Crown Holdings, Inc. — Q1 2022 Form 10-Q Summary
Business context and reporting period
Crown Holdings is a global packaging company with beverage can, food can, aerosol, closures, transit packaging, tooling and equipment operations. This filing covers the unaudited three months ended March 31, 2022, compared with the three months ended March 31, 2021. Results reflect continuing operations following the August 2021 divestiture of the European Tinplate business.
Financial performance and liquidity
| Metric | Q1 2022 | Q1 2021 | Change |
|---|---|---|---|
| Net sales | $3,162 million | $2,564 million | 23.3% increase |
| Income from operations | $344 million | $327 million | 5.2% increase |
| Operating margin | 10.9% | 12.8% | Down approximately 190 basis points |
| Net income from continuing operations | $246 million | $200 million | 23.0% increase |
| Net income attributable to Crown from continuing operations | $216 million | $167 million | 29.3% increase |
| Diluted EPS from continuing operations | $1.74 | $1.24 | 40.3% increase |
| Cash used in operating activities | $301 million | $385 million | Improved by $84 million |
| Capital expenditures | $117 million | $135 million | Down $18 million |
Net sales benefited primarily from passing through higher material costs and increased beverage can volumes in Europe and Asia Pacific, partly offset by $42 million of unfavorable foreign-currency translation. Continuing-operations net income also benefited from lower interest expense, which declined to $54 million from $69 million, and equity earnings from the divested European Tinplate business, which increased to $17 million from $2 million.
Cash and cash equivalents were $389 million at March 31, 2022, down from $531 million at December 31, 2021. Including restricted cash, total cash, cash equivalents and restricted cash was $460 million. Working capital changes consumed $699 million of operating cash during the quarter.
Total debt consisted of $96 million of short-term debt and $6,791 million of long-term debt at carrying value, including $1,137 million of current maturities. In March 2022, the Company issued $500 million of 5.250% senior unsecured notes due 2030. Available revolving-credit capacity was $1,403 million, and the net total leverage ratio was 3.35 to 1.0 versus a covenant maximum of 5.0 to 1.0.
Material changes versus the prior comparable period
- Revenue increased 23.3%, largely from raw-material cost pass-through and higher volumes, while operating income increased only 5.2%.
- Reportable-segment income declined to $331 million from $372 million. Americas Beverage declined to $164 million from $188 million; European Beverage declined to $53 million from $62 million; Asia Pacific was broadly stable at $53 million; and Transit Packaging declined to $61 million from $70 million.
- “Other” segment income increased to $94 million from $36 million, including a $35 million benefit from lower-cost inventory carried over from the prior year-end.
- Americas Beverage was affected by lower Brazilian volumes and approximately $20 million of incremental costs and lost profits related to the Bowling Green, Kentucky tornado. The facility resumed operations in March but is expected to incur additional repair-related costs during a planned shutdown in the second half of 2022.
- The Company repurchased $350 million of common stock in Q1 2022, compared with $12 million in Q1 2021, under a $3.0 billion authorization extending through 2024.
- Q1 2021 included $45 million of net income from discontinued operations; Q1 2022 included none. Accordingly, reported total net income was approximately unchanged at $246 million versus $245 million, while continuing-operations earnings improved substantially.
Guidance, outlook, commentary, risks and unusual items
Management expects 2022 capital expenditures of approximately $1 billion. The Company expects to fund approximately $126 million of existing capital commitments primarily through operating cash flow. Planned capacity additions include beverage can facilities and lines in the United States, Brazil, Mexico, the United Kingdom, Spain, Vietnam and Cambodia.
Management expects the Bowling Green facility to return to full operational capacity by the end of the fourth quarter of 2022. Property and business-interruption insurance may reimburse qualifying incremental costs as recoveries become probable; the filing does not provide a total expected recovery.
The Company stated that the Russia-Ukraine war had not materially affected results through March 31, 2022, but warned of potential shortages and higher transportation, energy and raw-material costs. COVID-19-related manufacturing and supply-chain risks remain under active management. Aluminum and steel price volatility may not be fully recoverable through customer pricing.
The Company expects to refinance or repay the $980 million of euro-denominated senior notes due in February 2023 and states that it has sufficient liquidity to do so. The receivables securitization facility was increased from $500 million to $700 million and expires in July 2023.
Asbestos-related accruals were $234 million at March 31, 2022, including $192 million for unasserted claims. The Company paid $3 million for asbestos claims and related legal costs during the quarter and reported 57,000 ending claims. Management states that actual losses could exceed the accrual but cannot estimate the excess exposure.
The European Commission investigation into alleged anti-competitive conduct remains ongoing; management believes a loss is probable but cannot estimate any loss in excess of the recorded accrual. A separate French competition-authority proceeding concerning alleged anti-competitive conduct related to the removal of bisphenol-A is ongoing, with potential fines not estimable. The Company also disputes an $18 million U.S. Customs penalty and does not currently believe a loss is probable.
The filing does not provide a specific earnings or revenue forecast. The reported results are not necessarily indicative of full-year performance.
Important facts for investors to verify
- Whether price pass-through will offset continuing inflation in aluminum, steel, energy, freight and operating costs, particularly in the beverage can segments.
- The timing, cost and insurance recovery associated with final repairs and the planned 2022 shutdown at Bowling Green.
- Liquidity and refinancing plans for the $1.137 billion of current long-term debt maturities, including the February 2023 euro notes.
- Whether substantial planned capital expenditures and share repurchases are consistent with operating cash generation, given negative Q1 operating cash flow.
- Developments and potential financial exposure from asbestos claims, the European Commission investigation, French competition proceedings and environmental matters.
- Volume growth and profitability of new beverage-can capacity, including the effects of foreign exchange, supply-chain disruption and regional COVID-19 restrictions.