Crown Q2 2025 Earnings Call Transcript

Quartr
Provided by Quartr
July 22, 2025

Key Takeaways

  • Positive Sentiment: Adjusted EPS came in at $2.15 in Q2, up from $1.81 last year, prompting full-year adjusted EPS guidance raised to $7.10–$7.50 per share.
  • Positive Sentiment: Net sales increased 3.6% y/y with volume gains of 1% in North American beverage, 7% in European beverage and 5% in North American fruit cans, driving record quarterly segment income of $476 M.
  • Positive Sentiment: Free cash flow doubled to $387 M in H1 versus $178 M last year, with $269 M returned to shareholders and 2025 free cash flow projected at ~$900 M.
  • Negative Sentiment: Asia Pacific segment income declined as Southeast Asia volumes fell high single digits, reflecting tariff-related impacts on consumer confidence and industrial activity.
  • Neutral Sentiment: Capital spending is expected at ~$450 M for 2025, depreciation at ~$310 M and net leverage targeting ~2.5×, supported by ongoing strong cash generation.
AI Generated. May Contain Errors.
Earnings Conference Call
Crown Q2 2025
00:00 / 00:00

Transcript Sections

Skip to Participants
Operator

Good morning, and welcome to Crown Holdings Second Quarter twenty twenty five Conference Call. Your lines have been placed on a listen only mode until the question and answer session. Please be advised that the 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.

Kevin Clothier
Kevin Clothier
SVP & CFO at Crown

Thank you, Elle, and good morning. With me on today's call is Fin 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 materially from such statements.

Kevin Clothier
Kevin Clothier
SVP & CFO at Crown

Additional information concerning factors that could cause actual results to vary is contained in the press release and in our SEC filings, including Form 10 ks for 2024 and subsequent filings. Earnings for the quarter were $1.81 per share compared to $1.45 per share in the prior year quarter. Adjusted earnings per share were $2.15 compared to $1.81 in the prior year quarter. Net sales were up 3.6% compared to the prior year quarter, primarily reflecting 1% higher shipments in North American Beverage, a 7% increase across European beverage and a 5% increase in North American fruit can volumes, the pass through of higher raw material costs and the favorable foreign exchange foreign currency translation. Segment income was $476,000,000 in the quarter compared to $437,000,000 in the prior year, reflecting increased volumes noted previously and improved operations across the global manufacturing footprint.

Kevin Clothier
Kevin Clothier
SVP & CFO at Crown

For the six months at June 30, free cash flow improved to $387,000,000 from $178,000,000 in the prior year, reflecting higher income and lower capital spending. The company returned $269,000,000 to shareholders in the first six months. The company had a very strong quarter and first half with record segment income, adjusted EBITDA and free cash flow. We're mindful of the potential impacts of tariffs that tariffs may have on the consumer and industrial activity. Considering the strong first half and the potential impacts from tariffs, we're raising our guidance for the full year adjusted EPS to $7.1 a share to $7.5 a share and project the third quarter adjusted EBITDA to be in the range of $1.95 a share to $2.5 per share.

Kevin Clothier
Kevin Clothier
SVP & CFO at Crown

Our adjusted earnings guidance for the full year includes the following assumptions. We expect net interest expense of approximately $360,000,000 exchange rates assume the U. S. Dollar at an average of $1.1 to the euro full year tax rate of 25%, depreciation of approximately $310,000,000 non controlling interest to be approximately $160,000,000 dividends to non controlling interest are expected to be approximately 140,000,000 Our estimate for 2025 full year adjusted free cash flow is now approximately $900,000,000 after $450,000,000 of capital spending. And at the of 2025, we expect net leverage to be approximately 2.5 times.

Kevin Clothier
Kevin Clothier
SVP & CFO at Crown

With that, I'll turn the call over to Ken Simpson.

Timothy Donahue
President & CEO at Crown

Thank you, Kevin, and good morning to everyone. Some brief comments and then we'll open the call to questions. As Kevin just summarized and as reflected in last night's earnings release, second quarter performance came in better than anticipated. Global Beverage segment income advanced 9% in the quarter after a 21% improvement in the prior year's second quarter. Strong global beverage and North American food results combined with lower capital expenditures resulted in higher second quarter free cash flow driving net leverage below the first quarter level.

Timothy Donahue
President & CEO at Crown

Americas Beverage reported a 10% increase in segment income with shipment gains noted in both North America and Brazil. Shipments in North America advanced 1% as expected following a 9% gain in the prior year second quarter while in Brazil demand led to 2% growth after a 12% increase last year. Volume growth continues to compound leading to high utilization across a well performing plant network. And as stated previously, we expect little direct tariff impact to this business. Across European Beverage, unit volumes advanced 6% following 7% growth in the prior year leading to another quarter of record income.

Timothy Donahue
President & CEO at Crown

Growth was noted throughout each region of the segment that is Northern And Southern Europe and also across The Gulf States. As in The Americas, we expect little direct tariff impact to the business. Income in Asia Pacific declined as Southeast Asian market volumes were down high single digits to the prior year. The impact of tariffs on various Asian industries ultimately impacting consumer confidence and buying power. Despite weak end markets, the business continues to operate well with income exceeding 19% to net sales in the quarter.

Timothy Donahue
President & CEO at Crown

Increased shipments of steel and plastic strap combined with savings from ongoing cost programs almost entirely offset the impact of lower shipments in the equipment and tools business. Segment income remained relatively flat to the prior year despite continuing soft industrial demand. And within the transit business, we still remain cautious as to the impact that tariffs may have and update the potential tariff effect as follows. The potential exposure is estimated to be approximately $25,000,000 with direct and indirect exposures of approximately $10,000,000 and $15,000,000 respectively and these estimates are included in the revised guidance that Kevin has provided. North American food demand increased 9% in the second quarter, principally a result of exceptionally strong vegetable volumes.

Timothy Donahue
President & CEO at Crown

And when combined with better results in closures, income in the other segment improved by 150% in the quarter. In summary, we had another very strong quarter. Segment income improved $39,000,000 or 9% and for the six months is up 129,000,000 Trailing twelve months EBITDA is now approaching $2,100,000,000 Combined global beverage segment income was up 8% in the second quarter. North American food volumes first led by pet foods in the first quarter and now vegetables in the second quarter reflects the diversity of our food business. As Kevin provided to you, the adjusted earnings per share guidance range now sits $0.50 a share above the initial guidance that we provided and free cash flow is now estimated at $900,000,000 The balance sheet is healthy and it allows for continued return of cash to shareholders.

Timothy Donahue
President & CEO at Crown

Of course, none of this would be possible without the efforts of the entire Crown family and we thank them for their dedication in fulfilling the company's mission of outstanding service to the brands we partner with. With that, Elle, we are now ready to take questions.

Operator

Thank you, sir. We will now begin the question and answer session. Please unmute your phone and record your name and company name clearly when prompted. Our first question comes from the line of Anthony Pettinari from Citigroup. Sir, your line is now open.

Anthony Pettinari
Anthony Pettinari
Research Analyst at Citigroup

Good morning. Good morning. Your 3Q guidance implies EPS, I think, kind of flattish year over year. Can you talk about expectations for the segments for 3Q or trends at a high level? And I guess specifically, Americas has driven kind of your growth year to date, I think you have a pretty challenging comp, maybe all time high EBIT in 3Q. So just how you expect the segments to perform?

Timothy Donahue
President & CEO at Crown

Yes, it's a very good question. The third quarter last year Anthony and the second half of last year was exceptionally strong. Think on a combined basis I want to say the EBITDA was $1,500,000,000 in the second half last year and as you rightly point out within the Americas Beverage segment, I see the number here now, we had $280,000,000 in the third and February in the fourth quarter of segment income last year. As you say, the comp is challenging notwithstanding a challenging comp. We think we can hopefully do a little better than that but I think what is likely to happen is that we will continue to see improvement in European beverage and in North American food and maybe the Americas beverage business will be at or around or plus or minus $5,000,000 to that number last year.

Timothy Donahue
President & CEO at Crown

We'll see how it manifests itself but I'm looking at volume performance. Last year I think in the third quarter I think North American volumes were up 5%. Did state from the beginning of this year that we thought North American volumes after two successive years of exceptionally strong volume performance. If we go back to twenty twenty three third quarter North American volume was up 12.5, last year it was up 5% on top of that and what we've said from the beginning of this year is this year would be one of those years where we are in the 0% to 2% range and I think 1% in the second quarter is where we came out and we will see how the third quarter comes out. Notwithstanding that, certainly challenging comps but performance, the businesses are performing well, the plants are performing well, the company has made a significant step change in earnings and EBITDA over the last couple of years.

Timothy Donahue
President & CEO at Crown

Certainly on a year to date basis this year we are up about $130,000,000 in EBITDA or $130,000,000 in segment income and that comes on the heels of probably close to $100,000,000 the previous year. So step change that we are managing to hold on to.

Anthony Pettinari
Anthony Pettinari
Research Analyst at Citigroup

Got it. That is very helpful.

Anthony Pettinari
Anthony Pettinari
Research Analyst at Citigroup

And then just on non reportable, it has been up pretty significantly year over year for the last three quarters. You talked about the vegetable strength. Can you talk just maybe at a high level about the strength in non reportable, if there's any kind of pull forward around tariffs? And just second half, how you think about the comps?

Timothy Donahue
President & CEO at Crown

Maybe there is a little pull forward, but think what we are seeing here is the impact of some of the investment we have made in the North American food business over the last couple of years combined with, let's be honest, it's a relatively easy comp against last year. I think the third quarter last year will probably be an easy comp. Fourth quarter gets a little more challenging but you have got an easy comp for the first March this year. You have got the results of some capital we invested the last couple of years. Don't want to say that perhaps we are seeing the initiation or we are inside already the period in which people stretch, their dollars are stretched and they are becoming a little bit more cautious with their dollars and they are consuming more at home as opposed to going out.

Timothy Donahue
President & CEO at Crown

Perhaps some of that is going on. On the other side of it, have another pretty important business in there and that's the beverage can equipment business whereby we make equipment for beverage can manufacturing and we are starting to see some green shoots there as people get more comfortable with the ongoing demand globally for more beverage cans and the need for more equipment from time to time.

Anthony Pettinari
Anthony Pettinari
Research Analyst at Citigroup

Okay. That's very helpful. I'll turn it over.

Timothy Donahue
President & CEO at Crown

Thank you.

Operator

Thank you. Our next question will be from Chris Parkinson of Wolfe Research. Sir, your line is now open.

Chris Parkinson
MD & Senior Research Analyst at Wolfe Research, LLC

Great. Thank you so much. Tim, could you just talk a little bit about your conversations with customers just given some perhaps unexpected tightness in the markets, particularly in Europe and just how that's ultimately going to flow into your intermediate to long term outlooks versus perhaps what were some prior concerns towards the 2024 and early twenty twenty five? Thank you.

Timothy Donahue
President & CEO at Crown

Specific to Europe, I think they still remain bullish on their need for more cans intermediate and long term as their businesses continue to grow importantly. And number two, the European markets, it's a variety of markets, but the European markets embracing the need for more sustainable packaging shifting their focus more to the aluminum can as opposed to perhaps some other substrates. I think that is ongoing. There is going to be ups and downs. There may be soft spots.

Timothy Donahue
President & CEO at Crown

There may be periods in which shipments are a little lower than we would like, there may be periods in which the can industry does not have enough capacity to supply those customers and the demand they have but all in all really nice outlook. I talked about earlier some of the comparisons to last year but last year each quarter was up 7%, 68%, full year was 7% and we are getting pretty nice growth this year on top of those So again, are compounding the growth leading to higher utilization. We do have a couple of projects underway in Europe where we are modernizing, significantly modernizing and upgrading one facility in Greece and we are looking at potentially the addition of a second line somewhere else in Southern Europe. So all in, feeling really good about Europe and I know you've talked to Tom Fisher over the years and Tom would tell you on a fifteen or twenty year CAGR, Europe has always exhibited somewhere between 35% which is quite tremendous growth when you consider an industry as I don't want to call it mundane but an industry as simple as the Can industry if you will and now everybody else is mad at me.

Timothy Donahue
President & CEO at Crown

But 3% to 5% growth every year for fifteen years is not too bad.

Chris Parkinson
MD & Senior Research Analyst at Wolfe Research, LLC

That's helpful. When we take a step back, if you could briefly hit on how we should be thinking about your different businesses on the Bev Can side and The Americas, kind of the puts and takes for 2Q and how should we should be thinking about the growth by substrate into the second half? Just are we still in that the top end of that 1% to 3% range? Or I know 2Q is in line with your expectations but just how should we be thinking about that just given the variance of your year on year comps versus 24%? Any guidance there would be helpful. Thank you.

Timothy Donahue
President & CEO at Crown

I think what we have baked in for the back half of the year is zero to one in North America and perhaps relatively flattish in Brazil as well we have got a decline baked into Mexico. It does appear that the Mexican market is slowing right now and perhaps that has something to do with tariffs or more specifically the economy in Mexico or consumer confidence around the impact of tariffs on various industries in Mexico. Again, it's a very diverse business. We operate in the beverage segment. Feels like segment income is going be over $1,000,000,000 this year after coming close last year and not everything is going go up all the time but we keep performing well in the plants with high efficiency, lowering spoilage, more productive and driving more earnings despite what happens in the markets around us.

Chris Parkinson
MD & Senior Research Analyst at Wolfe Research, LLC

Great color. Thank you.

Timothy Donahue
President & CEO at Crown

Thank you.

Operator

Thank you. Our next question comes from the line of George Staphos from Bank of America. Sir, your line is now open.

George Staphos
George Staphos
Managing Director at Bank of America Merrill Lynch

Hi, everyone. Good morning. Hope you're doing well. Hey, Tim. So three questions

George Staphos
George Staphos
Managing Director at Bank of America Merrill Lynch

I'll ask them in sequence just to make it easy for everybody else's time wise. So number one, can you give us a bit more color on what was behind the restructuring charge for the quarter? I think it was around $40,000,000 If you'd called it out and I missed it, apologize if not, if you could give us a bit more color there. Secondly, you did better than we were expecting in Signode and you gave us some good color there. What are the prospects that you can now hold that level of EBIT into 3Q, into 4Q?

George Staphos
George Staphos
Managing Director at Bank of America Merrill Lynch

In some ways, you've weathered the worst of the challenges, and you're performing at little bit higher level than we wouldn't expect either way. What's the outlook there? And then kind of the question from last quarter, the volumes in beverage can remain very strong, certainly into Europe. I know you said you're not seeing that much of an effect of it, but are you seeing any impact at all in terms of tariffs? And then at some point, what's on the other side of the hill, maybe destocking after the aluminum risks maybe go away or the tariff risks go away?

George Staphos
George Staphos
Managing Director at Bank of America Merrill Lynch

So Signode, restructuring and bev can any deceleration into 2H because of destocking? Thanks and good luck in the quarter.

Timothy Donahue
President & CEO at Crown

Yes, so the charge we took for restructuring, two principal items, the biggest being we wrote down the carrying value of assets in one of the Chinese plants to what we're required to do under accounting principles just given expected cash flows in the business in the near term. The second biggest piece is some further severance in Signode above the factory floor just to continue to right size what we believe is necessary to support a manufacturing business from the business we acquired several years ago. Signode I'm sorry, George, remind me of the specific question on Signode again.

George Staphos
George Staphos
Managing Director at Bank of America Merrill Lynch

And it ties pretty well to your comment just before. You are doing better than expected in Signode. Can you carry that And then within the restructuring you took, how much earnings improvement did you gain from that within Signode?

Timothy Donahue
President & CEO at Crown

The restructuring we just announced will get that benefit maybe starting the end of this year and the next year. My hope is that we hold that level in the third quarter. The second quarter is generally the largest quarter for Signode, the third quarter, then the fourth, then the first. So second quarter, I'm hopeful we hold it in the third quarter depending on impact of tariffs which we've baked in.

George Staphos
George Staphos
Managing Director at Bank of America Merrill Lynch

Sure.

Timothy Donahue
President & CEO at Crown

And in the fourth quarter, again, there is a as you can tell by the guidance we gave you, the widest part of the range given the last six months guidance is Q4 and that really a lot to do with tariff uncertainty. I don't want to say exposure, but I would say tariff uncertainty across that business specifically in the later third, early fourth quarter. So I think on a year over year basis, are we able to match in the third and fourth quarter or do a little better in the third and fourth quarter in transit compared to what we did last year? Yes, plus or minus one or two, I think we're going to be relatively plus or minus one or two and maybe we do a little better. George, am getting old so like you, you are going have to remind me of Q3 question.

George Staphos
George Staphos
Managing Director at Bank of America Merrill Lynch

Watch that Tim. I was just saying, look, especially within Europe, volumes are over mid single digits. Is there anything, again, that you're gleaning from your customers' order patterns that suggest things are starting to decelerate now that we're going get through the worst, fingers crossed, of the tariff risks or what are your customers saying about their need to keep buying and what is the outlook into next year? Any destocking that you seeing right now? Thanks and I will turn it over.

Timothy Donahue
President & CEO at Crown

So no destocking. Don't really see any direct tariff impact in Europe. What we do continually see in Europe, whether you are talking about Germany, France, some of the other big economies in Europe, is a continuing contraction in the industrial economies and so many of the jobs in Germany are related to industrial production. There is a concern longer term that within the European Union they don't begin to address some fundamental economic realities that they are going to continue to just hover slightly below the contractionexpansion line with respect to industrial production. We'd like to see some industrial production return. The challenge for anybody is when you're selling into contracting economies, eventually the consumers become very concerned with their bank account level and the prospects of having a job next week versus not having a job. We don't see that yet in the can business.

Timothy Donahue
President & CEO at Crown

Fortunately for the can business, we are well positioned in terms of substrate mix for our end markets and the need for our customers to continue to try to achieve the goals they've established for net carbon, net zero and everything else whether it's 2030 or 02/1940. So we're well positioned for that and we seem to be the product that helps them get there the fastest. But we are always mindful of that.

George Staphos
George Staphos
Managing Director at Bank of America Merrill Lynch

Thank you, Tim. Good luck in the quarter.

Timothy Donahue
President & CEO at Crown

Thank you, George.

Operator

Thank you. Our next question comes from the line of Phil Ng of Jefferies. Sir, your line is now open.

Philip Ng
Philip Ng
Managing Director at Jefferies Financial Group

Hi, guys. Tim, strong quarter, strong first half for Shar. I guess, I'm curious in terms of what your customers are saying in North America. Tough comps aside, certainly a lot of your beverage customers are dealing with tariffs on the aluminum side, potentially sugarcane dynamics versus HFCS. How are they kind of behaving in this backdrop?

Philip Ng
Philip Ng
Managing Director at Jefferies Financial Group

Are they continuing to promote? What are they telling you in terms of how the order pans are kind of shaping up? I'm most curious about North America and what you're seeing on Brazil just because there's a lot of noise with tariffs around that market as well.

Timothy Donahue
President & CEO at Crown

Yeah, listen, I think if you consider the Midwest premium, the all in cost of aluminum per ton is probably close to an all time high. We certainly as an industry, certainly at Crown, we don't believe we can afford to absorb any of that. Fortunately for us, our contracts allow for the pass through. I'm sure our customers don't believe they can afford to absorb it. So ultimately, decisions made by governments and politicians are ultimately born, the cost of that is born by the consumer and to date we've not seen the consumer back off the purchase of beverage cans regardless of what product they want to consume and so the beverage can continues to perform better than other substrates in an environment that feels like we're going to get a little bit of inflation.

Timothy Donahue
President & CEO at Crown

Having said that, the customers are promoting. They're promoting into an increasing cost environment. I don't specifically know their hedge patterns as I sit here today and where their cost model sits but eventually they're going to be hit with higher cost unless that Midwest premium comes down. I would say Phil that we're not hearing anything dramatically concerning our guidance to you at the beginning of the year and remains that we thought we'd be somewhere in the 0% to 2% range. I think the market probably doing better than that as I sit here today.

Timothy Donahue
President & CEO at Crown

If you ask me how I think the market did in North America, maybe it did 3% to 3.5% in the second quarter. I don't know. We don't get those numbers any longer but it does feel like the market with the promotion of cans and some of the other data we're seeing that the market was pretty strong in Q2. We'll see how Q3 goes but they're in the process of they've already done it, they are reevaluating their inventory levels after the July 4 holiday going into Labor Day and it looks like it's going to be a decent summer and whether we're minus one, plus one, whether the market is plus three or plus two, it's off these much higher levels that we've had over the last couple of years. Is all a pretty strong sign.

Philip Ng
Philip Ng
Managing Director at Jefferies Financial Group

Tim, any color on how you're thinking about Brazil just given all the tariff noise there?

Timothy Donahue
President & CEO at Crown

Yeah, listen, I think Brazil the situation is never as strong for the consumer as it is in North America and we will see how the consumer does. More importantly, we will see how customers move some business around from supplier to supplier. Sometimes one supplier can be out of balance to their mix with certain customers. If for whatever reason we supply more or less in the first half of the year maybe we supply less or more in the second half of the year just so the customer can balance out and we will see how that goes. But I would say that maybe Q3 a softer quarter in Brazil, maybe that is slightly down and then Q4 which is really important, we are expecting Q4 to be a little bit better than Q4 last year.

Philip Ng
Philip Ng
Managing Director at Jefferies Financial Group

Okay. And then you are in a great spot, Tim. Balance sheet leverage is at the low end of your I mean, closer to long term target, getting a lot of free cash flow. How would you prioritize capital deployment the next few years? What are some of the best opportunities when you kind of rank them, buybacks, capital projects, even perhaps larger M and A? Any color would be helpful.

Timothy Donahue
President & CEO at Crown

I think the number one goal is obviously to increase the return to shareholders. Before you get there, you've got to service your customers and you've to service your customer base and you've got to take advantage of opportunities to grow your business. So we're always going to look at the opportunities to grow our business subject to adequate returns project by project. That would be number one. Beyond that, as you rightly point out, whether we can get below the 2.5 times by the end of this year, Kevin gave you $900,000,000 We're at short of 400,000,000 so if you take that 500,000,000 and reduce the debt with today's EBITDA, you get well below 2.5x.

Timothy Donahue
President & CEO at Crown

We don't really need to get there this year. I do believe that over time the long term target is met with growth in EBITDA and it leaves us a whole lot of money to consider what we're going to do with it and I think right now as we've been telling people for the last six months, the number one and only priority we see is the return of cash to shareholders.

Philip Ng
Philip Ng
Managing Director at Jefferies Financial Group

Okay, excellent. Thank you.

Gabe Hajde
Gabe Hajde
Research Analyst at Wells Fargo

Thank you.

Operator

Thank you. Our next question will be from Edlain Rodriguez of Mizuho. Sir, your line is now open.

Edlain Rodriguez
Equity Analyst at Mizuho Securities

Thank you. Good morning, everyone. My quick one for me, Tim. So there have been talks of demand softness in many categories here in The U. S.

Edlain Rodriguez
Equity Analyst at Mizuho Securities

Because of the immigration enforcement that's going on. What are you hearing from your customers in regards to volume being impacted by that and how concerned are you with that?

Timothy Donahue
President & CEO at Crown

We can grind ourselves down to looking at every last detail as the new health secretary's desire to limit sugar and you can grind yourself down. What seems to be really evident is despite all the noise in the economy, be it political or economical, can continues to perform exceptionally well. I don't have quarter data for you but I do have data looking at four weeks ending July 13 and total beverage units in cans up 4.5%, CSDs up 5%, beer is down, energy is up. So depending on the end market, cans performing really well across all these markets and some of these end market are smaller than others, water and teas and coffees but ready to drink up 1%. So I think we're always mindful of what's going on around us but we're always certain to understand that a lot of that we cannot control.

Timothy Donahue
President & CEO at Crown

So you work within what you can control and you try to adapt and the first thing you try to do is keep your cost as low as possible and you make sure you have the availability and the willingness and the ability to serve the customers when they need it and how much they need and I think we have done a very good job doing that over the last couple of years. If we if we are going to get hypersensitive around quarter to quarter volume or quarter to quarter volume or earnings, we can do that. If we are going to take a longer term view as to the health of the can industry and the health of each of the companies in the can industry and the health of our customer base and most importantly the health of the can as a product as seen by consumers then we are going to feel really good about ourselves and I think that's where we are at right now.

Edlain Rodriguez
Equity Analyst at Mizuho Securities

That makes sense. And that's all I have. Thank you.

Kevin Clothier
Kevin Clothier
SVP & CFO at Crown

Thank you very much.

Operator

Our next question will be from Arun Viswanathan of RBC Capital Markets. Sir, your line is now open.

Arun Viswanathan
Arun Viswanathan
Senior Equity Analyst at RBC Capital Markets

Great. Thanks for taking my question. Congrats on the strong results. So I guess my question is around Americas Beverage margins. That was really the biggest source of upside versus our expectations. You've now eclipsed 19% on the segment EBIT margin. And I understand that percent margin is obviously not always the right way to look at things.

Arun Viswanathan
Arun Viswanathan
Senior Equity Analyst at RBC Capital Markets

But it does appear that your plants are running really well as your shipment growth moderates maybe year on year. Do you expect a similar cadence in segment income growth? Or have you what else is there more to do to improve the way the plants run? Or are we kind of hitting a full learning curve there?

Timothy Donahue
President & CEO at Crown

Excellent question. You are going give me a chance to almost sound somewhat intelligent. Think the first thing, most companies in any industry, we all operate from a manufacturing perspective with the notion of continuous improvement which means there is always something to improve and you probably heard us in past years describe we categorize our operations in three categories A, B and Cs and the goal is to work on the Cs and make them the As and it's a never ending process. There is always something to improve. From the context of moderating growth, if what you are suggesting is that we had 5% growth last year and only 1% growth this year, should that also reflect a lower earnings or lower margin performance?

Timothy Donahue
President & CEO at Crown

The answer would be no because in the absence of adding more capacity, you're utilizing 1% more of the capacity you already have. Your productivity levels need to become that much higher to supply that 1% from the same manufacturing base. So in fact, even with 1% growth, you would expect margin growth, all else being equal. Now, the one thing that will move percentage margins up and down is the pass through mechanisms we have in our contracts with raw materials. As aluminum gets higher and as our customers hedging contracts result in higher aluminum, we start passing through higher aluminum on a one for one basis that will naturally drive margins down but that's just a function of the denominator becoming larger and again as the denominator gets smaller then the margin grows.

Timothy Donahue
President & CEO at Crown

That's why we I sometimes don't like the focus in the beverage can business too much on percentage margin. I like to look at absolute margin. In the transit business, we're highly focused on material margin and that is the margin we have after direct materials, a different business and a different way of looking things. But in the beverage business, I hope I answered your question there.

Arun Viswanathan
Arun Viswanathan
Senior Equity Analyst at RBC Capital Markets

That is helpful. I guess I have a similar question for Europe. Europe seems to be going potentially in a different direction where you still see quite a bit of volume growth. But is there more to do there on the operations side and really move up those percent or those EBIT dollar margins over time? And similarly, is there more to do on the capacity side instead?

Arun Viswanathan
Arun Viswanathan
Senior Equity Analyst at RBC Capital Markets

How would you kind of characterize where you are in your trajectory in Europe margins as well? Thanks.

Timothy Donahue
President & CEO at Crown

Well, I think we're at a little over 15% last year and this year in the second quarter and maybe even for the full year we're just short of that. I don't know how that compares historically but it feels like it's a higher level than we've had in Europe or one of the higher levels that we've had in Europe over the last ten or twelve years. Performing well, incredible improvements having been made to the platform or the industrial infrastructure over the last several years not only the expansion of the footprint but also within the footprint and again as I said earlier always more to do, always looking to do more, always looking to see how we can improve each factory to get more output out of each factory. Maybe there is a little bit more excess capacity in some spots around Europe than we have in The United States but I think we're pleased with the direction of Europe and as I said, we're always looking to do better. There's nothing to take out.

Timothy Donahue
President & CEO at Crown

With growth at 5% or 6% every quarter, you are looking for ways to continue to support customers with the existing capacity you have as opposed to adding more capital until you are much more certain that that added capital would have some new business under contract.

Arun Viswanathan
Arun Viswanathan
Senior Equity Analyst at RBC Capital Markets

Okay, thanks. Just one more quick one if

Arun Viswanathan
Arun Viswanathan
Senior Equity Analyst at RBC Capital Markets

I can. Just on free cash flow, you increased the guide there. So are we right to assume that that would likely go towards capital return as the first priority? Thanks.

Kevin Clothier
Kevin Clothier
SVP & CFO at Crown

So, hey, Rude, it's Kevin. Look, yes, we're committed to the long term leverage target of 2.5 times. The additional cash flow, we will look at it in context of the long term leverage target and we'll see where we go here. I do think we'll buy back a lot of stock over the next couple of years with free cash flow. At this point, that's where we're at.

Timothy Donahue
President & CEO at Crown

Arun, just to make it real clear because I think I answered it with Phil. What we see is cash flow that we have after supporting the business needs, debt reduction to a certain level and then return to shareholders. We don't see anything else.

Arun Viswanathan
Arun Viswanathan
Senior Equity Analyst at RBC Capital Markets

Thanks.

Operator

Thank you. Our next question will be from Ghansham Panjabi of R. W. Baird. Sir, your line is now open.

Ghansham Panjabi
Senior Research Analyst at Baird

Thank you, operator. Good morning, everybody.

Timothy Donahue
President & CEO at Crown

Good morning, Ghansham.

Ghansham Panjabi
Senior Research Analyst at Baird

Good morning. I guess stepping back and kind of thinking about 2025 as it relates to beginning of the year, it seems like volumes in particular were better than your initial forecast. You called out mix in 2Q, etcetera. But how would you characterize inventory levels along the supply chain in context of the industry being pretty lean and then you have a little bit of better demand dynamics and all these other reasons with promos and hot summer, etc. So just give us a sense of inventory levels.

Timothy Donahue
President & CEO at Crown

So I can't comment on the other can companies. Generally our larger customers carry no inventory. They are direct store delivery, right? So the inventory is carried by typically the can companies. I think it's safe to say our inventory level right now is no higher than it was at January 1 which is depending on how strong the third quarter is going to be could be somewhat concerning.

Timothy Donahue
President & CEO at Crown

So we are continuing to run as hard as we can and we need the plants to be as efficient as they can. We will look again to build some more inventory as we get into Q4 because we do see a very strong 2026 as we sit here today. So if I was to try to answer that a different way, Ghansham, I would say that we probably have a few 100,000,000 less cans in inventory than we would like right now.

Ghansham Panjabi
Senior Research Analyst at Baird

And then in terms of the 2026, you just made a comment on the strength expected next year. Can you just update us as it relates to contracts coming up, your share position, your expected share position in 2026 in North America? And then in terms of just again high level drivers of earnings growth in 2026, is it fair to assume that capital allocation will feature more aggressively in terms of what drives earnings versus obviously very, very difficult comparisons given strong operating results in 2025?

Timothy Donahue
President & CEO at Crown

There is one larger customer who is in the process of trying to renew and extend contract across the entire industry, but beyond that, as we sit here today and I don't want to talk too specifically, but we do know what we have under contract leading into next year. We do know what the customers are telling us about their growth aspirations and it feels like next year could be a very tight year for us and that's why I suggested we would like to build some inventory in Q4 ahead of that and that's why I suggested we're probably a little bit low We're going to do the best we can to keep running and building inventory in a responsible manner. As for earnings growth next year, there's puts and takes everywhere. Certainly as others have been rewarded with capital allocation, featured capital allocation in their earnings trajectory, are going to see more and more of that as we go forward but we run a business here.

Timothy Donahue
President & CEO at Crown

Our hope is that most of our earnings growth comes from the business. We have got a couple of businesses right now. Asia and transit where volumes have been soft over the last eighteen, twenty four, thirty, thirty six months, it's been soft for a while and we stripped out so much cost in both of those businesses that we are really excited for when volume does return because it should all flow to the bottom line. That's number one. We do see Europe continuing to grow and that's going to provide more earnings.

Timothy Donahue
President & CEO at Crown

Think Brazil continues to grow. Mexico soft this year so the opportunity for Mexico to firm up a little bit and then in The Americas, we know we're going to be full next year and so the offsets here will be all the other miscellaneous things that happen in the business that we don't talk about because it just confuses the strength of the business if there is any offset. But it feels like next year should be a very good year as well. But we are too early to get there Ghansham. Let's not get ahead of ourselves.

Ghansham Panjabi
Senior Research Analyst at Baird

Of course. Thanks again.

Timothy Donahue
President & CEO at Crown

Thank you.

Operator

Thank you. Our next question will be from Josh Spector of UBS. Sir, your line is now open.

Josh Spector
Josh Spector
ED - Chemicals Equity Research at UBS Group

Yes. Hi. Good morning. I just had a follow-up specifically on CapEx. I guess as I look at the next few years and you maintain your conviction around 1% to 3% volume growth, where does CapEx need to go in order for you to achieve that?

Timothy Donahue
President & CEO at Crown

Well, Josh, we are sitting here with an estimate this year of four fifty and probably I guess we were similar to that number last year plus or minus, but within that number let's say that our maintenance capital is $250 to $300 that still leaves you with a solid $150 or $200,000,000 for growth projects and those growth projects would be centered almost entirely in the beverage can business globally and I don't think we see any large growth needs in Asia given the footprint we have and the softness we've had there. It's principally centered around The Americas and Europe. We did announce a third line in Ponta Grossa in Brazil that we're going to get underway soon and that will account for a lot of the difference between this year's target of four fifty and where we sit through six months which is short of 100. We have a project where we're doing a significant modernization and upgrade to a facility in Greece and that will be some of the other spending. But I think we have adequate room in the envelope of four fifty.

Timothy Donahue
President & CEO at Crown

Now let's be clear, Kevin is going to sit here and tell us every year we've got 800 to $900,000,000 of cash flow, if we needed to support our customers and grow our business, we can certainly afford to spend another $100,000,000 from time to time to continue to grow the business. We'd like nothing more than that opportunity.

Josh Spector
Josh Spector
ED - Chemicals Equity Research at UBS Group

Thanks. That's helpful. Just a quick follow-up on that. So if you did have those opportunities and you did decide to invest an extra 100,000,000 would you be growing above the 1% to 3% range or would that just be a timing effect?

Timothy Donahue
President & CEO at Crown

In the year you spend it, you may not be growing but in the following years you would believe that you are growing a little bit more than that. But remember one thing, we don't sell quite 100,000,000,000 units, we're somewhere between 80,000,000,100 billion units. So when we add a facility, we add a can line and if it's 1,000,000,000 to 1.2 units on a can line, you're a little more than 1% there. If you get it all in one year, it's 1%. So, just be a little careful with your excitement level. You're adding into a very big denominator right now.

Josh Spector
Josh Spector
ED - Chemicals Equity Research at UBS Group

Fair enough. Thank you.

Timothy Donahue
President & CEO at Crown

You're welcome.

Operator

All right. Our next question will be from Jeff Zekauskas of JPMorgan Chase. Your line is now open.

Jeffrey Zekauskas
Jeffrey Zekauskas
Analyst at JP Morgan

Thanks very much. A lot of the free cash flow in the quarter came from a change in payables and accrued liabilities. Maybe you increased $350,000,000 sequentially. What's behind that? And is that the level that you are going to stay at, this $3,500,000,000 for the remainder of the year?

Timothy Donahue
President & CEO at Crown

Jeff, I think if you look at that in combination with the increase in receivables and inventories, your trade working capital is roughly flat year on year. It's not $300,000,000 maybe it's only a $100,000,000 increase when you think about trade working capital, the working capital necessary to run a business and that residual $100,000,000 largely around the inflation of aluminum that we're currently absorbing.

Jeffrey Zekauskas
Jeffrey Zekauskas
Analyst at JP Morgan

Okay, great. In terms of you took 45,000,000 in restructuring charges in the first half or non recurring charges. What might be that for the year and how much of that will turn out to be cash for severance?

Timothy Donahue
President & CEO at Crown

So the write down of the assets in China is non cash. So maybe of the $45,000,000 maybe half of it? 10,000,000 to $15,000,000 Kevin is saying 10,000,000 to $15,000,000 would be I mean,

Kevin Clothier
Kevin Clothier
SVP & CFO at Crown

The cash will be baked into the projection that we have, Jeff, so for the year. Some of the cash may play out over a couple of years as we put the actions in place.

Timothy Donahue
President & CEO at Crown

As we sit here today, I don't think we have any we don't have any knowledge because if we did, we would have already booked it. As we sit here today, unless something happens or we get an opportunity to do something considerable, can't even begin to estimate if there's any more to book at this point.

Jeffrey Zekauskas
Jeffrey Zekauskas
Analyst at JP Morgan

Okay, great. Thank you very much.

Timothy Donahue
President & CEO at Crown

Thank you.

Operator

Thank you. Our next question will be from Stephane Diaz of Morgan Stanley. Sir, your line is now open.

Stefan Diaz
Stefan Diaz
VP - Equity Research at Morgan Stanley

Hi, Tim. Hi, Kevin. How are you guys doing?

Stefan Diaz
Stefan Diaz
VP - Equity Research at Morgan Stanley

Stephane, thanks, Maybe just in Asia, maybe if you could just go into a little deeper what you're seeing there. I know you mentioned in the prepared remarks that you think tariffs are weighing on consumer confidence. But maybe if you could weigh that versus maybe some competitors that are expanding in the region? Maybe if you have an estimate of what the volumes for the region were this quarter? Thanks.

Timothy Donahue
President & CEO at Crown

Yes. So I'm sorry, what I said in my prepared remarks is the market was down high single digits. We were probably down a little bit more than that in the double digits. So the market was down significantly in the second quarter. So this would be all can makers, the market in total down.

Timothy Donahue
President & CEO at Crown

So a real slowdown in the region not just for can makers, not just for consumer beverage companies, but for many industries.

Stefan Diaz
Stefan Diaz
VP - Equity Research at Morgan Stanley

That's helpful. And then maybe back to Americas margins. I know you answered a couple of questions on this already, but I think in the release you mentioned favorable mix. Was there any like can ends, can body shipment mistiming that also helped margins in 2Q or anything specific to call out there I

Timothy Donahue
President & CEO at Crown

don't think there was a mix between ends and cans, but I do think that our ongoing underweighting to U. S. Domestic beer has been helpful in our mix. We have a significant position in beer in Canada and we have a very significant position in beer in Mexico as we do in Brazil. However, in The United States, are significantly underweight to the market in beer.

Timothy Donahue
President & CEO at Crown

So again, we reference mix because we are underweight to beer in The United States.

Stefan Diaz
Stefan Diaz
VP - Equity Research at Morgan Stanley

That's helpful. And then maybe if I could slip in one last one. Any update on the 2026 business win that you hinted to a couple of quarters ago? Thank you, guys.

Timothy Donahue
President & CEO at Crown

I prefer not to give you that update, so thank you.

Operator

All right. Our next question will be from Mike Roxland of Truist Securities. Sir, your line is now open.

Michael Roxland
Michael Roxland
MD - Equity Research at Truist Securities

Yes. Thank you, Tim, Kevin and Tom for taking my questions and congrats on a strong quarter. Just one quick question from me, Tim. You noticed that you mentioned that there's been a step change in earnings and EBITDA. And a number of questions on the sustainability of margins.

Michael Roxland
Michael Roxland
MD - Equity Research at Truist Securities

So I'm just wondering, can you talk about the sustainability of margins at these levels in North America? I mean, one of your peers, I think, recently noted that margins in North America are at a high watermark. So given what the CPGs are facing, given the backdrop that they're in, could there be some potential for some margin degradation given this is the overall climate? Any insight you could share in terms of the sustainability of EBITDA margins and risk that margins could decline given the backdrop? Thank you.

Timothy Donahue
President & CEO at Crown

Listen, good question. I'll be careful how I answer this. For the most part our customers, especially our large customers across the beverage universe, make double or more than double the margins we make. The amount of capital we invest in our factories, the amount of time and expense we invest in hiring and training employees to run cans at 3,000 or 3,500 cans a minute at high efficiency and low spoilage is not insignificant. It's incumbent upon us if we're going to make those investments that we get what we believe is an adequate return regardless of where the return sits today in relation to the past.

Timothy Donahue
President & CEO at Crown

I would argue that in the past the returns were so bad, they were so low that it's irrelevant where we sit today versus in the past. Perhaps I have a different view on what my responsibility to my shareholders is than others but it may be higher than it was in the past but maybe it's only now beginning to approach what it should be.

Michael Roxland
Michael Roxland
MD - Equity Research at Truist Securities

Thank you.

Timothy Donahue
President & CEO at Crown

Thank you.

Operator

Our last question will be from Gabe Hajde of Wells Fargo Securities. Sir, your line is now open.

Gabe Hajde
Gabe Hajde
Research Analyst at Wells Fargo

Thank you. Tim, Kevin, good morning. Good morning, Gabe. Congrats on the Forbes award. I know you pride yourself on being a science based organization as it relates to carbon and net zero.

Timothy Donahue
President & CEO at Crown

Thank you.

Gabe Hajde
Gabe Hajde
Research Analyst at Wells Fargo

Yep, I had a question similar to what Mike was getting at, but just maybe short term, and I know there's vagaries in terms of customer order patterns and shipments and things like that, but I think you intimated North American growth of three, you're at one, inventories running a tick below where you'd like them to be. Is this just a simple function of preparedness coming into the summer selling season and it was a little bit stronger than what you expected, undergoing the market a little bit despite sort of categorically where things are shaking out, you guys would be performing better?

Timothy Donahue
President & CEO at Crown

I don't know if we were underprepared coming into the year. We had a view what our growth would be this year at the beginning of the year and we shared that with you in late January, early February. I think largely our growth has been what we expected it to be. I think maybe it's a touch higher than what we expected it to be and that accounts for the small shortfall inventory that we have right now. You know what, it does feel like the market, if the market and I'm guessing, right, as I said, Gabe, if the market was up 2% to 3%, 3.5%, it does feel like that number is a little higher than we expected the market to be at the beginning of the year.

Timothy Donahue
President & CEO at Crown

And so to the extent that business moves around from customer to customer, that is on the grocery shelf, one customer does better than the other, that in total the market is better and not understanding how other companies are performing manufacturing wise. Do you have some companies that are in a shortfall position and yielding more cans to other companies? I don't know. We're getting pretty fine here in trying to analyze ourselves to death. I think largely we're where we thought we would be.

Timothy Donahue
President & CEO at Crown

I think the market is a little ahead of where we thought it would be. Maybe we underestimated the market this year and maybe the market is even stronger than others had estimated. It does feel like promotions were a little stronger around Memorial Day and July 4 than we certainly had seen last year and perhaps we even thought they would be. So it probably yields to an answer that the market is even stronger than anybody thought it would be.

Gabe Hajde
Gabe Hajde
Research Analyst at Wells Fargo

Fair enough. If we strip out metal inflation, is there anything abnormal when you look at the other cost inputs and PPIs flowing into next year that we should be aware of? And I had one other one. Thank you.

Timothy Donahue
President & CEO at Crown

We did have a PPI increase this year. I don't know where it sits right now. Probably a little close to flatter right now. What's going to happen over the next six months, I don't know. It feels like we could see a little inflation, but I don't know. But nothing abnormal that I want to talk about.

Gabe Hajde
Gabe Hajde
Research Analyst at Wells Fargo

Okay. And then European business, can you talk about how Continental Europe is performing maybe versus The Middle East volume wise and maybe profitability? Just not getting not trying to get too specific, but just if there's anything that stands out to you on the profitability side?

Timothy Donahue
President & CEO at Crown

I think that the factories we have in The Gulf States probably have a touch higher return than the factories we have in Europe, but most of that is due to the fact that they're either fully depreciated or close to fully depreciated. I would say the underlying performance of the plants is similar that is they run very well in each region. Pricing isn't dissimilar, it just has to do with depreciation levels with newer plants in Continental Europe more fully depreciated plants in The Gulf States. Having said that, growth, at least this quarter, might have been a touch higher in The Middle East than it was in Continental Europe, but both very strong I think year to date, I don't have it in front of me, I think they are more similar than dissimilar.

Gabe Hajde
Gabe Hajde
Research Analyst at Wells Fargo

Thank you. Good luck in the second half.

Timothy Donahue
President & CEO at Crown

Dave, thank you very much. You. I think you told us that was the last question. Thank you very much and we thank you all for joining us and we look forward to speaking with you again in October. Bye now.

Operator

Thank you. That concludes today's conference. Thank you everyone for joining. You may now disconnect and have a great day.

Executives
    • Kevin Clothier
      Kevin Clothier
      SVP & CFO
Analysts
Powered by Quartr