Business News

Crown Holdings Reports Third Quarter 2010 Results

Tuesday 19. October 2010 - Crown Holdings, Inc. (NYSE: CCK) today announced its financial results for the third quarter ended September 30, 2010.

Third Quarter Highlights
— Income Per Diluted Share increased to $0.84
— Income Per Diluted Share Before Certain Items improved to $0.85
— Segment income increased 9.3%
— Global beverage can sales unit volumes rose 11%
Net sales in the third quarter were $2,205 million compared to $2,282 million in the third quarter of 2009. The decrease was primarily due to the pass-through of lower raw material costs and $59 million from foreign currency translation, which offset an increase in global sales unit volumes.
Third quarter gross profit improved to $377 million, or 17.1% of net sales, compared to $365 million, or 16.0% of net sales in the 2009 third quarter, reflecting the increase in global sales unit volumes and cost reductions, which more than offset $11 million from unfavorable foreign currency translation and inventory repricing gains recognized in the third quarter of 2009 that did not recur in 2010.
Selling and administrative expense was $82 million in the third quarter compared to $95 million in the prior year, the result of lower salary and benefit costs and also includes a reduction of $4 million from foreign currency translation.
Segment income (a non-GAAP measure defined by the Company as gross profit less selling and administrative expense) grew to $295 million in the 2010 third quarter, an increase of 9.3% over the $270 million in the same 2009 period. The improvement in 2010 was primarily due to increased sales unit volumes and lower selling and administrative expense, partially offset by unfavorable foreign currency translation of $7 million. Segment income improved to 13.4% of net sales in the 2010 third quarter up from 11.8% in the third quarter last year.
Commenting on the quarter, John W. Conway, Chairman and Chief Executive Officer, stated, “Overall, we are pleased with our third quarter operating results which were largely driven by strong global beverage can volumes. The improvement in gross profit and segment income margins reflects the strength of the developing markets in which we have expanded over the last several years, the diversification of our product offerings and geographic footprint, world class operating performance and our constant focus on cost containment.”
“Our pipeline of growth projects remains robust, as we invest to meet demand in emerging markets and grow with our international and regional customers. During the quarter we doubled beverage can capacity in Thailand and expect the second beverage can line in our Dong Nai, Vietnam plant to be commercialized before the end of the year. In the first half of 2011, we expect to complete the construction of new beverage can plants in Brazil and China and add additional capacity to existing plants in Brazil and Slovakia. Additional capacity and new plant construction as previously announced in Cambodia, China and Turkey are scheduled for completion later in 2011 and 2012. These customer and consumer driven projects reflect Crown’s unique position in some of the most exciting markets around the world,” Mr. Conway said.
Interest expense in the third quarter of $55 million was down from the $66 million in the third quarter of 2009 and reflects the impact of lower average debt outstanding.
During the third quarter of 2010, the Company recorded restructuring charges of $17 million ($13 million, net of tax, or $0.08 per diluted share) primarily related to severance costs for administrative headcount reductions.
The Company recorded gains on sales of assets of $11 million ($11 million, net of tax, or $0.07 per diluted share) in the third quarter of 2010 which related to the sale of Canadian real estate as a result of previously announced plant closings.
In July 2010, the Company sold euro 500 million principal amount of 7.125% senior unsecured notes due in 2018 and used a portion of the proceeds to repurchase euro 65 million of its 6.250% first priority senior secured notes due in 2011 and to retire the remaining $200 million senior unsecured notes due in 2013. In connection with the early retirement of debt, the Company recorded losses of $16 million ($10 million, net of tax, or $0.06 per diluted share) for tender and call premiums and the write-off of deferred financing fees.
Also in the 2010 third quarter, the provision for income taxes includes benefits of $10 million ($0.06 per diluted share) for valuation allowance adjustments based on a review of the Company’s projections of future income and the effect of tax planning strategies in certain foreign jurisdictions.
Net income attributable to Crown Holdings in the third quarter was $135 million, or $0.84 per diluted share, compared to $108 million, or $0.67 per diluted share, in the third quarter of 2009. Net income per diluted share before certain items improved to $0.85.
A reconciliation from net income and income per diluted share to net income before certain items and income per diluted share before certain items is provided below.
Nine Month Results
For the first nine months of 2010, net sales were $5,992 million compared to $6,021 million in the first nine months of 2009 reflecting the pass-through of lower raw material costs which offset higher global sales unit volumes and $3 million in favorable foreign currency translation. Approximately 71% of net sales were generated outside the U.S. in the first nine months of 2010 compared to 72% in the same 2009 period.
Gross profit for the nine month period improved to $962 million, or 16.1% of net sales, compared to the $943 million, or 15.7% of net sales, in the first nine months of 2009. The increase reflects global sales unit volume growth and cost reductions, more than offsetting the 2009 inventory repricing gains that did not recur in 2010 and $6 million of unfavorable foreign currency translation.
Selling and administrative expense for the nine month period was $256 million compared to $274 million for the same 2009 period. The decrease in 2010 expense includes a benefit of $20 million ($20 million, net of tax, or $0.12 per diluted share) from the settlement of a legal dispute unrelated to the Company’s ongoing operations, and $2 million from foreign currency translation.
Segment income in the first nine months of 2010 was $706 million compared to $669 million in the first nine months of 2009. The 2010 increase includes the settlement benefit of $20 million referred to above (and included in corporate and other unallocated items in the Segment Information table below) and reflects the benefits of higher global sales unit volumes and cost reductions which more than offset $4 million of unfavorable foreign currency translation and 2009 inventory repricing gains which did not recur in 2010. Excluding the $20 million settlement benefit, segment income increased to $686 million or 11.4% of net sales in the first nine months of 2010 compared to 11.1% in the same 2009 period.
For the first nine months of 2010, interest expense was $147 million compared to $189 million for the same period last year reflecting the impact of lower average debt outstanding.
Net income attributable to Crown Holdings for the first nine months of 2010 increased 13.8% to $288 million over net income of $253 million for the same period in 2009. Earnings per diluted share for the first nine months of 2010 rose 13.5% to $1.77 over the $1.56 in the first nine months of last year.
Net debt (a non-GAAP measure defined by the Company as total debt less cash) was $27 million higher at September 30, 2010 than at September 30, 2009, primarily the result of an increase of $246 million due to a change in accounting for accounts receivables securitization, the acquisition of partners’ interests in joint ventures for $168 million and the repurchase of $105 million of Company common stock, partially offset by free cash flow generated in the twelve months ended September 30, 2010, and $25 million due to foreign currency translation.
Due to a change in accounting guidance, the Company’s current receivables securitization facilities are now accounted for as securitized borrowings and $246 million is included in the total debt of $3,229 million at September 30, 2010 as presented below. This change in accounting also affects the Company’s reported cash flow from operations in 2010 as the cash received from the securitizations will be reported as financing activities instead of operating activities. In accordance with the new guidance, prior period amounts have not been restated.
Non-GAAP Measures
Segment income, free cash flow and net debt are not defined terms under U.S. generally accepted accounting principles (non-GAAP measures). In addition, the information presented regarding net income before certain items and income before certain items per diluted share does not conform to GAAP and includes non-GAAP measures. Non-GAAP measures should not be considered in isolation or as a substitute for net income, income per diluted share, cash flow or total debt 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 and free cash flow as the principal measures of performance of its operations and for the allocation of resources. 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 net debt is a useful measure of the Company’s debt levels and that net income before certain items and income before certain items per diluted share can be used to evaluate the Company’s operations. Segment income, free cash flow, net debt, net income before certain items and income before certain items per diluted 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, free cash flow, net debt, net income before certain items and income before certain items per diluted share can be found within this release.