Crown Holdings, Inc. 2020 Form 10-K Summary
Business context and reporting period
Crown Holdings designs and manufactures metal and glass packaging and transit-protection products. The filing covers the fiscal year ended December 31, 2020, with quarterly data included for the fourth quarter. The Company operated 236 facilities in 47 countries, employed approximately 33,000 people, and generated 69% of net sales outside the United States.
Reportable operations comprise Americas Beverage, European Beverage, European Food, Asia Pacific, and Transit Packaging. The Company also has North American food-can and closure operations, aerosol and promotional packaging businesses, and beverage equipment operations.
Financial performance and key metrics
| Metric | 2020 | 2019 | Change |
|---|---|---|---|
| Net sales | $11,575 million | $11,665 million | Down 0.8% |
| Income from operations | $1,264 million | $1,196 million | Up 5.7% |
| Operating margin | 10.9% | 10.3% | Up approximately 60 basis points |
| Net income | $688 million | $625 million | Up 10.1% |
| Net income attributable to Crown Holdings | $579 million | $510 million | Up 13.5% |
| Net margin attributable to Crown Holdings | 5.0% | 4.4% | Improved |
| Diluted EPS | $4.30 | $3.78 | Up 13.8% |
| Cash provided by operating activities | $1,315 million | $1,163 million | Up 13.1% |
| Capital expenditures | $587 million | $432 million | Up 35.9% |
| Interest expense | $300 million | $378 million | Down $78 million |
| Cash and cash equivalents | $1,173 million | $607 million | Up $566 million |
Income before income taxes was $926 million and the effective tax rate was 26.3%, compared with 21.1% in 2019. The 2019 rate benefited from a $36 million deferred-tax valuation allowance release and a $9 million India tax-law benefit.
At December 31, 2020, total debt was approximately $8.3 billion, excluding unamortized discounts and debt issuance costs. The Company reported total net debt to total capitalization of 73.0%, compared with 77.8% in 2019, and a total net leverage ratio of 3.8x versus a covenant maximum of 5.0x. Revolving credit capacity was $1.650 billion, of which $1.585 billion was available.
Segment results
| Segment | 2020 sales | 2020 segment income | Key year-over-year development |
|---|---|---|---|
| Americas Beverage | $3,565 million | $652 million | Sales up 6%; volumes up 9% |
| European Beverage | $1,473 million | $215 million | Sales down 2%; income improved on operating performance and cost savings |
| European Food | $1,975 million | $228 million | Sales up 5%; volumes up 7% |
| Asia Pacific | $1,168 million | $175 million | Sales down 9%; beverage volumes down 4% due to COVID-19 |
| Transit Packaging | $2,018 million | $254 million | Sales and income declined on lower pandemic-affected volumes |
Consolidated sales declined primarily because lower steel and aluminum costs were passed through to customers and foreign currency translation reduced sales by $59 million. Higher global beverage-can volumes of 4% and food-can volumes of 7% partly offset those effects.
Material changes versus the prior comparable period
- Profitability improved despite slightly lower sales, supported by higher beverage and food-can volumes, productivity initiatives, cost savings, and lower interest expense.
- COVID-19 reduced volumes in Asia Pacific and Transit Packaging and affected certain European, Middle Eastern, and Latin American markets, while North American food-can demand benefited from increased at-home meal preparation.
- Operating cash flow increased to $1.315 billion, but capital spending increased substantially to $587 million as the Company expanded beverage-can capacity.
- Debt declined on a net basis, and liquidity improved. The Company ended the year with $1.173 billion of cash and $1.585 billion of available revolving credit capacity.
- The Company repurchased $66 million of common stock in 2020. It announced plans to begin a regular quarterly dividend in the first quarter of 2021 and authorized up to $1.5 billion of share repurchases through the end of 2023, subject to debt covenants and market conditions.
- The Company recorded $34 million of restructuring and other charges, including $19 million for Transit Packaging reorganization and headcount reductions. No goodwill impairment was recorded in 2020, compared with a $25 million impairment in 2019.
Guidance, outlook, commentary, risks, and unusual items
Management expects 2021 capital expenditures of approximately $850 million and had approximately $177 million of capital commitments at year-end. Capacity expansion projects include new or expanded beverage-can lines and facilities in the United States, Brazil, Spain, Italy, and Vietnam. The Company is marketing its European Tinplate business; timing, valuation, completion, and any resulting impairment charge remain uncertain.
The Company expects to fund operations and capital commitments primarily through operating cash flow, revolving facilities, and receivables securitization and factoring programs. Securitization facilities with stated program limits of $375 million, $282 million, and $175 million expire in 2021 or 2022.
- COVID-19 remains a material uncertainty affecting demand, employee availability, manufacturing, supply chains, customer credit, collections, and capital-market access.
- Steel and aluminum represented 16% and 35%, respectively, of cost of products sold excluding depreciation and amortization. Price volatility, supply shortages, tariffs, freight, energy costs, and incomplete customer pass-through could pressure margins and liquidity.
- Asbestos liabilities were accrued at $251 million, including $214 million for unasserted claims. Approximately 56,000 claims were outstanding at year-end, and 2020 cash payments for claims and related defense costs were $21 million. The Company states that actual losses could exceed the accrual but cannot estimate the excess.
- The European Commission investigation into potential anti-competitive conduct remains ongoing. Management believes a loss is probable but has not recorded a charge because the amount or range of loss cannot be estimated.
- Goodwill was $4.593 billion. The European Aerosol and Promotional Packaging reporting unit had $71 million of goodwill and fair value only 9% above carrying value, making it sensitive to weaker cash flows or higher discount rates.
- Pension expense was $92 million in 2020, including $66 million of settlement charges. Projected 2021 pension contributions are $22 million, although future funding needs depend on investment performance, discount rates, and other actuarial assumptions.
- The Company is exposed to foreign-exchange, interest-rate, commodity-price, environmental, labor, customer-concentration, competition, cyber-security, tax, Brexit, and regulatory risks. The top ten customers represented approximately 31% of 2020 sales, although no individual customer exceeded 10%.
Most important facts for investors to verify
- Whether beverage-can capacity expansions generate expected volume growth and returns without creating regional overcapacity.
- The pace of deleveraging, upcoming debt maturities, refinancing terms, covenant headroom, and the effect of planned dividends and share repurchases on liquidity.
- The financial effect and timing of any sale of the European Tinplate business, including potential impairment charges.
- Actual COVID-19 recovery trends in Asia Pacific, Transit Packaging, Europe, and other exposed markets.
- Future steel, aluminum, energy, freight, and resin costs and the extent to which increases are recovered through customer pricing.
- Developments in the European Commission competition investigation and the adequacy of the $251 million asbestos accrual.
- Goodwill impairment sensitivity, particularly for European Aerosol and Promotional Packaging.
- Actual pension contributions and expense relative to management projections.