Crown Holdings, Inc. — Form 10-Q Summary
Business Context and Reporting Period
Crown Holdings is a global supplier of aluminum and steel beverage, food and aerosol cans, closures, transit packaging products, and related equipment and services. This unaudited filing covers the three and nine months ended September 30, 2023, compared with the corresponding 2022 periods.
Financial Performance and Key Metrics
| Metric | Q3 2023 | Q3 2022 | 9M 2023 | 9M 2022 |
|---|---|---|---|---|
| Net sales | $3,069 million | $3,259 million | $9,152 million | $9,931 million |
| Income from operations | $374 million | $297 million | $1,010 million | $1,107 million |
| Operating margin | 12.2% | 9.1% | 11.0% | 11.1% |
| Net income attributable to Crown | $159 million | $127 million | $418 million | $638 million |
| Diluted EPS | $1.33 | $1.06 | $3.49 | $5.23 |
| Cash flow from operations | Not provided for quarter | Not provided for quarter | $832 million | $134 million |
Q3 net sales declined 5.8%, while operating income increased 25.9% and diluted EPS increased 25.5%. Nine-month sales declined 7.8%, operating income declined 8.8%, and diluted EPS declined 33.3%. Nine-month results were affected by the absence of a $113 million gain on the 2022 sale of the Kiwiplan business, higher interest expense, and higher pension and postretirement costs.
Segment income in Q3 increased to $434 million from $315 million. Americas Beverage segment income rose to $232 million from $185 million; European Beverage rose to $80 million from $20 million; Transit Packaging rose to $89 million from $75 million. Asia Pacific declined to $33 million from $35 million, and Other declined to $37 million from $50 million.
Cash Flow, Balance Sheet, Debt, and Liquidity
- Cash, cash equivalents, and restricted cash increased to $902 million at September 30, 2023, from $639 million at December 31, 2022; cash and cash equivalents alone were $807 million.
- Operating cash flow of $832 million was primarily driven by working-capital improvements. Capital expenditures were $614 million, and investing cash outflow was $520 million.
- Total debt was approximately $7.1 billion, including $774 million of current maturities. Long-term debt, excluding current maturities, was $6.24 billion. Net debt was approximately $6.3 billion using cash and cash equivalents.
- Interest expense increased to $111 million in Q3 and $323 million for nine months, versus $76 million and $194 million, respectively, in the prior-year periods.
- Revolving credit facilities provided $1.65 billion of capacity, of which $1.585 billion was available at September 30, 2023. The total net leverage ratio was 3.35x versus a covenant limit of 5.0x; the limit reduces to 4.5x at December 31, 2023.
- Management expects 2023 capital expenditures of approximately $900 million and 2024 capital expenditures of approximately $500 million. Capital commitments at September 30, 2023 were approximately $192 million.
- The company issued €500 million of 5.0% senior unsecured notes due 2028 in May 2023.
Material Changes, Outlook, and Management Commentary
- Sales declines primarily reflected lower aluminum, steel, and other commodity pass-through pricing and lower volumes in European Beverage, Asia Pacific, Transit Packaging, and Other. Favorable foreign exchange translation partly offset the decline.
- Americas Beverage benefited from higher North American volumes, contractual inflation-recovery mechanisms, and new capacity. Commercial production began on line one at the Mesquite, Nevada plant in October 2023, with line two expected in the fourth quarter.
- Asia Pacific volumes decreased 9% in Q3 and 13% for nine months. The Myanmar plant resumed limited production after currency restrictions, but reported only $7 million of sales during the first nine months.
- Cost-reduction actions supported Transit Packaging results. Other segment results were pressured by lower volumes and the absence of a prior-year steel repricing gain.
- Restructuring and other charges were $15 million in Q3 and $32 million for nine months, compared with a $75 million benefit in the 2022 nine-month period, primarily because of the prior-year Kiwiplan sale gain.
- Management continues to monitor supply-chain disruption, inflation, energy and transportation costs, foreign exchange, interest rates, and aluminum and steel prices. The company generally uses contractual pass-through provisions, matching arrangements, and commodity derivatives to mitigate these exposures.
- On October 3, 2023, the company acquired Helvetia Packaging AG in Germany for approximately $128 million, subject to adjustment. Preliminary estimated goodwill was $30 million; purchase accounting was not finalized at filing.
Risks, Contingencies, and Unusual Items
- Asbestos-related accruals were $210 million at September 30, 2023, including $159 million for unasserted claims. The company paid $10 million for asbestos claims and related costs during the first nine months. Actual losses could exceed the accrual, but the excess cannot be reasonably estimated.
- Environmental remediation accruals totaled $20 million, comprising $12 million for PRP sites and $8 million for company-owned locations.
- Competition-law matters remain pending in France, and the company is appealing an $8 million European Commission antitrust fine related to a German investigation.
- The company disputes an $18 million U.S. Customs and Border Protection penalty assessment and states that a loss is not currently considered probable.
- Approximately $2.4 billion of debt carried floating interest rates at September 30, 2023; a 0.25 percentage-point rate change would affect annual pretax interest expense by approximately $9 million.
- Cash held outside the United States totaled $686 million, including $594 million held by subsidiaries whose earnings are considered indefinitely reinvested.
- The company had $703 million of confirmed obligations outstanding under supplier-finance programs, included in accounts payable.
Important Facts for Investors to Verify
- Whether volume trends, particularly in European Beverage, Asia Pacific, Transit Packaging, and Other, stabilize or continue to pressure revenue.
- The sustainability of contractual inflation recovery and the extent to which lower commodity prices reduce reported sales.
- Progress and returns from new capacity in North America and Europe, including Mesquite and the Helvetia acquisition.
- Debt maturities, refinancing requirements, floating-rate exposure, and compliance with the reduced 4.5x leverage covenant at year-end.
- Actual 2023 capital expenditures versus the approximately $900 million expectation and the effect on free cash flow.
- Developments in asbestos litigation, French competition proceedings, environmental matters, and other contingent liabilities.
- Management’s future share repurchases and dividends; $2.3 billion remained available under the repurchase authorization at September 30, 2023.