Categories Consumer, Earnings Call Transcripts

Crown Holdings, Inc. (CCK) Q3 2021 Earnings Call Transcript

CCK Earnings Call - Final Transcript

Crown Holdings, Inc. (NYSE: CCK) Q3 2021 earnings call dated Oct. 26, 2021

Corporate Participants:

Thomas A. Kelly — Senior Vice President and Chief Financial Officer

Timothy J. Donahue — President and Chief Executive Officer

Analysts:

Ghansham Panjabi — Robert W. Baird & Co., Inc. — Analyst

Bryan Burgmeier — Citigroup — Analyst

George Staphos — Bank of America Merrill Lynch — Analyst

Christopher Parkinson — Mizuho — Analyst

Philip Ng — Jefferies LLC — Analyst

Anojja Shah — BMO Capital Markets — Analyst

Salvator Tiano — Seaport Global Holdings LLC — Analyst

Kyle White — Deutsche Bank — Analyst

Arun Viswanathan — RBC Capital Markets — Analyst

Adam Samuelson — Goldman Sachs — Analyst

Michael Roxland — Truist — Analyst

Gabe Hajde — Wells Fargo — Analyst

Engel Cassio — Morgan Stanley — Analyst

Jeff Zekauskas — J.P. Morgan Securities LLC — Analyst

Presentation:

Operator

Good morning, and welcome to Crown Holdings’ Third Quarter 2021 Conference Call. [Operator Instructions] Pleased to be advised that this conference is being recorded.

I would now like to turn the call over to Mr. Thomas Kelly, Senior Vice President and Chief Financial Officer. Sir, you may begin.

Thomas A. Kelly — Senior Vice President and Chief Financial Officer

Thank you, Annie. Good morning. With me on today’s call is Tim Donahue, President and Chief Executive Officer. If you don’t already have the earnings release, it is available on our website at crowncork.com. On this call, as in the earnings release, we will be making a number of forward-looking statements, actual results could vary materially from such statements. Additional information concerning factors that could cause actual results to vary is contained in the press release and in our SEC filings, including in our Form 10-K for 2020 and subsequent filings.

Earnings for the quarter was $0.79 per share compared to $1.59 in the prior year quarter. Adjusted earnings per share increased to $2.03 in the quarter compared to $1.96 in 2020. Net sales in the quarter were up 17% from the prior year, primarily due to the pass through of higher material costs and increased beverage can and transit packaging volumes. Segment income improved to $379 million in the quarter compared to $367 million in the prior year, primarily due to higher sales unit volumes. As outlined in the release, we currently estimate fourth quarter 2021 adjusted earnings of between $1.50 and $1.55 per share, and full-year adjusted earnings of $7.50 to $7.55 per share. Our expected adjusted tax rate for the year is between 23% and 24% consistent with our nine months rate.

I’ll now turn the call over to Tim.

Timothy J. Donahue — President and Chief Executive Officer

Thanks, Tom. Good morning, everyone, and thank you for joining us today. Our continued best wishes for the continued health and safety of you and your families. Before reviewing the third quarter results, we want to again express our sincere appreciation to our global associates for their continued efforts during the ongoing pandemic, with many of us now vaccinated, we’re moving in the right direction, but we should expect the next several months to remain challenging as COVID variance make their way through various populations. Again, we ask all of you to remain vigilant in protecting yourselves, your family members, your associates and your communities.

Demand remained strong across all product lines and geographies with the exception of Vietnam, where hard lockdown measures by the government essentially curtailed all business and consumer activity for much of the third quarter. We expect Vietnam will slowly reopen during the fourth quarter. Reported revenues increased 17% during the quarter as higher beverage and transit volumes coupled with the pass through of raw material cost increases offset supply chain challenges. In the face of these challenges, we continue to grow earnings. And in July, we discussed with you the step change in earnings that we have experienced beginning with last year’s third quarter in which EBITDA over the last five quarters averages approximately $100 million more than the previous six quarters.

Our teams continue to do a great job commercializing new capacity, converting that capacity into income growth and we look forward to more capacity coming online over the next several quarters. We’re also pleased to report that our efforts related to the environment and sustainability have not gone unnoticed. In September, ESG ratings provider Sustainalytics again ranked Crown in the top position for mitigating ESG risk within the metal and glass packaging sector. Also during the quarter, the Company joined the Climate Pledge, where we have committed to be net zero carbon by the year 2040.

The sale of the European Tinplate businesses was completed on August 31st, and going forward, our share of net profits will be reflected in equity earnings. As discussed previously, we continue to experience inflationary pressure across all businesses. Many of our businesses contractually pass through higher costs, including steel and aluminum, but some businesses will have a timing lag to recovery. As cost for pass-through revenues will increase, however, percentage margins will decline due to the denominator effect of one-to-one pass-throughs.

Before reviewing the operating segments, we remind you that delivered aluminum here in North America is approximately 75%, 80% higher today than at this time last year. LME and delivery premiums are contractual pass-throughs, so reported beverage revenues reflect both the volume increase and the higher aluminum cost. After reading the various analyst reports on magnesium and related aluminum supply, I would say that many of you have a very good understanding of the situation. The concerns related to magnesium as many of you have noted relate to energy curtailments in China. China has restarted some production recently, so hopefully that eases some of the concerns recently voiced in Europe.

There is magnesium production here in the United States, so we have less concern on domestic supply. And in the near term, we do not believe we have any supply concerns over the next six months, although we continue to monitor our suppliers supply. In Americas beverage, overall unit volumes advanced 4% in the quarter as continued strong demand in North America and Mexico offset a difficult third quarter comparison in Brazil. Our third quarter 2021 volumes in Brazil were more than 10% higher than the third quarter of 2019. However, third quarter 2020 volumes were up 30% over the third quarter of ’19, as that country rebounded sharply from the second quarter 2020 pandemic lockdowns.

A combination of — we were never going to have enough cans in our inventories compared to the prior year and a pullback in consumer spending related to inflation concerns led to the lower sales this year. We have seen consumer slowdowns in the past in Brazil, however, the market has always recovered to even higher levels. Late in the third quarter, we began commercial shipments from the second line in the Bowling Green, Kentucky plant, with the third line in Olympia, Washington, now operational here in early fourth quarter. Next month, we will begin operations in the second line in Rio Verde, Brazil, followed by a late first quarter 2022 start-up on the second line in Monterrey, Mexico. New two-line plants in Uberaba, Brazil; and Martinsville, Virginia will come online late in 2022 followed by the new two-line plant in Mesquite, Nevada scheduled for a mid 2023 startup.

A lot of activity, but the team is fully committed to continue our growth with a well-balanced customer portfolio. Unit volumes in European beverage advanced 5% over the prior year with strong volumes across most operations in this segment. Inflation offset unit volume growth with freight, utilities and labor being most notable and with inflation expected to remain elevated across Europe, we project the income will decline in the European segment in the fourth quarter and during 2022.

In Asia Pacific, unit volumes declined 8% in the quarter owing entirely to a 55% contraction in Vietnam. Excluding Vietnam, unit volumes grew 20% in the quarter. The Vietnamese government instituted hard lockdown measures to curb the spread of COVID and its variance. And for example, a hard lockdown means that you’re not allowed to leave your house, and the army will deliver to you all food and essentials. And while we expect Vietnam will slowly reopen during the fourth quarter, we do expect that from time-to-time we will be subject to various lockdowns or movement control orders as the various countries look to prevent the spread of COVID. Our new plant in Vung Tau, Vietnam, is now qualified to begin commercial shipments to customers.

As expected, transit packaging had another strong quarter, recording double-digit gains in revenues and segment income, volume growth in steel strap tooling and across protective packaging offset inflationary headwinds, notably freight. The business continues to navigate supply shortages, transportation delays and inflation, and remains well positioned to continue to grow earnings in the fourth quarter and through next year as these conditions ease over time.

Performance in our North American food and beverage can making equipment businesses remain firm throughout the third quarter, and earlier in the year we commenced operations at a new food can plant in Dubuque, Iowa. And during the third quarter, we began commercial shipments from a new two-piece food can line in our Hanover, Pennsylvania plant. These line additions provide much needed capacity to our domestic supply footprint, allowing us to eliminate imports and we expect significant improvement earnings from food in 2022 as these new lines come through their learning curves.

So in summary, a very strong first nine months of 2021 with EBITDA up 26%. As described earlier, we have several capacity projects recently completed and are underway and are pleased to reconfirm the 2025 EBITDA estimate of $2.5 billion first provided during the May virtual Investor Day. And near-term, while we may experience inflation and supply chain related headwinds over the next few quarters, we currently expect 2022 will be another strong year of earnings growth with EBITDA estimated to be approximately $2 billion. In addition to North American food, our beverage can businesses in North America and Brazil and our transit packaging business are all expected to have strong years in 2022, allowing us to earn through the dilution related to the European asset sale and headwinds from a persistent inflationary environment.

Before opening the call to questions, there are a number of you in the queue, so we ask that you please limit yourselves to no more than two questions so that others will have a chance to ask their question. And with that Annie, I think we’re now ready to take questions.

Questions and Answers:

Operator

Thank you. [Operator Instructions] Our first question will be from the line of Ghansham Panjabi of RW Baird. Your line is now open. Please go ahead.

Ghansham Panjabi — Robert W. Baird & Co., Inc. — Analyst

Thank you. Good morning. Hope everybody is doing well.

Timothy J. Donahue — President and Chief Executive Officer

Good morning, Ghansham.

Ghansham Panjabi — Robert W. Baird & Co., Inc. — Analyst

Good morning, Tim. First off, in North American beverage, if you said this, I missed it. What we’re industry volumes for the quarter do you think for 3Q and then how did you track relative to that? I know you’re adding some capacity in terms of commercialization, etc.

And then second, in terms of the supply chain constraints that you discussed, can you just give us a little bit more detail into what exactly you’re constrained with at this point?

Timothy J. Donahue — President and Chief Executive Officer

Sure. So Ghansham, we do not have industry volumes anymore or the CMI does not collect nor publish industry volumes. I can tell you in North America, we were up 7% in the third quarter compared to the third quarter of last year. And I want to say a year to date, we’re probably up on the order of 9, let’s say 9% over the prior year in North America. We also had gains in Mexico. Let’s say, Mexico might have been up 10%, 11% in the quarter, and the Brazil decline was 15% compared to last year’s third quarter. And as I mentioned, the third quarter of 2020 versus ’19 was up 30%. But if you — if you try to normalize the activity we had given the pandemic lockdown quarter, third quarter this year compared to third quarter ’19 was up 10%, so roughly 5% each year. So we still are in the can business. So I would tell you that we’re pretty pleased with — we had 5% growth every year in a market, we’d be pretty excited.

Supply chain challenges, specifically in our European beverage business, the availability of freight and drivers, we’re seeing that as well in the United States and we’re seeing that in transit here in the United States. And then the — while transit had a very good quarter, we could have even had a much better quarter part shortages. So we, like many other companies struggling to get enough parts and other required materials to really — to really take advantage of a very strong environment business environment. Having said that, we’re doing pretty well in transit. We could have just done better, it’s just a little disappointing.

Ghansham Panjabi — Robert W. Baird & Co., Inc. — Analyst

Okay. And then on the magnesium shortage, just to — just to clarify, so have your suppliers declared force majeure in any way, in either region that you have exposure to? And I guess you’re adding a lot of capacity, your North America storage Phonetic] others, and that is going to stress the supply chain even further in terms of access, so just your thoughts in terms of risk management? How are you sort of ensuring that you’re managing procurement?

Timothy J. Donahue — President and Chief Executive Officer

So we have not had any suppliers declare force majeure related to magnesium supply and or their can sheet rolling capacity. You’re right, we like others have announced significant capacity expansion in North America to meet the needs of our customers growing portfolios. We typically track with our suppliers, such that we do not believe we have any supply concerns in the North American market for all of the projects that we’ve announced.

Ghansham Panjabi — Robert W. Baird & Co., Inc. — Analyst

Got it. Thank you.

Timothy J. Donahue — President and Chief Executive Officer

You’re welcome.

Operator

Thank you. Our next question will be from the line of Anthony Pettinari of Citigroup. Your line is now open.

Bryan Burgmeier — Citigroup — Analyst

Good morning. This is actually Bryan Burgmeier sitting in for Anthony. On the last call, you mentioned a $5 million impact from supply chain disruptions and transit. It sounds like that got a little bit worse in 3Q. Is it possible to quantify what the headwind was and what is the timeline for recovering those costs?

Timothy J. Donahue — President and Chief Executive Officer

Yeah, it’s a great question. I — you can put whatever number you want in there perhaps — perhaps our segment income could have been $3 million to $5 million to $7 million better in the third quarter. I don’t know if I would tell you that you can add that to the second quarter shortfall, perhaps some of it. The timeline to recovery, it’s kind of interesting. Bryan, if you went to the supermarket and you were looking for your favorite snack food, and let’s say you get to the supermarket and the shelves are empty. The question is do you run around to another supermarket and try to buy that snack food or you just go home and say, what I can do without it. So, I don’t know the customers, especially as you get towards the end of the year and they look towards trimming what they spend through the end of the year and they they push out their spending the following year when they get a new budget. I don’t know how much of that is — will make up the purchase from our supplier versus, we’ll just learn to do without for a few more months. So I I don’t know if I’ve answered your question. But in all honesty, I think supply shortages curtail — curtail GDP. There is no — there is no promise that you’re going to get the sale in the future, it’s just like a — just like you go into the supermarket, you may just learn to do without.

Bryan Burgmeier — Citigroup — Analyst

Got it. Thank you. That’s very helpful. And my second question, how would you characterize raw material availability amongst your suppliers for things such as inks and coatings? I know there’s been some strain in the pet chem markets. And how would you characterize Crown’s labor availability and staffing relative to your expectations?

Timothy J. Donahue — President and Chief Executive Officer

Yeah, I don’t — I don’t think we have — we have. I’m not aware of any coatings — coating challenges we have with procuring supply. Obviously, the market — the energy markets, the oil markets are quite strong and so the coating guys have higher input costs and they’re looking to pass that onto us. Labor, we like everybody, we have — depending on the region we’re in, particularly the United States being a little bit more challenging procuring all the labor that we need, we are able to staff and run the factories and not miss shifts, but it’s not ideal. I think we all know what’s happened in the United States, where we’ve turned our economy into an economy where anybody have the opportunity to succeed if you work hard to an economy where people now say I don’t need to work, I’ll just get a free hand out from the government. So we all know, we all see what’s happening. We’ll see how long this persists. I think not a shock — not a shock, right. We kind of know who we voted for last November. So we’ll see if it gets any better, but we like others, we’re having to find creative ways to run our factories.

Bryan Burgmeier — Citigroup — Analyst

Got it. Thank you. I’ll turn it over.

Timothy J. Donahue — President and Chief Executive Officer

Thank you.

Operator

Thank you. Our next question will be from the line of George Staphos of Bank of America Merrill Lynch. Your line is now open.

George Staphos — Bank of America Merrill Lynch — Analyst

Thanks very much. Hey, Tim, how are you. Hi, everybody. Thanks for the details. I want to come back to the question on aluminum supply and magnesium and I recognize this is kind of difficult to talk about live mike [Phonetic] But you said in North America you expect, you should be able to have no issues with supply for the projects that you have. And correct me if I miss phrase anything that you’ve intended, the way you want to communicate that. But in the areas where you might have supply constraint where you won’t have enough aluminum for your capacity, what are you doing at this stage of the game given what you see as a potential shortfall? I think you said six months from now to try to avoid that being an issue. Whatever you can share would be great. And then I had a quick follow-on on Europe and the guidance there.

Timothy J. Donahue — President and Chief Executive Officer

George, if the Chinese decide they’re going to curtail energy production for whatever scam they’re trying to pull in the global community related to their climate pledge, if you really believe that or if you just don’t think they’re trying to extort the rest of the world. And extortion is a word that one of the analyst used in describing magnesium prices. Listen, I think if — if there is no magnesium, then we like others are going to have an issue not just in the can business, but in aerospace and every other business across Europe. We don’t — we don’t see a problem in the United States. There is domestic supply. That domestic supplier I think is taking advantage of the situation from a price perspective, but I think they — they have adequate means and availability to continue to produce magnesium. But if there is no magnesium, then road and stock is going to become very difficult. Can is is less problematic given that we can make — they can make can stock from higher percentages, 100% recycled material and there is enough magnesium and other alloys in the recycled material to do that, on the end stock there is less recycled material used, the alloy content a little higher just to make sure it’s hard enough. So I’m not going to given that I’m the first guy talking here, I’m not going to be the one to take it on the chin. Listen, the can industry is not going to be the only industry with a problem if there’s not enough magnesium, if the Chinese decide to shut us all down. But I think for the next six months, we don’t see an issue.

George Staphos — Bank of America Merrill Lynch — Analyst

Is there an opportunity, I don’t think there would be given what you’ve said in the past about capacity constraints, but is there an opportunity perhaps to front load some of your production for your customers to get ahead of what would be the supply chain shortage from now, or is it zero-sum game and that’s unrealistic in the first place.

Timothy J. Donahue — President and Chief Executive Officer

I don’t — I don’t think you’re going to get any more aluminum from the aluminum suppliers when they’re contracted to sell you at this point [Technical Issues] there are so trying to manage their inventory, so they made supply contracts, right.

George Staphos — Bank of America Merrill Lynch — Analyst

Fair enough. And if you could comment a bit more on your guidance for 2022 in Europe, you mentioned that fourth quarter to be down, that’s not a surprise given the comparison and other factors, but what should we — what should be the key moving parts in terms of Europe, recognizing supply is going to be — aluminum supply is going to be a big factor and [Indecipherable] can even forecast this at this juncture, what should we be thinking about in terms of guardrails for EBIT growth or declines in Europe in’ 22? Thank you.

Timothy J. Donahue — President and Chief Executive Officer

Yeah, I think I was pretty clear, we’re going to have an EBIT — EBIT decline in 2022 in our European business. There will be cost headwinds and we do not have any capacity of a significant nature coming online in 2022 in the European sector to offset those cost headwinds. We’ll wait — we’ll wait till February to give you a more accurate number. We’re in the budgeting process now. We can pretty much see where we’re going to be globally directionally, have a pretty good handle, but we’ll refine the European number for you after the year-end call. But it will be down, 2022 versus ’21.

George Staphos — Bank of America Merrill Lynch — Analyst

All right, Tim. Thank you very much. Good luck in the quarter.

Operator

Thank you. Our next question will be from the line of Chris Parkinson of Mizuho. Your line is now open. Please go ahead.

Christopher Parkinson — Mizuho — Analyst

Great. Thank you very much. You hit on this a little in your prepared remarks, but can you just quickly walk us through the situation Vietnam? It appears as though things were easing as of mid September ever so slightly, so just any comments on that as well as any other markets that are entering what you would perceive as a normalization process as we approach 2022? It would be greatly appreciated. Thank you.

Timothy J. Donahue — President and Chief Executive Officer

So I think the — the only other market where we see significant production curtailments related to COVID and or other outside factors would be Myanmar, we have a small operation there. So I wouldn’t spend a lot of time worrying about it, it’s minimal in terms of contribution. Vietnam is slowly coming out of the hard lockdown measures. It will take time to refill the supply chains. It will take time to get workers back to the various factories in the various provinces, but province by province have different measures and they’re coming back at different rates.

Christopher Parkinson — Mizuho — Analyst

Understood. And just as a follow-up. There has been a substantial degree of — I guess, call it market noise on hard seltzer growth as it relates to the overall Bev Can outlook. But just — can you just comment on other markets, customers and verticals, product launches, etc., which further your confidence and growth and perhaps mention what you believe investors may be missing? Thank you.

Timothy J. Donahue — President and Chief Executive Officer

Yeah, so I think you’re focused on one or two of the large hard seltzer providers and if the two large guys that you’re all well aware of, let’s say that two years ago they had 80% of the market and they continue to project that they were going to have growth like they experienced over the last couple of years and keep their market share and they were probably foolish for assuming that others wouldn’t come into the market, specifically others that are large beer marketers who have huge marketing budgets and control a lot of shelf space. So I think they’ve lost market share and by losing market share, they’ve lost their growth trajectory. Having said that, the hard seltzer category now makes up 10% of the alcohol category from almost zero a few years ago. It is a — it is a very large category now. We don’t expect hard seltzer to go away like other alcohol products have gone away in the past. We think this is a product that’s going to stay there. It may not grow as rapidly as it’s grown over the last couple of years.

Now having said that, we’re not a very large supplier through the hard seltzer marketers. We supply one of the guys in a small way, we don’t supply the other one. But the other the other products where we continue to see growth are functional beverages, cheese, energy drinks, juices and we see that continuing to expand.

Christopher Parkinson — Mizuho — Analyst

Thank you.

Timothy J. Donahue — President and Chief Executive Officer

Thank you.

Operator

Thank you. Our next question will be from the line of Phil Ng of Jefferies. Your line is now open. Please go ahead.

Philip Ng — Jefferies LLC — Analyst

Hey, Tim, pretty encouraging results given the challenging backdrop and just helpful to kind of give us that $2 billion EBITDA guide for ’22. Given that you’re expecting Europe to be down, what are some of the other areas where you’re going to make things up assuming Asia might be slower to come back as well?

Timothy J. Donahue — President and Chief Executive Officer

Yeah, so it’s a good question, right. So Europe will be down, Asia will be flattish. At this time — You put a budget together, Phil. We’re trying to be — we’re trying to be reasonable. I’m not here fiving you a $2 billion because I want to come back next year and tell you it’s not going to be $2 billion. I’m giving you $2 billion because I have a level of confidence in that number, kind of earlier that we’re giving it to you now than we have in the past, but we wanted to put some context around some of these temporary situations, be it Vietnam and Brazil. But the other three main areas will be, as I said in the prepared prepared remarks, North America and Brazil Beverage will be up again significantly over this year, new capacity, fully online in Bowling Green and Olympia through next year, a new second line in Rio Verde in Brazil next year, and transit packaging will again advance next year off of this year’s numbers. And then as I said, we’ve got two new can lines in the food business and we will replace imported cans that were coming in from Europe with local domestic production that we are making here as opposed to buying in from the business we just sold. So not only do we save on that, we save on freight, but we have more production available for what we see is a very steady to growing food can backdrop going forward.

Philip Ng — Jefferies LLC — Analyst

Super. That’s really helpful. And then given the amount of inflation you’re seeing, and Tim correct me if wrong. You had these contractual pass-throughs. There is a lag for certain components. It sounds like the pass-through mechanism is working pretty nicely in Americas for next year, so we should see EBIT margins on an apples-to-apples basis inflect because it’s kind of flattish in 3Q, and then what’s the issue of Europe? I mean, you’re calling for some compression, is that just mostly timing related or is it more on the potential shortage on magnesium?

Timothy J. Donahue — President and Chief Executive Officer

So we discussed — regarding flattish in Q3, we discussed the pass-through of higher aluminum. If we sell $10 worth of materials and we make two, that’s 20%. If we sell $20 and we make two, that 10%. So aluminum doubles, which it almost has over the last year, you’re just going to get the denominator effect to lower your percentage margins as I said. It doesn’t mean absolute margins go down, it’s just a — it’s the pass-through impact of the denominator. I’d be careful — we are trying to assume that the denominator effect is going to reverse going into next year. Aluminum appears to want to stay at these elevated levels, both the LME and the delivery premium as well as the conversion prices charged from the mills to get remainder of the can sheet, and I think we’ll see that in every market. Pass-throughs, conventionally pass-throughs are historically well placed throughout our US businesses and to a lesser extent in some of the international businesses where we have some time to recover and recover those cost increases or repair those contracts over time as contracts come due with customers.

Philip Ng — Jefferies LLC — Analyst

Okay. So there is potentially more of opportunity to repair some of that in 2023 on the European side in terms of better flow-through?

Timothy J. Donahue — President and Chief Executive Officer

Yes.

Philip Ng — Jefferies LLC — Analyst

Okay, thanks a lot, Tim. Appreciate it.

Timothy J. Donahue — President and Chief Executive Officer

Thank you.

Operator

Thank you. Our next question will be from the line of Anojja Shah of BMO Capital Markets. Your line is now open.

Anojja Shah — BMO Capital Markets — Analyst

Hi, good morning.

Timothy J. Donahue — President and Chief Executive Officer

Good morning.

Thomas A. Kelly — Senior Vice President and Chief Financial Officer

Good morning.

Anojja Shah — BMO Capital Markets — Analyst

Good morning. You’ve been very aggressive on share repurchases year-to-date and I know some of that is due to the proceeds from the sale of European Tinplate. But can you give us some sense on how you’re thinking about share repurchases for the rest of this year and maybe into next year?

Timothy J. Donahue — President and Chief Executive Officer

Yes. So, Anojja, what I would say is that prior to receiving the proceeds. So if you go back to the June 30th balance sheet, you’d see that our leverage prior to the completion of the Tinplate sale was 3.6 times, and that’s down from a little over 5 times after the Transit acquisition. So on our own with income growth and debt pay down and cash generation, we were down to 3.6 times. We closed the Tinplate sale — wo I would describe to you, we never had a debt problem. We knew we were going to generate cash and pay the debt down. A lot of people like to get worried in the near term, but the one thing from following packaging as we all generate pretty consistent cash flows from the operations and depending on what we do with capital allocation, capex, dividends, share buybacks that — that depends on how much debt we can pay down. So we did aggressively pay the debt down and we got our leverage down doing mid 3 range, which is pretty reasonable range given the amount of cash flow you’re going to generate, so fast forward to the end of August. We know that — we know the deal is going to close. We know we’re going to have all this cash pile in. We know the debt is going to go down even more.

We know we’re going to pay off some debt that comes due in 2022 and ’23 as we noted for you on the footnotes to the balance sheet. But yeah, what else — what else do you want to do with the cash. So we aggressively went out and bought back the shares, we. I would tell you that what we bought roughly $750 million. We have an outstanding authorization from the Board of $1.5 billion before we get into next year and I guess we’ll do it at the December Board meeting. We will have to ask the Board for a new or higher authorization to buy back shares because we won’t have enough authorization at only $1.5 billion between what we’re going to buy this year and next year. So the answer is you should expect more of the same. The exact numbers I won’t tell you, but it it could be over the two years combined, we buy somewhere between $1.5 billion and $2 billion of stock between ’21 and ’22. Pretty — pretty significant level when you look at the market cap of the company as we sit here today.

Anojja Shah — BMO Capital Markets — Analyst

Yes, that’s very helpful. Thank you. And for my second question, can you talk a bit more about that UK pension move that you announced recently, especially the financial implications? Because I think you talked about our $1.3 billion non-cash charge and the cash contribution. So maybe if you can just run through what we should expect for that?

Timothy J. Donahue — President and Chief Executive Officer

Yeah, so I’ll start and I’ll let Tom through all the details. We sold a very large business in Europe. The business had over $300 million of EBITDA on a standalone basis. It had a number of employees throughout Europe. It had legacy pension liability, specifically in the United Kingdom, very large plan in excess of $2.5 billion with assets to support it. And our view was that as we became smaller in Europe after the asset sale, the most prudent thing to do was to relieve the balance sheet of any future exposure income and or cash flow wise from a liability that was no longer supported by assets or operations as we sold the business. I’ll let Tom describe for you the cash needed to affect that and specifically why the write-off was non-cash.

Thomas A. Kelly — Senior Vice President and Chief Financial Officer

Yeah, Anojja, on an ongoing basis it really won’t have much of any impact on the income statement. We were close to zero and consider the return on the assets and then the expense side of the equation. So really nothing going forward. The $1.3 billion is essentially a release of, I guess what you would call deferred losses that are sitting in equity that were recognized in equity sometime ago. So that’s — that’s an accounting entry and is not — it doesn’t involve any cash. The cash, as we disclosed in the release was a, say a permanent contribution of about $96 million and then there is a, what I’ll call an advance or loan of another 170 [Phonetic] that will be repaid as the remaining or residual illiquid assets in the plan are sold and the money comes back to us. So that’s, of that 170 of so, I would expect that number to be down to about 100, so we would have gotten 70 back by the end of this year and most of the rest of it, the flow through next year.

Timothy J. Donahue — President and Chief Executive Officer

And when Tom says they’re liquid, you’ll appreciate that’s private equity infrastructure, real estate, assets like that that are not as liquidable, liquid as marketable securities.

Thomas A. Kelly — Senior Vice President and Chief Financial Officer

Yeah, so instead of doing a fire sale, we’re going to take our time, sell and get full value, and the way to do that was through the loan to the pension plan.

Anojja Shah — BMO Capital Markets — Analyst

I got you, okay. Thank you. That was very helpful. That’s it from me.

Timothy J. Donahue — President and Chief Executive Officer

Thank you.

Operator

Thank you. Our next question will be from the line of Salvator Tiano. Your line is now open. Please go ahead.

Salvator Tiano — Seaport Global Holdings LLC — Analyst

Yes, hi, thanks for taking my questions. So my first question is a little bit on Brazil. If your demand is 10% and I think you mentioned over 2019, but a lot of market players have been betting on very significant demand growth there and there is a lot of capacity addition by you and competitors. So how do you see demand going forward despite the tough comps already because we do need very solid growth absorb all this new capacity?

Timothy J. Donahue — President and Chief Executive Officer

Yeah, you’re right. And we remain long term bullish on the Brazilian market and I’ve said in the past. If we look at the Brazilian — our Brazilian Experience since 1996 when we entered the market in beverage cans and if you want to cut that into five-year increments or three-year increments. Sure, in any three-month or six-month period you may see a decline relative to the prior three-month or six-month period. But if you want to start cutting this up in two-year or three-year or five-year increments, we’ve experienced nothing other than tremendous growth over any increments like that.

And as I said in the prepared remarks, while we’ve experienced slowdowns for a variety of reasons in the past, whether it’s the marketing efforts of our customers vis-a-vis the can versus other packaging substrates and or consumer pullback, which there is a mild consumer pull back right now, we’ve always recovered to even higher levels and we would expect that the market will continue to recover to higher levels as we look forward. We’re obviously entering their strongest period right now, late fourth quarter, first quarter and and we’re bullish on the prospects for high sales through the high season here.

Salvator Tiano — Seaport Global Holdings LLC — Analyst

Okay, perfect. And just in Europe regarding basis you’re facing, I’m wondering in the UK where we start seeing earlier the trucking shortages, are you seeing more severe pressure on volumes and cost than Mainland Europe? How do these two regions compare?

Timothy J. Donahue — President and Chief Executive Officer

I would say that freight is a bigger, bigger issue in the UK and mainland Europe at this point, yes.

Salvator Tiano — Seaport Global Holdings LLC — Analyst

And with regards to any other costs, I mean differences?

Timothy J. Donahue — President and Chief Executive Officer

Well, I think — I think we’re going to see utilities not only in the UK, but in some of the North West Europe also be a headwind and obviously labor is a headwind every year in the European — on the European continent and on the island.

Salvator Tiano — Seaport Global Holdings LLC — Analyst

Okay, thank you very much.

Timothy J. Donahue — President and Chief Executive Officer

Thank you.

Operator

Thank you. Our next question will be from the line of Kyle White of Deutsche Bank. Your line is now open. Please go ahead.

Kyle White — Deutsche Bank — Analyst

Hi, good morning. Thanks for taking the question. Do you have a sense of customers are looking to warehouse, more beverage cans than normal given some of the supply chain issues that we’re seeing, which could potentially negatively impact the Nielsen scanner data relative to your reported volumes? And any concerns that this could potentially lead to some destocking later on?

Timothy J. Donahue — President and Chief Executive Officer

Well, the first thing I would say is there are no cans available for them to warehouse. The market remains even in a low quarter like the fourth quarter, the market remains sold out. We’re relatively sold out across the board from all suppliers. There is not any excess aluminum or not only aluminum that the aluminum suppliers are willing to give you an advance, understanding that they’re trying to make sure they they meet the needs of their future supply contracts and we’re doing the same. Typically, our customers do not warehouse cans and they don’t like to fill in warehouse filled goods for any period of time as they all look to market on sell-by dates. So the answer is, we’re not concerned about a destocking in the future because there will be no advanced stocking right now.

Kyle White — Deutsche Bank — Analyst

Got it, that’s helpful. And then on — did you guys give a headwind from startup costs related to the second line at Bowling Green, as well as the additional line Olympia? And how are those start-ups relative to your expectations?

Timothy J. Donahue — President and Chief Executive Officer

We did not give a number. Again, we have start-ups almost every year and every quarter, so the impact on start-ups is really the carryover effect, is it more or less than it was in the prior year quarter. So we’ve tended to to not use that as an excuse, if you may, if you will. I would characterize for you that the first line in Bowling Green came up as well as any line we’ve ever had and that includes our Brazilian experience which has always been very strong. The second line coming up well, not as good as the first line, obviously we’re spreading labor now over two lines and training more workers, but coming up quite well, and Olympia — Olympia is starting up well also.

Kyle White — Deutsche Bank — Analyst

Got it, thank you. I’ll turn it over.

Timothy J. Donahue — President and Chief Executive Officer

Thank you.

Operator

Thank you. Our next question will be from the line of Arun Viswanathan of RBC Capital Markets. Your line is now open. Please go ahead.

Arun Viswanathan — RBC Capital Markets — Analyst

Great, thanks for taking my question. Thanks for all the details. So just, I guess I just wanted to get back to the magnesium issue, sorry to belabor this point, but my understanding is there is more — more of it used in the end, maybe three or four times as much. And could you just comment on, I know that you feel secure for the next six months. But beyond that time frame, are there any measures you guys could take to potentially switch around the sourcing or maybe substitute to different products? Is this at all causing you guys any kind of concern? And then just again, if you could comment on the end part and clarify that for us as well? Thanks.

Timothy J. Donahue — President and Chief Executive Officer

Well, I, I think the major concern we have is that suppliers of magnesium, whether it’s the US supplier and-or the Chinese are taking advantage of the situation to extort higher prices for our suppliers who pass it onto us, and then from us, we then pass it on to our customers and then our customers then have to pass it on to the consumer, that’s our major concern. It just makes the package more expensive. And how long that extortionate activity last, we’ll see. I do think there is enough magnesium in the United States. We’re just talking about price. I think the Chinese situation depending on how much influence China wants to have in the global markets with respect to the variety of raw materials as they have in their country boundaries and how they export raw materials and how they try to control global economic growth will dictate how much magnesium is available for other markets.

I would be very interested for you to ask these questions to the other beverage can suppliers so that perhaps I learn a little bit more as well. But I said it earlier, Arun, if the Chinese don’t release any magnesium and our suppliers of aluminum in some markets don’t have any aluminum, then yeah, there is not going to be aluminum for cans for all the companies, not just for Crown. There is not going to be aluminum for aerospace, there is not going to be aluminum for cars, and you guys need to take a step back and rationally think about that you really think that’s going to happen.

Arun Viswanathan — RBC Capital Markets — Analyst

Okay, thanks for that. And then I just wanted to also ask about, go back to the growth of the market for the next couple of years or so. So you outlined the scenario in Brazil where it looks like there is still about a 5% CAGAR over the last three years. When you think about North America just given the products that are slated to come out, some of the gyrations from COVID, the perception that there was a pull forward, are you still kind of thinking that the CAGAR, say between 2018 and 2025 that period that you’re talking about is still kind of mid single digits or how should we think about kind of the longer-term growth in the market?

Timothy J. Donahue — President and Chief Executive Officer

No, I think that’s about right. I don’t think we’ve seen any pullback post COVID if we really are post COVID. But let’s assume we’re post COVID, I don’t think we’ve seen any noticable pull back that would at this point tell us we need to revisit our expected growth in the market over the next several years.

Arun Viswanathan — RBC Capital Markets — Analyst

Okay, thanks.

Timothy J. Donahue — President and Chief Executive Officer

Thank you.

Operator

Thank you. Our next question will be from Adam Samuelson of Goldman Sachs. Your line is now open. Please go ahead.

Adam Samuelson — Goldman Sachs — Analyst

Hi, yes, thank you. Good morning. A lot of ground has been covered this morning. I was wondering against that $2 billion EBITDA forecast for ’22, where do you think capex is going to shake out? And on the capex outlook broadly, are you seeing any supply chain and cost inflation impact, some of the cost for some of your new projects and how is that influencing future returns in your mind?

Timothy J. Donahue — President and Chief Executive Officer

Yeah, so we touched on this a little bit last quarter. I would say we’re going to spend — we’ve outlined a number of projects for you already, so the spending for next year could well be $1 billion as we look to put more capital in the ground globally and continue to grow the business. And we’re thinking we’re spending roughly $900 million this year. We’ll see if we get it all in. Your — the second part of your question, supply chain challenges. I think building materials, building packages, construction steel obviously in high demand and from time-to-time there are delays. So we’ll see if we get it all in time or will be delayed three or six months.

As it relates to returns, yeah, so construction costs are higher, it will have an impact on future returns. But I think what I said and not to be dismissive about returns. But I think what we said last time — when we build a factory, we expect to be in that location for 40 years to 50 years and you’re spreading out that additional cost over a longer period of time and I appreciate that returns and IRR are earned in the early years and the higher initial outlay returns — reduces returns, but we are in business to grow our business to deliver products to our customers, grow with our customers and find other ways to offset those costs. So incremental construction cost upfront are probably not going to change our mind given the demand from the customers and their willingness to engage in long-term contracts to meet their demand.

Adam Samuelson — Goldman Sachs — Analyst

Okay, that’s helpful. And then just quickly, as we get closer to the end of the year, what’s your latest view in terms of total can imports into North America for 2021? Thanks.

Timothy J. Donahue — President and Chief Executive Officer

I’m looking at Tom to see if he has got a better number. Yeah, So Tom’s telling me we’re through the first half of the year, we were over $9 billion. So I think we’re — we’re probably looking at a number like $13 billion to $14 billion as an industry this year and our number will be a couple of billion, somewhere between big number, somewhere between $1.8 billion $2.5 billion of that hopefully as more capacity comes online, those numbers come down in the future and those cans are available for their local markets in the future.

Adam Samuelson — Goldman Sachs — Analyst

Great. I appreciate the color. I’ll pass it on. Thanks.

Timothy J. Donahue — President and Chief Executive Officer

Thank you.

Operator

Thank you. Our next question will be from the line of Mike Roxland of Truist. Your line is now open. Please go ahead.

Michael Roxland — Truist — Analyst

Hi, good morning, Tim, Tom. And Tom, congrats on a good quarter.

Thomas A. Kelly — Senior Vice President and Chief Financial Officer

Thank you, Mike.

Michael Roxland — Truist — Analyst

Most of my questions have been asked. Just have two quick questions. Just following up on the hard seltzer comments earlier, really I think it’s a small component of your business. Can you to just help us think about how the new plants you’re building and that are starting production related to hard seltzer in terms of those lines, how much of the new lines are related to hard seltzer or are we focused elsewhere? And we really need to adjust your can productions given the fact that hard seltzer is to your point has slowed dramatically from a couple of years ago.

Timothy J. Donahue — President and Chief Executive Officer

So, we’ve commercialized two lines already in Bowling Green, we’ve announced Martinsville, and we’ve announced Mesquite in Nevada. I don’t think — I don’t want to give too much — too much away because there’s other people listening, but there is a very small amount of those six can lines that were ever anticipated for the hard seltzer category, I’ll just say that.

Michael Roxland — Truist — Analyst

Got it. [Technical Issues]

Timothy J. Donahue — President and Chief Executive Officer

[Technical Issues] in the B2B market. We are not going to delay production [Technical Issues]

Operator

Thank you. Our next question will be from [Technical Issues]

Timothy J. Donahue — President and Chief Executive Officer

I don’t see it declining to 7% or 8%, I see it staying at 10% or perhaps creeping up as such over time and we’ll see what the marketers of alcoholic beverages and perhaps people that are not in alcohol yes, who decide to get into alcohol, what products they will choose the market in the future, and we’re very confident that they’re going to use the can to market those products.

Unidentified Participant — — Analyst

That makes sense. And then, and then just on quick follow up. As mentioned of 8 billion cans were imported, it’s in North America last year, any ballpark estimate as to how much of that mark to white imports will be available to ship here in 2021.

Timothy J. Donahue — President and Chief Executive Officer

So yeah, it was — it’s13 billion cans is a lot of cans that are we estimate coming into the market in ’21. We’re still going to need cans to come into the US market from certain overseas markets as an industry next year to meet all of the customers’ needs. Assuming all the capacity comes online can we cut that number in half, I don’t know, but there will be significant imports next year just as they were this year. I don’t expect it to be at the same level, although we’d be thrilled if the demand required new capacity coming online, not only that, but also a significant similar level. We’ll see how it plays out.

Unidentified Participant — — Analyst

Okay, great. Thanks, Tim. I’ll hop back in queue.

Timothy J. Donahue — President and Chief Executive Officer

Thank you.

Operator

Thank you. Our next question will be from Gabe Hajde of Wells Fargo. Your line is now open. Please go ahead.

Gabe Hajde — Wells Fargo — Analyst

Good morning. Thanks for taking the question.

Timothy J. Donahue — President and Chief Executive Officer

Good morning, Gabe.

Gabe Hajde — Wells Fargo — Analyst

Tim, I had a question for you on contract renewals here in North America. If memory serves, this year was a little bit of a lower renewal period and I also appreciate that some customers have kind of accelerated some things given obviously the tight market conditions. So, can you remind us kind of for 2022 if there are any sizable contracts that are coming up for renewal? Again, kind of focus on US, but any market if you’d like to call?

Timothy J. Donahue — President and Chief Executive Officer

There are contracts that come due every year. I would — I don’t want to talk too much about it because we and our competitors, we deal with a limited set of large customers, we all know who they are. We kind of have an idea where they all sit, who supplies them and what the contract terms, the contract length is, we don’t — the terms we don’t know, but we kind of know those states. I don’t want to talk about too much. But I would tell you that we don’t have anything of significance coming due at the end of ’21, ’22, or even ’23 that we’re currently concerned about.

Gabe Hajde — Wells Fargo — Analyst

Okay, that’s helpful. And again, I appreciate the candor on the China policies, I mean, especially given the lack of adherence to even phase one trade deals with the United States. So, but I think to the extent that there dual kind of control policies are real that could imply kind of structurally higher aluminum costs for everybody over the next two to three years and so I’m curious from your perspective if hat impacts kind of total cost of ownership of a package, do we see a risk that it makes, I don’t know their SAPT [Phonetic] or other alternate substrates more competitive?

Timothy J. Donahue — President and Chief Executive Officer

So I think it doesn’t solve the sustainability issue with PET. It doesn’t solve the fact that that the oceans are cluttered and streams are cluttered and fish are choking and there’s trash everywhere from PET. It doesn’t solve that problem for PET. I think what it does do is it it reinforces the need given the potentially higher cost of aluminum, it reinforces the need to increase recycling efforts in the United States. And today, we estimate that only about 40% of all households in the United States have access or 40% of households in the United States do not have access to curbside recycling. And if the United States and local jurisdictions are serious about sustainability and recycling, then we need to get as many people or as many people have to have access to curbside recycling as possible. So we like others, we’re working with the CMI and recycling partnership to try to improve these numbers. Potentially, that that comes about through smart deposit schemes, whether it’s at the state or federal level, where each material pays its own way, but it does not diminish the imports as of aluminum as it relates true closed loop recycling. It doesn’t diminish aluminum in terms of its importance in the recycling scheme where it essentially pays for all materials to be recycled, and it more than ever makes the recycling of aluminum more important as the cost of the aluminum going in as higher to start with. So we’ll see — we’ll see where Texas, where we like others are working collectively to try to improve those numbers and I think it just becomes more important than ever.

Gabe Hajde — Wells Fargo — Analyst

Understood. Thank you.

Timothy J. Donahue — President and Chief Executive Officer

Thank you.

Operator

Thank you. Our next question will be from Engel Cassio [Phonetic] of Morgan Stanley. Your line is now open.

Engel Cassio — Morgan Stanley — Analyst

Hi, thank you for taking my question. Curious on the Asia comments around income being flattish next year. I was wondering if you could give us a bridge of kind of the puts and takes around that in terms of volume? I guess, as I think about Vietnam improving in the fourth quarter and as we think about next year, obviously the rest of Asia is continuing to do much better than what we saw with Vietnam, but curious it’s kind of broader bridge and how much conservatism might be embedded in that 2022 comment that obviously fully understanding that it’s [Indecipherable]

Timothy J. Donahue — President and Chief Executive Officer

Yeah, so it is early. Thank you for that. We gave you a $2 billion estimate, which, and we told you to assume Asia roughly flat year-on-year. We will have volume growth. We are confident that the Asian countries are moving towards treating COVID as endemic as opposed to pandemic. How long that takes, I don’t know. But we do think that volumes improve next year. I will tell you that the Asian market for a variety of reasons is much more competitive in terms of price and the pass-through of raw materials than other markets. So there will be a lag effect in terms of passing through increased aluminum cost onto the customer set, more so in Asia than potentially you’ll see in the United States and or Brazil.

Engel Cassio — Morgan Stanley — Analyst

Understood. That’s very helpful. And just kind of globally as you in terms of the beverage can trends, is it possible to break out how specialty cans are doing in terms of across the different regions within and compared to kind of your broader beverage can volumes?

Timothy J. Donahue — President and Chief Executive Officer

Tom will correct me if I’m wrong. But I think here in North America, specialty cans probably make up about a third of the or touch more of all the cans sold and when we say specialty, we mean everything other than the standard 12-ounce cans or whether that’s slim cans and over 16-ounce, probably 50% at least of the Brazilian market, a much smaller number in the Mexican market, perhaps in the 20% range, 30% range. You get to the Middle East and Southeast Asia, depending on country it could be anywhere from 50% to 85% or 90% depending on country. And in Europe, roughly 50-ish percent, especially considering that so much of the beer is in $0.50 a liter and-or $0.44 a liter cans.

Engel Cassio — Morgan Stanley — Analyst

Understood. Thank you.

Timothy J. Donahue — President and Chief Executive Officer

Thank you.

Operator

Thank you. Our next question will be from the line of Jeff Zekauskas of J.P. Morgan. Your line is now open. Please go ahead.

Jeff Zekauskas — J.P. Morgan Securities LLC — Analyst

Thanks very much. In North America, you said your volumes grew about 7% in the quarter and 9% year-to-date. Can you break that up into alcoholic and non-alcoholic volume growth?

Timothy J. Donahue — President and Chief Executive Officer

I do not have that in front of me. I’m going to, you’re going to have to talk to Tom after the call. I would – I’m going to guess and I could be wrong. I’m going to tell you that more of that will be non-alcoholic than alcoholic and it could be as much as two thirds to three quarters of the growth is non-alcoholic versus alcoholic.

Jeff Zekauskas — J.P. Morgan Securities LLC — Analyst

And in Europe, you said you’re not really going to expand capacity next year. What kind of volume growth are you expecting and why is it that you can offset your inflationary costs more rapidly?

Timothy J. Donahue — President and Chief Executive Officer

So we don’t have any — we do have incremental growth coming from recent plant startups in Italy and Spain that will incrementally add some volume. We don’t have any new projects that come online in 2022 and the convention in Europe has been different than the convention in the Americas in terms of what the can makers recover from its customer set historically, and we are working to improve those contracts over time.

Jeff Zekauskas — J.P. Morgan Securities LLC — Analyst

Okay, thanks very much. That’s clear.

Timothy J. Donahue — President and Chief Executive Officer

Thank you. [Speech Overlap] Is that the last question, Annie.

Operator

Yes, sir. Thank you. Sorry about that.

Timothy J. Donahue — President and Chief Executive Officer

Well, thank you very much, Annie, and thank you all for joining. That concludes the call today. We’ll speak with you again in early February, bye now.

Operator

[Operator Closing Remarks]

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