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By the numbers
Americas Beverage net sales: $1.3B
Down 1.3% year over year
Q3 net income: $159M
Up 25.2% year over year
- Q3 readout: Crown saw year-over-year declines in each of its business segments. Q3 performance was in line with expectations in Crown’s larger Americas Beverage, European Beverage and Transit Packaging businesses, which offset “softness” in North American aerosols and in Asia, said CEO Tim Donahue. Income increased greatly year over year following a “challenging” Q3 2022, Donahue said, and the company anticipates “similar improvement” in Q4.
- Segment insights: The company expects 7% growth in Americas Beverage for the full year, following volumes up 12.6% in Q3, boosting segment income 25% year over year. That followed being down 6% at the same time last year — “for a market that’s as big and stable, historically, as North America, that’s the worst quarter I can remember in my 30-plus years for the North American can market,” Donahue said. Meanwhile, volumes in the European Beverage business underperformed in a “flattish market,” Donahue said, but operating margins have improved. In the Transit Packaging division, equipment deliveries were up as consumable volumes were lower.
- Consumer trends: Aerosol can shipments were down 15% in Q3 versus a year earlier, “and that’s after a pretty crappy Q3 last year,” Donahue said, describing products in that space as more “economically sensitive”; air fresheners, bug sprays and shaving creams are down across the board, he said. Responding to an analyst inquiry, Donahue dispelled speculation that recent uptake of weight loss drugs is having an impact on food and beverage retailers and brands and, in turn, their packaging suppliers.
- Customer promotional activity and inventory levels: Customers reportedly began to accelerate promotions in the spring and into Q3. In October, brands are still promoting “at much greater levels than we saw last year,” Donahue said. That includes large carbonated soft drink companies and “some of the better-known national and regional sparkling water brands.”
- Leverage: The company touted a large year-over-year increase in free cash flow, with net cash from operating activities totaling $832 million through the first three quarters of 2023, versus $134 million last year. Net leverage improved to 3.5x and executives expect it to be 3.25x at year’s end. Many shareholders are calling for lower leverage, Donahue said.
- Capacity increases: In North America in Q3, operating rates were at least 90%. “I think as customers continue to push cans, we all have a little bit of spare capacity. We can fill that demand,” Donahue said. Commercial shipments from line one at Crown’s new plant in Mesquite, Nevada, began this month, and a second line is slated to start up by the end of 2023. In Europe, a new Crown plant in Peterborough, U.K. has faced some delays, Donahue said. Crown completed its acquisition of Helvetia Packaging earlier this month, expanding its beverage can platform into Germany and gaining a high-speed, one-line can plant with an end line. Donahue said on the call that Crown paid around $125 million for that acquisition, which he described as “a pretty good deal for the company at that level, significantly below what we and others are paying to build similar can plants.” The plant is down currently for preventative maintenance work.
- Outlook: Crown lowered its full-year adjusted earnings per share guidance from between $6.10 and $6.30 to between $6 and $6.10, noting “continued weakness” in Asia and the North America aerosols business. Adjusted free cash flow is still expected to fall between $500 million and $900 million.
