Crown Holdings, Inc. Reports Third Quarter 2018 Results

Wednesday, October 17, 2018
Investors

YARDLEY, Pa., Oct. 17, 2018 /PRNewswire/ -- Crown Holdings, Inc. (NYSE: CCK) today announced its financial results for the third quarter ended September 30, 2018.

Third Quarter Highlights

  • Earnings per share $1.23 versus $1.32 in 2017
  • Adjusted earnings per share $1.71 for the quarter versus $1.46 in 2017; $4.20 YTD versus $3.39 in 2017
  • Global beverage can volumes grew 3% in the quarter and 4% year-to-date
  • Free cash flow guidance affirmed
  • Transit Packaging integration and performance on plan

Net sales in the third quarter were $3,174 million compared to $2,468 million in the third quarter of 2017 reflecting the impact of the Signode acquisition, an increase in beverage can volumes and the pass through of higher material costs to customers.

Income from operations was $365 million in the quarter compared to $328 million in the third quarter of 2017. Segment income increased to $415 million in the third quarter compared to $352 million in the prior year third quarter primarily due to the Signode acquisition.

Commenting on the quarter, Timothy J. Donahue, President and Chief Executive Officer, stated, "The Company's performance was solid, and we remain on plan for the remainder of the year. Growth in our global beverage can businesses continued to be robust, offsetting soft European food can volumes reflecting the extremely challenging weather conditions which resulted in poor harvest yields. Growth in beverage cans is underpinned by the can's increasing popularity among customers and consumers due to its many inherent benefits, including being the world's most sustainable form of beverage packaging.

"Equally important, our global growth projects remain on schedule. We commenced production in July at a new one-line beverage can plant in Yangon, Myanmar. The first line of the beverage can plant in Valencia, Spain began operations in October, with the second line to begin in December. We will also start up a third beverage can line at the Company's existing plant in Phnom Penh, Cambodia in November.

"We continue to expect the combined results of our business portfolio will generate significant cash this year and next which will be used, as planned, to reduce the floating rate portion of our debt."

Interest expense was $105 million in the third quarter of 2018 compared to $64 million in 2017 primarily due to higher outstanding debt from borrowings incurred to finance the Signode acquisition.

Net income attributable to Crown Holdings in the third quarter was $164 million compared to $177 million in the third quarter of 2017. Reported diluted earnings per share were $1.23 in the third quarter of 2018 compared to $1.32 in 2017. Adjusted diluted earnings per share increased to $1.71 over the $1.46 in 2017.

A reconciliation from net income and diluted earnings per share to adjusted net income and adjusted diluted earnings per share is provided below.

Nine Month Results
Net sales for the first nine months of 2018 increased to $8,417 million compared to $6,530 million in the first nine months of 2017 primarily due to the impact of the Signode acquisition, increased beverage can volumes, the pass through of higher material costs to customers and $187 million of favorable currency translation.

Income from operations was $878 million in the first nine months of 2018 compared to $812 million in the prior year period. Segment income for the nine months increased to $1,049 million over the $873 million in 2017 reflecting the Signode acquisition.

Interest expense was $282 million for the first nine months of 2018 compared to $187 million in 2017 primarily due to higher outstanding debt from borrowings incurred to finance the Signode acquisition.

Net income attributable to Crown Holdings in the first nine months of 2018 was $386 million compared to $412 million in the first nine months of 2017. Reported diluted earnings per share were $2.88 compared to $3.02 in 2017. Adjusted diluted earnings per share increased to $4.20 over the $3.39 in 2017.

Outlook
The Company currently expects fourth quarter adjusted diluted earnings to be in the range of $0.97 to $1.02 per share.

The adjusted effective income tax rate for the full year of 2018 is expected to be between 25% and 26%. Adjusted free cash flow, as defined below, is currently expected to be approximately $625 million for 2018 and $775 million for 2019, unchanged from prior guidance.

Non-GAAP Measures
Segment income, adjusted free cash flow, adjusted net income, the adjusted effective tax rate and adjusted diluted earnings per share are not defined terms under U.S. generally accepted accounting principles (non-GAAP measures). Non-GAAP measures should not be considered in isolation or as a substitute for income from operations, net income, diluted earnings per share or cash flow data prepared in accordance with U.S. GAAP and may not be comparable to calculations of similarly titled measures by other companies.

The Company views segment income as the principal measure of the performance of its operations and adjusted free cash flow as the principal measure of its liquidity. The Company considers both of these measures in the allocation of resources. Adjusted free cash flow has certain limitations, however, including that it does not represent the residual cash flow available for discretionary expenditures since other non-discretionary expenditures, such as mandatory debt service requirements, are not deducted from the measure. The amount of mandatory versus discretionary expenditures can vary significantly between periods. The Company believes that adjusted net income, the adjusted effective tax rate and adjusted diluted earnings per share are useful in evaluating the Company's operations as these measures are adjusted for items that affect comparability between periods. Reconciliations of estimated adjusted diluted earnings per share for the fourth quarter and full year of 2018 to estimated diluted earnings per share on a GAAP basis are not provided in this release due to the unavailability of estimates of the following, the timing and magnitude of which the Company is unable to reliably forecast without unreasonable efforts, which are excluded from estimated adjusted diluted earnings per share and could have a significant impact on earnings per share on a GAAP basis: gains or losses on the sale of businesses or other assets, restructuring costs, asset impairment charges, acquisition related costs including fair value adjustments to inventory, asbestos-related charges, losses from early extinguishment of debt, the tax impact of the items above, and the impact of tax law changes or other tax matters. The Company believes that adjusted free cash flow provides a meaningful measure of liquidity and a useful basis for assessing the Company's ability to fund its activities, including the financing of acquisitions, debt repayments, share repurchases or possible future dividends. Segment income, adjusted free cash flow, the adjusted effective tax rate, adjusted net income and adjusted diluted earnings per share are derived from the Company's Consolidated Statements of Operations and Cash Flows and Consolidated Balance Sheets, as applicable, and reconciliations to segment income, adjusted free cash flow, the adjusted effective tax rate, adjusted net income and adjusted diluted earnings per share can be found within this release.

Conference Call
The Company will hold a conference call tomorrow, October 18, 2018 at 9:00 a.m. (EDT) to discuss this news release. Forward-looking and other material information may be discussed on the conference call. The dial-in numbers for the conference call are (630) 395-0194 or toll-free (888) 324-8108 and the access password is "packaging." A live webcast of the call will be made available to the public on the internet at the Company's website, www.crowncork.com. A replay of the conference call will be available for a one-week period ending at midnight on October 25. The telephone numbers for the replay are (203) 369-1045 or toll free (866) 439-3740.

Cautionary Note Regarding Forward-Looking Statements
Except for historical information, all other information in this press release consists of forward-looking statements. These forward-looking statements involve a number of risks, uncertainties and other factors, including the continuation of performance and market trends in 2018, including customer and consumer preference for beverage cans and increasing global beverage can demand; the Company's ability to successfully complete and begin production at capacity expansion projects within expected timelines and budgets in Cambodia and Spain; the Company's ability to successfully manage other projects; the Company's ability to generate expected earnings and cash flow in 2018 and 2019; and the successful integration of Signode that may cause actual results to be materially different from those expressed or implied in the forward-looking statements. Important factors that could cause the statements made in this press release or the actual results of operations or financial condition of the Company to differ are discussed under the caption "Forward Looking Statements" in the Company's Form 10-K Annual Report for the year ended December 31, 2017 and in subsequent filings made prior to or after the date hereof. The Company does not intend to review or revise any particular forward-looking statement in light of future events.

Crown Holdings, Inc., through its subsidiaries, is a leading global supplier of rigid packaging products to consumer marketing companies, as well as transit and protective packaging products, equipment and services to a broad range of end markets. World headquarters are located in Yardley, Pennsylvania.

For more information, contact:
Thomas A. Kelly, Senior Vice President and Chief Financial Officer, (215) 698-5341
Thomas T. Fischer, Vice President, Investor Relations and Corporate Affairs, (215) 552-3720
Edward Bisno, Bisno Communications, (212) 717-7578

Unaudited Consolidated Statements of Operations, Balance Sheets, Statements of Cash Flows, Segment Information and Supplemental Data follow.

 

Consolidated Statements of Operations (Unaudited)

(in millions, except share and per share data)
 
 

Three Months Ended

September 30,

  

Nine Months Ended

September 30,
 

2018

  

2017 (1)

  

2018

  

2017 (1)

Net sales

$3,174

  

$2,468

  

$8,417

  

$6,530

Cost of products sold

2,530

  

1,972

  

6,804

  

5,235

Depreciation and amortization

127

  

63

  

305

  

183

Selling and administrative expense

153

  

89

  

402

  

270

Restructuring and other

(1)

  

16

  

28

  

30

Income from operations (2)

365

  

328

  

878

  

812

Other pension and postretirement

(13)

  

(19)

  

(47)

  

(43)

Foreign exchange

(14)

      

14

  

4

Earnings before interest and taxes

392

  

347

  

911

  

851

Interest expense

105

  

64

  

282

  

187

Interest income

(6)

  

(4)

  

(17)

  

(10)

Loss from early extinguishment of debt

            

7

Income before income taxes

293

  

287

  

646

  

667

Provision for income taxes

102

  

79

  

196

  

178

Equity earnings

2

      

3

    

Net income

193

  

208

  

453

  

489

Net income attributable to noncontrolling interests

(29)

  

(31)

  

(67)

  

(77)

Net income attributable to Crown Holdings

$164

  

$177

  

$386

  

$412

 

Earnings per share attributable to Crown Holdings

common shareholders:

 

              

Basic

$1.23

  

$1.32

  

$2.89

  

$3.03

Diluted

$1.23

  

$1.32

  

$2.88

  

$3.02
               

Weighted average common shares outstanding:

      

Basic

133,729,731

  

134,020,310

  

133,608,065

  

135,906,571

Diluted

133,849,368

  

134,415,656

  

133,816,005

  

136,394,239

Actual common shares outstanding

135,190,167

  

134,274,620

  

135,190,167

  

134,274,620
 

(1) Prior year results have been restated to reflect new accounting guidance on the presentation of pension and
postretirement expense in the statement of operations.

(2) A reconciliation from income from operations to segment income follows.

 

Consolidated Supplemental Financial Data (Unaudited)

(in millions)

Reconciliation from Income from Operations to Segment Income
The Company views segment income, as defined below, as a principal measure of performance of its operations and for the allocation of resources. Segment income is defined by the Company as income from operations adjusted to exclude intangibles amortization charges, provisions for asbestos and restructuring and other, the impact of fair value adjustments to inventory acquired in an acquisition, and the timing impact of hedge ineffectiveness.
 
 

Three Months Ended

September 30,

  

Nine Months Ended

September 30,

  
 

2018

  

2017

  

2018

  

2017

  

Income from operations

$

365

  

$

328

  

$

878

  

$

812

  

Intangibles amortization

  

51

    

9

    

103

    

29

  

Fair value adjustment to inventory (1)

              

40

        

Provision for restructuring and other

  

(1)

    

16

    

28

    

30

  

Impact of hedge ineffectiveness (1)

        

(1)

          

2

  

Segment income

$

415

  

$

352

  

$

1,049

  

$

873

  
 

(1) Included in cost of products sold

 

Segment Information
 

Net Sales

  

Three Months Ended
September 30,

  

Nine Months Ended
September 30,
     

2018

    

2017

    

2018

    

2017

  

Americas Beverage

  

$

872

  

$

763

  

$

2,478

  

$

2,166

  

European Beverage

    

418

    

428

    

1,194

    

1,133

  

European Food

    

623

    

639

    

1,565

    

1,477

  

Asia Pacific

    

321

    

300

    

990

    

865

  

Transit Packaging

    

585

          

1,205

        

Total reportable segments

    

2,819

    

2,130

    

7,432

    

5,641

  

Non-reportable segments (2)

    

355

    

338

    

985

    

889

  

Total net sales

  

$

3,174

  

$

2,468

  

$

8,417

  

$

6,530

  
                           
                           

Segment Income (3)

                          
                           

Americas Beverage

  

$

125

  

$

129

  

$

336

  

$

342

  

European Beverage

    

66

    

77

    

180

    

198

  

European Food

    

90

    

100

    

231

    

222

  

Asia Pacific

    

46

    

40

    

137

    

124

  

Transit Packaging

    

81

          

175

        

Total reportable segments

    

408

    

346

    

1,059

    

886

  

Non-reportable segments (2)

    

40

    

39

    

102

    

101

  

Corporate and other unallocated items

    

(33)

    

(33)

    

(112)

    

(114)

  

Total segment income

  

$

415

  

$

352

  

$

1,049

  

$

873

  
 

(2) Includes the Company's food can and closures businesses in North America, aerosol can businesses in North America and Europe, promotional
packaging business in Europe, and tooling and equipment operations in the U.S. and United Kingdom.

(3) Prior year segment income has been restated to reflect new accounting guidance on the presentation of pension and postretirement expense and the
Company's revised policy to exclude intangibles amortization charges from segment income. A reconciliation from 2017 segment income to
amounts previously reported is included below.

 

Consolidated Supplemental Data (Unaudited)

(in millions, except per share data)

Reconciliation from Net Income and Diluted Earnings Per Share to Adjusted Net Income and Adjusted Diluted Earnings Per Share

The following table reconciles reported net income and diluted earnings per share attributable to the Company to adjusted net income and adjusted diluted earnings per share, as used elsewhere in this release.
 
   

Three Months Ended

September 30,

  

Nine Months Ended

September 30,
   

2018

  

2017

  

2018

  

2017

  

Net income/diluted earnings per share

attributable to Crown Holdings, as reported

  

 

$164

  

 

$1.23

  

 

$177

  

 

$1.32

  

 

$386

  

 

$2.88

  

 

$412

  

 

$3.02

  

Intangibles amortization (1)

  

51

  

0.38

  

9

  

0.07

  

103

  

0.77

  

29

  

0.21

  

Fair value adjustment to inventory (2)

                  

40

  

0.30

          

Restructuring and other (3)

  

(1)

  

(0.01)

  

12

  

0.09

  

28

  

0.21

  

26

  

0.19

  

Impact of hedge ineffectiveness (4)

          

(1)

  

(0.01)

          

2

  

0.01

  

Acquisition costs (5)

                  

24

  

0.18

          

Loss from early extinguishment of debt (6)

                          

7

  

0.05

  

Income taxes and noncontrolling interests (7)

  

15

  

0.11

  

(1)

  

(0.01)

  

(19)

  

(0.14)

  

(14)

  

(0.09)

  

Adjusted net income/diluted earnings per share

  

$229

  

$1.71

  

$196

  

$1.46

  

$562

  

$4.20

  

$462

  

$3.39

  
                                   

Effective tax rate as reported

  

34.8%

      

27.5%

      

30.3%

      

26.7%

      

Adjusted effective tax rate (8)

  

25.4%

      

26.1%

      

25.4%

      

26.3%

      
 

Adjusted net income, adjusted diluted earnings per share and the adjusted effective tax rate are non-GAAP measures and are not meant to be considered in isolation or as a substitute for net income, diluted earnings per share and effective tax rates determined in accordance with U.S. generally accepted accounting principles. The Company believes these non-GAAP measures provide useful information to evaluate the performance of the Company's ongoing business.
 

(1) In the third quarter and first nine months of 2018, the Company recorded charges of $51 million ($38 million net of tax) and $103 million
($76 million net of tax) for intangibles amortization arising from acquisitions, including its acquisition of Signode in the second quarter of
2018. In the third quarter and first nine months of 2017, the Company recorded charges of $9 million ($7 million net of tax) and $29
million ($21 million net of tax) for intangibles amortization.

(2) In the second quarter of 2018, the Company recorded a charge of $40 million ($29 million net of tax) in cost of products sold for fair
value adjustment related to the sale of inventory acquired in its acquisition of Signode.

(3) In the third quarter and first nine months of 2018, the Company recorded net restructuring and other charges of $12 million ($10 million
net of tax) and $34 million ($31 million net of tax) including $22 million of transaction costs for the nine months in connection with its
acquisition of Signode. In the third quarter and first nine months of 2017, the Company recorded restructuring and other charges of $3
million ($3 million net of tax) and $23 million ($18 million net of tax) primarily due to the settlement of a litigation matter related to Mivisa
that arose prior to its acquisition by Crown in 2014, and $4 million of curtailment gain reported in other pension and postretirement.

In the third quarter and first nine months of 2018, the Company recorded gains of $13 million ($11 million net of tax) and $6 million ($5
million net of tax) for asset sales and impairments. In the third quarter and first nine months of 2017, the Company recorded charges of
$9 million ($9 million net of tax) and $3 million ($4 million net of tax) for asset sales and impairments.

(4) In the third quarter and first nine months of 2017, the Company recorded benefits of $1 million (less than $1 million net of tax) and
charges of $2 million ($2 million net of tax) in cost of products sold related to the timing impact of hedge ineffectiveness caused primarily
by volatility in the metal premium component of aluminum prices.

(5) In the first quarter of 2018, the Company recorded a charge of $15 million ($10 million net of tax) for net losses arising from its hedge of
the U.S. dollar purchase price of its acquisition of Signode. Also in the first quarter, the Company incurred net charges of $9 million ($7
million net of tax) for pre-acquisition interest carrying costs on borrowings to finance the acquisition.

(6) In the second quarter of 2017, the Company recorded a charge of $7 million ($5 million net of tax) for the write off of deferred financing
fees in connection with the refinancing of its term loan and revolving credit facilities.

(7) In the third quarter and first nine months of 2018, the Company recorded income tax and noncontrolling interest benefits of $13 million
and $47 million related to the items described above. Also in the third quarter of 2018, the Company recorded charges of $28 million
related to taxes on the distribution of foreign earnings, including an adjustment for the impact of the "Tax Cut and Jobs Act". In the third
quarter and first nine months of 2017, the Company recorded income tax benefits of $1 million and $14 million related to the items
described above.

(8) Income tax effects on adjusted net income were calculated using the applicable tax rates of the underlying jurisdictions.

 

Consolidated Balance Sheets (Condensed & Unaudited)

(in millions)

September 30,

2018

  

2017

Assets

                

Current assets

                

Cash and cash equivalents

  

$

298

    

$

374

  

Receivables, net

   

1,968

      

1,098

  

Inventories

    

1,639

      

1,430

  

Prepaid expenses and other current assets

    

193

      

251

  

Total current assets

    

4,098

      

3,153

  
                 

Goodwill and intangible assets, net

    

6,753

      

3,562

  

Property, plant and equipment, net

    

3,722

      

3,066

  

Other non-current assets

    

762

      

715

  

Total

  

$

15,335

    

$

10,496

  
                 
                 

Liabilities and equity

                

Current liabilities

                

Short-term debt

 

$

53

    

$

50

  

Current maturities of long-term debt

    

89

      

68

  

Accounts payable and accrued liabilities

    

3,459

      

2,919

  

Total current liabilities

    

3,601

      

3,037

  
                 

Long-term debt, excluding current maturities

    

8,928

      

5,114

  

Other non-current liabilities

    

1,496

      

1,233

  
                 

Noncontrolling interests

    

369

      

314

  

Crown Holdings shareholders' equity

    

941

      

798

  

Total equity

    

1,310

      

1,112

  

Total

  

$

15,335

    

$

10,496

  
                 

 

Consolidated Statements of Cash Flows (Condensed & Unaudited)

(in millions)

Nine months ended September 30,

    

2018

  

2017
                 

Cash flows from operating activities

                

Net income

    

$

453

    

$

489

  

Depreciation and amortization

     

305

      

183

  

Restructuring and other

      

28

      

30

  

Pension expense

      

8

      

14

  

Pension contributions

      

(14)

      

(46)

  

Stock-based compensation

      

17

      

16

  

Working capital changes and other

     

(1,029)

      

(956)

  
                   

Net cash used for operating activities (1)

     

(232)

      

(270)

  
                   

Cash flows from investing activities

                  

Capital expenditures

      

(305)

      

(282)

  

Beneficial interest in transferred receivables

      

490

      

758

  

Acquisition of business, net of cash acquired

      

(3,912)

          

Proceeds from sale of assets

      

27

          

Other

      

(19)

      

(12)

  
                   

Net cash provided by/(used for) investing activities

      

(3,719)

      

464

  
                   

Cash flows from financing activities

                  

Net change in debt

     

3,999

      

(24)

  

Dividends paid to noncontrolling interests

      

(18)

      

(68)

  

Common stock repurchased

      

(4)

      

(339)

  

Debt issue costs

      

(70)

      

(15)

  

Other, net

      

(5)

      

46

  
                   

Net cash provided by/(used for) financing activities

      

3,902

      

(400)

  
                   

Effect of exchange rate changes on cash and cash equivalents

      

(32)

      

16

  
                   

Net change in cash and cash equivalents

      

(81)

      

(190)

  

Cash and cash equivalents at January 1

      

435

      

576

  
                   

Cash and cash equivalents at September 30 (2)

    

$

354

    

$

386

  
                   
 

(1) Adjusted free cash flow is defined by the Company as net cash used for operating activities plus beneficial interest in
transferred receivables less capital expenditures and certain other items. A reconciliation from net cash used for
operating activities to adjusted free cash flow for the three and nine months ended September 30, 2018 and 2017 follows.

(2) Cash and cash equivalents includes $56 and $12 of restricted cash at September 30, 2018 and 2017.

 

 

Three Months Ended

September 30,

  

Nine Months Ended

September 30,
 

2018

  

2017

  

2018

  

2017

Net cash from operating activities

$260

  

$205

  

$(232)

  

$(270)

Beneficial interest in transferred receivables (3)

155

  

251

  

490

  

758

Acquisition costs

        

22

    

Adjusted cash used for operating activities

415

  

456

  

280

  

488

Capital expenditures

(105)

  

(82)

  

(305)

  

(282)

Adjusted free cash flow

$310

  

$374

  

$(25)

  

$206
               
 

(3) Prior year cash flow has been restated to reflect new accounting guidance related to the classification of certain cash receipts
associated with the Company's receivable securitization programs. Certain receipts previously reported in cash from
operations are now reported in cash from investing activities as "Beneficial interest in transferred receivables."

 

Consolidated Supplemental Data (Unaudited)

(in millions, except per share data)

 

Reconciliation of 2017 Segment Income to Amounts Previously Reported
 

Third Quarter 2017 Segment Income (1)

Segment

  

As Previously Reported

  

Pension and Postretirement

  

Intangibles Amortization

  

As Currently Reported

Americas Beverage

  

$131

  

$(6)

  

$4

  

$129

European Beverage

  

78

  

(1)

      

77

European Food

  

96

      

4

  

100

Asia Pacific

  

40

          

40

Non-reportable

  

43

  

(5)

  

1

  

39

Corporate and unallocated

  

(30)

  

(3)

      

(33)

Total segment income

  

$358

  

$(15)

  

$9

  

$352
 

YTD 2017 Segment Income (1)

Segment

  

As Previously Reported

  

Pension and Postretirement

  

Intangibles Amortization

  

As Currently Reported

Americas Beverage

  

$345

  

$(18)

  

$15

  

$342

European Beverage

  

201

  

(3)

      

198

European Food

  

210

      

12

  

222

Asia Pacific

  

124

          

124

Non-reportable

  

113

  

(14)

  

2

  

101

Corporate and unallocated

  

(110)

  

(4)

      

(114)

Total segment income

  

$883

  

$(39)

  

$29

  

$873
 

(1) Prior year segment income has been restated to reflect new accounting guidance on the presentation of pension and
postretirement expense and the Company's revised policy to exclude intangibles amortization charges from segment
income.

 

Consolidated Supplemental Data (Unaudited)

(in millions, except per share data)
 

Comparative Results for Signode
 

Revenue

  

Segment Income

  

Depreciation (1)
 

2018

  

2017

  

2018

  

2017

  

2018

  

2017

Q1

$588

  

$526

  

$79

  

$76

  

$13

  

$12

Q2

620

  

575

  

94

  

80

  

14

  

13

Q3

585

  

565

  

81

  

82

  

15

  

12

Q4

    

566

      

82

      

13
     

$2,232

      

$320

      

$50
 

(1) Amount of depreciation expense included in segment income, including acquisition step-up depreciation in 2018.

 

Cision View original content:http://www.prnewswire.com/news-releases/crown-holdings-inc-reports-third-quarter-2018-results-300733241.html

SOURCE Crown Holdings, Inc.

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