Seeking Alpha
We cover over 5K calls/quarter
Profile| Send Message| ()  

Executives

Timothy J. Donahue - Chief Financial Officer

Alan W. Rutherford - Executive Vice President

John W. Conway - Chief Executive Officer

Analysts

Claudia Shank Hueston - J.P. Morgan

Christopher Manuel - KeyBanc Capital Markets

Timothy Thein - Citigroup

Alton Stump - Longbow Research

George Staphos - Banc of America Securities

Mark Wilde - Deutsche Bank Securities

Peter Rushmire - Barclays Capital

Richard Skidmore - Goldman Sachs

Joseph Naya - UBS

Andrew Fineman - Iridium Asset Management

Tim Burns – Cranial Capital

Crown Holdings, Inc. (CCK) Q4 2008 Earnings Call February 3, 2009 9:00 AM ET

Operator

Welcome to the Crown Holdings full year and fourth quarter 2008 earnings conference call. (Operator Instructions) I would now like to turn the call over to Mr. Timothy Donahue, Executive Vice President and Chief Financial Officer.

Timothy J. Donahue

Good morning to everybody and welcome to Crown Holdings fourth quarter and full year 2008 conference call. With me on the call today are John Conway, our Chairman and Chief Executive Officer, and Alan Rutherford, Vice Chairman and Executive Vice President of the company.

Before we begin I would like to point out that on this call, as in the yesterday’s earnings release, we will be making a number of forward-looking statements. Actual results could vary materially from such statements. Additional information concerning factors that could cause actual results to vary is contained in the press release and in our SEC filings, including comments in the section titled Management Discussion and Analysis of Financial Condition and Results of Operations in Form 10-K for 2007 and in subsequent filings.

As you all know, Alan Rutherford has announced his retirement after 34 years of dedicated service to the company and while the company has benefited greatly from Alan’s service, it has been my personal good fortune to have worked with Alan for over 19 years. So I will briefly hand the call over to Alan.

Alan W. Rutherford

The company had an excellent year in 2008, including a strong fourth quarter generating $826.0 million of segment income, a 29% improvement over 2007, which was in excess of our guidance of $800.0 million to $820.0 million.

The strong fourth quarter sales resulted in a smaller than expected working capital reduction in the fourth quarter, which impacted free cash flow at December 31, 2008, however, this does not mean we will not generate the cash, it is simply a timing difference.

Once again we increased EBITDA and reduced debt, continuing our path we have followed and will continue to be on for some years. We look forward to continuing progress in 2009.

On a personal note, this is my last of many earnings calls over 17 years. I have enjoyed my dialogue with all of you over the years and wish you all well in the future.

Now I will turn the call over to Tim, who many of you already know, and he will moderate the call today and in the future.

Timothy J. Donahue

I will comment on some of the highlights of the fourth quarter and full year performance, provide initial guidance for 2009, after which John will provide his views on our performance in 2008 and 2009 outlook in light of today’s economic environment.

Net sales in the fourth quarter, excluding the impact of foreign currency translation, grew 9% and 5% for the full year. Reported sales for the full year improved 7.5% over 2007. As noted in last night’s earnings release, the fourth quarter, which is one of our seasonally smaller quarters, on a comparable currency basis, accounted for 43% of our full year sales growth in 2008 reflecting strong volume increases across our global beverage and food can franchises.

The strength of the fourth quarter sales volumes was beyond our expectations and was evident across almost every product line and in each geography. Let me provide some color behind the numbers for you.

Global beverage can volumes in the quarter were notably stronger, up 5% over the prior year. In the Americas volumes were up 3.5% due to strong demand in Canada and Brazil. As noted in the release, fourth quarter U.S. volumes were the same as in 2007 despite industry volumes being off 4%.

European beverage cans enjoyed 3% volume growth due to continued strong demand in the growing Middle East and Mediterranean regions. In Asia beverage can volumes soared 15% compared to the fourth quarter of 2007 with gains noted throughout each operation in the division and notably in our new plant in Cambodia as well as from the second line in our Ho Chi Minh City, Vietnam plant.

In summary, we are particularly pleased with the 2008 global beverage can volumes in light of the fact that the 5% fourth quarter growth is on top of 9% growth that we experienced in the fourth quarter of 2007.

Our food can businesses around the world were also very strong in the fourth quarter. In North America can volumes grew 5% and in Europe they rose 4% with growth recorded in all regions.

Operating results in the quarter were extremely high quality with segment income in the fourth quarter improving 31% to $149.0 million over the same period in 2007, mainly as a result of higher sales volumes and the results of prior cost reduction initiatives offsetting the impact of foreign currency translation. Excluding currency translation, segment income increased 45% in the quarter with all businesses performing well over the prior year.

For the year segment income grew $148.0 million, or 29%, to $826.0 million. This follows a 12% improvement in segment income in 2007. To put this in better context, over the last two years segment income is up $250.0 million, or 43%.

This growth is primarily the result of capacity expansion projects that we have completed throughout our businesses in the developing markets and numerous other capital projects and operating improvements designed to increase efficiency and reduce costs. Equally important, segment income as a percentage of net sales expanded 160 basis points to 9.9% for the year.

On taxes our underlying tax rate from ongoing operations was 21% in the fourth quarter and 25% for the year.

As can be seen from the cash flow statement, we had higher than anticipated accounts receivable at year end, pushing our free cash flow below our previously guided range. This was due to the unanticipated strength of fourth quarter sales as it was simply not possible to collect the additional receivables prior to year end. Consequently, receivables consumed cash of $110.0 million in 2008 as compared to being a source of $68.0 million in the prior year.

Additionally, inventories consumed $23.0 million due to the necessity of rebuilding inventory levels for a longer summer selling season in Brazil, continued demand growth in the Middle East and Mediterranean regions and an earlier Chinese New Year.

Despite higher working capital at year end 2008 we reduced net debt by $239.0 million to $2.7 billion at the end of 2008. The reduction in net debt combined with growth and adjusted EBITDA enabled us to reduce net leverage to 2.6 times from 3.4 times at the end of 2007.

Again, to provide some perspective, this compares to net debt that was 3.9 times at the end of December 2006. So over the last two years net leverage has been reduced by a full 33%, allowing us to further improve the credit quality and liquidity of the company.

In 2009 we expect to again apply the majority of our free cash flow to increasing liquidity and further deleveraging the balance sheet.

The company was well inside of all required debt covenant levels at December 31, 2008, and remains in full compliance. As noted in the release, we have no significant maturities of long-term debt until 2011 and with no borrowings under our credit facility at December 31, 2008, we began 2009 with almost $1.3 billion in liquidity.

As many of you know, we fund our operations through cash on hand, the accounts receivable securitization programs, and availability under a committed revolving credit facility.

As we look back on 2008 not only was it another successful year for the company but our results in these challenging economic times underscore the strength of our diverse product lines, customer base, and geographies that we serve.

Looking ahead to 2009, at this time and based upon current exchange rates, we expect segment income to grow approximately 3% over 2008 to around $850.0 million. This 3% growth is after a year-over-year impact from foreign currency translation of $50.0 million and incremental pension expense of $120.0 million.

It is worth noting that Crown does not smooth its pension assets. We use actual asset values at each year end to determine pension expense, which is the preferred method. Therefore, our balance sheet at the end of 2008 and our 2009 expense project do reflect what actually happened to asset values in 2008.

We currently project free cash flow to be at least $400.0 million, after capital expenditures of $150.0 million.

Pension contributions are projected to be $75.0 million compared to $70.0 million in 2008 and cash tax payments are projected at $95.0 million versus $84.0 million in 2008.

At current rates, interest expense is projected to be $40.0 million lower in 2009 than 2008 and our tax rate for 2009 is currently estimated at 25%.

I will now turn the call over to John for his comments.

John W. Conway

2008 was one of our company’s best years. All of the things that we have worked so hard to accomplish over the past number of years came together in 2008 in a quite remarkable way. Demand for our products was strong in virtually every market in which we participate.

Please keep in mind that we are a focused metal and the segments in which we operate were carefully selected by us a number of years ago. That is, we are not accidentally in these businesses, we chose to be, and we are pleased that we are.

Metal packaging for food, beverages, personal care, and home and industrial use was favored by our customers and the ultimate consumers in 2008 and we believe that this trend will continue in 2009.

Pricing during 2008 was firm and we were able to price our products fairly in order to recover increased costs and continue to improve returns on investment for our shareholders.

Our factories continued their sequential improvement in operating performance, helping once again to improve segment income for the year. As we have explained to you in the past, our goal has been to be among the very best operators in our industry and we think we have achieved this and now must go even further in 2009.

The pricing environment for our primary raw materials, including among other things tinplate, steel, and aluminum, was challenging and volatile. Nonetheless we experienced no supply disruptions and we were able to work in a fair and coordinated way with our supplier community.

The new capacity investments on which we have been so focused over the past number of years, principally in emerging markets such as Colombia, Brazil, North Africa, the Middle East, Southeast Asia and China, all made significant positive contributions in 2008.

We have been fortunate that all the capacity we have installed was fully sold, conserving the geographic markets that we believed would be winners.

As we look into 2009, Tim made clear that we will make further improvements in Crown’s performance. Clearly 2009 will be an interesting year, however, we are fortunate that demand for our products is holding up well, supporting the proposition that in difficult economic times our packaging is favored.

Our metal packaging is low cost, our customers can fill our packages at high speeds with very little spoilage, and sell to their customers a filled container which transports easily and cheaply and maintains beverage, food, and other products for long periods of time in pristine condition.

The trend for consumers to eat and drink more at home during difficult economic times clearly will benefit Crown’s packaging products.

The commercial approach we apply globally is to pass through steel and aluminum costs to our customers as changes occur. We recognized, perhaps sooner than others, that the unknowability and volatility of commodity prices dictated that Crown should not be on one side or the other of bets about future prices.

We are all aware of the risks that were taken in financial markets and the disastrous consequences that have ensued. We have been convinced for a number of years that commodity markets posed the same out-sized risk profile and we consciously avoided betting on commodity price movements. We are certainly happy today that we did so. We have no intention of changing and we continue in 2009 to implement our business model, which we believe is the only prudent way to proceed.

As Alan and Tim both pointed out, we have been able to drive our debt leverage down and improve our credit metrics. Our goal is to generate more free cash year-on-year and improve our return on investment capital, thereby enhancing shareholder value.

By closely coordinating investment and financial discipline with our knowledge of metal packaging and our understanding of the most promising geographic markets, solid organic growth will result in 2009 and beyond. Put simply, our game plan is working.

Lastly, let me simply say that it has been a great pleasure and honor for me to work with Alan Rutherford for all these years. Our team at Crown is made up of many people around the world and clearly Alan has been a leading member. We are all going to miss him but we know that he is going to grab hold of his impending retirement with the same enthusiasm, good cheer, and determination that he exhibited as Vice Chairman and Chief Financial Officer at Crown Holdings. We wish him all the best.

With that, we are ready to open the call to questions.

Question-and-Answer Session

Operator

(Operator Instructions) Your first question comes from Claudia Shank Hueston - J.P. Morgan.

Claudia Shank Hueston - J.P. Morgan

I just wanted to get a little more color on what happened in the America’s bev can business, the volumes were really strong. And could you talk a little bit about specific trends, particularly in the U.S. and where you may have picked up share and what you are seeing that is different than what the market was showing.

John W. Conway

As you said, we did have a strong quarter and a pretty strong year. The growth, as Tim noted, came largely from Canada and Brazil, but also Mexico and Colombia were strong, and for us the United States was flat year-on-year and the market, of course, was down.

We have a good customer mix now in the United States and was probably the focus of the question. We have more beer volume than we have had in the past. We continue to increase our specialty can business. We think we are a very low-cost producer of 16 oz. cans and 10 oz. cans, for example, which helps us tremendously. And we have got a nice spread of business in the soft drinks side, a fair bit of private label, but also a group of customers now beyond private label who had relatively successful years.

So unlike four or five years ago when we were overly exposed to one customer, who has been struggling recently, I think all of that accounts for the performance during the quarter.

Claudia Shank Hueston - J.P. Morgan

Any comments in terms of what your volume outlook is for 2009 in the bev can business.

John W. Conway

We think beverage volume globally is going to be up 2% to 4% for us. Probably flat again in the U.S. and every place else continuing to grow, but obviously at reduced rates.

Operator

Your next question comes from Christopher Manuel - KeyBanc Capital Markets.

Christopher Manuel - KeyBanc Capital Markets

As you look at your capacity and supply issue heading into 2009, it looks like your capex is going to be relatively similar, 2009 versus 2008. Where are you with capacity additions, timing and such, for 2009?

John W. Conway

In the Americas we are completing our new plant in Brazil. We are just beginning now to make first cans and will be solidly into commercial production by the end of the quarter.

In Europe, although we think we will continue to produce more cans in the Middle East as a consequence of simply improving performance as these plants and new capacity become more mature, we don’t have any capacity that is going to be coming on line in 2009. But we do anticipate growth in the European market. Tim reminds me the second line in Seville is coming on as we speak and so that will add to capacity in Europe.

Asia, we are planning for growth in Asia but it will be out of the existing capacity that we have and we don’t have any current plans for significant capacity additions, although we are looking at some things that prove worthwhile.

Christopher Manuel - KeyBanc Capital Markets

You said as to cash this year, the majority for debt reduction. Are you anticipating buying any shares back? Or what are you anticipating the balance of your cash for?

Timothy J. Donahue

The term majority of our cash, we probably should have said almost all of our cash. It’s unclear how we would envision ourselves buying any shares back in the economy today. I think you should view the cash flow being used to delever the balance sheet on a net basis.

Operator

Your next question comes from Timothy Thein – Citigroup.

Timothy Thein - Citigroup

On the capex, I thought you said $150.0 million and I think Chris said it was flat. Did I hear that wrong?

Timothy J. Donahue

We did say $150.0 million.

Timothy Thein - Citigroup

The Moroccan plant, is that on hold?

John W. Conway

It is on hold. Our view is that with the capacity we have in Spain now and the European markets being a little bit slow for bev cans, we anticipate in 2009 that we will not need the Moroccan plant and so we pushed that back.

Timothy Thein - Citigroup

Do you think any of the growth you saw in the fourth quarter is reflective of a pre-buy ahead of some of the increase in tinplate?

John W. Conway

We don’t think so. We tried to monitor that very carefully. We were very frank and candid with our customers that we were not going to permit pre-buys because of all the problems it would cause us. And by the way, it was food, beverage, demand was strong across all of our products, so we think there may have been, it’s always hard to stop everything, but we don’t think it was a big factor.

Timothy J. Donahue

While food cans were up in the quarter, beverage cans were up even more. And as you know, aluminum has been trending down, so we don’t believe there was any buy-ahead there. In fact, it’s truly demand-related.

Operator

Your next question comes from Alton Stump - Longbow Research.

Alton Stump - Longbow Research

I think you mentioned that your food can volumes were up 5% in the U.S. and 4% in Europe, is that right?

Timothy J. Donahue

North America 5% and 4% in Europe. Yes, that’s correct.

Alton Stump - Longbow Research

With the overall top line number obviously in food cans being down, I’m sure FX was the biggest driver there, but was there anything else going on there outside of the FX drag that would have led to that top line?

Timothy J. Donahue

Not the drag to call in a long time with a lot of numbers, I have currency by segment and country, but currency reduced the revenues in European food by about $65.0 million in the quarter. So if you were looking to add back currency to get to a comparable number, it’s $65.0 million in Euro food.

John W. Conway

But specifically answering the question, it was currency. There’s nothing else.

Alton Stump - Longbow Research

With the profit guidance of $850.0 million for next year, that includes the $120.0 million increase in pension expense?

Timothy J. Donahue

Yes.

Operator

Your next question comes from George Staphos - Banc of America Securities.

George Staphos - Banc of America Securities

In terms of European beverage EBIT growth, it looked like it was down a little bit. Is that purely currency? And since you gave us the Euro food currency, could you give us the Euro bev currency effect?

Timothy J. Donahue

Again, it’s all currency, and if you add back $40.0 million of currency the revenues are up about 8% in the quarter on a comparable basis. In Euro bev. And if you wanted to add back, of the $16.0 million segment income impact from currency, $6.0 million of it was in Euro bev and $7.0 million was in Euro food.

George Staphos - Banc of America Securities

Do you think we are seeing, finally, after many years of hoping for this, that the consumer trading down is in fact migrating back to canned food? We have seen some research that there is a lot more traffic in the center of the stores these days. You are starting to see some of the numbers. But do you think it’s not a trend or are your customers now quite hopeful about the pickup in growth continuing into 2009 and 2010?

John W. Conway

We do think it’s a trend. We have been seeing it over the course of the year and by and large our customers, and it was true in 2007, 2008, now going into 2009, our food customers have some of their best years ever. And they have had price power and they have been able to reasonably readily pass through the cost increases that they have been realizing. And so demand has been clearly over the past year improving and we think it’s going to carry on into 2009.

George Staphos - Banc of America Securities

We should assume that you have been able to pass through whatever tinplate inflation you are going to see for 2009 in your selling prices, would that be fair?

John W. Conway

Yes, you should.

George Staphos - Banc of America Securities

In terms of return growth in 2009, what would you have us think about it? We can do the math given the EBIT growth and free cash flow guidance, but would care to throw out a target on that front?

Timothy J. Donahue

I’m not sure I understand the question. Return growth?

George Staphos - Banc of America Securities

It’s in your press release, you look forward to increasing return on investments.

Timothy J. Donahue

Yes, I think our return on invested capital this year was about 12.3% and we are looking to improve upon that again in 2009.

George Staphos - Banc of America Securities

How much of that receivable do you think you will be able to generate cash from in the first quarter, realizing that the first quarter definitely is not a cash-generating quarter for you?

John W. Conway

We think it’s all going to be collected in the first quarter, as we said, it’s just a timing difference. We had a very strong December. So we will collect it all by the end of the first quarter.

George Staphos - Banc of America Securities

How much do you think it is?

Timothy J. Donahue

We gave you guidance, and I’ll just give it to you this way. We gave you guidance of $800.0 million to $820.0 million. So if you took the midpoint there, that’s $820.0 million. We came in with $826.0 million, that’s $16.0 million additional segment income. And you know our business very well and you know that Q4 is a smaller quarter. So to generate $16.0 million of extra segment income in one of our smaller quarters, in a currency environment that is going the opposite direction, we would need to generate probably close to $200.0 million additional in revenues to come to a number like that. So it’s a very large number.

George Staphos - Banc of America Securities

As we look out to 2010, are there any contracts that come up for renewal for you in any of your businesses of import that could help to further improve your return on investment?

John W. Conway

As to 2010, it’s a long way away. We don’t have any major contracts that we are concerned about and we are pretty diversified now in terms of our business mix. So we are not one of those who has put too many eggs in one basket and faces the contract terminations with great trepidation. That’s really not our situation.

So if anything, we always think there is an opportunity for price improvement in all of our businesses and consequently, segment income improvement. Whether we can improve in the same way in 2010 as we have over the past couple of years, I’m not sure, but I don’t see why not. But right now we are focused on 2009.

Operator

Your next question comes from Mark Wilde - Deutsche Bank Securities.

Mark Wilde - Deutsche Bank Securities

Could you give a little color on what might be in your 2009 assumptions in terms of FX and maybe remind us to what extent you do any FX hedging.

Timothy J. Donahue

The guidance we gave you at $850.0 million segment income is based on a Euro at $1.30 and importantly, it’s based on a pound Sterling at $1.40. And I think we based the Canadian at $0.80. Those are the three big currencies that we operate in outside the United States and where we sit right now on our forecast they obviously are lower than they were on an average basis for 2008.

Mark Wilde - Deutsche Bank Securities

And hedging?

Timothy J. Donahue

As we described to you before, we have a fair amount of debt placed in Euros and in Sterling and you can see the impact of that when you look at how much interest expense was down in the quarter relative to last year. So we don’t do any explicit hedging of the income statement. All of our costs are in local currency with the exception of aluminum which is a dollar-based commodity, and we will hedge aluminum. But we are not hedging the income statement or the balance sheet.

John W. Conway

And just to clarify, we hedge the currency. We don’t do any financial hedging as to aluminum.

Mark Wilde - Deutsche Bank Securities

Is it possible to give a little color on any kind of changes you may have seen in the last month or two in demand trends as you look around the world? There has been some talk that maybe Latin America is starting to slow down. I don’t know whether you are seeing anything there.

John W. Conway

We talked about food demand was strong pretty much every place in the quarter. Beverage demand for us was also very strong. Virtually every place. The only place where demand was slowing, and continued to slow, of course, was Western Europe, specifically Spain, France, [inaudible], but that was not a surprise, it was just a continuation of a trend.

January was pretty strong as well for us in beverage, so we are anticipating, and the numbers that Tim gave with regard to guidance for 2009, anticipate much lower growth in 2009 than we experienced in 2008, but we haven’t seen it yet, in beverage. And we think food is going to be up somewhat so we are still seeing positive trends and as we have already said, we know we have a substantial portion of our business in growing markets but our forecast is that growth will slow but it is going to slow from what we’re seeing so far.

Operator

Your next question comes from Peter Rushmire - Barclays Capital.

Peter Rushmire - Barclays Capital

Could you comment on any expected demand elasticity in food can related to the price increases, how you think about that from a historical context, given some pretty aggressive price increases?

John W. Conway

Although I know our sales organization does when they talk to our customers, we haven’t gone back and taken a look at inflation-adjusted real prices over the past ten years, but I am reasonably sure that over the past ten years food can on-the-shelf prices in Europe and North America have declined in real terms. So the possibility of a $0.01 or $0.02 a can increase for a can of corn or baked beans or such, we think will have absolutely no impact at all on demand.

Peter Rushmire - Barclays Capital

Just to clarify, I know you expect to maintain your unit profits with a higher tinplate cost and with a higher price recovering that, but do you also expect no timing difference in terms of implementation, is that correct?

John W. Conway

No. We are out with price increases. They were effective January 1 and we have had a high degree of success in every place in the world so we don’t anticipate any problems.

Peter Rushmire - Barclays Capital

On your net debt, is it possible to help us with the latest break down of your net debt by currency, given how much the offshore levels have declined?

Timothy J. Donahue

We do have two hedges in place where we hedged dollars to Euros and so including the hedges, of the $2.7 billion net debt, I don’t have it front of me so off the top of my head I’m guessing it’s about 1.1, 1.2 billion Euros.

Peter Rushmire - Barclays Capital

You have some in pounds as well?

Timothy J. Donahue

Very small amount. Less than $100.0 million.

Peter Rushmire - Barclays Capital

Just big picture, are you concerned at all about any of your customers, how you think about managing risk in the current credit environment. If so, are you doing anything different to manage your exposure or relationships with some of your customers?

John W. Conway

No, we’re not doing anything different. We think, as we look across our customers, all of them are in relatively good shape. Now we stay very close to some of the customers who are having some difficulties, but as we look at our customers, the underlying demand for all of their products and the demand for the role that each of them plays in their industry, we think is quite strong.

We are paying close attention to this issue of aluminum hedging, for example. But we have also been prudent to the procedures that we apply and so we make allowances for demand alternations, if you will, and we are not getting caught out with that subject. So we are pretty confident.

Peter Rushmire - Barclays Capital

You mentioned the pension expense items. Could you help us out with the plan asset performance and mix, some of your discount rate assumptions on the benefit obligations that you’re using?

Timothy J. Donahue

We have plans in different jurisdictions, so I will just give you the discount rate that I can remember for the U.S. Largely unchanged from the end of last year in the U.S., I think we’re using 6.7% at the end of 2008. Our asset return rate is 8.75%. Planned performance, I will tell you in total, we began the year with about $4.9 billion in global pension assets and I think globally our pension assets were down a little bit less than $500.0 million, so in a global market where you saw the S&P and the Dow off 35% to 40%, on average our plans were off just around 10%, which goes to the fact that our assets are certainly invested a little more cautiously than just in equities.

Operator

Your next question comes from Richard Skidmore - Goldman Sachs.

Richard Skidmore - Goldman Sachs

On the free cash flow of $400.0 million, does that assume that you get back approximately that $100.0 million of the AR swing?

Timothy J. Donahue

Yes.

Richard Skidmore - Goldman Sachs

So what is the difference between what your free cash flow guidance in 2008 of $350.0-ish million to what would be excluding that AR of $300.0 million for 2009, what might be the big swings?

Timothy J. Donahue

I think the big swings are obviously working capital. We are, as you know, global tinplate prices are up anywhere from 30% to 50% and so that translates into, on a unit basis, higher costs, when you put the price inflation in, whether it sits in receivables or inventory, and we will certainly do our best to minimize that. But as we said, we didn’t say $400.0 million, we said at least $400.0 million.

Richard Skidmore - Goldman Sachs

Just to clarify the guidance of $850.0 million, a previous question was did it include the pension, and I think you also mentioned $50.0 of foreign exchange. That would suggest that excluding those items you would be at something like $970.0 million.

Timothy J. Donahue

I think excluding those numbers we would probably be right around $1.0 billion, I think, or a little bit over $1.0 billion.

Richard Skidmore - Goldman Sachs

I guess the core of the question would be what would drive that 20% year-over-year improvement in segment operating income? What are the big buckets there?

John W. Conway

We think beverage volumes are going to be up mid-single digits. We think food markets are going to be up 1% to 2% and we are going to improve operating performance year-on-year, as we have the last number of years. Our factories are going to run much more efficiently, as we always demand of them. And we have no major restructuring projects, etc. that would disrupt operations. That’s always a factor; people tend to underestimate what’s going to happen as a consequence of that. And we have been successful in pricing.

So really, I think from an operating perspective, we had one of the highest quality years in 2008 in the company’s history. I mean, every single business was up. As Tim told you, put back currency and it’s almost astounding, frankly, even to us. And so we look into 2009 and we’ve got tremendous momentum and we think it’s going to carry on. So as Tim said, yes, absent pension expense, absent currency, it would be another block-buster of a year. Unfortunately, on a reported basis, it’s only somewhat better. If we get lucky on the currencies, lucky on the pension performance, okay, it won’t help us in 2009 but it certainly will in 2010.

Operator

Your next question comes from Joseph Naya – UBS.

Joseph Naya - UBS

Just wanted to go back to the pricing issue that was brought up a little earlier. I realize you don’t have any big contracts to point to but can you give us a feel as to what you might expect to see in pricing going through 2009 and into 2010. It sounds like no big single items but could you give more color there?

John W. Conway

Not really. 2009 is done and as I said earlier, we do not have excessive exposure to any single customer any place and so we don’t see any big issues in 2010 either. We are not in that category of somebody who has got 30% to 80% of their business with a single customer, and thank God we’re not. We used to be and we experienced the joys of that and we are not going back there.

Richard Skidmore - Goldman Sachs

Going back to the tinplate issue, can you give color or feel for where the price increases ended up shaking out there.

John W. Conway

Do you mean our increases?

Richard Skidmore - Goldman Sachs

Yes.

John W. Conway

We have announced increases that are quite substantial. Tim could maybe give you a little color, although, frankly, we are reluctant to talk about it and our customers don’t particularly like us to talk about it.

Timothy J. Donahue

I think what we would say is that we are realizing the price increases that we put into the market that were necessary to recover higher tinplate. And as John said, we are reluctant to talk about those elements of our business.

Richard Skidmore - Goldman Sachs

In terms of your cost on tinplate, is it correct to assume that they are in line with what we have heard from other folks out there?

Timothy J. Donahue

Yes.

Operator

Your next question comes from Andrew Fineman - Iridium Asset Management.

Andrew Fineman - Iridium Asset Management

Pension expense, when you said $120.0 million, I think you said that’s the increase year-over-year?

Timothy J. Donahue

That’s right. We had an expense of $20.0 million in 2008 and the increment is $120.0 million.

Andy Fineman - Iridium Asset Management

You wouldn’t be any chance have the balance sheet minority interest handy would you?

Timothy J. Donahue

No, I don’t.

Operator

Your final question comes from Tim Burns – Cranial Capital.

Tim Burns – Cranial Capital

In terms of investing in the overseas market, is the scale of your investment per country per product line the same as it is here? I mean, does a million dollars over there go a lot further than it does here?

John W. Conway

Yes. The answer is yes. Equipment is obviously equipment but everything other than equipment, installation, the buildings, depending on the country of course, but by and large the countries we have been in, we get much more effective use of capital than we would in Western Europe and North America.

Tim Burns – Cranial Capital

So the plants are sized to the markets?

John W. Conway

Yes, they are.

Tim Burns – Cranial Capital

So $100.0 million spent overseas is a lot more than $100.0 million spent in Europe or the United States?

John W. Conway

That’s been our experience, but others I don’t think have shared that experience. But that has certainly been our experience. But we’ve been at this for a long time now. We have been present in emerging markets, if you go back to bottle caps, for 100 years. But certainly with beverage cans and food cans for 30 to 40 years, so we’ve got a pretty good idea about how we think we can stretch dollars further in emerging markets.

Tim Burns – Cranial Capital

I guess the valued-added features, I mean, if can growth is 1% to 2% for food, 2% to 4% for beverage cans, we didn’t really mention aerosol or caps, but there was a period where like in food easy-open ends became very popular all of a sudden and in Europe you have done a lot of things with shaping and decoration. You say your food companies are doing well, I don’t know about personal care or household, but are they still exploring those value-added features that could add incremental growth and profitability to your business?

John W. Conway

Oh, yes. We have got a couple of tremendous new developments. I will mention one since you’re kind of giving me an opportunity to do a little advertorial here. We have a new, easy-open end for food cans and it improves dramatically access to the tab for a full pull-out end. We rolled it out in Europe. It’s extremely popular. And we’re now doing the same in Europe. So absolutely.

We’ve got, as you know, we think the most robust and productive R&D activity in the industry in metal packaging. We’ve got the accomplishments to show for it and we continue to focus on improving food cans.

Tim Burns – Cranial Capital

I think that’s very important. International growth and then adding value to your more mature markets.

Operator

There are no further questions in the queue.

Timothy J. Donahue

Thank you very much. That concludes our call today. We look forward to speaking with you again after the conclusion of the first quarter in April

Operator

This concludes today’s conference call.

Copyright policy: All transcripts on this site are the copyright of Seeking Alpha. However, we view them as an important resource for bloggers and journalists, and are excited to contribute to the democratization of financial information on the Internet. (Until now investors have had to pay thousands of dollars in subscription fees for transcripts.) So our reproduction policy is as follows: You may quote up to 400 words of any transcript on the condition that you attribute the transcript to Seeking Alpha and either link to the original transcript or to www.SeekingAlpha.com. All other use is prohibited.

THE INFORMATION CONTAINED HERE IS A TEXTUAL REPRESENTATION OF THE APPLICABLE COMPANY'S CONFERENCE CALL, CONFERENCE PRESENTATION OR OTHER AUDIO PRESENTATION, AND WHILE EFFORTS ARE MADE TO PROVIDE AN ACCURATE TRANSCRIPTION, THERE MAY BE MATERIAL ERRORS, OMISSIONS, OR INACCURACIES IN THE REPORTING OF THE SUBSTANCE OF THE AUDIO PRESENTATIONS. IN NO WAY DOES SEEKING ALPHA ASSUME ANY RESPONSIBILITY FOR ANY INVESTMENT OR OTHER DECISIONS MADE BASED UPON THE INFORMATION PROVIDED ON THIS WEB SITE OR IN ANY TRANSCRIPT. USERS ARE ADVISED TO REVIEW THE APPLICABLE COMPANY'S AUDIO PRESENTATION ITSELF AND THE APPLICABLE COMPANY'S SEC FILINGS BEFORE MAKING ANY INVESTMENT OR OTHER DECISIONS.

If you have any additional questions about our online transcripts, please contact us at: transcripts@seekingalpha.com. Thank you!

Source: Crown Holdings, Inc. Q4 2008 Earnings Call Transcript
This Transcript
All Transcripts