Crown Holdings, Inc. 2022 Form 10-K Summary
Business context and reporting period
Annual report for the fiscal year ended December 31, 2022; the filing is not a quarterly report. Crown is a global rigid-packaging manufacturer operating 199 facilities in 40 countries with approximately 26,000 employees. Beverage cans represented approximately 66% of consolidated sales, and 63% of sales were generated outside the United States.
Reportable segments are 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 | 2022 | 2021 | Change |
|---|---|---|---|
| Net sales | $12,943 million | $11,394 million | +14% |
| Income from operations | $1,336 million | $1,363 million | -2% |
| Operating margin | 10.3% | 12.0% | Down |
| Net income attributable to Crown Holdings | $727 million | $(560) million | Improved |
| Diluted EPS | $5.99 | $(4.30) | Improved |
| Cash flow from operations | $803 million | $905 million | -11% |
| Capital expenditures | $839 million | $816 million | +3% |
Net margin attributable to Crown Holdings was approximately 5.6%. Net income from continuing operations was $855 million, including $128 million attributable to noncontrolling interests. The 2022 effective tax rate was 23.0%, compared with a 2021 benefit-driven rate of 13.6%.
Segment sales and income were: Americas Beverage $5,126 million and $742 million; European Beverage $2,114 million and $144 million; Asia Pacific $1,615 million and $172 million; Transit Packaging $2,545 million and $281 million; and Other $1,543 million and $240 million.
At December 31, 2022, cash and cash equivalents were $550 million, including $491 million held outside the United States. Total debt was approximately $7.0 billion, with carrying-value long-term debt of $6,901 million before current maturities. Available revolving-credit capacity was $1,252 million, and the net leverage ratio was 3.3x versus a 5.0x covenant limit.
Inventory increased to $2,014 million from $1,735 million, while receivables declined to $1,843 million from $1,889 million. The Company derecognized $1,342 million of receivables through securitization and factoring facilities. Dividends paid to shareholders were $106 million, and share repurchases were $722 million.
Material changes versus the prior comparable period
- Sales growth was driven primarily by higher raw-material pass-through pricing and 3% higher global beverage-can volumes, partly offset by $372 million of unfavorable foreign-currency translation.
- Operating income declined despite higher sales, reflecting inflation, energy costs, capacity-expansion start-up costs, higher depreciation, and unfavorable aluminum pass-through timing in Europe and Asia Pacific.
- Net income reversed the 2021 loss, which included a $1,511 million U.K. pension settlement charge, a $101 million loss related to the European Tinplate divestiture and other transaction-related tax charges.
- Cash from operations declined because of working-capital changes, including a $299 million inventory increase. The Company nevertheless maintained significant liquidity and increased net borrowings primarily through refinancing activities and issuance of $500 million of 5.25% senior notes due 2030.
- The Company sold the Kiwiplan business for $180 million and recorded a $113 million pretax gain. It also recognized $42 million of equity earnings from its 20% interest in the former European Tinplate business.
- Transit Packaging initiated an overhead-reduction program expected to reduce headcount by approximately 600 employees and produce annual pretax savings of approximately $60 million, although savings are not guaranteed.
Guidance, outlook, commentary, risks and unusual items
- Management expects 2023 capital expenditures of approximately $900 million and had $173 million of capital commitments at year-end 2022.
- The Company expects new or expanded beverage-can capacity in Martinsville, Virginia; Mesquite, Nevada; Parma, Italy; Agoncillo, Spain; and Peterborough, United Kingdom.
- Management targets a leverage ratio between 3.0x and 3.5x and continues to prioritize beverage-can capacity expansion, dividends and share repurchases.
- Major risks include aluminum, steel, energy and freight-price volatility; inability to pass through cost increases; supply-chain disruptions; foreign-exchange and interest-rate exposure; customer concentration; industry overcapacity; and competitive substitution by plastic, glass, paper and flexible packaging.
- Approximately 49% of 2022 sales came from the ten largest global customers. Two customers each represented 12% and 11% of consolidated sales, increasing concentration risk.
- Myanmar operations were temporarily idled in June 2022 because currency restrictions prevented the procurement of U.S.-dollar raw materials. The plant generated $19 million of sales and less than $1 million of segment income in 2022; management determined the related long-lived assets were recoverable.
- Asbestos-related accruals were $220 million, including $178 million for unasserted claims. Approximately 57,500 claims were outstanding at year-end, and 2022 cash payments for claims and defense costs were $21 million. Actual losses could exceed the accrual, but the excess cannot be reasonably estimated.
- Environmental remediation accruals totaled $20 million. The Company also faces ongoing French competition-authority proceedings and is appealing an $8 million European Commission competition fine.
- Goodwill was $2,951 million, including approximately $1.4 billion related to the Transit reporting unit. No impairment was recorded in 2022, but goodwill impairment testing depends on significant valuation assumptions.
- The Company committed to net-zero carbon emissions by 2040 through The Climate Pledge and continues its Twentyby30 sustainability program. The filing cautions that regulatory, climate and ESG developments may increase costs or affect demand.
Most important facts for investors to verify
- Whether pricing pass-throughs and productivity initiatives can offset persistent raw-material, energy, labor and freight inflation.
- The pace and returns of beverage-can capacity expansions relative to customer demand and potential industry overcapacity.
- Debt maturities, refinancing needs, floating-rate exposure, securitization-facility expirations and compliance with the tightening leverage covenant.
- Cash conversion, inventory normalization and the sustainability of receivables securitization and factoring as liquidity sources.
- The adequacy of the $220 million asbestos accrual and the potential outcomes of competition, environmental and other legal proceedings.
- Transit Packaging restructuring savings, goodwill valuation assumptions and the effect of customer concentration on future volumes and pricing.
- The Company’s ability to continue dividends and share repurchases while funding approximately $900 million of 2023 capital expenditures and servicing substantial debt.