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Executives

Timothy J. Donahue – Chief Financial Officer & Executive Vice President

John W. Conway – Chairman of the Board, President & Chief Executive Officer

Analysts

Timothy Thein – Citigroup

Alton K. Stump – Longbow Research

Peter Ruschmeier – Barclays Capital

Christopher D. Manuel – KeyBanc Capital Markets

Mark Wilde – Deutsche Bank Securities

Claudia Shank Hueston – J. P. Morgan

George Staphos – Banc of America-Merrill Lynch

Joseph A. Naya – UBS Securities

Richard Skidmore – Goldman, Sachs & Co.

Albert Kabili – Macquarie Research

Chip Dillon – Credit Suisse

Tim Burns – Cranial Capital

Joe Sivilotti – Goldman Sachs

Mike Sheridan – Cobalt

Crown Holdings, Inc. (CCK) Q1 2009 Earnings Call April 16, 2009 9:00 AM ET

Operator

Welcome to the Crown Holdings first quarter 2009 earnings 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. Timothy Donahue, Executive Vice President and Chief Financial Officer.

Timothy J. Donahue

Welcome to Crown Holdings first quarter 2009 conference call. With me on the call today is John Conway, our Chairman and Chief Executive Officer. Before we begin I would like to point out that on this call as in yesterday evening’s earnings release we will be making a number 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 entitled managements’ discussion and analysis of financial conditions and results of operations on Form 10K for 2008 and in subsequent filings.

I’ll first review the quarter and then hand the call over to John for his comments. Earnings per diluted share were $0.25 in the quarter compared to $0.17 in the first quarter of 2008, an increase of 47%. On a comparable basis, diluted earnings per share were $0.28 which is up 55% over the $0.18 in last year’s first quarter. All operations performed well in the quarter which offset higher pension expense and currency translation.

As you can see in the press release currency translation has an impact throughout almost every line item in our financial statements however, our underlying performance was quite good so we’ll do our best to help you with ex currency comparisons. Net sales in the quarter excluding currency translation were up slightly over the prior year as global beverage can volume growth and the past through of higher tin plate costs offset the pass through of lower aluminum costs and lower food can volumes.

Global beverage can volumes were up more than 3% in the quarter as we continued to see strong demand in North America, the Mediterranean, the Middle East and Southeast Asia. Food can volumes were down from the prior year’s first quarter due to destocking throughout the entire supply chain and the impact of fourth quarter 2008 buy aheads. America’s beverage revenues were level to prior year excluding currency as overall volume increases offset the pass through of lower aluminum costs.

North American volumes increased by more than 4% which compares to a 1% industry decline in the quarter. Our volume gains were noted equally among the alcoholic and non-alcoholic segments of the business and our volume outperformance versus the industry reflects our strong position among the private label soft drink fillers and their continuing gains.

Segment income when adjusted for currency and startup cost in our new Brazilian can plant improved by $1 million over 2008. Revenues in our North American food business increased 12% excluding currency year-on-year as the pass through of higher tin plate prices offset softer volumes, the result of destocking and some pre-buying by customers in the fourth quarter of 2008.

Segment income improved $7 million primarily due to a lower Canadian cost structure and improvements to plant manufacturing performance. As noted in the fourth quarter last year we closed our food can plant in Montreal and have since integrated that production in to lower cost US facilities. Additionally, a weakening Canadian dollar has reduced our local Canadian operating costs against selling prices which are US dollar denominated throughout the entire North American business. This is the reverse of what we have explained to you last year when the Canadian dollar was strengthening against the US dollar.

On a currency comparable basis European beverage sales were up 10% over 2008 primarily due to volume improvements of 5% in product mix. The improvement in segment income reflects the benefit of additional volume and better manufacturing performance. Food Europe revenues declined 4% excluding currency reflecting softer volumes in the quarter, the result of destocking and a fourth quarter 2008 buy ahead.

Segment income was up over the prior year, the result of current and prior cost containment initiatives, improved manufacturing performance and new product introductions. Specialty packaging revenues excluding foreign exchange were down about $9 million in the quarter while segment income was flat in what is a seasonally small quarter for this segment.

Interest expense was $16 million lower in the quarter due to lower rates, lower net debt and $5 million of foreign exchange. For the full year interest expense should be $40 million lower. We still expect the tax rate at 25% for the year. Our net debt at the end of March was $3.1 billion which is more than $400 million lower than the March 31, 2008 amount. Net leverage based on the last 12 months EBITDA was three times compared to 3.9 times at the end of March ’08 so almost a full turn reduction in one year.

Our free cash flow is still projected to be at least $400 million after capital expenditures of $150 million, the majority of which will be applied to reduce leverage. We still project segment income to increase approximately 3% over 2008 and as we have stated previously this is after the year-over-year increase in pension expense and the impact on foreign currency translation from a stronger US dollar.

With that, I’ll turn it over to John.

John W. Conway

As Tim reviewed with you we’ve started the year well. The demand for our products was strong in all of our markets and I will come back to this to provide more color in detail for you with respect to what we are seeing regarding underlying demand. Our price increase initiatives went well and we were able to appropriately cover increasing costs.

Our plants continue to run very efficiently and showed sequential improvement. This has been the case for the past several years and it is a tremendous credit to our manufacturing management and all of the fine men and women who work in our plants around the world. The new capacity which we have added over the past several years continues to make greater contributions. In particular the two significant projects of 2008 which were completed at the end of 2008 or first part of this year and I am referring to the major new capacity additions for beverage in Spain, in our new beverage can plant in the Northeast part of Brazil, both began production on schedule and will make substantial contributions to our continued growth in sales and income in 2009.

Finally, as Crown always does, spending was very tightly controlled in all aspects. With regard to cap ex, we will adhere to our cap ex target for the year of $150 million and use it largely for significant capacity additions. I wanted to provide some more background on underlying demand for our products. First, our developed mature markets in North America and Western Europe held up quite well from a demand perspective.

Beverage can sales were up for Crown in North America going against a market trend of a slight downward move to the industry as a whole. As Tim mentioned, this was a result of the very good and diverse customer mix that we have achieved because of our efforts to move away from excessive reliance on a particular sector of the beverage market or a particular customer in the beverage market. We think these decisions have severed us well and you can see the result of it in our beverage numbers for the Americas.

In Europe the overall beverage markets were down somewhat year-on-year in the quarter and we were in line with those markets. We saw some improvement in March in beverage can demand and we believe that we still are on track for a successful year in beverage can sales and earnings in Europe. The emerging markets continue to perform well. In almost every market there is growth which is supported by underlying GDP growth. The story so far as emerging market growth at reduced rates but growth nonetheless, not the GDP contraction that is being experienced in North America and Western Europe.

It would be well to spend some time discussing the situation in food cans. As Tim mentioned to you unit volumes in food cans in Western Europe and North America were down somewhat quarter-to-quarter for several reasons. He touched on the inevitable pre-buy in November/December 2008 in anticipation of relatively substantial price increases necessitated by steel tin plate price increases that were imposed on the can industry by the steel industry in January.

In addition, he mentioned the process of destocking which we can clearly see in the food can supply chain. The food can supply chain is relatively long and relatively complex certainly compared to the beverage industry. There are many participants in it, the distribution system is much more fragmented and complex due to the many different products, labels, sizes and so forth.

Many of our customers for food cans have substantial export businesses that cross national boundaries. For example, fish cans filled in the Iberian Peninsula are distributed throughout Europe, in to Eastern Europe and Russia and throughout Africa. Filled olive cans in Spain or Portugal and Italy are shipped not only throughout Western Europe but throughout the world and so on including vegetables, light fruit, tomatoes, tomato paste and others.

Also affecting food sales units in the quarter was a disruption of international trade credit. Either suppliers were less willing to extend terms or buyers were less able to obtain trade credit with their banks in their own countries. This we believe was an additional contributor to the decline in food can sales in the quarter. As we go in to April, this situation is reversing. March was quite a bit better than February for example and therefore we believe that our food can business will have a very successful year.

In summary, for Crown as a whole, the first quarter was strong and strength was broadly based. Further, we look forward to the balance of 2009 with a great deal of confidence knowing that we are exceptionally well positioned to perform well in these challenging times. With that operator, we’re ready to accept questions.

Question-and-Answer Session

Operator

(Operator Instructions) Your first question comes from Timothy Thein – Citigroup.

Timothy Thein – Citigroup

Two questions if I may, first on just to make sure I heard this right Tim, did you say that on the Europe bev can side you guys for the region as a whole volumes were up?

Timothy J. Donahue

5%.

Timothy Thein – Citigroup

So the Middle East I take it was up huge then? Didn’t you say Europe, Western Europe was down, is that right?

Timothy J. Donahue

Well the industry was down in Western Europe and specifically for us the Mediterranean which would be Spain, Italy, Greece, Turkey we were up slightly over last year and the Middle East we were up and then Northwest Europe, France and the UK were down. But, up 5% throughout our operations.

Timothy Thein – Citigroup

On the capacity it sounds like the Slovakian plant starts up I guess in a week or so. Any indications in terms of what you’re seeing there? There’s certainly been from the headlines at least from an economic standpoint some pretty dicey situations in that region. At this point what can you see from the startup of that new plant?

John W. Conway

Tim, I think you’re thinking of discussions we had over a year ago. We decided to slide the commencement of operations in that plant by a year so what we’re thinking of now and in fact, what we’re going to do now is we’re talking about a start up of that plant late first quarter 2010. So, our view is that we’ll be coming up learning curve in 2010, we’ll hit full production capability in 2011 and also this plant is sold out for the first many years with firm volume commitments. So, we’re pretty confident about it but in response directly to your question we are not adding any capacity that is going to come on stream this year in this market in Europe.

Timothy Thein – Citigroup

Lastly, real quick on the food can side another major player in Europe just recently had said that they saw similar to you guys, evidence of a pre-buy most pronounced in January and February and to a much lesser extent in March. Is that kind of consistent with what you are seeing?

John W. Conway

We are but we’re not sure, we never felt the pre-buy was that large. We knew there was some of it but we didn’t think it was that large because there wasn’t that much steel available and there weren’t that many cans available because the steel companies were doing such a good job of managing their own price increases. But, what has surprised us a little bit, we think that the destocking was much more wide spread and the supply chain had an ability to take a lot more units out than we had anticipated. But, March came back very, very well and the first reports in to April are strong as well. So, we’re quite confident for the year but it was we think quite a major destocking event.

Operator

Our next question comes from Alton K. Stump – Longbow Research.

Alton K. Stump – Longbow Research

I’m just trying to get an idea of in the European food can business you mentioned that sales were down 4% after currency and that volumes were down. I guess I’m trying to figure out the disconnect with pricing obviously, assuming that there were hefty pass throughs in Europe as there was in North America of tin plate as to why organic sales were still down 4%?

John W. Conway

Well I mean it had to do with underlying units and we’re still collecting the data and we don’t have industry data yet either. But, our units for the quarter as a whole were down mid to high single digits and almost entirely January/February. Tim might want to add to that?

Timothy J. Donahue

No, obviously there was a price increase because of higher tin plate cost although the tin plate increase that we experienced in Europe was less than the tin plate increase that we experienced in North America. But, when you take out the base cans, when the units come out it does offset more than the tin plate increase.

Alton K. Stump – Longbow Research

Is there a timing with the hike that went through at the first of the year, is there a timing just with the shipments that you’re booking that maybe the entire quarter didn’t benefit from that actual price increase? Is there any of that going on? In that regard that we might see a more forward impact with that rate increase in 2Q?

John W. Conway

We don’t think so. We think that our price increases were effective January 1.

Operator

Your next question comes from Peter Ruschmeier – Barclays Capital.

Peter Ruschmeier – Barclays Capital

I was curious if you could elaborate on your priorities for free cash flow, you mentioned largely paying down debt. What thought have you given, if any, to eventually paying a dividend?

Timothy J. Donahue

Well, I think in this credit environment we are not going to commence a dividend in 2009. The large majority, if not all, the free cash flow will be used to delever.

Peter Ruschmeier – Barclays Capital

Curious on your bev can plants in Spain and Brazil, how much do they contribute to revenue and income in the first quarter? And, maybe on a scale of one to 10 where are they in the ramp up?

John W. Conway

Not a lot in the first quarter because they are both in learning curves. Spain started up I think in December of last year and the Brazilian plant began commercial production late mid February. So, not a lot in the quarter and in fact, from an earnings standpoint the new plant in Brazil was a little bit negative just because of the startup situation. It will come on over the balance of the year as we go further in the year.

Peter Ruschmeier – Barclays Capital

In terms of typical ramp up would you expect full contribution within two or three quarters or does it take longer?

John W. Conway

It will take two quarters. We should be getting full contribution in the fourth quarter. Typically about a six months learning curve.

Peter Ruschmeier – Barclays Capital

Just lastly if I could just some housekeeping items, the D&A and SG&A was lower than I expected, I’m curious if you could elaborate on any thoughts as we look at those numbers going forward?

Timothy J. Donahue

Pete, it’s all currency right. So, as I said in the prepare remarks currency has an impact across every line item and just as you see a currency impact at the revenue line or gross profit or segment income there is going to be a currency impact at depreciation and S&A. I think in the release we gave you the currency impact on S&A which was almost the entire reduction in S&A was due to currency. The other $2 or $3 million reduction we had was due to as John said very tightly controlled costs.

We, like many companies are reviewing and controlling costs very tightly in this environment. Then on the D&A side I would say that currency probably reduced D&A by 5% to 6% million in the quarter, it’s got to be right around 10% to 12% of the prior year amount would be the reduction from currency. One way for you to look at that, if you go to our balance sheet, and it’s very easy to do this, if you look at property plant and equipment on the balance sheet, March ’08 to March ’09 it’s down $200 million, cap ex is roughly equal to depreciation for the first quarter of this year and last year so that the entire difference is currency, 12% to 13%.

Operator

Your next question comes from Christopher D. Manuel – KeyBanc Capital Markets.

Christopher D. Manuel – KeyBanc Capital Markets

A couple of questions for you, first John, you mentioned new products in food cans in Europe. Can you elaborate a little there?

John W. Conway

The biggest things for us have been new opening features and one of the things that have been very popular in Europe and increasingly popular is peel [seen] flexible ends, open ends on steel and some degree aluminum, but steel food cans. We’ve made a lot of advances in those areas both in regards to ease of use for our customers through the [inaudible] process and ease of removal and at the same time protecting against inadvertent opening during transportation. That’s been a big item for us and we continue to push that.

The other of course is we have a significantly improved full pull out steel end which we call Easylift which is patented and one of the reasons it is so much easier to open is tab access is dramatically improved. Those two things are doing very, very well for us and proving to be particularly in the European context, very, very popular. We’re bringing both of those technologies to North America and introducing them as we speak.

Christopher D. Manuel – KeyBanc Capital Markets

The second question I had Tim was I know it’s early in the year to start thinking this way but as we look at the guidance you’ve given us and what is normally your seasonally smallest quarter that would be most disproportionately hurt by the higher pension that would be normally straight lined across the year, the fact that you’re able to improve segment income 4% year-over-year or better than what your four year expectation is, does this not make your full year anticipation of up 3% seem somewhat conservative? Or, are there some other factors maybe that we’re missing?

Timothy J. Donahue

Listen, I think your thesis that we’re spreading pension equally across the quarters is correct. That’s how we do it, it is straight lined. But, as you said Chris, it is early in the year, it is only April, there’s a long way to go and we only gave you guidance two months ago at the beginning of February so we’ll have another chance to talk to you in July and we’ll revisit it at that point. I think we do take your point and we do believe we are off to a good start this year but it is early.

Christopher D. Manuel – KeyBanc Capital Markets

Is there anything that is maybe industry volume down a little in North America, although you guys are doing better. Are there any spots that maybe are coming in a little below expectation from where you thought things were earlier in the year?

John W. Conway

No, actually we’re not. I mean we’re pretty much right on plan but as Ken said, we’re being cautious, it is early in the year and a very globally dynamic economic environment.

Christopher D. Manuel – KeyBanc Capital Markets

The last question I had was with respect to steel and pre-buys and things of that nature. I know it’s something that is very tough to control with customers, it sometimes takes a little here or there, were you able to pick up a little extra steel early? Was there any LIFO gain or potential gains that you had in this quarter that may not be repeatable as the year progresses?

John W. Conway

We were not, and we talked about this earlier, we were not able to add substantially to finished goods or raw material inventories at the end of the quarter. Inevitably there was some carry over but we weren’t able to add a lot even though we might have wished to simply because as we told you earlier, the steel industry was quiet disciplined about watching shipments very, very carefully and they were not prepared to ship at lower prices in December. So, we had some inevitably Chris but we were not able to add a great deal of tin plate inventory.

Operator

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

Mark Wilde – Deutsche Bank Securities

John, I think you mentioned that most of that cap ex for the year, the $150 million was going to capacity additions. I wondered just as a reminder if you can kind of walk us through where those additions are all taking place beyond Spain and Brazil?

John W. Conway

Yes, one of course is the Slovakian plant. We will be spending relatively heavy on that this year. We have a project in Asia and we’re not at a point where we can discuss it with you yet but it looks very promising and that would be another. Then, the third principal area will be these new food can end systems I discussed earlier on both sides of the Atlantic.

Mark Wilde – Deutsche Bank Securities

One other question, any trade credit issues popping up for you guys?

John W. Conway

Are you talking about receivables with our customers?

Mark Wilde – Deutsche Bank Securities

Yes.

Mark Wilde – Deutsche Bank Securities

Nothing of significance. Unquestionably in certain parts of the world some of the smaller customers are under a little bit of stress, eastern Europe for example but, nothing of what I would call real significance yet. We’re watching it very, very carefully.

Operator

Your next question comes from Claudia Shank Hueston – J. P. Morgan.

Claudia Shank Hueston – J. P. Morgan

You talked about the US bev can trends which were very strong but could you also just talk a little bit more broadly about what you saw in Latin America and Canada? Then, if you could just provide a little bit more color on what you’re seeing in Asia bev can volumes that would be helpful as well.

John W. Conway

Canada and Latin America held up well also. Brazil continues to do quite well, we’re very confident about our new plant in the Northeastern part of the country because as we told you earlier we sited it in a part of the country that was relatively underserved and we think we are going to do well with it. In addition, we’re going to be making so called specialty cans at our new plant, non 12 ounce sizes and there’s a strong demand for those. So, we feel pretty confident there.

Asia, I would say Chinese volume in the first quarter is about flat but we expect it’s going to come back as we go in the balance of the year. We think it has more to do with customer package mix selection than underlying can demand, a little [PET] than cans but we’re pretty confident that’s going to come back. Southeast Asia continues to be quite strong.

Claudia Shank Hueston – J. P. Morgan

Just on working capital, last quarter you have the issue of sort of the big move in receivables, has that unwound itself yet and how are you feeling about working capital for the year?

Timothy J. Donahue

I think if you look at the cash flow you’d see that in Q1 this year we’ve consumed almost $100 million less in cash from operations than we did last year and unquestionably much of that is the collection of the receivables that existed from the strong Q4 sales. We still do project working capital at current tin plate prices to be a use of cash this year. It will be very difficult for us to offset such substantial tin plate prices with reduced units, I just don’t think it’s possible. Never say never but, certainly my view is that working capital will be a use of cash and that is in our projection.

Operator

Your next question comes from George Staphos – Banc of America-Merrill Lynch.

George Staphos – Banc of America-Merrill Lynch

I guess to start could you give us a little bit more flavor in terms of the trajectory that you saw in food can volumes from February to March to April in terms of where we might have been down year-on-year say in February and what kind of pick up you’ve seen over the last couple of months?

John W. Conway

George, January was down a little bit somewhat which we had anticipated. We thought if there might be pre-buy we might be hit there. February was down quite a bit more than we had anticipated and then March bounced back strongly and as we go in to April reports are quite good. So, as I said earlier on the call I think the extent of the destocking phenomenon was stronger than we had anticipated.

Now, as we got in to this and started calling various customers, fish can customers, tomatoes, olives, light fruit and so on, it became apparent why. There is just a lot more sponge in that system and a lot more ability for people to wring working capital out of it but, as I told you back to March, demand was quite good and going in to April we think so. Anecdotally from our customers about what they are seeing on their demand side and then in turn what we’re generally seeing to the extent we can at the retail level and that data as you know tends to lag quite a bit. But, it looks like the underlying demand, we think, for food cans is going to be quite strong.

George Staphos – Banc of America-Merrill Lynch

So are you now up year-on-year versus last April and was March up versus last March?

John W. Conway

I honestly don’t know for April, we’re up a little bit in March but I don’t know for April yet.

George Staphos – Banc of America-Merrill Lynch

Was food can US down at similar levels volume wise as was Europe which you provided some color on earlier I think to Chris’ question?

John W. Conway

No. For us and I believe for the market but, we don’t have the data, the European market data yet but the Western European beverage can market was year-on-year somewhat weaker than North America.

George Staphos – Banc of America-Merrill Lynch

John I’m sorry, food can US was it down in the first quarter? Could you give us a rough flavor.

John W. Conway

I’m sorry I thought you were on beverage. Food cans were also down a little bit less than Europe quarter-to-quarter.

George Staphos – Banc of America-Merrill Lynch

As we’ve reviewed some of the data that is coming out, realizing it is fairly early in the year it would appear that the processor indications are quite good as far as acreage and the like. Are there any, realizing you cover a number of geographies and markets, are there any hotspots developing in terms of early season? Whether there’s too much rain in France or what have you or do conditions thus far early in the year look to be favorable?

John W. Conway

No, we’ve heard of nothing adverse.

George Staphos – Banc of America-Merrill Lynch

I guess the last question I had for you, the company has done and it is a credit to you all, a very, very good job on improving return on capital over the last number of years. That’s the good news, the bad news is potentially any way what do you do from here? As we think about Crown over the next two or three years, where do you think the next improvement or return on invested capital is going to come from or do you think you’ve pretty much hit a plateau? Would it come from perhaps some structural capacity moves that you still have to work on either in growing and emerging markets or perhaps retrenching and developed markets? Anything in terms of maybe easy open ends? Again, you were mentioning earlier that could really move the needle on return. Help us understand what the trajectory could look like going forward?

John W. Conway

Well, I think one thing not to be underestimated is the growth opportunities that we have in so many good emerging market economies. The fact is that we have pursued over the past number of years less than the number of good opportunities that have been presenting themselves. In almost every case our initial returns on new investments in the emerging markets tend to be better than the returns that we get in North America and Western Europe. Then, incremental investments in those emerging markets are better still because we have an asset base we can build out more cost effectively than we were earlier.

So, I think that shouldn’t be underestimated. Then, throw on top of that the natural volume growth. As to the mature markets, George you know that we’ve felt for quite some time that there was more to be gained from the effects of consolidation than had been gained by the industry generally. When you only have two or three, sometimes four suppliers of beverage cans, food cans, aerosol cans, metal vacuum enclosures, it seemed to us that it would become increasingly apparent to all the participants in the industry that there were further opportunities.

I think you’ve seen that over the past several years. There have been some lagers in certain of our product categories on one side of the Atlantic or the other but in general, we think there is more to come. In terms of restructuring, we’re running pretty full pretty much everyplace and we’ll have some opportunities at the margin to reduce costs in food for example as we did with the closure of a fairly large food can plant in the Province of Quebec but, that’s not how we see things happening.

We think there’s an opportunity for better price performance and continued improvements and efficiencies, drive down spoilage and that’s how we think the mature market business is going to improve aside from any further consolidating opportunities. And, there are going to be some. We’ve talked about European food, we have nothing planned, we don’t have anyone in the cross hairs but we know there’s still too many food can companies in Europe, no question. We think they are going to start falling to the wayside.

Some of the little food can guys already are with the credit affects so we see a lot of upside around the world largely because of the very large dynamic emerging market business we have.

George Staphos – Banc of America-Merrill Lynch

You mentioned Europe, are there opportunities in the United States as well John?

John W. Conway

Well, I don’t see any on the food side and everyone talks about the potential of beverage opportunity and we’re all aware of it and everybody is looking at it.

Operator

Your next question comes from Joseph A. Naya – UBS Securities.

Joseph A. Naya – UBS Securities

I was wondering if you might be able to offer any additional color on what was going on with margins, it seems like your food can business and your European beverage can business saw some pretty significant year-over-year improvement in margin. I’m just wondering if you could offer anything with regard to that?

Timothy J. Donahue

Well, certainly on beverage cans you can see the benefit of additional throughput and volume was up 5%. We have some very large plants in Europe and additional volume and volume growth helps performance immensely in that regard. Additionally, I would say that I did mention that we had better manufacturing performance in our beverage plants and I don’t think we can underscore that enough. The team did a really good job year-over-year performance wise in beverage.

On the food can side, John elaborated on the new product introductions we’ve had as well as we have been extremely frugal this year on costs. So, not only have we had prior cost containment initiatives but currently this year we took a look late last year and again early this year at everything from travel to new hires to replacements and we’re being extremely frugal and it’s amazing how much money can come out of the system especially in a big system like our European food business when you put your mind to it.

Joseph A. Naya – UBS Securities

So there is the opportunity perhaps to see some of that improvement carry forward than it was necessarily any one-time type of events?

Timothy J. Donahue

I think we feel very good about the balance of the year as John said.

Joseph A. Naya – UBS Securities

One other question I just wanted to ask you about the absorption of new capacity coming online. It sounds as though Brazil you’re kind of expecting that to kind of stay in Brazil. I think with the Spanish plant you were talking about previously that you expected that to probably service North Africa for the time being. Is that kind of still the expectation there?

John W. Conway

It is. I mean initially as we come off the learning curve in Spain, that capacity will stay in Spain because you may recall in the past number of years we’ve been shipping some cans in to Spain. We had less capacity than we needed for the market but over time our plan is that the [Civil] capacity will cover southern Spain but also Northern Africa, supplement the capacity that we already have in to Egypt.

Joseph A. Naya – UBS Securities

So at this point you’re not concerned about that additional volume being absorbed?

John W. Conway

No, not at all.

Operator

Your next question comes from Richard Skidmore – Goldman, Sachs & Co.

Richard Skidmore – Goldman, Sachs & Co.

Just to follow up on the previous question about margin Tim, can you just elaborate a little bit on the carryover benefit on the inventory and price costs in tin plate and what that may have been? Then, as you think about margins, do you see margins coming down a little bit as you just better match price versus cost as you move through the year in food can?

Timothy J. Donahue

As John said, I’m not sure that we had any extra carryover in to the year. We obviously have inventory in the system at the end of every quarter and certainly we do at the end of the year. But, as you know we always look to drive inventories and working capital as low as possible at the end of the year so we would not have had any more working capital and we probably had a lot less than we had in previous year ends due to the fact that steel companies wouldn’t extend any more steel to us at prior year prices. But, as John said inevitably you have metal that comes in to the new year at lower prices.

Just remember, we are running a fairly large business, there is a certain amount of risk in our business when we start to order metal at the beginning of the year with some uncertainty regarding volumes throughout the year and we do have the working capital element that we are having to pay for. So, as I mentioned in an answer to Claudia’s question earlier it is our belief that despite whatever actions we take on the working capital side, working capital will be a use of cash because of the significant increase in price of raw material particularly steel. We have to compensate ourselves for that in some manner so certainly we had a little bit of carryover but I don’t think we had anything that was that large.

Richard Skidmore – Goldman, Sachs & Co.

Just shifting topics back to maybe the Spain and the Middle East volume, in prior conversations you’ve seen significant volume growth in the Middle East but I’d imagine that you’re starting to really fill up that plant. When do you expect that you cycle through those significant year-over-year growth in the Middle East and that you start to have volumes kind of normalize to the general trend in Europe?

John W. Conway

We don’t know. We had quite a strong first quarter in the Middle East and the honest answer is we just don’t know. The full region economically has been so much more stronger in terms of consumption and consumer spending that we just do not know the answer.

Richard Skidmore – Goldman, Sachs & Co.

So on that John do you think if the growth continues in the Middle East that you can continue to speed up the facility or debottleneck so you can kind of keep up with that growth?

John W. Conway

Yes, we can and we have been. The big issue for us over the next year or two is as we see the need for more capacity where should we put it. We have about a 75% market share in the region, the greater Gulf region and so the real issue becomes where should the capacity go. But, in the meantime, all lines are being sped up, they’re all running better, they’re all running more efficiently and we need the capacity.

Richard Skidmore – Goldman, Sachs & Co.

Then maybe just one last topic, Tim mentioned use of free cash flow primarily for debt reduction but John you mentioned some of the smaller competitors in Europe food are perhaps starting to go away. Does that give you any opportunity to maybe use some free cash flow to acquire some competitors in food can in Europe?

John W. Conway

It may in due course but we don’t have any plans to do that this year. Our approach for the time being is we’re going to continue to operate in expectations that some smaller competitors who are really very, very credit constrained are simply going to have to shut down operations. We’ve seen some of that last year. We think we’re going to see more this year.

Operator

Your next question comes from Albert Kabili – Macquarie Research.

Albert Kabili – Macquarie Research

Drilling down a little bit in the America’s beverage can you talk a little bit about the drag that the Brazil startup cost had on the quarter? Maybe quantify that for us and maybe rank order for us some of the drags that hit EBIT during the quarter and when those might abate?

Timothy J. Donahue

Listen, we had a fairly good quarter in the America’s beverage group we were within a couple of million of last year’s quarter. I can tell you that currency was about $2 to $3 million in the quarter and the Brazilian startup was about $1 million in the quarter.

Albert Kabili – Macquarie Research

Then at what point does Brazil become fully additive? Is it still a little bit of a drag in the second quarter or when does that?

John W. Conway

It may be. It will be making a full contribution by the fourth quarter. It may continue to be a little drag in the second, we’re just not sure yet.

Albert Kabili – Macquarie Research

Then if we can switch gears in to mix, was there any impact on mix in the quarter? How’s the specialty can business doing?

Timothy J. Donahue

I can tell you because I was just looking at the figures, our specialty cans as a percentage of our overall cans were 12% in the first quarter of ’08 and they’re just below 15% in the first quarter of ’09.

Albert Kabili – Macquarie Research

Finally, looking at the other non-reported segment, if you could talk a little bit about major trends going on particularly aerosol, what that business is looking like for you right now?

John W. Conway

Well aerosol experienced some of the same issues as food from a pre-buy destocking standpoint so we saw a decline in aerosol units quarter-to-quarter also. An additional factor regarding aerosols is to the extent that aerosols is personal care, it’s a relatively expensive dispensing system and to the extent the aerosols are used for industrial household paints, etc., it’s impacted by residential commercial activity. So, I would say it was very much the food story but a little bit more because of the nature of the product which we had anticipated. This was in our planning for the year, this did not come as a surprise to us.

Timothy J. Donahue

Al, just to make sure we understand what happened in the non-reportable line, the tin plate price increases, or the selling price increase necessarily to cover the cost for tin plate more or less offset the aerosol volume decline. The revenue decline that you see in that line is primarily due to foreign exchange and lower aluminum costs being passed through to customers in the Asia division.

Albert Kabili – Macquarie Research

Finally, did you see a little bit of volume recovery in aerosol in March similar to food with the pre-buy it may be dissipating a bit?

John W. Conway

Yes, we did. We saw exactly the same thing.

Operator

Your next question comes from Chip Dillon – Credit Suisse.

Chip Dillon – Credit Suisse

First question is on the whole North America food can business where I think you suggested I guess that volumes were down mid single digits. You’ve had good years the last two years there and do you expect that to turn in to a positive number for the year? I mean, on one hand you saw the pre-buy in the fourth quarter but then that makes the second half kind of a hard comparison.

John W. Conway

We think it will. Talking to customers we have a number of customers who’ve said they’ve had one of the best first quarters they’ve ever had in their history from sales unit volume in North America. So, we think so but we’ll have to wait and see.

Chip Dillon – Credit Suisse

When you look at your continuing above market growth in the beverage side in the US, you mentioned both having to balance sort of customer mix, are you seeing relative strength I guess as time goes on more on the beer side or the soft drink side?

John W. Conway

In our case actually we saw good performance by all of our customers. Beer was up so the beer customers did quite well and you know as well as I, trade down, less imports, etc., more at home consumption and so on. On the soft drink side we felt branded products, our customers branded products improving over the course of the quarter which we were very happy to see. Then, as Tim mentioned, private label and we’ve got a wide range of private label customers did exceptionally well and specialty was helpful too. Really all of our customers did well in a relevant sense and most of them did well in terms of just absolute unit volumes up.

Chip Dillon – Credit Suisse

Then a last one, you mentioned I heard to an earlier question a 70% share number in the Middle East, that was for food, is that right?

John W. Conway

No, that’s beverage.

Operator

Your next question comes from Tim Burns – Cranial Capital.

Tim Burns – Cranial Capital

My first question I’ve got to get it out of the way is how you two are coping with the loss of Alan. He was so kind and comforting on the calls and I know we analyst really enjoyed it.

John W. Conway

Well, we miss him of course, in particular his wonderful English accent. Otherwise, we’re doing just fine. We understand from an American audience’s perception the average IQ has declined here because that accent is no longer on the call but, otherwise we’re doing fine.

Tim Burns – Cranial Capital

John, you’re spending $150 on cap ex, you’re talking about projects overseas and new technologies, are you holding back on some of the new projects just because of the economic environment and the desire to stay liquid? I guess I’m wondering how long is the pipeline?

John W. Conway

No, I wouldn’t say we’re holding back I mean we’ve made what we think are some prudent adjustments. We talked earlier about Slovakia, we could have gone ahead earlier with it, we stepped it back, we thought that was the right thing to do. We’ve learned over the years particularly in lot of the emerging markets that are a little harder to really understand at times that it is better to really prune your opportunities and pick the ones that look like they are just shooting fish in a barrel so we have been doing that. So, I don’t think that is going to change and we’re not missing anything that we think is tremendously good as a consequence of our self imposed capital constraints.

Tim Burns – Cranial Capital

We talk international growth, is it fair to say that 80%, 75% of this is beverage?

John W. Conway

It’s fair to say 75% to 80% of our growth is beverage but, we’re well aware process food is growing in Eastern Europe, Russia, China, Southeast Asia. It’s just that we had made a number of years ago our beachheads, our initial investments tended to be beverage for a lot of different reasons and we just have such an advantage there now, that’s what we are pursuing. Having said that we’re well aware of the food can industry and processed food industry and we’re looking at it closely and we have a high degree of interest in it.

You may know, we have quite a large food can business in Thailand for example, it’s done very, very well. So, it’s an area that we’re interested in exploring but we have a greater comparative advantage in beverage at the moment and that’s why we’re pushing that harder.

Tim Burns – Cranial Capital

Well the two families I guess, the one in Asia who tends to fly planes and the one in the Gulf coast are extraordinary allies aren’t they?

John W. Conway

We’ve been lucky, we’ve had good partners for a long time and so it’s helped us a lot.

Tim Burns – Cranial Capital

I’ve got two more questions, the food can business I mean back to the old story of pull it out of the pantry, but as I see it the US is kind of in the dog food economy versus the Club 21, all those rich bankers. The EU their percentage of food can consumption is much higher than ours is it not?

John W. Conway

Yes, generally speaking that’s true. But, I think the eat at home phenomena is equally strong in Europe as it is here. I mean, a tremendous shift out of restaurants and so on and back to at home consumption.

Tim Burns – Cranial Capital

Then the rest of the world I guess we’re kind of in the initiation and growth track where some of these people have not consumed a lot of food out of cans maybe with the exception of fish. Do you ever think they’d begin to consume at the same rates as the US or is their pallet and diet too different?

John W. Conway

Tim, I don’t know but the extent to which they’re prepared to move to process food it is unclear to me however, there’s going to be a continuing big shift just for all the same convenience reasons that has happened in Western Europe and North America.

Tim Burns – Cranial Capital

I had one question for Tim, Tim the pension expense is running at about how much per quarter?

Timothy J. Donahue

It will be about $33, $34 total for each quarter.

Operator

Your next question comes from Joe Sivilotti – Goldman Sachs.

Joe Sivilotti – Goldman Sachs

Just a couple of final things, just on the pension, are the numbers of $140 for the year for expense and $75 for your cash contribution, is that still what we should be thinking.

Timothy J. Donahue

$75 for cash and I think the expense is $133 that you should be using.

Joe Sivilotti – Goldman Sachs

I was just wondering underlying the guidance you have given what are your assumptions for your trends this year in your tin plate costs?

John W. Conway

Well, our assumptions are that we don’t know what’s going to happen with regard to tin plate costs over the course of the year but that whatever happens we plan to maintain margins whether costs go up or down. Our strategy is just like it is with beverage, we’re passing through costs up or down.

Timothy J. Donahue

We’ll take one more question if you have it.

Operator

Your final question comes from Mike Sheridan – Cobalt.

Mike Sheridan – Cobalt

I was surprised by your volumes in bev cans globally. Can you talk about you had mentioned that you guys were losing some volume to [PET] in Asia. Can you talk about share shifts in other packaging mediums especially glass, are you guys seeing that?

John W. Conway

You know, I really can’t in detail and I just mentioned that one because it was one that was reported to us to explain what was going on in Chinese beverage cans in the first quarter. But beyond that we’re reasonably certain that our major beer customers are changing mix, they were changing mix last year we think they’ve accelerated a little bit but I couldn’t give you any details on exactly what their plans are nor do I know exactly what happened with glass unit volumes.

Mike Sheridan – Cobalt

Could you give me any idea what kind of conversations you have with them? I mean, what’s driving their mindset as far as you know?

John W. Conway

On the beer side I think it’s a variety of things. First of all for a long time, aluminum or steel beer cans are the lowest cost form of packaging for the brewer. They can fill at the highest speeds, they have the least spoilage, the freight shipping, cube efficiency are the best. So, they will always, we think, the larger brewers in particular with stronger marketing strength would always prefer to be in cans and now with relative change in the economies and the wish for consumers to trade down a little bit and go to a less expensive package and the lessening of imports all tied to this we can see our customers moving to it.

Then of course, most of the beer cans around the world with a few exceptions are aluminum and with aluminum prices coming down the cans have become relatively even cheaper so it’s a very positive trend we think globally for beer cans.

Mike Sheridan – Cobalt

And you don’t see any drag similarly from the fact that transport costs are generally coming down pretty quickly? You don’t see a delta in the way that people think about the efficiency of transport by can rather than by a heavy or different medium of packaging?

John W. Conway

No, we think the relative advantage of cans is being maintained.

Operator

At this time I’ll turn the call back over to the speakers.

Timothy J. Donahue

Thanks very much. That concludes our call today. I just want to thank all of you for joining us and we look forward to speaking with you again in July after the conclusion of our second quarter.

Operator

This does conclude today’s conference. We thank you for your participation. At this time you may disconnect your lines.

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