CROWN HOLDINGS, INC. annual report, FY2023

Crown Holdings, Inc. 2023 Form 10-K Summary

Business context and reporting period

Crown Holdings is a global diversified packaging manufacturer producing aluminum and steel beverage, food and aerosol cans and ends, as well as transit packaging systems and consumables. The filing covers the fiscal year ended December 31, 2023, with comparisons to 2022 and 2021. The Company operated 195 facilities in 39 countries and employed approximately 25,000 people. Approximately 63% of 2023 sales were generated outside the United States and approximately 63% came from global beverage can operations.

Reportable segments were Americas Beverage, European Beverage, Asia Pacific and Transit Packaging. Other includes North American food cans, aerosol cans, closures, and beverage tooling and equipment.

Financial performance and key metrics

Metric	2023	2022	Change
Net sales	$12,010 million	$12,943 million	Down 7.2%
Income from operations	$1,269 million	$1,336 million	Down $67 million
Net income attributable to Crown Holdings	$450 million	$727 million	Down 38.0%
Diluted EPS	$3.76	$5.99	Down $2.23
Cash flow from operations	$1,453 million	$803 million	Up $650 million
Capital expenditures	$793 million	$839 million	Down $46 million
Interest expense	$436 million	$284 million	Up $152 million
Effective tax rate	27.9%	23.0%	Up 4.9 percentage points

Gross margin, calculated from the reported income statement, was approximately 16.4% in 2023 versus 14.2% in 2022 before depreciation and amortization. Operating margin was approximately 10.6% versus 10.3%, while net margin attributable to Crown Holdings declined to approximately 3.7% from 5.6%.

Year-end cash and cash equivalents were $1,310 million, including $758 million held outside the United States. Total debt was approximately $7.5 billion, comprising $759 million of current maturities and $6,699 million of long-term debt. Available revolving credit capacity was $1,585 million of total facilities of $1,650 million. The total net leverage ratio was 3.16x at year-end, below the 4.50x covenant limit.

Receivables declined to $1,719 million from $1,843 million, and inventories declined to $1,613 million from $2,014 million. The Company derecognized $1,104 million of receivables through securitization and factoring facilities at year-end. Accounts payable included $862 million of confirmed supplier-finance obligations.

Material changes versus the prior comparable period

Sales declined primarily because of $720 million of lower aluminum, steel and other commodity pass-through revenue and lower volumes in European Beverage, Asia Pacific, Transit Packaging and Other. Americas Beverage volumes increased 4%.
Americas Beverage segment income increased to $876 million from $742 million, supported by pricing recovery, higher volumes and favorable mix.
European Beverage sales declined 8% and volumes declined 9%, but segment income increased to $199 million from $123 million as contractual pricing recovered prior inflationary costs.
Asia Pacific sales declined 20% and segment income declined to $154 million from $172 million, primarily because of 14% lower volumes and unfavorable foreign exchange.
Transit Packaging sales declined 11%, but segment income increased to $331 million from $281 million, primarily due to approximately $50 million of cost savings from headcount reductions.
Other segment income fell to $117 million from $240 million. The prior year included a $48 million steel repricing gain, while 2023 included a $12 million repricing loss, in addition to lower food and aerosol volumes.
Restructuring and other expense was $114 million in 2023 compared with a $52 million benefit in 2022. The 2023 charge primarily related to plant closures, asset impairments, termination benefits and exit costs.
Interest expense increased substantially because of higher interest rates and financing costs, reducing pre-tax income despite improved operating cash flow.
Cash flow from operations increased primarily from working-capital improvements, including lower inventories and receivables.
The Company acquired Helvetia Packaging AG for $126 million, adding a German beverage can and end manufacturing facility to European Beverage.

Guidance, outlook, commentary and unusual items

Management expects 2024 capital expenditures to be no more than approximately $500 million, compared with $793 million in 2023. Approximately $85 million of capital commitments were outstanding at December 31, 2023.
The Company expects the 2024 change in estimated useful lives for certain buildings and machinery to reduce depreciation expense by approximately $48 million. Expected 2024 depreciation expense is approximately $320 million versus $336 million in 2023.
Plant closures in Batesville, Mississippi; Ho Chi Minh City and Singapore; and Decatur, Illinois were expected to be completed by the end of the first quarter of 2024. The Company expects approximately 650 headcount reductions and approximately $35 million of annual savings, although management cautioned that savings may not be fully realized.
Management targets net leverage of 3.0x to 3.5x adjusted EBITDA and intends to use cash generation to support growth, debt reduction, dividends and share repurchases.
The Company expects approximately $43 million of pension contributions in 2024 and $367 million of 2024 interest payments based on projected rates and borrowings.
Debt maturities include $759 million in 2024, $743 million in 2025 and $2.25 billion in 2026. The 2024 maturities include €600 million of 2.625% senior notes.
The Company issued €500 million of 5.00% notes due 2028 and €500 million of 4.75% notes due 2029. A portion of the latter proceeds was used to repay $203 million of U.S. dollar term-loan borrowings.
The Board’s $3.0 billion share-repurchase authorization remains available through the end of 2024; $2.3 billion remained available at December 31, 2023. The Company repurchased $12 million of shares in 2023 and paid $0.96 per share in dividends.
Goodwill was $3.1 billion at year-end. The 2023 impairment review resulted in no goodwill impairment, but valuation depended on assumptions regarding revenue growth, margins, discount rates and valuation multiples.
Asbestos-related liabilities were accrued at $204 million, including $158 million for unasserted claims. Crown Cork had approximately 58,500 outstanding claims and paid $17 million for settlements and related legal costs in 2023.
The French Competition Authority imposed a €4 million fine in December 2023. The Company intends to appeal. The Company is also appealing an €8 million European Commission competition fine.
The Company reported no cybersecurity incident that had materially affected the business through the filing date. Management and the auditor concluded that internal control over financial reporting was effective.

Principal risks and contingencies

Commodity and energy exposure is significant: aluminum and steel represented 44% and 8%, respectively, of cost of products sold excluding depreciation and amortization. Pass-through provisions and hedges may not fully offset price increases or timing mismatches.
Customer concentration is material: the top ten global customers represented approximately 48% of 2023 sales, and two customers each represented 12% and 11% of sales.
Substantial leverage, elevated interest expense, refinancing requirements and restrictive debt covenants could constrain capital allocation and liquidity. Approximately $2.2 billion of debt and $1.1 billion of securitization and factoring obligations were subject to floating rates.
Demand, capacity utilization and margins are exposed to economic conditions, inflation, interest rates, seasonality, overcapacity, competing packaging materials and changes in beverage and food consumption.
International operations expose the Company to foreign exchange, political instability, trade restrictions, sanctions, wars, emerging-market volatility and restrictions on repatriating cash.
Asbestos claims, environmental remediation, competition investigations, customs matters and other litigation could require payments above accrued amounts. Environmental remediation accruals totaled $20 million, while the Company stated that excess possible losses could not be estimated.
Pension and postretirement obligations remain sensitive to discount rates, asset returns and other actuarial assumptions. The Company had $686 million of unrecognized pension losses in accumulated other comprehensive income and approximately $107 million of unfunded retiree medical obligations.
Cybersecurity incidents, supply-chain disruption, labor interruptions, climate-related events and evolving environmental or product regulations, including restrictions on bisphenol-A, could adversely affect operations and costs.

Most important facts for an investor to verify

Whether the planned 2024 plant closures and restructuring actions deliver the projected $35 million of annual savings without additional material charges.
How the Company will refinance or repay the $759 million of 2024 maturities and the larger 2026 and 2027 debt obligations while maintaining leverage within covenant limits.
Whether beverage-can volumes recover in Europe and Asia Pacific and whether lower commodity pass-through revenue masks underlying volume and pricing trends.
The sustainability of the $1,453 million operating cash flow result after working-capital benefits normalize.
The effect of higher interest rates, floating-rate exposure, foreign exchange movements and commodity prices on earnings and cash flow.
Potential changes to asbestos accruals, competition fines, environmental liabilities and other contingencies.
The realizability of goodwill and deferred tax assets, including the $3.1 billion goodwill balance and $178 million of deferred-tax valuation allowances.
The actual pace of capital spending, debt reduction, dividends and share repurchases relative to management’s stated leverage and capital-allocation objectives.