Greetings. And welcome to the Ball Corporation 1Q 2023 Earnings Conference Call. During the presentation, all participants will be in a listen-only mode. Later we will conduct a question-and-answer session. [Operator Instructions] As a reminder, this conference is being recorded, Thursday, May 4, 2023. It is now my pleasure to turn the call over to Dan Fisher, Chairman and CEO. Please go ahead.

Thank you, Tina, and good morning, everyone. This is Ball Corporation’s conference call regarding the company’s first quarter 2023 results. The information provided during this call will contain forward-looking statements. Actual results or outcomes may differ materially from those that may be expressed or implied. Some factors that could cause the results or outcomes to differ are in the company’s latest 10-K and in other company SEC filings, as well as company news releases. If you do not already have our earnings release, it is available on our website at ball.com. Information regarding the use of non-GAAP financial measures may also be found in the Notes section of today’s earnings release. Historical financial results for the divested Russia operations will continue to be reflected in the Beverage Packaging EMEA segment. See Note 1 Business Segment Information, for additional information about the sale agreement and a quarterly breakout of Russia’s historical sales and comparable operating earnings. In addition, the release also includes a summary of non-comparable items, as well as a reconciliation of comparable operating earnings and diluted earnings per share calculations. Joining me on the call today is Scott Morrison, our Executive Vice President and CFO. I will provide some brief introductory remarks, Scott will discuss key financial metrics and then we will finish up with closing comments, our outlook for the remainder of 2023 and Q&A. Let me begin by thanking our employees for working safely and efficiently, while fulfilling our customer’s needs. Collectively, we delivered strong first quarter results amid tough year-over-year comparisons, driven largely by business divestments executed in 2022. In the first quarter, every business either achieved or exceeded their operating plan. Our aluminum beverage and aerosol shipments were in line with our regional expectations, and our aerospace technologies continue to be in high demand. Notable…

Thanks, Dan. I’d like to congratulate Dan on his election to Chairman of the Board and thank John for his service as Chairman. Dan was battle-tested on many fronts in 2022 and he has the skill set and drive to take the company to new heights. First quarter 2023 comparable diluted earnings per share were $0.69 versus $0.77 in the first quarter of 2022 and excluding the notable Russian aluminum packaging business sale headwind, first quarter comparable diluted earnings per share were flat versus the prior year. First quarter sales decreased compared to the same period in 2022, primarily due to the sale of our Russian business in the third quarter of 2022, currency translation, lower volumes and the pass-through of lower aluminum prices, partially offset by the pass-through of inflationary costs. In the first quarter, net comparable earnings decreased compared to the same period in 2022, primarily due to the sale of our Russian business in the third quarter of 2022, lower volumes in North and South America, and increased interest expense, partially offset by fixed cost savings, lower depreciation expense and SG&A cost-out initiatives, as well as the contractual pass-through of inflationary costs. To reiterate our prior earning’s call commentary and to help frame some of Dan’s earlier comments about choppier second quarter performance in North America and South America segment earnings, we have been and will continue to proactively manage regional supply-demand balance across our system of plants in the near-term. After July, segment earnings will reaccelerate when the majority of the contractual inflation recovery begins and a larger portion of summer selling volume flows through segment results. Also remember, the virtual power purchase agreement settlement recorded in North America’s first quarter results will not replicate in the second quarter. However, we estimate that North America’s second…

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

Thank you. [Operator Instructions] Our first question comes from Ghansham Panjabi of Baird. Please go ahead.

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

Yeah. Thanks, Ghansham. I guess, where we are at today, it’s been largely in line the first quarter and even what we are anticipating in the second quarter. Things that have moved around in regions have been largely related to customer mix. So the industry writ large -- is largely in line. There’s been movement in quarters, some have benefited, some haven’t. We have done a little better than the market in Europe, we were a little behind in South America and we were a little behind in North America. The benefits of what we saw in terms of the things within our control, we outperformed almost in every spin category, operational efficiency category. So that all helped us to effectively manage our earnings profile in the first quarter. We came into the year with a conservative view on things like promotional activity in the first half. We believe that you will see some benefits in the second half from that. But, again, we haven’t seen it and we are not counting on a lot of it. We put in place a very conservative volume plan at the outset of the year to underpin our earnings and our cash generation and that’s what our focus is. So we will continue to focus there. I don’t know if that helps you, but we are not seeing a lot of difference. We are seeing some movements and some share shifts by customer and by category. But it’s largely in line with what we anticipated heading into the year, at least for what we know in the first half. In the second half, I think this business, as you know, requires volume. We are a volume business. So we will need a little bit of that uptick in the second half of the year, but we got a lot of things breaking our way and the things that we can control that will enable us to hold the cash and hold the earnings profile here for the majority of the year.

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

Correct.

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

Yeah. I will take a shot at it. Just at a high level, we are definitely seeing some improved inflation in terms of the run rate and the cost structure, and to your point, the way these contracts work. Keep in mind that the majority of our PPI benefit, specifically in North America, isn’t going to come into the second half of the year. That will carry forward until it laps into the second half of next year. We will maintain the overwhelming majority of the lift that we are seeing on all of these inflationary pass-throughs as catch-ups. There will be a limited -- right now as we are looking at the year-over-year components, it doesn’t look like there will be much movement one way or another, absent what we are counting on for the catch-up from 2022 into 2023, but this is -- this will be evolving throughout the year depending on where the headwinds or tailwinds on inflation manifest. Scott, anything?

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

Perfect. Thank you so much.

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

Yeah. Understood. Understood. Thank you.

Thank you.

Thank you. The next question comes from Christopher Parkinson of Mizuho. Please go ahead.

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

Hi, John.

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

Sure. Promotional activity is really a thing in North America specifically, given the pantry stuffing effects in the larger case packs. We are not seeing much of any right now. I think it’s reflected in the performance of our customers in terms of the revenue growth they are seeing and volume being flattish and so we are sort of tied to that volume being flattish component. Where you would -- the one thing that is clear in the last 12 months to 18 months is the folks that have taken less price versus inflation or have held pricing. They are the ones growing share. And as share becomes more important, which we believe as the year moves on, there will be an opportunity for folks. If they are more focused on share gain, then you will see more activity, and I would expect to see, given the performance of beer with large being down, they have more impetus in a need to push volume than what I am seeing out of the energy and the non-alcohol spaces. So I anticipate a little bit in the second half of the year across the Board, but I don’t anticipate much. And if there’s one area where you could see or anticipate some, it will probably be in the area of the alcohol categories, in beer specifically, because shares don’t make us down in that category.

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

Thank you.

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

Thank you. Hi, everyone. Good morning. Thanks for the detail.

Hi, George.

Hi, George.

How are you doing?

Good.

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

Sure. Let me take the second part of the beer question first. As you know, George, you have been following us a long time. We have an overweight in beer and we love all our beer customers and we serve that market. So net-net-net and I know the specifics and I am not going to go into the specifics relative to customers. But I will tell you this, how you should look at Ball’s portfolio as it relates to beer is, we win when folks drink beer. And so if there’s a mix impact. We may have a -- we may have one customer that’s up, in a short period of time there may be a share shift, we pick up both sides of that equation generally. So what we are more interested in is the health of the entire category and we believe that beer is going to need to galvanize itself and push in the second half of the year. They are going to have to promote across the entirety of the industry.

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

Yeah. And in the…

…ask them later this weekend but…

In the category space, I don’t anticipate any significant wins or significant losses by category. What I -- in my prior answer to the prior question, I will reiterate. I think, there will be a share shift that happens in each category, depending on the approach that each brand owner takes and so folks that have decided to not pass on price increases aggressively, if you will, have done better on share gain over the last 12 months to 18 months. So if they have taken a posture where they are going to pass-through a portion, but not pass-through what everybody else in the category is Zoom, they are the ones that are winning share and so depending on what decision you are making within the category, I think it’s going to be a share shift within the category. I think every category is going to do well and some will do a little better than others, but it’s really going to be the customers that win within categories. That will be the determining factor on our volume versus our competitor’s volume.

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

Understood. Two questions and I will turn it over. One, on aerospace, can you talk to the degree that you can sustain the performance that you saw in 1Q, after what was -- obviously a little bit of a challenging 2022, whether this is kind of a one-off one quarter hit or benefit or you think you can maintain that into the rest of the year and hopefully 2024? And then back to beverage cans and capacity, can you talk to what you think operating rates will be this year? And Scott, should we really be expecting CapEx in 2024 in the range of $550 million to $600 million based on what you said on D&A? Thank you and good luck in the quarter.

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

Sure, George. On the D&A, I said GAAP D&A for CapEx.

Okay.

Not the comparable operating earning ones.

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

Operating rates, we are running our plants. I mean we are taking downtime and we are taking more of it in the second quarter to make sure that we are operating at pretty high levels of above 90%. So we will take downtime in Q2 in North America and South America. South America, that’s pretty typical given the seasonality of that business, but we are really focused in Q2 on getting our inventories to the right level and so we can run it -- and run at fairly high operating rates for the year and so that will be a bit -- that will be a drag in Q2.

Understood. Thank you, guys.

Thanks.

Thank you.

Thank you. The next question comes from Angel Castillo of Morgan Stanley. Please go ahead.

Hey. Sorry. Can you hear me?

Yes. Hi, Angel.

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

Sure. Well, first of all, congratulations on being a new dad and how quickly…

Thanks.

I don’t know how quickly Leella can start drinking out of cans. That will help to answer the -- I think, the downtime question. But, in all seriousness, Scott laid it out really well. So in South America, you are entering in the off-peak season. So you typically do curtail. The balance of this comment about curtail there is curtailment and its maintenance. So it’s plant maintenance. So you are going to have that for certain. And then in North America, our plants performed extraordinarily well in Q1 and volumes were a little down versus our expectation. So we carried in a little bit more inventory in the second quarter and we are going to manage that, we are going to manage that tightly here for the balance of the year for cash-generative purposes. We have got a lot of flexibility in our lines, as you know. The curtailment question for us is harder to answer. Angela, I think you know this about us, because we have multiple can sizes on every line. There is one can size that certainly has excess capacity, writ large in the North and Central American market. We do have exposure to that, but it’s limited. And so the next question, I think, that you were leaning into is there, depending on what the brand is or the product is that’s innovating and that’s winning, we can flex to that, and we can turn that on. We are in a really healthy position in terms of safety stock and we are in a healthy position in terms of we are performing a heck of a lot better than we have in the last couple of years in running our business. So if things suddenly shift, we have got dry powder and we have got dry powder in a number of can sizes that gives us flexibility to move into whatever the winning product and whatever the winning brand is going to be. So I am not concerned about us stepping into upside. I -- and we are going to manage inventory positions and safety stock levels really with a lot of discipline here in the second quarter.

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

That’s very helpful. Thank you. And then just maybe following up on the strength in the other segment. I am curious, you talked about corporate, you reiterated the guidance there. Just maybe some of the other pieces, some of the strength you are seeing in aerospace and just what the underlying expectations for that segment will be kind of for the full year?

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

Thank you, Dan. Appreciate it.

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

Hey. Good morning. Thanks for taking my questions.

Good morning.

A couple of quick follow-ups from me. I am just curious, just digging into the inventories a little bit. I am just curious where inventories both from a finished product and raw material standpoint, where they stand versus your target, I guess, as of the end of the quarter? And if you were building inventories or if you are starting to work them down at this point?

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

Right. And is that more on the raw material side? I mean you mentioned coil, is finished product inventories…

It’s both. Yeah.

Yeah.

It’s both. I mean and we are talking…

Okay.

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

Yeah. Yeah. I think that’s very clear. And then just like a quick follow-up. Did you import any cans into North America in the first quarter?

No.

Okay. That’s very clear. And then…

Yeah.

…one last one from me. On the promotional activity...

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

Okay. And then just the last one for me is on promotional activity and I appreciate the conservative tone that you are taking and the plan. But just when do you expect to gain visibility, I mean, is there still at this point in the year, the potential for promotional activity to pick up and have a material impact on volumes?

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

Yeah. That makes a lot of sense. Good luck with it all. Thank you.

Thank you.

Thanks.

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

Good morning. This is actually Bryan Burgmeier filling in…

Hi, Bryan.

…for Anthony. Thanks for taking the questions.

You bet.

Yeah. So the $28 million tailwind from the power agreement settlement in 1Q, was that part of full year guidance originally? I don’t remember hearing that on the 4Q earnings call. And when you talk about North America being kind of flat quarter-to-quarter, I assume this means it will actually be like an apples-to-apples basis, because I don’t expect this tailwind to repeat in 2Q, is that accurate?

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

Okay. Understood. Thank you for the detail. And last question for me in March, you announced you were having some discussions about the possible closure of the Wallkill plant. I am just wondering how are those discussions going and based on what you know right now, what you can say right now, is it possible to say when or if that plant will close?

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

Okay yeah. Thanks a lot for detail there.

You bet.

Good luck in the quarter.

Thank you.

Thank you. The next question comes from Arun Viswanathan of RBC. Please go ahead.

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

Thank you.

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

Yeah. I’d say North and Central America, what you are seeing is, all the hard work from last year in terms of cost-out, you see our SG&A is much lower, the plants are operating better. We are -- I think we are getting our group back with how we operate. So it performed at or above our expectations, too. We expected softer volume and our game plan is to perform very well even if volumes are soft and so that’s exactly what you are seeing. You also got -- we got a benefit of that virtual power purchase agreement in the first quarter that won’t repeat and so -- but we will keep earnings relatively flat and that’s due to improved performance across the business.

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

Great. Thanks. And then as a follow-up on Europe, I guess, was there any work done on your side to renegotiate contracts for energy or any other cost items? Is there any requirement -- extra work you have to do on that side or not necessarily?

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

I think both in that business and equally excellent job by our aerosol business, which has a significant present in Europe. So both of those businesses and both of those management teams have done an extraordinary job to work as partners with our customers to get to a good medium and longer term outcome as we manage through a very different energy and inflationary backdrop in Europe. So I think we have done the right thing by our customers and our teams have done the right thing by our stakeholders.

Great. Thanks a lot.

Thank you.

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

Thank you. Hi, Dan, Scott, and congrats on a…

Hi, Mike.

… solid quarter given the results there. Just some quick ones for me. Just in terms of the guide the EBITDA for North America and particularly exports in 2Q, what type of volume growth is that embedded? Is that -- does that embed a slightly down you expect for the year, and if so, could there be upside to the forecast if you do have to start to see some promotional activity kicking off?

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

Got it. And then just one quick follow-up in terms of South America and you mentioned Dan being a little bit behind the market. Was part of that being behind the market due to the bankruptcy of a large beer producer down there? And then if you were behind the market, just any updated thoughts on the plants that you have idled in Brazil, like, Frutas and others and whether they can ultimately become permanent closures?

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

We didn’t have any exposure to the customer that went bankrupt.

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

Thank you.

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

Hey, guys. Congrats on a solid quarter and a pretty tough demand environment. I guess…

Thank you.

… Dan, it would be helpful. Dan, I think, it would be helpful to kind of give us some color in terms of how intra-quarter volume trends kind of sell throughout North America and Central America. How April is kind of shaping up and do you kind of expecting -- expect more of the same effectively in 2Q in terms of the volume trends?

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

Got you. And then for Latin America, Central America, Latin America, you are expecting…

Yeah.

If I heard you correctly, Dan, mid-single-digit growth. So that would imply a pretty sizable ramp in the back half. Part of this, it sounds like it’s predicated on the view that maybe your customers lean into loan hedges rolling off. How much line of sight do you have? I mean like just like promotions in North America, it’s been tough to predict. How much line of sight do you have that your customers would behave as such and will help you kind of jump start that demand backdrop, because it’s been pretty choppy in Brazil?

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

Okay. And sorry, just to sneak one more in. North America, you are expecting volumes to be flat to down a little bit. Any color on the back half what that assumes, is it more like flat, is it still down a little bit or maybe inflect a little bit up in the back half of North America?

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

Okay.

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

Okay. I think that’s more than reasonable. Thank you.

Yeah. Thank you.

Thank you. The next question comes from Mike Leithead of Barclays. Please go ahead.

Hey. Thanks. Good morning, guys.

Hi.

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

Well, we get more of the PPI in the back half of the year, and let’s face it, the Q4 comp was pretty easy for last year. So we should do meaningfully better than Q4 of last year, which was not very good. But I would say, we had a pretty good third quarter last year really in terms of performance in North America. So it’s definitely back half weighted with most of it in the fourth quarter.

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

Yeah. Europe is really -- we have got the headwind of Russia. So that was $32 million in the first quarter. It’s $40 million in the second quarter. It moderates to $14 million in the third quarter. So you have got those -- that headwind each of the next couple of quarters, second quarter being the largest headwind, because Russia performed really well last year in 2022. But all of the things that they have been doing from a cost standpoint, from a contract standpoint, from an inflation pass-through standpoint have been positive and they are seeing nice volume and we have got new plants coming up. So we feel really good about the European business for the full year.

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

Great. Thank you.

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

Hi. Good morning. Thanks for taking the question. I wanted to focus on beverage can new product introduction, a lot of uncertainty in the economy, consumers also kind of pulling back a little bit on the spend. Are you seeing any reduction in new product offerings or introductions from your customers, understanding that the can obviously win a greater share of this, but some of these new products in energy alcoholic and ready-to-drink space have been key to the growth. So just curious what you are seeing there?

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

Yeah. Thank you. No worries.

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

And in fact, Kyle, today, we have one of the leading beverage innovation houses is actually visiting us here in Colorado today. So we are really excited to be working with them and all kinds of folks with new ideas and new beverage categories.

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

I will leave it to Scott. I don’t think anything meaningful in the start-up cost. But they are right on track. The teams have done a great job. We have got sister plant concepts in terms of training. So we brought folks in. They are helping us out in the other local facilities. So they will be well trained and ready to step in on day one when we have production and operation.

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

Thank you. Appreciate the details.

Thank you.

Thank you. The next question comes from Gabe Hajde of Wells Fargo. Please go ahead.

Dan and Scott, good morning. Congrats.

Good morning.

Good morning. Thanks.

I have a question about sort of just the full year and then the second year or second quarter cadence, excuse me. I feel like there’s a decent amount of noise and sort of just underlying performance having, you talked about a stable business, but North Central America profit being up almost 2x from 4Q and I appreciate that was an odd quarter. But, Scott, the math you gave us on being 3.7 times levered by the end of the year, if I subtract out $750 million of cash plus the $260 million of dividends, that implies 21.50 [ph] of EBITDA. Is that the right way to think about it, and then sequentially, would you expect EBITDA to be up or down relative to the first quarter?

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

Correct. Like, just looking at...

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

Understood. And then, Scott, probably, one for you on the balance sheet and cash flow that you are talking about. Unless my model is wrong, your days payable are at 130, which is pretty good, I mean, I expect you guys wouldn’t want to extend it out that long yourselves. Is there anything that we should be mindful of thinking about that being a potential drag on cash flow in future years? And then I think you have $1 billion of debt due in November, is any change in the potential rate on that included in the $425 million of interest expense? Thank you.

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

And I think implied in that statement is, yeah, we recognize that we will be retiring cheaper debt than we would be stepping into…

Yeah.

… at this point in November and that’s anticipated in Scott’s number.

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

Right. Understood. Thank you. And then the other question was on the days payable or just working capital in general.

Oh! Yeah.

I am seeing days payable 130 days.

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

Thank you.

Yeah.

Thank you. Our final question…

Thanks, Gabe.

… comes from Adam -- oh. Pardon me. Go ahead.

Yeah. Thank you. I said, yeah, one more question and then I appreciate it.

Okay. It’s Adam Samuelson with Goldman Sachs. Please go ahead.

Hi. Thank you and I appreciate you all squeezing me -- yeah, squeezing me in.

You bet.

There’s a lot of ground covered. Maybe just going back to EMEA. I appreciate the kind of noise on a year-on-year basis with Russia and prior year results. You have disclosed what the non-Russia EBIT was in the prior year. So how do we think about that business on an organic profit or on a like-for-like profit basis progressing over the balance of the year? And as we think about the new capacity in Czech Republic and the U.K. layering in, in the second half kind of the implicit underlying volume growth that carries over into 2024 without broader market kind of expansion?

Okay. The game plan really for Europe this year is to be able on a euro basis to replace those Russian earnings that we had for nine months last year. So that -- if we can do that, that’s a hell of an accomplishment, because Russia was a very nice profitable business. And so if they can do that, I think, that’s victory. They have done a great job of managing their cost structure, managing their contracts, managing the supply chain and so we are really happy with the performance of the EMEA business.

Yeah. I think in the simplest terms, the plan that we have set out this year inclusive of Russia, would be we are going to make significantly more money on less volume and we are going to generate more cash and a lot of that is coming from Europe’s ability to offset the $80 plus million of comparable operating earnings in Europe. So they have got a significant plan for improvement and they are off to a good start executing against that. And they have been the business that has done -- they have done extraordinarily well here since we acquired that business from Rexam. They have continued to deliver against plan and the only time I think we didn’t was when we had a global pandemic. So we are feeling pretty confident in that team’s ability to deliver.

Got it. And the carryover on volume into 2024 from the new facilities?

It would be in the range -- on those two facilities in the range of 2 billion units.

Okay. That’s all really helpful color. I appreciate it. Thank you.

Thank you. And I think, with that, we look forward to talking to you here in another quarter. Thanks for everybody’s attention and participation today on the call.

Thank you. This does conclude the conference for today. We thank you for your participation and ask that you please disconnect your lines. Thank you. Have a good day.