Good morning and welcome to Crown Holdings Second Quarter 2020 Conference Call. Your lines have been placed on a listen-only mode until the question-and-answer session. Please be advised that this conference is being recorded. I would now like to turn the call over to Mr. Thomas Kelly, Senior Vice President and Chief Financial Officer. Thank you. You may begin.

Thank you, Lilly. Good morning. With me on today’s call is Tim Donahue, President and Chief Executive Officer. 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. For additional information concerning factors that could cause the actual results to vary is contained in the press release and in our SEC filings, including in our Form 10-K for 2019 and subsequent filings. Earnings for the quarter were $0.94 per share compared to $1.02 in the prior year quarter. Comparable earnings per share were $1.33 in the quarter compared to $1.46 in 2019. Net sales in the quarter were down from the prior year due to the impact of the coronavirus pandemic on unit volumes, the pass-through of lower material costs, and $73 million of unfavorable currency translations. Segment income of $322 million in the quarter was below prior year due to the impact of the pandemic on sales and operations and $11 million of unfavorable currency translation. At the end of the quarter, the company had over $1.8 billion in liquidity between cash balances and borrowing capacity under the revolving credit facility. And the net leverage ratio of 4.7x was well within the covenant requirement of 5.75x. As outlined in the release, we currently estimate third quarter adjusted earnings of between $1.50 and $1.60 per share and full year adjusted earnings of between $5.10 and $5.25 per share. These estimates assume exchange rates remain at the current levels in a full year tax rate of approximately 26%. We currently estimate 2020 full year adjusted free cash flow of approximately $475 million with approximately $600 million in capital spending. And with that, I will turn the call over to Tim.

Thank you, Tom. Good morning to everyone. Our continued best wishes for the health and safety to all of you and your families. Before reviewing the operating segments, I want to again take a moment to thank our global associates for their dedication during the current pandemic. You are needed, you are critical and you are essential to ensure that the global food supply and transportation support systems that so many take for granted operate without interruption. We know that many of you have been directly impacted by the virus and we continue to take measures and ask you to follow strict protocols to ensure your safety while in the workplace. From the beginning, our primary concerns have been the health and safety of our employees, their families, our customers and suppliers and ensuring the liquidity of the company in order to maintain operations and support the essential needs of our customers. Again, thanks to all of you. When we last spoke to you in April, we described what we believed was going to be a challenging second quarter. In late March, early April significant demand contraction was evident in our non-North American beverage can businesses. Fortunately, demand in those markets has snapped back and a few weeks earlier than expected. The challenge now is meeting the outside requirements of our customers as they look to rebuild their supply chains after several weeks of mandated shutdowns. From now until the end of the year and in almost every market where we produce cans will be in short supply. In last night’s release, we announced the addition of two new beverage can production lines in North America. These projects originally scheduled to commence in 2021 has been accelerated into 2020. And as such, our capital requirements have increased back to the…

Certainly. We will now begin the question-and-answer session. [Operator Instructions] Our first question comes from the line of George Staphos from Bank of America.

Hi, everyone. Good morning.

Good morning, George.

My question, how are you doing? Thanks for all the details, Tim and thanks for all you are doing on COVID. I will ask three questions. First of all, can you talk a little bit further on your comment on ways to distribute carrying costs in Europe, what you are getting at there and what the implications could be later this year and really over the next couple of years? And then I had a couple of follow-ons.

Yes, George, I think it’s not specific to just Europe, it applies to Latin America as well. It applies to anywhere in the world. So, I think we had a situation where we discussed this briefly on the April call, somebody asked on the April call if we were still making cans and putting in the inventory and the responses. No, we are not and the reason is we can’t afford the extra carrying costs, you know, the margins on our business, George, they are nowhere near the margins of our consumer product and customers. And so they are currently frustrated that they can’t get all the cans they need to refill their supply chains after telling us that they didn’t need anything for 3 to 6 weeks. And we are frustrated. We are not in the business of telling customers know it. You go to a store George to buy a tie. If you can’t find a tie you want they try to sell you a different shirt so they can match the tie to that shirt. They are not in the business of telling you know. So it’s very frustrating. So having said that, the comment is nothing more than it is a comment and it’s if you want cans available when you want them understanding you want an efficient supply chain, you have got an efficient supply chain. However, the downside of the efficient supply chain is when something like this happened and you tell us to turn off and then we start turning back on, we can’t make up several months worth of demand in a short period. So it’s, I don’t want to go into anymore than that, but the margins in their business when they are selling product for $15 to $30 a case and they can far more afford carrying costs for warehousing of cans than we can. That’s all the comment was for.

Understand, Tim. Would this be something that you could adjust for if there was mutual agreement within the year or would it need to be something that would be more formal and therefore would have to be instituted as contracts rolled over? And then you know kind of my last question, can you talk a little bit about Signode, how it’s performed. And again, I mean, this has been just an unprecedented period, it hasn’t been a normal recession, but has it performed as you would have expected both in terms of the takeaway within the end markets and the operational leveraging, de-leveraging and for that matter, specifically on working capital, again, this has been sort of a lightening around recession. But if we go back to the ‘18 Analyst Day, there was a view from the company that one of the benefits here would be you would be able to, if you were in a recession, squeeze working capital and generate cash from the downturn, are you actually being able to do that again given this period we have been in? Thank you, guys.

Yes. So I think to answer your first question, George, the way to build inventory and fairly distribute carrying cost if you will that does not need to be handled within a contract that can be handled on a one-off bespoke basis with customers as they foresee the need for can. So we will have customers no doubt who would be willing to do that we will have other customers that are so fixated on cost that they forget they need to get product on the shelf. So that’s just going to be an ongoing discussion, but there is nothing to say that, that can’t be done mid season. That’s just good business practice. On Signode, so first on the order of working capital, you will remember last year we squeezed an incredible amount of working capital out of the Signode, which was quite beneficial not only to the balance sheet last year, but more so to reset how we are going to operate the business going forward. You are right, the pandemic is a little different than the most we have ever seen in other recessions kind of everybody goes down together. In this recession, we have had entire industries whether it be the auto industry, the steel industry, appliances, just shutdown, I mean, no activity whatsoever and so that’s a little different. And so, fortunately for Signode, they are providing products across a wide variety of industries. They have got a number of industries that are still serving, but a number of industries that are shutdown and are beginning to slowly open. So, I would say, all in all certainly, we are not pleased with the results of any of the businesses we have had because they are all down. We understand that the managers and the employees are doing exceptional work across the entire company to try to make the best of it, but probably I would say, if you told me this was going to happen and I was going to lose 30% or 40% or 50% of the industries on supplying for a few months, I would have thought that the Signode results would have been far worse, but they are doing okay on price and they are doing pretty well on cost reductions in the face of this, but it’s a volume game for them and their material margin, the margin after direct material cost is quite high. So, it’s all – it’s a flow through business. So when the volume comes back as we fully expected will next year into ‘22, we fully expect to get it all back.

Thank you, Tim.

Thank you, George.

Thank you. Our next question comes from the line of Mike Leithead from Barclays. Your line is now open.

Great. Thanks and good morning, guys.

Good morning.

Question first on the free cash flow update, I guess, can you help us with how much incremental CapEx you are baking into this guidance with – associated with your new announcements this morning versus maybe a weaker operating cash flow outlook?

Yes. So, the first thing I will say, Mike, I guess, we have to apologize because perhaps we weren’t clear enough to all of you in April. So, in April, we suggested to you that even in the face of the pandemic and given the severe cutback in beverage can demand across a number of businesses that we have around the world be it Southeast Asia, Latin America, Europe that with some adjustments to capital that we felt we could get close to the original $600 million free cash flow number. And so perhaps we should have been a bit more specific around what we are thinking in terms of cutting capital at that time. And I guess because we were not you all did not fully reduce capital expenditures to offset the operating income loss. So, the cash flow could get back to that number. So, as we go back to full $600 million, I will tell you that as we sit here today, that $600 million is at least $100 million higher than we were envisioning when we spoke to you in April. And as I say, I apologize perhaps we weren’t clear enough, but given the uncertainty and the lack of visibility that we all had at the early stages of the pandemic and our concern with liquidity, we were expecting – fully expecting to cut more out of capital and delay projects then than we are now. So, I would tell you that maybe at least $100 million of that is capital. The other $25 million will be working capital. And as you will appreciate, businesses in Brazil and in Southeast Asia are quite large and they are quite large in the January, February timeframe as they get near their holiday seasons of Carnival and Chinese New Year. So, the inventory builds are expected to be exceptionally strong this year as peoples in those countries return towards more celebrations and gatherings hopefully as we get past this virus.

Got it. That’s really helpful color. And then just on some of the operational flexibility in Americas Beverage this year, could you maybe just give us a rough sense of how much you have had to ship from Latin America to the U.S. this year and how much the new additions next year should add roughly? I am just trying to get a sense of how much is being replaced in North America versus going to true incremental capacity there?

So we all want to be a little careful here. But so the CMI earlier or later last week, came out and felt the need to describe to its recipients that the industry in North America was going to import 2 billion or at least 2 billion units into the United States to cover demand, outside demand again this year so and that 2 billion units is not included in the numbers they forecast so, if in the first quarter, the industry was up 8% in the second quarter, we were up 3%, so 5.5% year-to-date. It does not include imported cans, it only includes cans produced in North America. So in fact, the growth rates are considerably higher than the number you are seeing as relates to Crown. I’m a little surprised that CMI says 2 billion cans because we are not 50% of the market and we would be at least 50% of that number. So, we will we so what have we done recently here, we started to Toronto, the third line in Toronto back early in the first quarter. Towards the end of the second quarter, the third line and Nicholas came up. They will be going through learning curve this year, but hopefully are well through the learning curve. And our plans are much closer to full production levels next year. And then we bring up Bowling Green the first line in the second quarter and we will get some we will get some capacity on the second line in Olympia later in the year, so there will be a significant capacity that Crown brings into the system next year to offset what we brought in from Latin America. Having said that, our view as we sit here today is that that still will not be enough given the trends we are seeing in the beverage industry in North America with spiked seltzers, sparkling waters and stay at home. And stay at home. And I believe just as in Europe, I made the comment in, Europe on European food. What our European food customers believe is that there is a more permanent return to eating food cans at home because of the pandemic. And I think we are going to see more of that in North America as well for some time as well. So I think we are going to see extremely strong demand in beverage cans globally, and especially in the United States.

Great. Thanks Tim.

You are welcome.

Thank you. Our next question comes from the line of Brian Maguire from Goldman Sachs. Your line is now open.

Hey, good morning guys and congrats on the good results in a really tough quarter. Just wanted to ask about the margins and performance in Europe, the volume weakness obviously, there were some fixed costs absorption on that but the margin at I think 11.2% or so was quite a bit longer than its ever been in the second quarter so wondering if there were some impacts from the start up in the conversion in Spain that might have impacted it there. And, what we might expect from our more normal margin in that business, in a seasonal quarter like 2Q?

So there might be a some impact from the startup in Spain, but it all revolves around 12% volume decline, and if the volume business because fixed costs are so high, especially recently in the beverage can industry, across the industry, as we all have been modernized or installing new plants new line modernizing, there has been a lot of capital spent recently. So that’s all flowing through the operating income because of the depreciations reflected in that the EBITDA numbers wouldn’t look as drastic as that but it is volume. And I am a bit hesitant to say what it should look like. I would like to be able to tell you as I sit here today that at a normal volume quarter it should not look any worse than what it has looked like in the past having said that, you probably you will remember, I probably has stated that we have not been exceptionally pleased with the margin profile in European beverage. And so the European beverage margins do need to improve over time. So the combination of returning volumes in an environment where the market continues to grow and the needs for the industry to get adequate returns to keep investing, would tell me that what I would like for all of us to believe is that the margin should be better than we have seen historically in the second quarter. We will see if we get there.

Okay. And I just wanted to follow-up on the free cash flow comment from Michael’s question. So I take it that the $475 million of free cash flow implies, I think you were saying kind of $100 million higher CapEx or maybe $125 million higher CapEx than what you were contemplating 3 months ago and that’s due to the need for more capacity given the strong demand you are seeing and that it sounds like maybe a $25 million swing on working capital. So, is that kind of $125 million most of the delta between what you would have thought, you could have hit maybe close to $600 million before now, it’s $475 million. It’s really just kind of pulling forward some investments and some working capital swings is that is going to clarify, is that about it?

Yes, that’s exactly it. I guess, the original pre-COVID in February, the original estimate was $600 million with $600 million of capital. So, we are back to $600 million of capital. We got about $25 million more working capital now we think at the end of the year due to Brazil, Vietnam, Southeast Asia, and then the balance is just the flow-through of lower operating income. I mean, I think our original guidance was the midpoint of our original guidance is was probably $0.30 or $0.35 higher than the midpoint of our guidance. Now we will give if you take $0.35 and you work back up the income statement, you get to a pretty big number on an operating income. So, that’s the delta.

Got it. Appreciate it. Thanks again.

Thank you.

Thank you. Our next question comes from the line of Ghansham Panjabi from Baird. Your line is now open.

Hey, guys. Good morning.

Good morning, Ghansham.

Hey, so Tim, going back to you prepared comments and your characterization about the back half or at least exit run-rates coming out of the second quarter. Is it fair to assume that 3Q will be the quarter where global beverage can volumes start to inflect higher again, it was down, I think 5% in 2Q?

We are going to be – on a global basis, we are going to be positive in the third quarter Ghansham. And I expect that every market will be higher than last year, I think some of the Southeast Asian countries, we are still the recovery is a little slow, but on a global basis will be higher. The rate of growth perhaps is not as great as we have had in prior, let’s say, first and fourth quarters only because of the available capacity we have. So, the growth rates in the second and third quarter are always going to be a little bit lower than growth rates in the first and fourth when demand is high, because there is more capacity available in Qs 1 and 4 than there is in 2 and 3.

Got it. That’s helpful. And then going back to North America, there is a lot going on with Bowling Green and Olympia, the line additions versus in addition to what you have already announced. For North America specifically as it relates to your production footprint for this year, what do you think you will exit in terms of units? What’s your best guess for 2021 at this point? And then just high level question as it relates to the fundamentals, I mean, obviously, North American beverage fundamentals were good to begin with and now you have the additional kicker, if you will, for home consumption due to COVID. Will there be a normalization period do you think coming out of the current situation? I am just asking because you are adding capacity and then there is a new entrant potentially with CAN-PACK?

Yes. The pre-COVID, Ghansham, we were fairly bullish on the market. We told you pre-COVID we thought we would be up 10% this year just because of the capacity we are bringing on and we knew it was needed. And we and others probably have been telling you that while the market is up 3% or 5%, the market could be up to 5% or 8%, if we had available capacity. So I don’t know how much extra demand is related to COVID. Even without COVID, I think we would be capacity constrained as an industry. So as it relates to the new entrant, we have one plant, they are going to build in the northeast part of the United States, we have a plant in New York and we have one in Toronto. Listen, there are lot of people who live between Washington DC and Toronto, so – and there is a fair amount of can capacity there, but there is a fair amount of demand and demand for new products be it slight sell-throughs or sparkling water or juices, teas, you name it, you know all the products. So it’s one location. They will probably have when they are fully up and running and they get through their learning curve which they bring volumes up in 2021 maybe by the end of 2022, they are fully through learning curve and, by the end of 2022, they will what they are going to bring up in terms of capacity will be less than 3% of the market and they will be kind of, located in, in one geography of the of the country, it’s a big country so it doesn’t give me that much concerned to be quite honest.

And your capacity footprint for 2020 to 2021?

I don’t – you mean how many points of how many cans are we going to have extra each year?

Yes.

We will probably have a like, I guess, I guess this year, we are going to have you got me struggling here, but I am going to. I am going to guess we are going to have about we are probably going to sell about 2 billion, 2 billion more cans this year in North America from our North American capacity that that does not include what we are bringing in from other countries. And next year let’s just say at least a 1.5 billion it really depends on how quickly we get the lines up and running. But whatever we can make, we can sell and it’s just how quickly we can we can get through get through construction and customer qualification and get cans out the door. So it’s a significant amount of capacity continuing to be added.

Thanks a lot, Tim.

Thank you.

Thank you. Our next question comes from the line of Arun Viswanathan from RBC Capital Markets. Your line is now open.

Great, thanks. Good morning.

Good morning.

Just wanted to get back to that last comment so if you think about maybe, this year, 2 billion cans in North America next year, maybe a billion and a half Extra, would that I guess imply that you should be up double digits in the U.S. next year as well?

No. Well, I think the answer is I would like to say yes. But I don’t think a 1.5 billion is not 10% of our current capacity, right it is a lower number. So, but I think, I think, 1.5 billion is probably, 6% of what our current capacity is that, are we going to, are we going to do better than a 1.5 billion and get 2 billion, I don’t know. As I said, it depends how quickly we get cans up I feel extremely confident. Whatever we can make, we are going to sell. So if we can make 2 billion more, we will sell 2 billion more, we can only make 1.5 billion more, we are only going to be able to sell 1.5 billion more.

And on that point, I guess, you have stated in the past that a lot of the new capacity is built on this firm customer commitments. So are you still seeing, that kind of agreement? Is it kind of three or five year contracts? Maybe we can just discuss that a little bit. And then again, you also mentioned maybe potentially bringing up the returns in Europe. I guess, with that, with those customer commitments and contracting, process include, potential for price increases in North America and Europe as well.

Well, I think we have tried, and you have seen in the results, the results of commercial negotiations over the last couple of years in North America, hopefully you have seen that. And I think, for the most part, our customers understand that, as I made a comment earlier right A lot of these guys sell their product for $15 to $30 a case, $0.01 to $0.02 per unit, in a $15 to $30 per case, sale price is not their problem, their problem is if they can’t get product and they can’t get product on the shelf they lose shelf space and they lose market share. So hopefully they understand that better and I think they do because customers right now understand, especially during the growth phase we are in North America be it pandemic related or not, I don’t think it really is. I think it’s a different function going step function happening here. They know they need cans so they are more than willing to contract right now to get cans. As for Europe we are. We have a sizable business in Europe, but we are only the third, third supplier so pretty tough for us to force that step change in Europe.

Okay. And then I guess I just wanted to ask about Signode as well. So, how would you characterize Signode? I guess do you believe Q2 results are kind of at the bottom and of activity rates kind of inflected higher, globally? And usually, I guess, I know, it’s a relatively short cycle period business on the consumable side and the strapping side. So, what are you seeing there? Are you seeing kind of, it should give you some decent visibility into order patterns? I mean, are you seeing resumption of higher activity levels across different geographies in Signode?

Well, I mean, as I said in the prepared remarks, we are starting to see strapping film. The order patterns are strapping to film improve and that will continue. I think there is still some – there is still some countries in Europe and perhaps in India, where it’s still a little slower than we would like to see, but they are going to come back. I think the – as I said in the call the challenge we have the higher margin business, the equipment business, just like all of you, or let’s say you are not welcome at your investor customer offices, you are doing everything remotely. Our engineers and installers are also not welcome at many customer sites. So an inability to access customer sites is making it difficult for us to continue to drive equipment sale so that will return. And as I said, I think that the third and fourth quarters, the income numbers in the third and fourth quarter is definitely be better than the second quarter and obviously we fully expect 2021 to be significantly better than 2020.

And then lastly, if you can just provide any update on the strategic review, is there anything else you can share with us there?

No, I think what I said in April and I will say it again, we are – there is a lot of work that goes, that’s done behind the scenes to prepare any business you might have for a review and a review encompasses from the beginning to the end. So we continue to do that work. As you will appreciate, there is not a lot going on in the M&A space right now. And we are not in the business of destroying value. So, we want the share price to be higher just like you do, but we are not in the business of destroying value for our shareholders. So we are going to operate the business as best we can, generate as much cash as we can and we will see what the future brings us.

Okay, thanks.

Thank you.

Thank you. Our next question comes from the line of Gabe Hadey from Wells Fargo Securities. Your line is now open.

Good morning, Tim. Hope you guys are well.

Hi. Gabe.

I guess I wanted to dial in a little bit, Tim on the commentary made about Europe food. This is encouraging in my mind given kind of the past 2 years of challenging crop yields, etcetera. So, if I look out into 2021, can you help us frame up maybe if volumes are up again, I don’t know mid single-digits or something like that. Again, I know there is a lot of uncertainty out there with what gets planted and if weather cooperates but and then also I mean, are you seeing potential for the commercial environment to improve over there as well such that margin start to march back to maybe where they have been in the past?

So, I think we based on what we are hearing from the customers, we fully expect them to plant more next year than this year and whether that’s 10%, 15% or 20% acreage, I don't know. This year they underplanted as I said. They were concerned they couldn’t get labor because of border closure. So they underplanted. So they will significantly plant more next yea, so that we believe will happen. We believe they are going to continue to can as much as they possibly can, because they are going to come out of this year with very low filled stocks. They are going to come through this pandemic having in a number of cases missed opportunities to sell more, because they didn’t have available product and they don’t want to have that again. So, I think demand is going to continue to be very strong assuming the weather cooperates. So, I think that’s the one variable I can’t talk to, but let’s just say we are – we won’t have a number of bad years in a row. This year looks like it's going to be really good. So, on the commercial side, the hope is that with demanding being that strong and customer’s needing product that they understand and we understand that the opportunity for appropriate margins to the entire supply chain are in products. And so they have a job to do, we have a job to do and we will need to do our job to see that we get compensated appropriately.

Thank you. And then Southeast Asia, I found interesting, I guess you said China was up 11%. I think, I know to answer this, but does that change at all your sort of retrenchment strategy in that particular country? And then we have read some reports about a couple of new entrants in other Southeast Asian countries, again, part of that maybe a function of being one or two supplier market, but anything changed over there in the competitive landscape and/or kind of that expectation for high single-digit growth absent pandemic disruptions?

No, I think China nothing, I am not sure. We have ever told you what our strategy in China is, but our strategy is to get the best return for our shareholders be that operating the business or selling the business, but they are just – they have recovered, they came out of the pandemic. They went into the pandemic and came out of the pandemic earlier than everybody else. So, it doesn’t change anything there in Southeast Asia. It’s a big market. There is a lot of growth. And there is – and people see opportunity. They are going to enter markets when they see opportunity, but I am not overly concerned with the new entrants in the market. There is a lot to go around.

Thank you.

Thank you.

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

Hi. Good morning, everyone. Good to hear that demand is snapping back across the board for bev cans, can you give us a sense how to think about volumes in Southern Europe and LatAm in the second half? And any cost in bottlenecks that we need to account for the surge in demand and impact on your profitability?

Cost in the resurge in demand?

That’s right.

Listen, I think, so firstly, we are going to be sold out for the balance of the year in Latin America. We are going to be oversold and we are going to frustrate customers by telling we don’t have enough capacity for them as I said earlier and that’s just a function of – there is only so much capacity to go around, but you don’t make product for 3 to 6 weeks. So, but we are going to be sold out and we are going to be up, I don’t see any extra costs, because we are sold out and in Europe, we are certainly going to be sold out through the end of the third quarter. And I think perhaps there is a little open capacity in Q4 as there always is, but we will see the market continues to grow there well, and I don’t expect any incremental cost as well there.

Okay. So you should see pretty good operating leverage. That’s great. In terms of the incremental capacity you have announced in Kentucky and Washington, how much more cans should we anticipate from these investments and what type of CapEx we kind of assume for 2021?

I think it’s a little early for us to start talking about 2021. But if the business continues to grow and we continue to see opportunities that we are seeing globally, it could be – it could well be that the capital number next year is similar to the capital number this year, but that’s a function of what we continue to see in terms of opportunities. I think, on the capacity side, in North America, at least we put a marker around there for a 1.5 billion more cans next year, as I said, whether I couldn’t tell you whether it’s 1.5 billion to 2.2 billion in the quarter. It really depends on how quick we get started, how quickly we get through the permitting processes and how quickly we finish the projects.

Got it. And just one last one on North America I guess ultimately, the markets sold out very tight. So, that’s really encouraging. But what kind of guideposts from our seat, would you want us to look at keep us comfortable that supply demand is balanced. Do you see 3% growth in North America for just want to understand because you and your competitors are adding a fair amount of capacity in the next few years? Thanks a lot.

Well, so I mean, it’s a – it’s going to be over 100 billion cans this year the market is. I think, 12 months, trailing 12 months at the end of June we are like 99.9 billion cans. And that does not include the 2 billion to 3 billion cans that are coming in from Latin America. And so, on a trailing 12-month basis I think we are up about 5% put the 2 billion cans in there, that’s 7%. And then we are going to have growth in the back half of the year. So let’s say the markets, I don’t know 100 to 300 and 4 billion cans and, and you get another, you get another few percent growth in 2021, all of a sudden, you are over you are over 105 -106 billion cans and so even at 2%, that’s, about two and a half billion cans, that’s two to three can lines that are needed every year just to stay up with the growth. So there is a lot to go around here guys as long as the market continues to grow and there are products that people are consuming now specifically the spike shelters, which are, I don’t want to say they are entirely in cans but I have not seen anything not in the can and they are replacing products in other substrates, so very good for the can market.

Okay thanks a lot. That’s really helpful color.

Thank you.

Thank you. Our next question comes from the line of Mark Wilde from Bank of Montreal. Your line is now open.

Good morning, Tim. Good morning Tom.

Hi, Mark.

Hi, Mark.

Just one more on the CapEx, Tim, I am just curious in North America, you called out that the Olympia line was going to be a specialty line. Can you give us a sense and on all of the other projects? How many of those lines are setup to be able to do specialty sizes?

Well, I think I think as we said in the, earnings release last night, every new project that you have seen us do this year, last year and even the year before they are all set up to produce multiple sizes, diameters and heights.

Okay, what does that do, Tim, just kind of the capital cost on a line?

It’s marginally higher, but, the equipment suppliers, of which we are one, there is a price for equipment. And so there is a little bit more tooling involved. I mean, you are not buying tooling for just one height or diameter you are buying tooling to do different heights and diameter. So there is a little bit more but it’s not. It’s marginal.

Okay. And is there any impact on just sort of throughput or not really?

There is initially until we all get accustomed to running tall skinny cans, they tend to tip over more than, than the standard cans as you can imagine. And kind of like when you go into the hospital Mark. If you have ever been in a hospital they give you one of those little eight ounce squat cans and the reason they give you that can, is you don’t spill it all over yourself in the hospital bed. So as, you think about a tall, skinny can they tend to, we just need to do something differently. And until the so the teams get used to doing that. Yes, there’s a little bit of slowdown throughput but as we, as we get more accustomed to that, and as we experienced in many markets around the world, be it the Middle East, Southeast Asia, Brazil, sometimes we are as good or even better running those cans than we are on the other cans.

Yes, okay right. I want to turn then to Brazil and Mexico. And I wondered, is there any way to quantify what all of the volatility that, brewers being out down in Mexico, the drop off in Brazil, what that did the kind of second quarter results and if you could maybe include not only that can operations but what impact that might have had on the glass business down in Mexico.

So, if you look at our if you look at our earnings release, and so in our markets beverage we were up, what $21 million in segment income in the first quarter, And it looks like we were down $10 million in the second quarter. So you guys are the analysts you unless you model that, but that’s, not any significant European beverage we are down $23 million in the second quarter. This is all volume right? And so beverage is a volume business. The volume the volume is back I mean its snap back, but when I say it’s snap back, it’s snap back. So we will get that back. I think what we can’t make up is the downtime that we had in the second quarter, because we only have so much production capacity available at any point in time. So if there were 2 or 3 or 4 weeks where we were not running certain lines, you are not going to make that up. You can’t run the lines any faster than the maximum speed. So that’s kind of behind us and we move forward exiting the second quarter with really high demand and we are flat out right now. On the glass side, glass is a little bit more impacted only because it’s generally more on-premise than cans, but that is coming back right now as well.

Okay, alright. Then the last one for me, we have heard some reports that retailers down in South America, little more reluctant to handle returnables in the midst of the pandemic. Are you seeing that and do you think that has any impact on kind of demand for one way packaging?

Well, it makes perfect sense that they don’t want to handle anything more than once. So it’s why when we look at Southeast Asia why the can jumped over glass, because the shopkeepers there have very small shops and they don’t want to waste any available space with returnables, empty returnables sitting there where they can have filled product that can be sold. So that makes perfect sense and it makes perfect sense if you are worried about the virus if you don’t want to handle it. Having said that, if our customers can’t get enough fill product, can’t get enough cans and they can’t fill enough product and cans and there is demand for beer or soda or other drinks, they are going to fill what they can and push into the distribution system what they can to satisfy consumer needs. So, yes, it makes sense what you say, but right now things are real tight in the South America. I think they are going to push whatever they can at consumers want product.

Okay, alright. Thanks, Tim. I will turn it over. Good luck in the second half.

Thank you.

Thank you. Our next question comes from the line of Anthony Pettinari from Citi. Your line is now open.

Good morning.

Good morning.

It sounds like it will be sold out in North America, Europe and LatAm maybe until the end of the year and you see strong growth prospects for 2021 and beyond understanding you got one, your CapEx program, is it fair to expect you may have to undertake additional CapEx projects over the next 12 to 18 months to meet this demand or is there a way that we can think about sort of normalized CapEx whether it’s 600 or a different number for what seems like kind of a new normal for demand?

Well, we only have to go back 4, 5 years and we were spending $250 million to $350 million in CapEx. So this growth that we have all been experiencing has pushed up capital needs significantly whether it’s $450 million last year or $600 million this year. And I suggested earlier on this call that perhaps the numbers is even that great next year, we continue to see the growth. My hope is that when we sit here in February and we have this conversation with you that I am telling you $600 million that will mean that there are significant growth opportunities. We all want to grow. If you don’t have growth, then things get a little difficult. So, we are really quite fortunate that we have significant growth opportunities. So I don’t know – I don’t want to tell you what a normal number is. I am hoping that the new normal number is something more like we are seeing now, which means that that this growth pattern we are seeing is going to last for several years.

Got it. That’s very helpful. And then in North America, we have obviously seen a resurgence of COVID cases here understanding on-premise is much smaller here than in LatAm or Southeast Asia and this is obviously kind of happening in real time. Is this something that’s impacting North American demand at all? Is it negative at the margin? Is it sort of neutral or is it even positive with more people buying cans on the grocery channel and staying at home?

So I don’t – please don’t take this the wrong way. As it relates to North American beverage can demand, the pandemic doesn’t matter, the market was always going to be oversold this year. And we were always going to be trying to find cans to serve the U.S. customers. I would say that fortunately for the U.S. customers, the pandemic happened and there were more cans available from Latin America to come into the U.S. Otherwise, the U.S. would have been significantly undersupplied with or without the pandemic. Now, that is not that comment is not meant to downplay the impact of the pandemic on any individual, any industry, any employee group. Listen, people have really struggled this year. I think our governments are struggling with how to handle this so that they minimize the impact on people. So please don’t take that the wrong way. But the pandemic has no impact on the outsize demand we are experiencing. We were only going to have that this year.

Got it. Understood. Appreciate that. Thank you.

Thank you.

Our next question comes from the line of Adam Josephson from KeyBanc. Your line is now open.

Tim and Tom, good morning.

Good morning, Adam.

Tim just on food cans you talked about your European customers being optimistic about the new normal post COVID for demand I’m just wondering, how if at all that affects how you are thinking about your food can businesses versus your beverage can businesses. You have the surge in North America pre COVID, which you just talked about. And then you see any of these just varying trends elsewhere, but food cans are clearly benefiting in a major way from COVID and crawling over the last a while, which don’t know. And as you said, food cans are a very good cash flow business even better than beverage cans so, how do you think about food cans versus beverage cans in terms of being a long term party or portfolio?

Well, I personally I would say Adam is that I wouldn’t describe food cans is a better cash flow, business than beverage cans. I think beverage cans are as good or better than food cans when it comes to cash flow the beverage cans system right now requires more capital than the food can system does because there is so much more growth and there is much more excess capacity that exists in the food can system, specifically on three piece food cans. But if you weren’t growing in beverage cans, you would have tremendous cash flow coming out of beverage cans. So let us put that to the side. I think that, there are a lot of people out there that have an opinion on what Crown should be doing with its portfolio. And we have always said that we have a nice mix of growth businesses, and we have a nice mix of cash flow businesses. And cash flow is never a problem until you don’t have it. So there are there are probably 250 CEO’s in the fortune 500 that would tell you they wish they had our cash flow problem right now. So and I read the pre call notes that many of you put out and some of you are disappointed with our reduced cash flow guidance. So it’s never a problem and so you don’t have enough of it. So we’re, quite, we’re quite, pleased that we have a lot of cash flow. Having said that, there is no doubt an increase Food can demand because of the pandemic both in North America and Europe. As I said on the earlier, our customers in Europe believe this is more permanent in terms of the consumers demand for food cans. I don’t know that to be the case right now in North America, but we will see how it plays out but it’s an extremely practical business and we’ll see what The review of the board takes us with regards to that business, but we are here to maximize value to shareholders.

Just along those lines does the pandemic and the impact it’s had on food can demand change at all? How you are thinking about those businesses longer term?

No, I don’t think so. I think it’s still the same business we always viewed it to be. Now if you tell me, you are going to have COVID-20 COVID-21 and COVID-25 I hope we don’t, because that’s going to be really painful for the global population. But if you tell me that is going to happen, then yes, that is going to change how you feel about the food can. If we are never going to go back to restaurants and we are never going to have barbecues with our friends. We are just going to sit in the house and eat canned peas and canned corn. That’s going to change how you feel about it. But I am hopeful that that’s not the case so sure that this is a relatively short period of time in all of our lives. It’s been very inconvenient for most of us. Some people have been extremely harshly affected by this. But for most of us, Adam, this is not June 6, 1944, we are not storming the beaches of D-day. This is a short period of time of inconvenience. And we are all going to get through this. And when we come out the other side of this, we are back to running businesses and operating our lives normally. So, in that regard, it doesn’t change your long-term thinking about any business that you have.

Okay, got it. Just two others, Tom, just one on cash flow, working capital beyond this year, I mean, you have done a tremendous job of taking out working capital over the past several years. I know this year will be a use because of inventory building, particularly towards year end. Are you thinking you have taken out most of the working cap – the trade working capital that you will be able to do or do you think there is more to go perhaps next year beyond and then the dividends to minorities on the cash flow statement, are you thinking – sill thinking about $70 million. Tom?

Yes, I think the big dollars have come out of working capital. We are in a period now where with the growth in beverage cans where we are actually using working capital. So, let’s assume that for the near-term anyway and dividends to minority about $75 million for 2020.

Thanks. And just exit rates for bev can, I know I think in response to Ghansham’s question, you said global bev can volumes will be up, do you think in 3Q was your exit rate also up low single?

You mean in globally?

Yes, global bev can volumes, if they are going to be up make call it low single in 3Q, was that the rate at which you exited the second quarter as well?

I mean, Adam, we are sold out, right. I mean, we can’t make any more cans. Nobody in the can industry can make any more cans. So, we had a period in the second quarter globally in a number of markets, Latin America, Southeast Asia, Europe, specifically Southern Europe, where demand was impacted by the virus. That’s quickly came back in mid to late May across most of those markets. We are flat out and we are going to be up in 3Q. Now, is the number going to be 2%, 3% or 5%. I don’t know we are going to be up and the exit rates are extremely strong right now.

Terrific. Thanks so much, Tom.

Thank you.

Thank you. Our last question comes from the line of Neel Kumar from Morgan Stanley. Your line is now open.

Hi. Thanks for taking my question. Another follow-up on your especially can footprint after you complete the Kentucky and Washington projects, could you just give us a sense of what specialty can mix will be in North America and how does it compare to where you stand currently?

I didn’t understand the question.

Neel, can you just – I am sorry, please ask that question again.

Yes. You are saying that after you complete the North American projects, where we are adding new specialty can capacity. Can you just give us a sense of where your specialty can mix will stand in North America versus what it is currently?

So I am sorry. So, we are let’s say, we are high-teens right now, 17%, 18%. When we come out of these two projects, we will be in the 22%, 23% range something like that in North America.

Okay. That’s helpful. And then just given the tenures you are seeing in the North American market, do you see any opportunities kind of continue to improve pricing and maybe address other provisions in customer renegotiations going forward. Can we meet for margins to kind of continue to improve in North America assuming demand remains this robust?

Well, I think as I said earlier in answering somebody’s call we have – I think we have been fairly successful the last couple of years. And the results in our Americas Beverage business show that. We are going to continue to have growth on the volume side, which is going to fall right through the operating income. And as we utilize, fully utilize assets 12 months a year and as we put more lines under roof or going to expand margins because of the operating leverage you get with two or three lines under one roof as opposed to one line and growing the specialty mix will do the same. So – but we talked earlier about fair distribution of cost and our customers are also looking for us to do the most that we can to help them compete effectively with their competitors and with their retail customers. So, we are always looking for opportunity to improve margins. I think we have done some of that already. So I will leave it at that. I don’t want to talk too much more about that.

Great, thank you. Thank you.

Thank you, Neil. So Louis, I think you said that was the last question. So thank you. That concludes the call today and we will speak with you all again in October. Bye now.

Thank you. And that ends this conference. Thank you all for joining. You may now disconnect.