Crown Holdings, Inc. — Q1 2024 Form 10-Q Summary
Business Context and Reporting Period
Crown Holdings is a global packaging company focused on beverage cans, food and aerosol cans, closures, transit packaging, and related equipment. This filing covers the unaudited quarter ended March 31, 2024, compared with the quarter ended March 31, 2023. Segment reporting was recast in the fourth quarter of 2023 to reclassify certain European corporate costs; prior periods were conformed.
Key Financial Metrics
| Metric | Q1 2024 | Q1 2023 | Change |
|---|---|---|---|
| Net sales | $2,784 million | $2,974 million | Down 6.4% |
| Income from operations | $245 million | $269 million | Down 8.9% |
| Operating margin | 8.8% | 9.0% | Down approximately 20 bps |
| Net income | $93 million | $122 million | Down 23.8% |
| Net income attributable to Crown | $67 million | $102 million | Down 34.3% |
| Diluted EPS | $0.56 | $0.85 | Down 34.1% |
| Net cash used in operating activities | $102 million | $235 million | Improved by $133 million |
| Capital expenditures | $94 million | $233 million | Down $139 million |
Net margin attributable to Crown was approximately 2.4%, compared with 3.4% in the prior-year quarter. Interest expense increased to $113 million from $102 million, while interest income increased to $20 million from $9 million. Income taxes were $40 million versus $42 million.
- Reportable segment income increased to $350 million from $331 million. Americas Beverage, European Beverage, and Asia Pacific improved, while Transit Packaging declined.
- Americas Beverage sales declined to $1,222 million from $1,261 million because of lower aluminum pass-through pricing, partly offset by 7% higher North American shipments. Segment income rose to $189 million from $178 million.
- European Beverage sales increased to $482 million from $479 million and segment income increased to $51 million from $39 million, supported by 5% higher shipments and lower start-up costs.
- Asia Pacific sales fell to $279 million from $338 million on 8% lower shipments, lower aluminum pricing, and unfavorable foreign exchange. Segment income increased to $42 million from $36 million.
- Transit Packaging sales declined to $520 million from $564 million and segment income fell to $68 million from $78 million, primarily due to lower volumes.
- Other sales declined to $281 million from $332 million and segment income fell to $8 million from $27 million due to lower volumes in food cans, aerosol cans, and equipment.
Balance Sheet, Debt, and Liquidity
| Balance sheet item | March 31, 2024 | December 31, 2023 |
|---|---|---|
| Cash and cash equivalents | $1,123 million | $1,310 million |
| Total cash, cash equivalents, and restricted cash | $1,218 million | $1,400 million |
| Total debt, including current maturities | Approximately $7,453 million | Approximately $7,474 million |
| Total assets | $14,691 million | $15,034 million |
| Crown shareholders’ equity | $2,470 million | $2,410 million |
The company had $1,650 million of revolving credit capacity, of which $1,613 million was available at March 31, 2024. Total net leverage was 3.3x, compared with a maximum covenant ratio of 4.5x. Management targets net leverage of 3.0x to 3.5x adjusted EBITDA. The company reported approximately $2.3 billion of floating-rate debt; a 0.25 percentage-point change in floating rates would affect annual pretax interest expense by approximately $8 million.
Cash used in operating activities was $102 million, reflecting working-capital improvements. Cash used in investing activities was $81 million, and financing activities provided $9 million. Cash declined by $182 million during the quarter. The company had $672 million of confirmed supplier-finance obligations included in accounts payable.
Material Changes and Unusual Items
- Effective January 1, 2024, the company extended estimated useful lives for certain beverage buildings and machinery and equipment. This reduced Q1 depreciation expense by approximately $16 million, or $0.10 per diluted share, versus the previous useful lives. The change is prospective.
- Restructuring and other charges increased to $23 million from $11 million, primarily reflecting European Beverage headcount reductions and exit costs. The company paid $12 million during the quarter and had a $28 million restructuring accrual, expected to be paid over the next twelve months.
- Corporate and unallocated expense increased to $50 million from $38 million, including $8 million related to a facility fire and higher incentive compensation and insurance costs.
- The company corrected the presentation of certain short-term debt borrowings and repayments in prior cash-flow statements on a gross basis. The correction did not affect total financing cash flow and was considered immaterial.
- The company paid $30 million of shareholder dividends, $15 million of dividends to noncontrolling interests, and repurchased $5 million of common stock. The remaining share-repurchase authorization was $2.3 billion at March 31, 2024.
Guidance, Outlook, and Risks
- Management expects 2024 capital expenditures to be no more than $500 million and had approximately $112 million of capital commitments at March 31, 2024.
- Management believes the current installed capital base can meet current and future demand growth following approximately $2 billion of investment in new facilities and production lines since 2021.
- The company continues to manage inflation, aluminum and steel prices, energy and transportation costs, foreign exchange, interest rates, and supply-chain disruptions through pass-through provisions, matched purchase and sales arrangements, and derivatives. Recovery of all cost increases is not assured.
- Management stated that the Russia-Ukraine war and Middle East conflicts had not had a direct material impact on the business through the reporting date.
- Asbestos-related liabilities remain a significant contingency. The company accrued $201 million for pending and future asbestos claims and related legal costs, including $145 million for unasserted claims. Approximately 58,800 claims were outstanding at March 31, 2024, and the company paid $3 million during the quarter. The reasonably possible loss above the accrual cannot be estimated.
- Environmental accruals totaled $19 million, comprising $12 million for PRP sites and $7 million for company-owned locations. Potential losses above these amounts cannot be estimated.
- The company is appealing a €4 million French competition-authority fine and seeking annulment of an €8 million European Commission fine related to metal-packaging investigations. It also disputes an $18 million U.S. Customs penalty assessment and cannot assure the outcome of these matters.
- The company may incur additional restructuring charges, and pension-risk management actions could require additional contributions or produce pension settlement charges. Net pension losses of $674 million were recorded in accumulated other comprehensive income.
Investor Verification Checklist
- Verify whether shipment growth in the Americas and European Beverage segments offsets continued volume weakness in Asia Pacific, Transit Packaging, and Other.
- Assess the recurring earnings effect of the $16 million depreciation benefit and distinguish it from operational improvement.
- Monitor cash conversion, working capital, capital expenditures, and the ability to reduce leverage while maintaining dividends and share repurchases.
- Review the maturity and refinancing requirements for the $743 million of current long-term debt maturities and the 2024–2026 debt maturities.
- Track asbestos claims, accrual adequacy, environmental matters, competition appeals, and the disputed Customs penalty.
- Evaluate exposure to floating interest rates, foreign exchange, aluminum and steel prices, energy costs, and customer pass-through limitations.
- Confirm that the company remains within its 4.5x leverage covenant and retains access to its revolving credit and receivables-securitization facilities.