Crown Holdings, Inc. Reports First Quarter 2018 Results
Highlights
- Earnings per share
$0.67 versus$0.77 in 2017 - Adjusted earnings per share
$0.94 versus$0.77 in 2017; excludes intangibles amortization and certain other items in both periods - Global beverage can volumes grew 3% over prior year
- Completed acquisition of
Signode Industrial Group onApril 3
Net sales in the first quarter were
Income from operations was
Commenting on the quarter,
"Global beverage can volume growth of 3% was fueled by notable gains in
"On
Interest expense was
Net income attributable to
A reconciliation from net income and diluted earnings per share to adjusted net income and adjusted diluted earnings per share is provided below.
Outlook
The Company currently expects second quarter and full year 2018 adjusted diluted earnings to be in the ranges of
The adjusted effective income tax rate for the full year of 2018 is expected to be between 25% and 26%, although it may vary from quarter to quarter. Adjusted free cash flow, as defined below, is currently expected to be approximately
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 second 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,
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 future impact of currency translation; the continuation of performance and market trends in 2018, including 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
For more information, contact:
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 March 31, |
||||
2018 |
2017 (1) |
|||
Net sales |
$2,197 |
$1,901 |
||
Cost of products sold |
1,808 |
1,531 |
||
Depreciation and amortization |
65 |
59 |
||
Selling and administrative expense |
90 |
90 |
||
Restructuring and other |
13 |
(4) |
||
Income from operations (2) |
221 |
225 |
||
Other pension and postretirement |
(17) |
(12) |
||
Foreign exchange |
18 |
(1) |
||
Earnings before interest and taxes |
220 |
238 |
||
Interest expense |
74 |
62 |
||
Interest income |
(6) |
(3) |
||
Income before income taxes |
152 |
179 |
||
Provision for income taxes |
39 |
46 |
||
Net income |
113 |
133 |
||
Net income attributable to noncontrolling interests |
(23) |
(26) |
||
Net income attributable to Crown Holdings |
$90 |
$107 |
||
Earnings per share attributable to Crown Holdings common shareholders: |
||||
Basic |
$0.67 |
$0.77 |
||
Diluted |
$0.67 |
$0.77 |
||
Weighted average common shares outstanding: |
||||
Basic |
133,479,364 |
138,475,013 |
||
Diluted |
133,806,636 |
138,956,825 |
||
Actual common shares outstanding at quarter end |
134,299,633 |
137,758,282 |
||
(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. |
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Three Months Ended March 31, |
|||||||||||||||
2018 |
2017 (2) |
||||||||||||||
Income from operations |
$ |
221 |
$ |
225 |
|||||||||||
Intangibles amortization |
11 |
10 |
|||||||||||||
Provision for restructuring and other |
13 |
(4) |
|||||||||||||
Impact of hedge ineffectiveness (1) |
(5) |
||||||||||||||
Segment Income |
$ |
245 |
$ |
226 |
|||||||||||
(1) |
Included in cost of products sold |
||||||||||||||
(2) |
Prior year results have 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. |
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Segment Information |
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Net Sales |
2018 |
2017 |
|||||||||||||
Actual |
Actual |
||||||||||||||
Americas Beverage |
$ |
758 |
$ |
674 |
|||||||||||
European Beverage |
371 |
303 |
|||||||||||||
European Food |
428 |
379 |
|||||||||||||
Asia Pacific |
337 |
278 |
|||||||||||||
Total reportable segments |
1,894 |
1,634 |
|||||||||||||
Non-reportable segments (3) |
303 |
267 |
|||||||||||||
Total net sales |
$ |
2,197 |
$ |
1,901 |
|||||||||||
Segment Income (4) |
|||||||||||||||
Americas Beverage |
$ |
98 |
$ |
104 |
|||||||||||
European Beverage |
55 |
50 |
|||||||||||||
European Food |
56 |
51 |
|||||||||||||
Asia Pacific |
44 |
39 |
|||||||||||||
Total reportable segments |
253 |
244 |
|||||||||||||
Non-reportable segments (3) |
31 |
28 |
|||||||||||||
Corporate and other unallocated items |
(39) |
(46) |
|||||||||||||
Total segment income |
$ |
245 |
$ |
226 |
|||||||||||
(3) |
Includes the Company's food can and closures businesses in North America, aerosol can businesses in North America and Europe, the promotional packaging business in Europe, and tooling and equipment operations in the U.S. and United Kingdom. |
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(4) |
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) |
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Reconciliation from Net Income and Diluted Earnings Per Share to Adjusted Net Income and Adjusted Diluted Earnings Per Share |
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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. |
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Three Months Ended March 31, |
|||||||||||||||
2018 |
2017 |
||||||||||||||
Net income/diluted earnings per share attributable to Crown Holdings, as reported |
$90 |
$0.67 |
$107 |
$0.77 |
|||||||||||
Intangibles amortization (1) |
11 |
.08 |
10 |
.07 |
|||||||||||
Restructuring and other (2) |
13 |
.10 |
(4) |
(.03) |
|||||||||||
Impact of hedge ineffectiveness (3) |
(5) |
(.03) |
|||||||||||||
Acquisition costs (4) |
24 |
.18 |
|||||||||||||
Income taxes (5) |
(12) |
(.09) |
(1) |
(.01) |
|||||||||||
Adjusted net income/diluted earnings per share |
$126 |
$0.94 |
$107 |
$0.77 |
|||||||||||
Effective tax rate as reported |
25.7% |
25.7% |
|||||||||||||
Adjusted effective tax rate |
25.5% |
26.1% |
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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. |
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(1) |
In the first quarters of 2018 and 2017, the Company recorded charges of $11 million ($8 million net of tax) and $10 million ($7 million net of tax) for intangibles amortization arising from its acquisitions of Mivisa in 2014 and Empaque in 2015. |
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(2) |
In the first quarter of 2018, the Company recorded restructuring and other charges of $6 million ($5 million net of tax) including $3 million of transaction costs. In the first quarter of 2017, the Company recorded restructuring and other charges of $2 million ($2 million net of tax) related to previously announced restructuring projects. |
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In the first quarter of 2018, the Company recorded charges of $7 million ($6 million net of tax) for asset sales and impairments. In the first quarter of 2017, the Company recorded net gains of $6 million ($5 million net of tax) for asset sales and impairments. |
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(3) |
In the first quarter of 2017, the Company recorded a benefit of $5 million ($4 million net of tax) in cost of products sold related to hedge ineffectiveness caused primarily by volatility in the metal premium component of aluminum prices. |
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(4) |
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 for its acquisition of Signode. In addition, the Company incurred net charges of $9 million ($7 million net of tax) for pre-acquisition interest carrying costs on borrowings to finance the transaction. |
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(5) |
In the first quarter of 2018, the Company recorded income tax benefits of $12 million related to the items described above. In the first quarter of 2017, the Company recorded income tax benefits of $1 million related to the items described above. |
Consolidated Balance Sheets (Condensed & Unaudited) |
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March 31, |
2018 |
2017 |
||||||
Assets |
||||||||
Current assets |
||||||||
Cash and cash equivalents |
$ |
2,201 |
$ |
338 |
||||
Receivables, net |
1,386 |
899 |
||||||
Inventories |
1,431 |
1,417 |
||||||
Prepaid expenses and other current assets |
243 |
234 |
||||||
Total current assets |
5,261 |
2,888 |
||||||
Goodwill and intangible assets |
3,621 |
3,357 |
||||||
Property, plant and equipment, net |
3,322 |
2,898 |
||||||
Other non-current assets |
875 |
727 |
||||||
Total |
$ |
13,079 |
$ |
9,870 |
||||
Liabilities and equity |
||||||||
Current liabilities |
||||||||
Short-term debt |
$ |
32 |
$ |
37 |
||||
Current maturities of long-term debt |
61 |
57 |
||||||
Accounts payable and accrued liabilities |
2,768 |
2,402 |
||||||
Total current liabilities |
2,861 |
2,496 |
||||||
Long-term debt, excluding current maturities |
7,778 |
5,206 |
||||||
Other non-current liabilities |
1,328 |
1,309 |
||||||
Noncontrolling interests |
347 |
316 |
||||||
Crown Holdings shareholders' equity |
765 |
543 |
||||||
Total equity |
1,112 |
859 |
||||||
Total |
$ |
13,079 |
$ |
9,870 |
||||
Consolidated Statements of Cash Flows (Condensed & Unaudited) (in millions) |
||||||||||
Three months ended March 31, |
2018 |
2017 |
||||||||
Cash flows from operating activities |
||||||||||
Net income |
$ |
113 |
$ |
133 |
||||||
Depreciation and amortization |
65 |
59 |
||||||||
Restructuring and other |
13 |
(4) |
||||||||
Pension expense |
1 |
5 |
||||||||
Pension contributions |
(5) |
(13) |
||||||||
Stock-based compensation |
6 |
4 |
||||||||
Working capital changes and other |
(944) |
(761) |
||||||||
Net cash used for operating activities (1) |
(751) |
(577) |
||||||||
Cash flows from investing activities |
||||||||||
Capital expenditures |
(92) |
(107) |
||||||||
Beneficial interest in transferred receivables |
175 |
257 |
||||||||
Proceeds from sale of assets |
3 |
|||||||||
Other |
(25) |
|||||||||
Net cash provided by investing activities |
58 |
153 |
||||||||
Cash flows from financing activities |
||||||||||
Net change in debt |
2,475 |
343 |
||||||||
Dividends paid to noncontrolling interests |
(13) |
|||||||||
Common stock repurchased |
(1) |
(133) |
||||||||
Other, net |
(19) |
2 |
||||||||
Net cash provided by financing activities |
2,455 |
199 |
||||||||
Effect of exchange rate changes on cash and cash equivalents |
14 |
4 |
||||||||
Net change in cash and cash equivalents |
1,776 |
(221) |
||||||||
Cash and cash equivalents at January 1 |
435 |
576 |
||||||||
Cash and cash equivalents at March 31 (2) |
$ |
2,211 |
$ |
355 |
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(1) Adjusted free cash flow is defined by the Company as net cash used for operating activities plus beneficial |
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(2) Cash and cash equivalents includes $10 and $17 of restricted cash at March 31, 2018 and 2017. |
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Three months ended March 31, |
2018 |
2017 |
||||||||
Net cash used for operating activities |
($751) |
($577) |
||||||||
Beneficial interest in transferred receivables (3) |
175 |
257 |
||||||||
Acquisition costs |
3 |
|||||||||
Adjusted cash used for operating activities |
( 573) |
( 320) |
||||||||
Capital expenditures |
( 92) |
( 107) |
||||||||
Adjusted free cash flow |
($665) |
($427) |
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(3) Prior year cash flow has been restated to reflect new accounting guidance related to the classification of |
Consolidated Supplemental Data (Unaudited) |
|||||
(in millions, except per share data) |
|||||
Reconciliation of Q1 and Full Year 2018 Adjusted Earnings per Share |
|||||
Q1 |
Full Year |
||||
Previous adjusted earnings per share guidance |
$0.80 |
(midpoint) |
$4.30-$4.50 |
||
Mivisa and Empaque amortization (1) |
0.06 |
0.22 |
|||
Addition of Signode for nine months |
0.69 |
||||
All other |
0.08 |
0.14 |
|||
Revised actual/estimated adjusted earnings per share |
$0.94 |
$5.35-$5.55 |
|||
(1) |
Add-back of amortization charges was not considered in previous guidance. |
Impact of Intangibles Amortization Charges Excluded from Adjusted Earnings per Share |
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The following table provides information on the impact of the Company's revised policy to exclude intangibles amortization charges when calculating adjusted net income and adjusted earnings per share, including the impact on amounts reported in prior periods. |
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Acquisition |
Q1 2017 |
Full year 2017 |
Q1 2018 |
Full year 2018 (3) |
||||
Mivisa and Empaque (2) |
$10 |
$39 |
$11 |
$42 |
||||
Signode |
102 |
|||||||
Pre-tax impact |
10 |
39 |
11 |
144 |
||||
Tax |
(3) |
(11) |
(3) |
(38) |
||||
After tax impact |
$7 |
$28 |
$8 |
$106 |
||||
Shares |
139.0 |
135.6 |
133.8 |
134.3 |
||||
Per share impact |
$0.05 |
$0.21 |
$0.06 |
$0.79 |
||||
(2) |
Prior to this earnings release, intangibles amortization charges for Mivisa and Empaque were not an excluded item when calculating adjusted net income and adjusted earnings per share. The Company has revised its policy with the acquisition of Signode. |
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(3) |
Full year 2018 amounts for Signode include intangibles amortization charges for the period beginning April 3, 2018 through December 31, 2018. The amounts for Signode are estimates and subject to change based on the final purchase price allocation. |
Consolidated Supplemental Data (Unaudited) |
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(in millions, except per share data) |
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Reconciliation of First Quarter 2017 Segment Income (1) |
|||||||||||
Segment |
As Previously Reported |
Pension and Postretirement |
Intangibles Amortization |
As Currently Reported |
|||||||
Americas Beverage |
$105 |
($6) |
$5 |
$104 |
|||||||
European Beverage |
51 |
(1) |
50 |
||||||||
European Food |
47 |
4 |
51 |
||||||||
Asia Pacific |
39 |
39 |
|||||||||
Non-reportable |
31 |
(4) |
1 |
28 |
|||||||
Corporate and unallocated |
(45) |
(1) |
(46) |
||||||||
Total segment income |
$228 |
($12) |
$10 |
$226 |
(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. |
Historical Revenue for Signode |
|
The information below presents Signode's revenue for 2017 and the first quarter of 2018 at actual exchange rates prevailing during the periods. |
2018 |
||||||||||||
Q1 |
$588 |
|||||||||||
2017 |
||||||||||||
Q1 |
$526 |
|||||||||||
Q2 |
575 |
|||||||||||
Q3 |
565 |
|||||||||||
Q4 |
566 |
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$2,232 |
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