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Crown Holdings Inc (NYSE:CCK)
Q1 2020 Earnings Call
Apr 21, 2020, 9:00 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Good morning, and welcome to Crown Holdings First Quarter 2020 Conference Call.

[Operator Instructions]

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, Kath, and good morning.

With me on today's call is Tim Donahue, President and Chief Executive Officer.

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 2019 and subsequent filings. Earnings for the quarter were $0.65 per share compared to $0.77 in the prior year quarter. Comparable earnings per share were $1.13 in the quarter versus $1.05 in 2019. Net sales in the quarter were flat versus prior year as increased beverage can volumes were offset by $40 million of unfavorable currency translation and the pass-through of lower raw material costs.

Segment income of $298 million in the quarter was below prior year, as the global tinplate businesses, as expected, were negatively impacted by $34 million related to the carryover of higher priced steel from the year-end 2019 inventory. At the end of the quarter, the company had over $1.5 billion in liquidity between cash balances and borrowing capacity under its revolving credit facility. The net leverage ratio of 4.5 times was well within the covenant requirement of 5.75 times. As discussed in the release, we are withdrawing our previous financial guidance. With respect to free cash flow, we do have some discretion with capital spending and in certain other areas, and our goal is a number approximating our original guidance of $600 million, although that is dependent on the duration of the social distancing measures.

With that, I'll turn the call over to Tim.

Timothy J. Donahue -- President and Chief Executive Officer

Thank you, Tom.

Good morning to everybody, and thank you for joining us on today's call. Our best wishes for the health and safety go out to you and your families. Before reviewing the operating segments, I want to thank all of our fellow employees for their dedication during these trying times. Your efforts to ensure that our customers in the food, beverage and transportation industries are able to deliver their products and services that are vital to our customers and ultimately consumers around the world. To our factory employees, who, day in and day out, manufacturer the products that are so critical to the global food supply and transportation support systems. Not only do we appreciate your skills and efforts, you are an inspiration to all of your fellow employees.

When I first joined the company, someone once said to me there is hard work and then there is work on a can line. And any of you whoever spent time in a can plant certainly understand that. So when you take really hard work combined with the fear that many feel during this pandemic, a company can only perform with great people, and at Crown, we have great people. The health and safety of our employees, their families, our customers and suppliers remain our primary concern.

In early February, under the leadership of our Chief Operating Officer, Gerry Gifford, we established a coronavirus, now COVID-19, task force. Among many measures, the task force implemented visitor and travel restrictions, required pre-entry temperature checks for all employees and visitors at each facility, developed social distancing and sanitization processes, enabled employees to work from home where possible, and developed an action plan when the company becomes aware that an employee may have been exposed to exhibit symptoms of or has a confirmed diagnosis of the COVID-19 virus.

Like many companies, Crown is doing its part to ensure the supply of necessary equipment to help in the fight against the virus. CMB Engineering, our beverage can equipment business in the UK, is participating in a British National Health Service program to build ventilators needed in that country. We have partnered with a ventilator manufacturer to help in the production of parts for portable ventilators with 350 units shipped already and an additional 5,500 to follow. Additionally, our Transit Packaging division has been utilizing its 3D printing capabilities to provide critical PPE to first responders in Monterrey, Mexico, and in multiple locations to employees throughout the company.

While first quarter performance was strong, despite the initial pressures from social distancing measures, the uncertainty surrounding the severity and duration of the virus precludes us from projecting financial results with any reasonable confidence. Therefore, we have withdrawn our previously issued guidance for the year. We will do our best to tell you what we see in each of the businesses currently, but the dynamic nature of the crisis makes it challenging beyond that. Our primary points of focus remain ensuring employee safety, meeting customer demand, and ensuring adequate liquidity to operate and grow the company. All of which, we believe, lead to enhanced and sustained shareholder value.

We remind you that the pass-through of lower raw material costs, that is tinplate steel down mid-single digits and delivered aluminum down more than 10% from last year will offset unit volume growth on the revenue line. Additionally, and as Tom just discussed, first quarter segment income was negatively impacted by $34 million, or $0.19 per share, as we carried higher priced tinplate inventories into 2020 from 2019.

Turning to the segments. In Americas Beverage, overall unit volumes advanced 15% in the quarter with North America up 16%. North American shipments accelerated in March and demand remains very strong in April. We expect the North American market will remain sold out in 2020. As previously discussed, the third line in Toronto began commercial shipments in late January, while the start up of the third line in Nichols is now delayed until early June, a result of the virus pandemic. During the quarter, we announced and broke ground on a new state-of-the-art beverage can facility in Bowling Green, Kentucky, commercial start-up scheduled for late Q2 2021.

In Brazil, can sales were up 9% in the quarter. However, shipments were down 8% in the month of March and we expect April and the full second quarter to be well below that. With rising unemployment and declining incomes, Brazilian consumers are reshaping their spending behavior and beer demand has softened considerably. Beer consumption is a social activity and nowhere is this more prevalent in than Brazil, where 70% of beer sales occur in the food service channel. Our base scenario is for sharp demand contraction in Q2, followed by some improvement in the third and fourth quarters.

Unit volumes in European Beverage increased 5% in the first quarter, despite both can lines in the Seville plant being down for conversion. Gains were realized across most operations in the quarter. Although we began to see a slowdown in demand in the month of March, notably in Italy, Turkey and the UK, a situation we expect will continue through the second quarter. Sales unit volumes in European food were flat in the first quarter against a strong comparable 2019 first quarter with the month of March increasing 1% over the prior year. While it's difficult to gauge the success of the annual food can campaign from first quarter demand, we do expect demand to accelerate in the second quarter. All signs point to strong can demand for the full year as fillers look to replenish depleted field stocks. First quarter segment income was impacted by $18 million of higher priced metal carried into '20 from '19.

Shipments in Asia Pacific advanced 3% in the quarter as 6% growth in Southeast Asia offset 20% decline in China. The new plant in Nong Khae, Thailand, remains on schedule to begin commercial operations in the third quarter of this year. In the month of March, shipments in China were up 10% as that country began its initial recovery from COVID-19, while Southeast Asian shipments declined 5%. In the second quarter, we expect can demand in China to return to normal levels and remain so through the balance of the year. However, we expect Southeast Asia will be significantly below the prior year second quarter as the full impact of social distancing measures takes effect. We do expect demand will gradually improve from second quarter lows in the third and fourth quarters, but still be below the prior year.

Sales in Transit Packaging declined 8% in the first quarter with the pass-through of lower raw materials accounting for 2.5%, lower overall volumes 3.5%, and currency 2%. Trends in the month of March were similar to the full quarter. To-date, the business has performed well with plastic strap and protective, offsetting much of the volume decline in the equipment and tool businesses. We do expect lower demand from some of the industries we serve for some period of time and we are taking actions to better align our Transit cost structure to the current situation. Demand was firm in the non-reported tinplate businesses with North American Food shipments up 5% in the first quarter. The outlook is for continued strong demand for the end of the year. First quarter income in these businesses was impacted by $16 million of higher priced tinplate inventories carried over from 2019.

In summary, it's going to be a challenging year for all of us. In addition to our people, we derive strength from our product and geographic diversity, operating all but two of our 239 factories across 47 countries. Crown has been a truly global company for more than 100 years of its near 130-year history, surviving two World Wars during that time. As I heard someone say the other day, the only thing that is certain is uncertainty. However, we continue to operate and deliver products to essential businesses, generate significant cash, and have a very manageable debt maturity profile and adequate liquidity to continue to execute our long-term strategy.

And, with that, Kath, we're now ready to take questions.

Questions and Answers:

Operator

[Operator Instructions]

Speakers, our first question is from Anthony Pettinari of Citi. Your line is now open.

Anthony Pettinari -- Citi -- Analyst

Good morning.

Timothy J. Donahue -- President and Chief Executive Officer

Good morning.

Anthony Pettinari -- Citi -- Analyst

And great to hear everyone's voice. Tim, is it possible to quantify or estimate how much of your bev cans you think end up in on-premise or food service channels? You talked about Brazil, just wondering if you had thoughts on the global exposure? And, generally, any comments on how you've seen on-premise demand maybe translate to at-home, especially North America?

Timothy J. Donahue -- President and Chief Executive Officer

Yeah, so I think I talked about Brazil. I think that to a lesser extent, the same characteristics apply to countries like Mexico and the countries throughout Southeast Asia. We will experience a demand slowdown from Mexican customers, but those cans can still be manufactured and we'll ship them into North America -- into the United States, just because demand on the US is so strong. So we don't expect significant can volume loss out of our Mexican facilities, because we'll move those to the US. As I did say in the prepared remarks, we do expect demand in Southeast Asia to be weaker in Q2, because of what you would describe -- as I described with Brazil, food service channels all but being shutdown.

As you look at the European market, the on-premise market, restaurants, hotels, bars, typically glass and/or fountain, I think, we're probably going to see a little bit of slowdown in Europe, only because the pandemic really exacerbated in several countries there. So we will see some beverage cans slow down in the European market. For the most part in the United States, anything that's on-premise is fountain in the soft drink scenario, and then in beer and spirits, mainly glass but cans are beginning to make much greater inroads as we've discussed before. But the market exceptionally strong in the US across a number of products as we've talked to you before. And currently what we see right now is just an explosion in the carbonated and carbonated-flavored water categories.

So I think we fully expect North America to remain oversold through the balance of this year.

Anthony Pettinari -- Citi -- Analyst

Okay. That's very helpful. And then in Transit, you indicated March demand was similar to the full quarter. Just wondering if there was any early reads on April? And then as you look across geographies and categories, are there any segments that are holding up better within Transit than others? Do you view the business as sort of stable, is it may be deteriorating into 2Q, which I guess would have been my expectation? Just any kind of further thoughts there.

Timothy J. Donahue -- President and Chief Executive Officer

Yeah, so we're only two weeks into April. So one of the good fortune of going early is that we only have two weeks that we have to explain to you, the bad fortune is we only have two weeks of knowledge. So we only have two weeks of knowledge. So far in April, I would say the trends in the first two weeks of April are similar to March in the first quarter. However, we do expect some softening in the business. I think Asia Pacific notably will be softer, primarily because the business is largely a business operated out of India and it's a largely a steel industry support business and that will be certainly impacted.

The other businesses are actually holding up quite well. I'd say plastic strap protective holding up extremely well. A lot of that product is used for consumer companies. They're doing well, as you know. We will see steel strap soften a little bit, especially in end markets like steel and autos, white goods, lumber, construction, brick block, things like that, but most of the other markets we serve are doing well.

Equipment and tools, I expect equipment and tools to soften, although for the first two weeks of April is holding up well. But make no doubt, we expect a contraction in second quarter performance in Signode, although for the first two weeks we haven't seen it yet.

Anthony Pettinari -- Citi -- Analyst

Okay. That's helpful. I'll turn it over.

Timothy J. Donahue -- President and Chief Executive Officer

Thank you.

Operator

Thank you. Our next question is from Ghansham Panjabi of RW Baird. Your line is now open.

Ghansham Panjabi -- RW Baird -- Analyst

Thanks so much. Good morning, everybody.

Timothy J. Donahue -- President and Chief Executive Officer

Good morning.

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

Good morning.

Ghansham Panjabi -- RW Baird -- Analyst

Hey Tim, can you just give us some more color on European Beverage? I think you mentioned that a couple of the countries, Italy and UK, were slower in March. Just give us some more context. Did you see an initial acceleration as the virus hit those countries? And then you saw a decline after that in the month of March? And if so, why wouldn't some of that occur in the US as well that was basically a little bit behind, for example, Italy? What do you think is going on?

Timothy J. Donahue -- President and Chief Executive Officer

Well, I think -- I don't think there is -- just real quick, whether it's beverage or food, I don't think the level of pantry loading occurs in Europe as it does in the US, and for a number of reasons and a real simple reason is they don't have the storage space to store the stuff like we do in the US. They don't have garages and big kitchens and big pantries like we do. I think that the impact of the virus in certain communities in Europe is even more significant than, let's say, New York City. So certainly in the United States, the one community that's had a real challenge with the virus has been New York City, and maybe some others will approach that.

But there are regions in Europe, whether it's in the Milan, Parma region of Italy, or around Leon or Paris, in the UK in certain spots, and throughout Spain that have been particularly hard hit. And I do think that one of the things we have done well in the US, there is a social safety net that has been employed by the Congress to help, in many countries around the world, you're not seeing this.

So, Ghansham, a policy of mass unemployment was never going to be good for consumption, right. So you should expect consumption to decline in most areas of the world, where you're going to see mass unemployment. I think the difference in the United States with beverage cans is, the market was oversold coming into the year and we don't see any let up in that market currently. I expect social distancing and shutdowns to be in place for a considerable period of time here and people still consume, people still need to eat and drink, and they'll find different things to eat and drink, but the can works really well at home. So I don't expect there is a change in the US. Whereas in Europe, situation is a little different. Disposable income much different in parts of Europe.

And most of us from America, we look at Europe and we think about Europe as London, Paris, Zurich, Madrid. You get outside the big cities in Europe, into the rural areas of Europe, people are generally poor other than countries like Germany and the Netherlands. It's not the same level of wealth that we're accustomed to in the United States, so unemployment really hits consumption quite hard in those areas.

Ghansham Panjabi -- RW Baird -- Analyst

Okay. And then just for my second question back to the US. Are there -- just from a high-level standpoint, are there any big shift that you're seeing that a material -- we keep hearing from CPG companies about narrowing down their SKUs, for example delay new products. How is that impacting specialty versus the traditional beverage cans sizes in terms of what you've seen so far? Thanks so much.

Timothy J. Donahue -- President and Chief Executive Officer

Well, I don't think we've seen a difference in sizes, Ghansham, but what we've seen is a difference in labels. And so, if a large beverage can producer had 40 different labels that we generally run for them, we might be down to running four labels for them. So we can get maximum output and they can get maximum output in the filling lines. So that's what we're seeing.

Ghansham Panjabi -- RW Baird -- Analyst

And specialty cans versus traditional?

Timothy J. Donahue -- President and Chief Executive Officer

I think specialty and traditional, we're seeing the same general mix.

Ghansham Panjabi -- RW Baird -- Analyst

Thanks so much.

Timothy J. Donahue -- President and Chief Executive Officer

Thank you.

Operator

Thank you. Our next question is from Debbie Jones of Deutsche Bank. Your line is now open.

Debbie Jones -- Deutsche Bank -- Analyst

Hi, good morning. Thanks for taking my question. I wanted to start with Mexico and just see if you could just summarize your understanding of what the situation is there currently? And any challenges you would expect in transferring the cans to the US or transporting into the US?

Timothy J. Donahue -- President and Chief Executive Officer

So initially the Mexican government deemed beer a non-essential industry. It is -- they have reversed that. There is a significant overloading of product in the channel right now as the Mexican consumer, similar to the Brazilian consumer, is strained financially and will look to buy food staples like rice and beans and other products as opposed to beer and soft drinks. And generally beer and soft drinks in a can are a little bit more expensive to the consumer than returnable glass in markets like Mexico, Brazil and other markets like that. So we will start to see the Mexican beer production begin to take up with the Mexican producers for Mexican demand.

However, as we've explained to you and I think you've heard from others, North American demand is exceptionally strong. And fortunately, it's not very difficult to get cans across the border. It takes a little bit more time right now, but we are able to produce the specifications, that is the labels and the internal lacquers are consistent from Mexico to the United States. So we're qualified for all our Mexican locations to our customers in the US and we're able to move cans readily from Mexico into the US.

Debbie Jones -- Deutsche Bank -- Analyst

Okay. Thanks. And then my second question. If you focus on the areas where you are seeing a little bit of weakness or expecting like you might for some time like in Brazil, how do you manage your production schedules in this environment? And do you continue to produce at the same level in case you have any COVID risks at the facilities that you have inventory? Do you shut things down sooner rather than later? I'm trying to understand just given this kind of unprecedented situation.

Timothy J. Donahue -- President and Chief Executive Officer

Yeah, so let's be clear, Debbie. If I didn't say it, I thought I did say it, looking back at my notes now, I thought -- I didn't describe a little contraction in Brazil. I think I described it as a sharp contraction. So let's make no mistake about it. There is a severe consumption decline in Brazil. We are not making cans for the sake of making cans to absorb cost. We are probably -- if we have nine can lines, I think, in Brazil, we might be running two of them right now, we're not going to build inventory just for the sake of building inventory.

Fortunately, it's a low -- the summer -- the spring and summer months are a low season for us in Brazil and it begins to pick up again in Q3, but we will curtail operations. We will utilize what we're allowed to utilize under Brazilian Labor Law to minimize our cost. Employees will take vacation before they're temporarily laid off and then we'll look to bring them back in the summer or later months as demand picks up.

Debbie Jones -- Deutsche Bank -- Analyst

Okay. Thanks. That's helpful. I'll turn it over.

Timothy J. Donahue -- President and Chief Executive Officer

Thank you.

Operator

Thank you. Our next question is from George Staphos of Bank of America. Your line is now open.

George Staphos -- Bank of America -- Analyst

Thanks. Hi everyone, good morning. Thanks for all your doing and everybody at Crown is doing for COVID, Tim, Tom. I wanted to switch gears a bit and talk a bit about Transit Packaging. I think you mentioned, if I heard it correctly, that you are taking some additional actions. I guess my interpretation was to manage cost and margin relative to, obviously, the revenue uncertainties. Could you talk a bit further about that? And then I had a couple of follow-ons.

Timothy J. Donahue -- President and Chief Executive Officer

Yeah. So, George, I think you're aware, because you attended the show in Vegas last year. We have an ongoing process to reduce cost, specifically in the G&A categories. We're looking at how we go-to-market across a number of industries and products and we've combined the management of the industrial -- the protective and the industrial businesses under one platform as opposed to two separate platforms. So that's number one. Number two -- and that's been ongoing and will continue.

Number two, as we see demand softened, which we expect to see as I described earlier in certain of the end markets we supply as you would expect, we will obviously furlough first temporarily employees and then we'll look the furlough or have employees take vacation first before they're furloughed to minimize cost. It's not something you want to do, but for the healthy of the entire franchise it's necessary and that's what we're doing.

George Staphos -- Bank of America -- Analyst

No. Of course. I guess -- and maybe you can't comment, but is there a way to size what shock absorber you have to earnings from these types of actions over the course of the year or has that still undetermined at this juncture or at least not possible to talk about on this kind of forum?

Timothy J. Donahue -- President and Chief Executive Officer

Yeah, I prefer not to talk about it in this forum, but I think that -- I will say the following. I think the concern that most people have with Signode is, when they look back at the financial crisis of '08 and '09, and they look at the EBITDA contraction we had in that period, for the full year, it was something like 40% to 50%. And I don't think we're going to experience anything near that contraction level, 2019 to 2020. The business as we've described to you is far different today than it was then. However, there will be a significant contraction now. Is that 10%, 20%? I don't know. But we'll see where it comes out to.

George Staphos -- Bank of America -- Analyst

Okay. And just because you had mentioned in the press release, can you comment at all on where is the portfolio review stands at? From our vantage point, something like COVID and the recession we're likely entering would probably make this somewhat less to less able to be pursued, but any thoughts you had on that would be helpful. And then one last question.

Timothy J. Donahue -- President and Chief Executive Officer

Sure. So I think -- the review is ongoing. We still have everybody at corporate doing the work from home that they could do. There are things -- there's a lot of work that can be done behind the scenes, whether or not we believe we're going to have a marketplace in which a process or several processes could be explored. So that review is ongoing. I think the fortunate thing, we talked about it before, we have businesses that require very little capital that generate a lot of cash flow. In the market like this, cash flow is exceptionally important and we can talk about a lot of things and there are going to be a lot of companies that talk about a lot of things.

But we are fortunate we have cash flow, we have liquidity and we have a very stable capital structure. And so we're going to run the business to protect the franchise and continue to grow the business where we see opportunities. But behind the scenes, we are doing work and if and when situation allows for the exploration of value for some of those businesses, we will be ready to employ the work we are doing currently in that environment.

George Staphos -- Bank of America -- Analyst

Tim, thanks for that. My last one and I'll turn it over. And if you mentioned it, I missed it, and I apologize. Can you comment on what the volume run rate for beverage cans is in Europe entering April recognizing a lot can change? And are you seeing any signs from your customers in Europe, or perhaps elsewhere, that they care a little bit less about sustainability in environment where people are obviously worried more about paychecks and their own well-being? Thanks, and good luck in the quarter.

Timothy J. Donahue -- President and Chief Executive Officer

You asked about Europe, George?

George Staphos -- Bank of America -- Analyst

Europe, but -- and then more -- run rates in Europe and then more broadly do customers and consumers care less about sustainability when they're worried about trying to get food on the table?

Timothy J. Donahue -- President and Chief Executive Officer

Yeah, so, for the quarter, we were up double digits. For the month of March, we were up 2.5%. So, as I said, we saw contraction in several markets, Turkey, Italy, UK, and I expect we'll see more in April. I think April and the second quarter, we're going to be down. When I look at our production numbers, production numbers are probably down because you're trying to match the demand, we're probably down on the order of 12%, 12% to 15% production. And that's just a reflection of the demand that we're looking at, not a reflection of government-forced closures or absenteeism.

We have had in both food and beverage in Europe significant absenteeism in some of the factors, but that is beginning to subside and absenteeism on balance is starting to decline and approach more historical levels right now. So the factories -- Gerry and I, we talk about this probably two or three times a day. All things considered, the factories are running phenomenally. The workforces that we have globally -- they're just doing a tremendous job in the face of the fear they face. So, actually, we feel pretty good about that. But this is demand issue, and so demand is slowing.

George Staphos -- Bank of America -- Analyst

Okay. I'll turn it over. Thank you.

Timothy J. Donahue -- President and Chief Executive Officer

Thanks, George.

Operator

Thank you. Our next question is from Mike Leithead of Barclays. Your line is now open.

Mike Leithead -- Barclays -- Analyst

Thanks. Good morning, guys. I guess, first question on cash flow and working capital. I guess, 1Q looked like a fairly typical seasonal working capital build, but obviously the sales outlook has changed a bit since the year started. So can you maybe just help us with how we should think about the seasonal unwind that you'd expect this year? Obviously, it's still a fluid target, but just in your base model how you think about getting that cash back throughout the year?

Timothy J. Donahue -- President and Chief Executive Officer

So I think Tom talked that we're going to do everything we can to stick to the original cash flow guidance we gave you. It will really depend on the duration of these social distancing measures. On our base scenario, we've extended what we believe the measures will be by the various governments around the world through much of the -- through much or close to the end of the second quarter. We are expecting some easing of that in third quarter and fourth quarter. So clearly there is going to be, as we've described, demand shortfalls across the business globally and largely across most of the international beverage can businesses. And with that, you would expect EBIT to come down on the global beverage businesses and cash flow to come down accordingly.

We believe strongly that we have within our discretion, whether it's in the capex line or in some of the various cost lines, the ability to offset much of that. And so cash flow, we feel comfortable that we can still generate significant cash flow this year and we'll see what the number actually is. In terms of the seasonal build, I think, probably, you're going to see a smaller build in Q2 and a smaller recovery in Q4, but probably still comes out to on balance a pretty fair number by the end of the year.

Mike Leithead -- Barclays -- Analyst

Got it. That's helpful. And then just returning to Americas Beverage, Tim, I understand what you're saying about the cultural differences in consumption between regions and that's helpful. I guess with North American volumes up 16%, I can't imagine people are sustainably drinking 15% more beer or soda or whatever. So I guess how do you think about pantry loading or pre-buy or other factors like that? [Speech Overlap]

Timothy J. Donahue -- President and Chief Executive Officer

Yeah. So, Mike, just keep in mind, the first quarter is a smaller quarter, much like the fourth quarter. And so the percentage gains that we'll experience in the first and fourth quarter are going to be greater than the second and third and certainly greater than the full year, but I do think at some point last year, whether it was in October or February describing the third and fourth quarters as we looked at it, 2020, we all but guaranteed you that we would have 10% growth this year and we knew where we felt comfortable that we would see growth like that, because of the new capacity coming online in Toronto and in Nichols with third line.

So I still -- I don't believe we're going to have 16% growth for the full year, but I think we're likely to see from US manufactured cans numbers close to that 10%. I don't see any reason why we're not going to experience that. I do think the -- we'll have an outsized proportion of the growth this year, just because it was the year where we brought capacity on versus the year where others brought capacity on and that kind of bounces around from year-to-year depending on who brings on capacity, but the market is going to be very firm. I don't think that people are consuming 16% more product, but what they're not consuming is fountain soda in restaurants and they're not buying larger-sized PET products, which go flat in their pantry, they're buying something that stores well in the pantry.

And I do believe that when it's in the house, it gets consumed. So my children are home from school, everybody's children's are home from school, everybody is in the house. And one thing you know about children is, they think nothing about going into the pantry and grabbing what they want, when they want it. So stuff is being consumed and I expect North America is going to be continued to be extremely robust throughout the balance of this year.

Mike Leithead -- Barclays -- Analyst

Got it. Okay. Thank you.

Timothy J. Donahue -- President and Chief Executive Officer

Thank you, Mike.

Operator

Thank you. Our next question is from Arun Viswanathan of RBC Capital Markets. Your line is now open.

Arun Viswanathan -- RBC Capital Markets -- Analyst

Great. Thanks for taking my question. Good morning, and thanks for all you are doing as well. I guess, I just -- my first question was on the guidance. Obviously, lot of the things are moving and changing, right now, but if we were to bucket it out into, say, price, cost, volume and other and FX, I would imagine that volume is the main area of uncertainty, especially in Europe and Asia Pacific, is that right, for beverage cans?

Timothy J. Donahue -- President and Chief Executive Officer

Well, and Brazil, right?

Arun Viswanathan -- RBC Capital Markets -- Analyst

Right.

Timothy J. Donahue -- President and Chief Executive Officer

I mean, Brazil is probably going to be the -- Brazil and Southeast Asia are the hardest hit that we see, only because of the -- as we described earlier, the prevalence for the predominant nature of consumption of beer in those markets is in the foodservice channels. So, I would say currency, like, what we have in the first quarter, the first quarter currency was a handful or $4 million on segment income. And as we said last year, we expected that to be -- the impact of that to be largely muted compared to prior years. We'll see how the dollar balances around versus foreign currencies, but not a big thing.

Price. Price, we kind of know where price is. As we enter the year, we're, kind of -- we know where our price is. So the big moving factor compared to the early February conversation we have with you is volume. And I'm trying not to speculate, because I don't like to talk about what we don't know. We tried to tell you everything we know for the quarter, the month of March, and what we're seeing right now. But it's largely volume and North America is going to be exceptionally strong in beverage, food.

Globally, food and aerosol cans are going to hold up well. Metal vacuum closures for products like baby food and adult nutritionals and condiments going to hold up very well. Some of the Transit businesses will hold up very well, some will be weak. And then beverage in markets like Brazil, Southeast Asia, and in some parts of Europe will be weaker. And so -- but it's a volume. Arun, it's volume, right now, that's the uncertainty.

Arun Viswanathan -- RBC Capital Markets -- Analyst

And just from a kind of operational standpoint, do you expect to kind of announce, maybe, a larger cost reduction program or is there kind of ongoing productivity that you target within your system every year or how should we think about that opportunity?

Timothy J. Donahue -- President and Chief Executive Officer

Well, we are not expecting this to be an 18-month problem. At some point, social distancing measures are going to be eased or lifted across many of these geographies and we'll see the global population, how willing they are to get back into restaurants, bars and sporting events and get become in close contact with other human beings in the face of any fear they may still have with regard to this or any other virus in the future.

But at some point we're going to get back to life, normal life here. And so, the one thing we need to do is be prepared to support our customer base, globally, as they go back to those markets in full force to support consumer demand. I will tell you that manufacturing beverage cans is not a simple process. You fellows have walk through beverage can plants and it is highly automated. It looks highly automated to you, but make no mistake the fellows that work on those lines have real skills, whether it's on the front-end or on the decorator, and we are very hesitant to let those people go understanding that if you want to run a factory officially and have high productivity you need skilled workers and we appreciate our workers, they are very skilled, we've invested a lot of time to train them and we're not about to let them go.

So there are some things we can do, but the equipment is in place and beyond that much of the -- much of what you're describing would be headcount reduction, and that's something you can't afford to do in a business that requires high skills. So we will look to do as much as we can, but we need to keep the people prepared and keep the factories maintained, sanitized and prepared to support the customers when the customers come back with their demand requirements.

Arun Viswanathan -- RBC Capital Markets -- Analyst

Understood. And then just on that point though, so if you look longer term, do you guys have a lot of investments planned for this year and next year. Could you just elaborate, I guess, on your plans there? Should we expect any delays or changes to your expansion plans regionally? Any thoughts on that? Thanks.

Timothy J. Donahue -- President and Chief Executive Officer

So I think the growth capital -- within the $600 million capital number we gave you previously, the growth capital that was inside that, we're going to continue to spend that growth capital. We are delayed at Nichols on the third line only because of the pandemic. Some of the OEM engineers and other technicians either were not able to get to the site as their countries or New York put specific lock downs in place and we're working our way through that.

The conversion in Seville, we were scheduled to complete the conversion and bring both lines up from steel and aluminum in early April, that's also been delayed. We probably don't get that done until sometime in early June as well and that's just a function of all the engineers returning to their home country and/or other engineers not being able to get everything done without all the engineers that are there, but we are full steam ahead on all the expansion projects. Where we have discretion beyond the expansion, we will reduce capital this year on other discretionary items and some of those may be cost reduction, but that's just a function of -- we can always get the cost reduction next year. We will try to preserve cash this year and we can do that next year.

Arun Viswanathan -- RBC Capital Markets -- Analyst

Thanks.

Timothy J. Donahue -- President and Chief Executive Officer

Thank you.

Operator

Thank you. Our next question is from Mark Wilde of Bank of Montreal. Please go ahead.

Mark Wilde -- Bank of Montreal -- Analyst

Good morning, Tim. Good morning, Tom.

Timothy J. Donahue -- President and Chief Executive Officer

Good morning.

Mark Wilde -- Bank of Montreal -- Analyst

Tim, is it possible to put a little more detail around the inventory headwinds in Europe and non-reportable? It seems like a larger amount than I can recall. And then also whether there's any kind of carryover into the second quarter?

Timothy J. Donahue -- President and Chief Executive Officer

I think I probably said it was going to be about $0.20. Back when we had the fourth quarter call, I said it was going to be $0.20, it turned out to be $0.19, a little higher than we would have liked and a little higher than historically, Mark, when this was happened, one way or the other, up or down, and that only because the season in Europe was so poor last year and we came into the year with a lot more inventory -- this year with a lot more inventory from the prior year than we otherwise would have. And I'd say most of it is now gone. Maybe there is a couple of million dollars in European Food that bleeds into second quarter, but no more than that.

Mark Wilde -- Bank of Montreal -- Analyst

Okay. And also just kind of staying with Europe, I noticed there was about $9 million for some restructuring in European Food and I wondered what that involved and if there is more to come?

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

Yeah, Mark. It wasn't focused on any one particular area. Some of that was in European Food and some was in Transit arising from the restructuring that Tim talked about where we're putting the protective businesses in with the industrial now.

Mark Wilde -- Bank of Montreal -- Analyst

Okay. And then, Tim, down in Mexico, you talked about sort of the ability to export kind of cans from Mexico into the US. I wondered about the potential hit to the glass business down there?

Timothy J. Donahue -- President and Chief Executive Officer

Yes. Great question. So glass will be certainly impacted. A little bit more difficult to move that much glass and so we have one furnace in Chihuahua State, which is pretty close to the US border. The other facility is about two hours by truck, West of Veracruz, so very difficult. Not very difficult. I mean, it's possible, but very expensive to get glass from there to the US and certainly wouldn't move in that direction, unless it was required to the US and it's probably not required. Cans are much easier to move and the consumer now consuming more at home than in bars and restaurants will use cans more than glass.

So I think we probably expect -- on the can side in Mexico will run the factories that if I was to try to give you a number off the top of my head, maybe productivity is 95% of budget on the can side and on the glass side it might only be 70% of budget. But I do think that when the fillers come back up in Mexico, it will be largely skewed toward glass only because glass and returnable much cheaper to the consumer ultimately, who is looking to preserve as much of their cash on the home front as possible. So we'll see that come back a little quicker in Mexico than can consumption in Mexico.

Mark Wilde -- Bank of Montreal -- Analyst

Okay. Last one I had was just. Tom Kelly, I wonder if it's possible to get a sense in Americas Beverage about how much there was in terms of start-up costs during the first quarter and what we might expect during the second quarter?

Timothy J. Donahue -- President and Chief Executive Officer

Mark, one of those things you have a -- depending on the business, some of the businesses have a real good quarter, some of them don't, and some of them have average quarters. That business had a really good quarter, so it's kind of one of those things we didn't go looking forward to be honest with you. I don't have that right now.

Mark Wilde -- Bank of Montreal -- Analyst

Okay. All right. Sounds good. Good luck in the balance of the year, Tim.

Timothy J. Donahue -- President and Chief Executive Officer

Thank you, Mark.

Operator

Thank you. Our next question is Adam Josephson of KeyBanc. Your line is now open.

Adam Josephson -- KeyBanc -- Analyst

Tim and Tom, good morning.

Timothy J. Donahue -- President and Chief Executive Officer

Good morning, Adam.

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

Good morning.

Adam Josephson -- KeyBanc -- Analyst

Hope you and your families are well and safe.

Timothy J. Donahue -- President and Chief Executive Officer

Thank you. And you as well.

Adam Josephson -- KeyBanc -- Analyst

Thanks, Tim. Just on back to volume for a moment. So I think you talked, Tim, about North America being up, call it, 10-ish for the balance of the year just given the capacity you're putting in and given how strong demand is in the US and Canada. Can you give us any order of magnitude on the opposite side for Brazil and Southeast Asia as you're looking at it for that. I appreciate that you're not giving guidance here and it's a fast-moving situation and just relatedly my recollection is that Southeast Asia and Brazil are two of your higher margin regions in the world. So I'm just wondering what kind of mix or margin impact you're thinking there could be in the next quarter or two as you have North America growing and that's obviously not at the -- nearly the same margin level, I assume that Brazil and Southeast Asia are?

Timothy J. Donahue -- President and Chief Executive Officer

Yes. North America, the margins are improving. And I -- we talked about this -- I'll answer your question, I just want to -- you're going to give me the opportunity to say something.

Adam Josephson -- KeyBanc -- Analyst

Sure.

Timothy J. Donahue -- President and Chief Executive Officer

We talked about this in February. In response, I think, to somebody's question, maybe it was Ghansham or somebody else, we were not pleased with the margin profile in Europe, but where we saw demand and better margin profile, such as North America, we're quite prepared now to make investments where we have made investments in the past. So the margins are improving in North America, but you are right that both Brazil and Southeast Asia are some of the better margin businesses we have globally. I don't really want to give you -- I kind of have a number that I'm looking at here, but I don't have enough confidence in the number to give it to you in terms of demand contraction, but it will be significant. Just keep that in mind, it will be significant.

Now having said that, we have a 50% interest in Brazil. So whatever we lose at the segment income line, we cut in half and then the two big markets we participate in Southeast Asia are -- we participate in a number of markets, but the two big markets for us are Vietnam and Cambodia and in both of those markets we have significant minority partners as well. So the impact at segment income or EBITDA is one number, but then it's obviously muted at the net income line and earnings per share line, because of the declining impact on minority interest. So -- and then ultimately the cash that we pay in dividends to the minorities will be smaller next year only because the results this year are expected to be smaller in those locations. So a significant impact on both of those areas, but muted by the fact that we share that with minority partners.

Adam Josephson -- KeyBanc -- Analyst

Yes. No. I totally get it, Tim. Two others. One on just 2Q and appreciating that your visibility, like everyone else's, is pretty limited, but when you think about segments that could be down year-on-year in 2Q, are you thinking Transit is likely to be down the most and then, kind of, where would you rank them, European Beverage, Americas Beverage, because of the Brazil situation; Asia-Pac, because of the Southeast Asia situation and then obviously Transit Packaging for -- because of the industrial economy. Any sense of [Speech Overlap]

Timothy J. Donahue -- President and Chief Executive Officer

Well, I think, European Food and the non-reportables are likely to be flat to up. I think the Beverage businesses, if I had to rank them, I think, you could take Americas Beverage, because it's got Brazil in there.

Adam Josephson -- KeyBanc -- Analyst

Yes.

Timothy J. Donahue -- President and Chief Executive Officer

Americas Beverage, Asia and Transit are all down, similar numbers. European Beverage down a little bit less than Americas Beverage, but I'm guessing here, right.

Adam Josephson -- KeyBanc -- Analyst

No. Sure. I totally understand. I appreciate that comment. One last one on the buyback in the quarter, can you just talk about when you bought back shares and kind of what your thought process was and if you're planning on doing anymore for the balance of the year?

Timothy J. Donahue -- President and Chief Executive Officer

Yes. Well, we -- before I think we or anybody else or maybe you guys all understood it before, we really understood the -- how deep this pandemic was going to cause concerns or contraction in demand. We thought we might use the opportunity to buy some shares at numbers that were a lot lower than we believe where the share should trade. We -- I think we got the Board authorized $250 million. We did set different levels that where we wanted to buy. Those stock never got low enough other than I think we bought $50 million worth of stock at an average price of about $48. So -- but we are not going to be buying back any more shares this year. I think the -- we and most other companies are going to look to preserve liquidity until we understand the duration of this pandemic.

Adam Josephson -- KeyBanc -- Analyst

Thanks, Tim, and stay well.

Timothy J. Donahue -- President and Chief Executive Officer

You too.

Operator

Thank you. Our next question is from Brian Maguire of Goldman Sachs. Your line is now open.

Brian Maguire -- Goldman Sachs -- Analyst

Hey, good morning, guys. Thanks for all the detail. Tim, you've been through a lot of different business cycles and a lot of different recessions, just wondering if you could, kind of, give some thoughts on how you see this one being different than, say, prior one, like 2008-2009 or 2001-2002 or some of the ones in the early 1990s? And on a related note, do you expect that the recovery from this one will look any different than we would have seen in those recessions? In other words, do you think like coming out of this consumer behaviors might be permanently altered in a way that could be either positive or negative for beverage cans or food cans?

Timothy J. Donahue -- President and Chief Executive Officer

Well, Brian, I would like to thank you for pointing out how old I am since I've been through all these cycles. No, seriously. Well, I think 2008-2009, we look back at 2008-2009 and certainly in the Transit business and some of our other businesses, the recovery was V shaped, it was pretty quick. And that was a financial crisis where you guys at the banks took the brunt because you were blamed for doing whatever whether that was right or wrong. I don't think anybody is blaming anybody this time around. This is something that's nobody's fault, kind of out of everybody's control. So in regards to that we're kind of all in this together this time as opposed to people wanting to point their fingers at one industry. That doesn't really answer your question, does it?

1990-1991 was more of a U-shaped recovery, it took a couple of years. 2000-2001 was a -- whether it was a dot com bubble burst and some other challenges overvalued assets, wouldn't -- certainly wasn't V-shape, but it was a little bit longer than that. Well, this one here. I think when things come back, it's going to be uneven across businesses and across sectors. I think some are going to bounce back quite rapidly and I think some are going to -- some are going to take a little longer. I do believe that, for example, if we looked at our Transit businesses that when things start to ease, we're going to see construction come back in a V-shaped manner only because nothing is being done now and there are things that need to be done from a maintenance standpoint and the unions need to get back to work.

But there are going to be other sectors that are going to be a little slower to recover. I really -- boy, I'm having a hard time, it's no consumer confidence, this is in consumer confidence and when they want to spend money, this is more confidence in when they want to all get together and congregate and socialize with each other, whether that's at a baseball game, whether that's at a bar or an NFL stadium, that'll be something we're going to see. Does the US football fan want to get together with 60,000 of his crazy friends, drink in the parking lot, and go in and high-five each other and rub shoulders with each other and that'll be very telling.

But I don't really have a good answer, Brian. I'm not smart enough and other than I do know that there are a lot of people that are very concerned right now and some people are more concerned than others. So I don't know, I'm sorry, I don't have the answer for you.

Brian Maguire -- Goldman Sachs -- Analyst

Yeah. That's fair. That's definitely unprecedented sort of a time. Just, I guess, one last question. Just related to the inventory question somebody asked earlier. It seems like the first quarter, January, February, even much of March you were running full out, industry globally seem to be doing amazingly well with expectations for good volume growth this year and then in much of the world it looks like we hit a brick wall there toward the end of the March and into April and the kind of production numbers you're talking about for your own business in April seem down significantly. So just wondering if you could assess what the channel inventory might look like in bev cans specifically and whether maybe people didn't have too much in the inventory in Southeast Asia and Brazil, heading into this and so there might be some inventory correction period needed in 2Q beyond just the actual level of demand destruction down there?

Timothy J. Donahue -- President and Chief Executive Officer

Yes. As a matter of practice, our customers don't keep any empty inventory. Certainly they fill inventory and they try to get it out of the channels and have it consumed as quick as possible. I can tell you in North America, I went to a supermarket and I went to one of the larger multi-channel retailers yesterday, and I was looking to buy some sparkling water and it was pretty sparse, that's all I can tell you, in both locations, which would tell me that they're having problems keeping stores stocked in North America.

But as we've said a few times on this call, beer specifically, the channels are stuffed in Brazil, Mexico, Southeast Asia, the consumer in those markets is whether they are concerned or they have no money or they're conserving the money they have for things that are certainly, let's just be frank, more important to them in terms of feeding their families and protecting their families. So they're spending their money elsewhere right now. So we're -- and we're not -- we're not having as we said the -- well, they're not having the opportunity to congregate in social settings and consume as they have in the past. So I would say that the channels are full and that's why the -- in large part, the beer companies are -- have curtailed their production and as they curtail production, they don't need packages.

Brian Maguire -- Goldman Sachs -- Analyst

Got it. It makes sense. Appreciate the color. Stay safe, everyone.

Timothy J. Donahue -- President and Chief Executive Officer

Thank you.

Operator

Thank you. Our next question is from Gabe Hajde of Wells Fargo. Your line is now open.

Gabe Hajde -- Wells Fargo -- Analyst

Good morning, gentlemen. Tim, thanks for the well wishes and same to everyone at Crown and your family.

Timothy J. Donahue -- President and Chief Executive Officer

Thank you.

Gabe Hajde -- Wells Fargo -- Analyst

One thing I wanted to ask about -- I read a few articles talking about migrant workers and their inability to cross borders and their importance in the planting season for European Food and you mentioned coming off of two poor harvest and crop yields two consecutive years that is, I was just curious if you've heard anything from your customers in that regard in terms of plantings?

Timothy J. Donahue -- President and Chief Executive Officer

Well, Gabe, I am glad to see somebody else out there is reading like I am. So but we've heard this from the customers. So, we -- as the pandemic started to spread rapidly in late January, early February throughout Europe, we talked with a number of customers and asked them what they thought their requirements would be for the Q3 harvest and would they be planting more? And their initial response was that they had two challenges. A, getting seed from the United States, they had already contracted for the seed that they thought they needed for the year; and, B, their ability to get workers to come into countries like Spain and France, where the virus was initially extremely damaging and migrant workers, A, either not being able to cross country lines or, B, not willing to come into countries like France and Spain, because of the virus.

So I don't believe they're going to plant any more than they initially budgeted to plant. So we're still going to have a firm year. We believe we're going to be up on last year, but it's not going to be -- it's not going to be a year where they have the opportunity to harvest 10% more product than they thought they would, because of the reasons I just mentioned.

Gabe Hajde -- Wells Fargo -- Analyst

All right. Thank you. And then I guess a similar question in North American Food. Can you remind us, because it's now obviously non-reportable, your mix there, because we're looking at Nielsen data that suggests canned vegetable sales are up 100% plus, but those were packed last year, so that doesn't necessarily benefit you this year. I'm just curious on the product mix or end-market mix for your North American Food can business?

Timothy J. Donahue -- President and Chief Executive Officer

Yes. So we're real big in vegetable soups and pet food. Pet foods is an interesting one, right. People will feed their dog before their cat, before they'll feed themselves. It's been very strong as has soups. I think vegetables are up a little bit, but I don't want to say we're a-third, a-third, a-third, we're probably 40% vegetables and that's 25% pets, and that's mainly cats, and soups all flowing very well and we expect will flow -- will continue to flow through the balance of the year. The balance of the products are fruits and some other dairies and some things like that, but it's primarily the three end-markets, a little bit of fish in North America, not as much as Europe.

Gabe Hajde -- Wells Fargo -- Analyst

Right. Thank you, Tim. And one last one, Tom. I think you guys have guided interest expense to be roughly $330 million with moving interest rates. It was lower than my model this quarter. Is it something around $300 million now, the new rates, or do we have a view there?

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

Yeah. Gabe, I think $300 million is in the ballpark with the lower rates and our working capital build hasn't been as large as it was last year. So the debt balances are down a little as well.

Gabe Hajde -- Wells Fargo -- Analyst

Great. Thank you, guys. Good luck.

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

Thank you, Gabe.

Operator

Thank you. Our last question is from Neel Kumar of Morgan Stanley. Your line is now open.

Neel Kumar -- Morgan Stanley -- Analyst

Great. Thanks for taking my question. Given the decline that we've seen in oil prices, how would you view the cost economics of PET versus aluminum cans currently? And, in general, do you expect to current environment to perhaps delay sustainability-driven decisions by customers to switch substrates to aluminum?

Timothy J. Donahue -- President and Chief Executive Officer

Well, I think certainly the decline in oil over the medium term will benefit the cost competitiveness of the PET package versus cans. Having said that, so specifically in North America as the consumer stays at home longer is consuming more at home and remains concerned with the likelihood or the possibility that the shelter in place orders will remain in effect for some period of time. We believe they're going to continue to load up on cans, because cans store better and maintain the integrity of the product inside much better for a duration of time than a PET bottle, which gas leaks in and leaks out.

So I don't think anybody right now is making decisions long term on sustainability, because of the virus or oil. I think we're all -- our first item of the business is to ensure and maintain the health and safety of our employees and the customers and the consumers that we deliver product to. So it's probably more along the social lines than the environmental line. I think that we'll have the -- we'll continue to have the discussion and we believe as you've heard us and others say that the can is by far the most environmentally sustainable product out there and -- but I think, right now, it's all hands on deck for the can manufacturers and the manufacturers of PET and other plastic products, whether they'd be in food or other consumer staples to support their customers and ultimately the retailers and consumers around the world.

Neel Kumar -- Morgan Stanley -- Analyst

Great. That's helpful context. And then just one other question. In terms of some of the new capacity for beverage cans you're bringing on, can you just give us a sense of how your customer commitments are structured in terms of volumes? Is there any take-or-pay arrangements that you have in place?

Timothy J. Donahue -- President and Chief Executive Officer

Something we're not going to talk about on this call.

Neel Kumar -- Morgan Stanley -- Analyst

All right. Thank you.

Timothy J. Donahue -- President and Chief Executive Officer

Thank you. Okay. I think, Kath, that ends it. So, thank you very much. That will conclude the call today. We'll speak with you again in July. Thanks for joining us.

Operator

[Operator Closing Remarks]

Duration: 65 minutes

Call participants:

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

Timothy J. Donahue -- President and Chief Executive Officer

Anthony Pettinari -- Citi -- Analyst

Ghansham Panjabi -- RW Baird -- Analyst

Debbie Jones -- Deutsche Bank -- Analyst

George Staphos -- Bank of America -- Analyst

Mike Leithead -- Barclays -- Analyst

Arun Viswanathan -- RBC Capital Markets -- Analyst

Mark Wilde -- Bank of Montreal -- Analyst

Adam Josephson -- KeyBanc -- Analyst

Brian Maguire -- Goldman Sachs -- Analyst

Gabe Hajde -- Wells Fargo -- Analyst

Neel Kumar -- Morgan Stanley -- Analyst

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