Crown Holdings, Inc. — Q3 2021 Form 10-Q Summary
Business context and reporting period
Crown Holdings manufactures metal packaging, including beverage cans, food cans, aerosol containers, closures, transit packaging, equipment and related products. This unaudited Form 10-Q covers the three and nine months ended September 30, 2021, compared with the corresponding 2020 periods.
On August 31, 2021, Crown completed the sale of its European Tinplate business for approximately $2.3 billion of pre-tax proceeds and retained a 20% minority interest. The divested business is presented as discontinued operations.
Financial performance and liquidity
| Metric | Q3 2021 | Q3 2020 | 9M 2021 | 9M 2020 |
|---|---|---|---|---|
| Net sales | $2,920 million | $2,489 million | $8,340 million | $6,932 million |
| Income from operations | $348 million | $315 million | $1,060 million | $741 million |
| Operating margin | 11.9% | 12.7% | 12.7% | 10.7% |
| Net income from continuing operations attributable to Crown | $187 million | $148 million | $485 million | $291 million |
| Net income attributable to Crown | $102 million | $214 million | $441 million | $428 million |
| Diluted EPS | $0.79 | $1.59 | $3.32 | $3.18 |
| Diluted EPS from continuing operations | $1.44 | $1.10 | $3.65 | $2.16 |
Sales increased 17% in the quarter and 20% year to date, primarily from higher beverage-can and transit-packaging volumes, material-cost pass-through and favorable foreign-currency translation. Nine-month segment income increased to $1,157 million from $922 million. Q3 reportable-segment income was $381 million, essentially unchanged from $382 million, as volume gains were offset by operating costs not fully recovered through pricing.
Q3 net income attributable to Crown declined because discontinued operations generated an $85 million loss, compared with $66 million of income in the prior-year quarter. The discontinued-operations loss included sale-related loss, transaction costs and tax charges. Continuing-operations earnings improved materially.
- Cash provided by operating activities was $245 million for the first nine months, versus $309 million in 2020.
- Capital expenditures were $512 million year to date; management expected approximately $900 million for full-year 2021.
- Investing activities provided $1,791 million, including $2,255 million of net proceeds from the European Tinplate sale.
- Financing activities used $913 million, including $745 million of share repurchases and $79 million of shareholder dividends.
- Cash and cash equivalents totaled $2,261 million at September 30, 2021; cash, cash equivalents and restricted cash totaled $2,327 million.
- Debt carrying value was approximately $7,975 million, including $1,862 million of current maturities and $6,034 million of long-term debt excluding current maturities.
- The company had $1,585 million of available revolving-credit capacity and a net total leverage ratio of 3.0x versus a 5.0x covenant limit.
- Shareholders’ equity was $2,444 million, compared with $2,198 million at December 31, 2020.
Material changes versus the prior comparable period
- Continuing-operations income attributable to Crown increased 26% in Q3 and 67% for the first nine months.
- Discontinued operations changed from income of $66 million in Q3 2020 and $137 million for the first nine months of 2020 to losses of $85 million and $44 million, respectively, in 2021.
- The European Tinplate transaction produced approximately $2.3 billion of proceeds, a pre-tax disposal loss of $89 million and related tax charges. Crown retained a 20% equity interest.
- Interest expense declined to $203 million from $220 million for the first nine months because of lower debt balances.
- The company repurchased $745 million of stock during the first nine months under a $1.5 billion authorization through 2023.
- Foreign-currency translation generated $526 million of other comprehensive income for the first nine months, compared with a $293 million loss in 2020, substantially affecting total comprehensive income.
- In October 2021, Crown redeemed its €650 million 4.0% senior notes due 2022 and $1.0 billion 4.5% senior notes due 2023. It expected to record an approximately $67 million fourth-quarter loss on early extinguishment.
Guidance, outlook, management commentary, risks and unusual items
Management continued to emphasize growth in global beverage cans, capacity expansion, pricing and disciplined capital allocation. New or expanded facilities and production lines were being added in North America, Brazil, Mexico, Thailand and Vietnam to address demand. The company expected 2021 capital expenditures of approximately $900 million and had approximately $220 million of capital commitments at September 30.
Management cited ongoing COVID-19 effects, supply-chain challenges, raw-material inflation and the risk that aluminum, steel, tinplate and other cost increases may not be fully passed through to customers. Beverage-can demand remained strong, although Q3 Asia Pacific volumes were affected by pandemic-related lockdowns and Brazil volumes declined.
- The U.K. defined-benefit pension plan was expected to complete a bulk-annuity transaction in November 2021. Crown made a $271 million contribution and expected an approximately $1.3 billion fourth-quarter settlement charge; approximately $175 million could be repaid as plan assets are sold.
- Asbestos-related accruals were $241 million, including $191 million for unasserted claims. The company paid $10 million for asbestos claims and related costs during the first nine months. Management stated that actual losses could exceed the accrual but could not estimate the excess.
- The European Commission investigation into alleged anticompetitive conduct involving metal packaging remained unresolved. Management believed a loss was probable but could not estimate a range; no charge had been recorded.
- On October 7, 2021, the French Competition Authority issued a statement of objections involving Crown and other parties concerning alleged anticompetitive conduct related to removal of bisphenol-A from metal packaging. The outcome and any fines were not estimable.
- Environmental remediation accruals totaled $16 million, consisting of $10 million for PRP sites and $6 million for company-owned locations.
- Raw-material prices, foreign exchange, interest rates and commodity costs are managed partly with derivatives. Approximately $1.5 billion of principal floating-rate debt was outstanding; a 0.25 percentage-point rate change was estimated to affect annual pre-tax interest expense by approximately $4 million.
- The company’s disclosure controls and procedures were evaluated as effective, with no material change in internal control over financial reporting.
Most important facts for investors to verify
- Whether capacity additions and pricing actions offset inflation, supply-chain costs and operating inefficiencies.
- The cash and leverage impact of the European Tinplate sale, debt redemptions, share repurchases and planned capital expenditures.
- The actual fourth-quarter effects of the approximately $1.3 billion pension settlement charge and approximately $67 million debt-extinguishment charge.
- The ultimate financial exposure from asbestos claims, the European Commission investigation and the French competition proceedings.
- Whether discontinued-operations accounting and the retained 20% investment affect comparability of future results.
- Progress toward the $1.5 billion share-repurchase authorization and the sustainability of the $0.20-per-share quarterly dividend.