the earnings release, we will make a number of forward-looking statements. Actual results could differ materially from those 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. Reported diluting earnings per share were $2.23 compared to $1.56 in the prior year quarter. Adjusted earnings per diluted share were $2.49 in the second quarter compared to $2.15 in the second quarter of 2025. That represents an increase of 16%. Net sales increased to $3.7 billion, reflecting 5% growth in global beverage can shipments, the pass-through of higher material costs and favorable foreign exchange -- foreign currency translation. Segment income was $501 million compared with $476 million in the prior year quarter, the increase was driven by higher global beverage can shipments, strong performance in our beverage can equipment business and North American template operations, partially offset by inflationary cost increases. Based on the strong first half performance and positive demand outlook, we are increasing our full year 2026 adjusted diluted earnings per share guidance from $7.90 to $8.30 to a new range of $8.30 to $8.50. We currently expect the third quarter adjusted diluted earnings per share to be in the range of $2.20 to $2.30. Our full year outlook assumes net interest expense of approximately $355 million. Exchange rates at current levels with the euro at an average rate of $1.16 to the dollar, effective tax rate of approximately 25%, depreciation of approximately $330 million, noncontrolling interest expense of approximately $150 million, while dividends to noncontrolling interests are expected to be $110 million. Adjusted free cash flow of at least $900 million, capital spending of approximately $550 million. Capital allocation remains a key component of our value creation strategy. During the second quarter, we repurchased $305 million of company shares. Through the first 6 months of the year, we repurchased $517 million of shares and paid $77 million in dividends, returning a total of $594 million to shareholders. This pace of repurchases reflects our confidence in the company's outlook, the strength of our free cash flow generation and our commitment to a disciplined balanced capital allocation framework. We continue to invest in our growth initiatives in Brazil, Greece, Spain and India, which are progressing on schedule while maintaining a strong balance sheet. At the end of Q2, our adjusted net leverage ratio was approximately 2.5x, an improvement from the first quarter and consistent with our long-term leverage target. Our results in the quarter reflect what we see every day. Consumers continue to choose beverages in aluminum cans and our customers look to Crown to reliably support this growing demand. In fact, as I sit here this morning, enjoying a cold beverage in a can, I'm reminded that millions of consumers around the world made the same choice throughout the second quarter. It's a simple but powerful reminder of the strength of our business and the appeal of the most sustainable beverage package. With that, I'll turn the call over to Tim.

Thank you, Kevin, and good morning to everyone. As Kevin solubility discussed and as reflected in last night's earnings release, the company had another strong performance, with second quarter revenues and earnings per share, both exceeding the prior year quarter by 16%. Global beverage can volumes were up 5% in the quarter, with most regions experiencing strong demand, and this follows 5% growth in the first quarter. All of this is only possible due to the tremendous global team we have at Crown. Despite the ongoing Middle East crisis and related global economic headwinds, the businesses responded well to not only support each other, but to also continue to provide the level of service and quality that our customers require. Revenues in Americas Beverage advanced 21% in the quarter, almost entirely due to the pass-through of higher aluminum costs. Sales unit volumes in North America grew 5%, offsetting declines across Latin America. Income in the segment declined by $3 million primarily due to cost inflation. North American can demand remains strong, and we expect full year shipments to be 3% to 4% above 2025. European volumes increased 7% in the quarter with growth noted across almost all countries, resulting in a 10% improvement to the segment's income in the quarter. As in North America, demand remains strong, and the first line in Greece was commercialized earlier this month, bringing much needed capacity to our European system. Further capacity will come on late in the year in both Spain and the second Creek line. Income in Asia Pacific advanced 6% in the quarter as volume gains across most countries offset cost headwinds arising from the Middle East crisis. Overall, volumes in Transit Packaging were level to the prior year, with improved equipment and tool activity being offset by lower steel and plastic strap volumes. The income effect of this positive revenue mix is offset by inflation impacts running ahead of our cost recovery. The business remains resilient and we expect second half performance to be firmer to the prior year than in the first half. Increased beverage can equipment activity, combined with productivity improvements in North American tinplate, resulted in segment income improvement across our other businesses. Our North American food can business, which is now well balanced between human and pet food saw volumes declined 3% in the quarter, although we note that volumes advanced 9% in the prior year second quarter. Just a few points to summarize before opening the call to questions. Global beverage can volumes up 5% in the quarter. Earnings per share, up 16% in the quarter with full year guidance raised. We returned almost $600 million to shareholders in the first half and the balance sheet remains strong with leverage remaining at our long-term target of 2.5x. And with that, Michelle, we are now ready to begin to take questions.

[Operator Instructions] Our first question comes from the line of George Staphos of Bank of America.

Congratulations on the progress. I had a couple of questions, obviously. I guess, first of all, with America's EBIT, the guidance so far for this year has been for earnings to be down. You've talked about that in the past. The quarter was relatively flat, which was better than expected. Do you think that potentially there is a chance that earnings might be flat overall for Americas given the volume momentum that you have? Or would that still be a bridge too far? And what are the considerations in that? Maybe second question related. I know its early. It's the middle of the year. But do you have any thoughts that you could share in terms of how you think your volume your market shares, particularly in North America, might develop in 2027. Any thoughts here? And then I have one last follow-on.

So George, on the first question, I think -- the second half of the year, we could be level to the second half of last year. To use your terms, just given the softness we experienced in Brazil in the first half, it might be a bridge too far for this year to equal last year in segment income in the Americas. Although we'll -- if we don't get to a $1 billion of segment income I know we crossed it last year, we don't get to $1 billion of segment income, we'll get real close to that number in the Americas. But I think the the customer mix related softness we had in the first half in Brazil, as you say, a bridge too far. But second half should be pretty firm to the prior year. I think the strategy we've employed as it relates to volume and market share in all regions has been one in which we tried to develop a business that rewards our company and our stakeholders for the efforts that we make. And sometimes that is not so volume dependent. Sometimes that is not so volume dependent. Sometimes that is more depended on sound commercial strategies, which yield higher income. Having said that, the market is growing it's probable that our volume next year will be up compared to this year. What that means for market share, I don't know, less concerned about market share, although we do have a pretty good position in North America. We're probably about 25% of the market. There's nothing wrong with being a strong #2 in the market, and I think we're pleased with our position. And as I said, we're more focused on getting a proper return on the assets that we have employed in the system.

Last one for me. Again, the quarter was -- for 2Q was ahead of your guidance. And again, congratulations to your team on that. As we look early into the third quarter, any thoughts on where volumes are right now and if somebody wanted to ask the question, why are earnings lower sequentially from 3Q versus 2Q? What would -- what are the key considerations there? And to some of what are you guarding against. With that, I will turn it over and thanks very much.

Yes. Listen, I think just looking at volumes globally in beverage cans, everything feels very firm right now. That is North America is continuing to see high demand. One of the large retailers has a number of rollbacks in place, and they typically run from 1 to several months. And so as an industry, we're excited about that, not just in beverage cans, but also in food cans. Hopefully, that drives more volume. George, you've been around a long time like I have, you recognize that in times when consumers are stretched and stressed that dining at home or consuming at home becomes more prevalent. We're sitting here in Tampa right now. I can tell you not that I'm gloating about this, I think it's unfortunate, but the Tampa restaurant scene is really struggling this summer, which tells me people are eating at home. And if we're seeing that in Tampa, I guess we're seeing that all around the country. So I think demand is going to remain strong for aluminum beverage and steel food as we look through the rest of the year. Europe remains sold out more or less. It will slow down seasonally, but it's still sold out, and we have new capacity coming online. Asia, we've had double-digit growth in the first half of the year. I think we'll have high single-digit growth in the second half of the year. So that's a slowdown, but it's still high single-digit growth. We'll take high single-digit growth all the time. Now we obviously don't have a World Cup in the second half of the year, but as I said, demand remains strong. You've asked the question that everybody else wants to ask. I think there -- we have a little bit of caution around the second half. If we were sitting here 3 months ago, we might have had hopes as many people did that the Middle East war, Middle East crisis, perhaps would be drawn to some conclusion, it seems to only be picking up right now, which is unfortunate for a lot of reasons. And again, we'll give us some caution as we look at [indiscernible]

Just following up on the last question. I think previously, you had given an EPS impact from Middle East conflict of $0.05 in 2Q and $0.10 for the full year, if I got that right. Can you -- any update there?

Yes. So the $0.05 in the second quarter, maybe it was $0.05 or $0.06, and we saw a lot of that in the Asian business. Having said that, we earn through it with higher volumes. And we've got a much lower cost structure there than we had several years ago. So the Asian businesses is well prepared to defend itself against cost increases. Having said that, we do expect the second half of the year to continue to see higher inflation that currently runs ahead of our cost recovery mechanisms, which will reset either at the end of the year or early next year. So I would, if we were back in April, if we were modeling $0.05 in the second quarter and $0.05 in the second half, I'd tell you we probably had $0.05 or $0.06 in the second quarter, and we probably have $0.07 or $0.08 in the $0.07, $0.08 maybe $0.10 in the second half in our model right now, and it's just -- I'm always afraid to say we're being overly cautious. I think we're just trying to be mindful of the challenges that we see in the global economic system and not unhappy with our projected results. Just trying to make sure we and you don't get ahead of ourselves right now until we see some resolution to some of the political instability we're seeing right now.

Got it. Got it. That's very helpful. And then I'm just wondering, when all is said and done, is it possible to gauge what the World Cup may have done for Crown in calendar '26 in terms of volume, sales, earnings, whatever metric you might want to use. And then just directionally, is there anything that sort of surprised you about the impact positively, negatively? Anything you call out?

So Anthony, when you look at the World Cup and we kind of look at our volumes, right, the second quarter, we were up 5%. You look at our full year expectation, we're looking at 3% for the full year. You can almost equate to 2% probably, whether it's World Cup or America 250. It seem like the activity around it was definitely elevated. It's hard to say how much is directly correlated, but there's clearly some volume impact that we've seen in the second quarter. And if I just want to equate a number, I would say it's probably close to maybe it's 2% of the North American volume for sure.

Our next question is from the line of Ghansham Panjabi of Baird.

Just going back to the comments on relative caution, if you will, for the back half versus what you delivered in -- just to confirm, are you actually seeing something that worries you as it relates to either volumes or cost? Or are you anticipating some sort of pressure as it relates to those 2 dynamics as you think about the back half of the year?

Well, Ghansham that's a really good question. I think Kevin's comment, if we saw 5% volume growth, and let's just deal with North America to start. If we saw a 5% volume growth in North America in the second quarter, and we attribute perhaps roughly half of that to outsized World Cup activity, which was certainly beyond what we expected. Our comments previously with respect to the World Cup would have been something along the lines that it's a 4-week tournament and how much more can people drink well, guess what, they drink a lot more. And so we're not going to see that in the third quarter. So we know that that while for the full year, we're still going to be up 3% to 4%. It's not going to mirror the 5% we saw in the second quarter or the first half. So -- and then some caution around inflation in the second half. We won't get a chance to recover a lot of these costs, be it in transit, Asia. And even some of -- where we don't have freight in some of the contracts, some of the incremental freight costs and and diesel that we see in our businesses here in North America. So I don't think there's anything specific. I think it's just it's a reflection of we had an outsized North American gain in terms of volume from the World Cup in Q2, I think we had a -- let's be honest, we had a quarter we didn't expect for a lot of reasons. A lot of things -- to use Kevin's term, a lot of things went right -- and when you take a step back and you look at it, everything that went right, you're trying to be honest with yourself and go through all the things that went right and things may still go really good in the back half of the year, but are they going to go with that good as related to the second quarter. So just caution. I don't think anything specific, just caution.

Okay. And then can you give us a sense on Latin America -- I'm sorry if I missed that in terms of volumes for 2Q and then separately, as it relates to the beverage can business and the tinplate businesses, obviously, very, very strong operating performance. Was there anything unique in there that boosted the second quarter? Or is that just you're on the flip side of perhaps some tougher quarters previously.

What was the first question?

First was the beverage business. Ghansham, on the other businesses, the other segment, remember, that's tinplate businesses and also the can-making equipment business. And really, we had a really easy comp on the equipment making business, where I would say the majority of the gain that you're seeing in other is largely related to the equipment and tooling business that we have.

Versus the prior year.

Versus prior year. [indiscernible] business is still strong and doing well. But when you're looking at the quarterly gain, the majority of it is the equipment business. And then what was your other question?

It was on South American volumes.

I'm sorry. So North America, up 5%; Latin America, down 10%.

Our next question comes from the line of Matt Roberts of Fremont James.

I appreciate all the -- we don't -- I can't mistake comments, a good word there, Tim.

Listen, I've been dealing with 7 of Julian for the last 1.5 weeks. It was like trying to calm down an excited kid getting ready to go out for Halloween. So...

Sure. always entertaining. Talked about Europe much, that continues to be strong. So maybe just more granularity there by region what you're seeing in Southern Europe, gold states and exposure in Northern Europe as well. seems like a hot summer starting out over there, starting to run up against tough comps. So any comments there and how we should think about the timing of incremental volumes as Spain and Greece start to ramp?

Yes. So as I said in the prepared comments, the -- I'm sorry, the first line in Greece, we commercialized earlier this month. So we'll work through some start-up costs, but we're going to have incremental volumes between now and the end of the year and Spain will come online early in Q1. The second line in Greece will come online late in the year -- later in Q4. We didn't talk about Brazil. Brazil should be up and running sometime in Q4 as well, the new line in [indiscernible]. The market remains very tight. Our system remains tight. I hesitate to say sold out, but probably sold out as the right term. Combination of factors, just an increasing acceptance of the beverage can compared to traditional glass bottles that have existed in Europe for the last 200 years or more. And and a growing propensity of fillers to use cans for a variety of reasons, not the least of which is the lowest cost through distribution. Obviously, the inherent sustainability characteristics and also the billboard that is used to advertise your product via the graphics on the can, the 360 graphics on a can. So understand that we're going to have tougher volume comps as we go forward. And obviously, the bigger the denominator gets, the lower the percentage gain is. We don't always get so concerned about the percentage gain. We like absolute unit numbers because absolute unit numbers or what drive our need to put more capacity in and grow earnings. So really, a lot of positive thoughts around our European business. I think if we look at specifically the second quarter, maybe all markets -- all of our businesses in Europe up all locations up with the exception of a slight decline in Eastern Europe and the business in the United Arab Emirates down unit volumes down about 20% in the quarter, owing to the Middle East crisis. But in total, our Middle East volume was up for the quarter, meaning that the other units in Jordan and Saudi more than made up for the Dubai shortfall.

And maybe one on transit in the prepared remarks, noted [indiscernible] Tepeglobal industrial production the PMI levels where they are currently. Are you seeing any green shoots or bright spots in that business and why you had success in pulling costs out, are there any further cost opportunities or commercial adjustments you're considering that business?

I think we've taken a lot of cost out. There's -- you never say it's the end, right? There's all can companies, all businesses that operate in in businesses that are looking at margins and trying to keep cost down. It's continuous improvement. We're always looking for ways to improve and take cost out. We've taken the majority of the costs out of that business that we feel we need to take out. So the business is in a really good place. The team has done an excellent job rightsizing the overhead cost structure for what the business should have as a packaging business. the green shoots we are seeing is the -- we continue to see manufacturing production manufacturing indices being level or expanding from time to time, a little different where we're seeing it, but we are starting to see some green shoots and capital goods orders, which helps our business because capital good -- we have the most profitable piece of our business is the equipment and tools and the service that goes along with that. And so that's a really good sign. Obviously, gasoline and diesel and some other things impact the segments we serve, i.e., the transportation segments and -- so the transportation industry under some pressure with that, although gasoline obviously and diesel have pulled back a little here in June, we'll see what it does the balance of the year with the war picking up. But I think we feel better about the business today than we have over the last 18 months, and we'll see where that takes us.

Our next question is from the line of Phil Ng of Jefferies.

Congrats guys on a strong quarter. And Kevin, if that was intentional, it was a very nice touch when you cracked open your can at the start of the call. So congrats all that.

He's been practicing that all week.

I know it was good execution. I guess a question for you, Tim, to kind of kick things off. You mentioned that North America and across your portfolio, your focus is profitability. So I guess when we look out to 2027, do you have a path to kind of drive EBIT per can grinding higher in 2027 in that North America business it's certainly very tight. So how much slack capacity is out there just from an industry standpoint kind of moved around? And have any of your customers even actually come out -- reached out to you to add capacity. Once again, I appreciate the focus here is making more money, but any more color on some of those dynamics.

Listen, Phil, it's a great question. given the industry missteps maybe 5 or 6 years ago, as you remember, we tried to be very cautious around that, but you get caught up in all that. I would say that let's be clear, customers are always telling you to add more capacity. They want an overcapacity situation. So we all act like desperate rolls. And I think we the recent memory has taught us all a good lesson, and nobody is trying to do that. We're all trying to be very responsible. Having said that, the market continues to grow. I think we see further growth. And where we see growth is the continuing growth in energy drinks, which largely come in cans and offset many products that are consumed in other substrates, be it a coffee cup or plastic bottle. And so that's a positive end market development for the can industry as is flavored alcohols, flavored teas, sparkling alcohols that offset perhaps other alcohols, namely beer that comes in glass and/or draft versus just a can. So all these are positive substrate moves for the can industry, those end market moves. So we see the market growing. There may come a time when we need to consider more capacity. And when we believe we can do that in a responsible way, we'll take a look at that much closer.

Tim, any color on how much stock capacity is there in North America? I think there's not much, but in terms of any high level...

I apologize for all of you that know this already. And just very quickly, if you took the rated speed of the equipment that's out there, you would you would posit that perhaps the industry is running at 92%, 93%. But if you adjust that for changeovers for sizes, label changes, maintenance, we've got to be in the mid- to high 90s, which is in real terms from April to August, it's 110% utilization, and then you've got to do a lot of maintenance catch-up and other things in the fourth quarter. So I think it's a market that's pretty well utilized. I mean, there is some new capacity coming on the West Coast, it will be specific to the West Coast and some certain customers in that region. There's been other capacity that's come on. And some of the smaller companies that have brought capacity on will get better, and they'll just they'll create more capacity from their own creep. But I think the market is in a really good place right now.

And then on South America, you talked about Brazil down, I think, 10% or South America at large. Tim, any more color on what's driving that? Is that the comp dynamic share movement? And then you are bringing on more capacity in Brazil. So how do we shore that up in terms of a little weakness right now in more capacity? And just broadly, how you're thinking about Brazil this year?

Phil, I'll take this. So look, Brazil is all about mix, right? You have a high-end consumer and you have cans that are sold to what I'd say, the more premium brains, which is not our customer, largely. We service the lower end of the market, which is our main customer. So I don't think -- I think Brazilian economy is doing okay. I think it's similar to the United States where the high end is doing better than the low end. And right now, I think in the first half, what we've seen is that the lower-end consumer struggled a little bit. I think -- and it's also the weakest time of the year. Just remember that. It's their winter, if you remember. So I think as we look through the rest of the year, we feel okay with where the projection is, but it's all a mix game in Brazil. And this happens from time to time. You'll have years where we'll do really well and above market growth because our customers have done it. This year, it looks like we're probably below the market. And that is, again, customer mix.

So Phil, just a little further color. The big guy there, far more active in promoting beginning in the beginning of the year through the World Cup and as Kevin said, resulting in a mix for us where we service principally the other 2 big beer companies there and not the larger one in -- to a great extent. The -- the line in Panagrossa, we have a 2-line can plant currently in Panagrossa, which is multi-size. We need more size capability in the Southeast, and that's the reason for the addition even though the market for us has been soft this year, it's just a regional size expansion.

Tim, any color on what you're expecting for Brazil for the full year?

We didn't -- to Ghansham's question, I could have also said that as we look at the back half of the year, Brazil had a massive fourth quarter last year. They're forecasting a similar fourth quarter this year. And Kevin and I, as we look at the first half, we're being a little cautious on what we think our Brazilian team is going to deliver. Currently, our Brazilian team being down high single digits in the first half, is projecting that they're going to be flat for the year. So some of our second half caution is just putting some caution against our own Brazilian forecast.

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

Just as it pertains to North America, I think we catered on this on a few prior questions. But could you just give us some just baseline assumptions on how you see different substrates to the market growing? It seems like energy is still generally positive, nonalcoholic seltzers. Just any color you could give on those as well as your Mexican glass business would be particularly helpful for the second half?

Yes. Listen, I think all segments felt like they were up in the second quarter. I think beer was flattish. I mean that's a win for beer. It might have been -- and I'm only going from data we get from the CMI, the can Manufacturers Institute, but 1 of the companies doesn't report, and they're a bigger beer supplier. So maybe beer was up. But it felt like everything was really strong in the second quarter across all segments. Mexican glass, we had a positive -- a really strong quarter. As the economy tightens especially in the lower income economies, glass does better and -- we have a real nice position in the Mexican glass business with 2 factories, 5 furnaces and results have been very good this year across Mexico glass.