Crown Holdings Inc
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Earnings Call Transcript

Earnings Call Transcript
2018-Q2

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Operator

Good morning, and welcome to Crown Holdings’ Second Quarter 2018 Conference Call. Your lines have been placed on a listen-only mode until the question-and-answer session. Please be advised that this conference is being recorded.

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

T
Thomas Kelly

Thank you, Haley, 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 2017 and subsequent filings.

Earnings for the quarter were $0.99 per share compared to $0.94 in the prior year quarter. Adjusted earnings per share were $1.55 in the quarter compared to $1.17 in 2017. Net sales on a currency neutral basis and excluding the impact of Transit Packaging were up 9% for the quarter primarily due to increased beverage can volumes and the pass-through of higher material costs. Segment income in the quarter improved primarily due to the Signode acquisition as higher global beverage can volumes were offset by continued inflation in North American freight costs and soft volumes in the Middle East.

On the cash flow statement adjusted cash used for operating activities for the six months is above the prior year amount primarily due to higher exchange rates compared to the first six months of 2017 and higher material costs that will be recovered from customers as inventories are sold and receivables are collected.

Net leverage at the end of 2018 is expected to be approximately 4.6 times and we expect the ratio to decline by about half a turn each year going forward as we use cash flow to delever. As outlined in the release we estimate third quarter 2018 adjusted earnings of between $1.60 and $1.70 per share. And full year earnings of between $5.15 and $5.30 per share. The source of the vision to full year guidance is about evenly split between currency impacts and freight costs at the midpoint of the range.

These estimates assume a full year tax rate of between 25% and 26% and then exchange rates remain at current levels. We are maintaining full year adjusted free cash flow of approximately $625 million after approximately $460 million in capital spending. We expect to short fall on operations from our previous guidance will be offset by working capital improvements. We have identified some additional areas for improvement including in the Transit Packaging business that we expect will benefit the cash flow in both 2018 and 2019.

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

T
Tim Donahue
President and Chief Executive Officer

Thank you, Tom and good morning to everyone. I’ll try to be brief and then we’ll open the call to questions.

As Tom just discussed and as reflected in last night’s earnings release, we had a good second quarter and six months. Operationally, we are ahead of plan through six months a strong global beverage demand and a stronger than initial expected contribution from the Transit business offset most of the headwinds associated with higher freight costs and the weakness in the Brazilian reais against the U.S. dollar.

The strengthening of the U.S. dollar against the major currencies in which we operate and elevated freight costs, which at this time we expect will persist over the balance of the year require us to revise our full year earnings guidance back towards the initial expectations for the year before the guidance raise offered after the first quarter.

Just on currencies from April 17th, when we last spoke to the major currencies that we operate in have devalued about 5% to 8% against the dollar. Free cash flow guidance as Tom described for the year remains unchanged at $625 million. As a reminder and as discussed in April, the double digit increases in tinplate, steel and aluminum have been successfully pass-through to customers. Accordingly, you will see significant increases in revenues compared to last year with the resulting denominator effect on percentage margins. There is no absolute margin impact from the higher cost of metal this year.

In the second quarter net sales advanced 41% over the prior year largely due to the addition of the Transit Packaging business. Adjusting for transit sales were up 12% in the quarter primarily as a result of higher global beverage volumes, the pass-through of higher raw material costs and foreign exchange. Segment income improved 32% over the 2017 second quarter as a result of the Transit acquisition as higher global beverage volumes offset the inflationary impact of higher transportation costs in North America and expected volume softness in our Middle Eastern beverage can businesses.

In America’s beverage overall unit volumes were up mid-single digits with strong volumes in both North America and Brazil. In North America volumes are up mid-single digits ahead of a flat market reflecting our under waiting to mass beer in that market and generally strong performances by our CSD customers notably private label. In Brazil, we were up high-single digits in line with the market. Segment income up 2% versus the prior year benefited from the strong volumes including an oversold position in North America but faced higher freight costs as discussed earlier. Our oversold position is expected to continue throughout the balance of the summer.

Unit volumes in European beverage were down mid single digits as strong performances in France and throughout the Mediterranean where more than offset by demand weakness in the UK, Spain and Saudi Arabia. As we expected segment income was impacted by the planned and ongoing rebalancing of our geographic mix more towards Western Europe. Unit volumes in European food were down low-single digits in the second quarter compared to the prior year as cold weather caused some delay in the early vegetable packs. We do expect a normal packing season overall this year, so our production schedule remains full throughout the quarter.

Strong operating performance including the benefits from prior year cost reduction activities and a $7 million benefit from foreign exchange all contributed to the near 20% growth in segment income. Segment income in Asia Pacific advanced 4% in the quarter as mid-single digit volume growth in Southeast Asia offset planned volume declines in China and initial start up costs at the new plant in Myanmar.

This is the first quarter that we report the results of the Transit Packaging business. Sales at $620 million were up 7% and segment income was up 17% over the prior year at $94 million. Traditionally, the second quarter is the Transit businesses strongest quarter and this year’s second quarter reflects that. All businesses experienced firm demand and benefited from the effect of pass-throughs of inflationary increases during the quarter. It’s only one quarter but the business is performing well ahead of our expectations and we remain confident that the addition of this premium business will create long-term value for our shareholders.

Segment income in the non-reportable businesses reflect timing associated with some Q1 pull ahead in European aerosols. So in summary, a solid first half operating result demand has been and is expected to remain firm throughout most of our businesses. We continue to tightly manage those items in our control and while we still have the important third quarter food pack to come all current signs point to a good season.

And with that Haley, we’re now ready to take questions.

Operator

Thank you, speakers. We will now begin the question-and-answer session. [Operator Instructions] Our first question is coming from the line of Ghansham Panjabi from R.W. Baird. Your line is open.

G
Ghansham Panjabi
R.W. Baird

Hey, guys good morning.

T
Tim Donahue
President and Chief Executive Officer

Good morning, Ghansham.

G
Ghansham Panjabi
R.W. Baird

Good morning, Tim. So I guess first off on Transit, can you just give us some more color as to how the business is being integrated similarly takeaways? How are they handling higher freight costs and also raw material cost of the other businesses are handling, just sort of an update there.

T
Tim Donahue
President and Chief Executive Officer

Sure. So I think integration is well underway, it’s going according to plan. As we described to you in December and again in February and April, this was not an acquisition designed to create massive synergies between the two companies. There will be some synergy, we’ve achieved some of that already. And there are ongoing cost reductions that will be achieved within the Signode business itself. But in line with our expectations the integration is going according to plan.

I think as we look at the performance that the Transit business had in the second quarter, I think traditionally the second quarter is the biggest quarter as we say. Last year in 2017 and reviewing their numbers and speaking to the managers in the business they had a flatter experience last year in Q1 and Q2 than the normal. So this year the so-called outperformance in the second quarter versus last year second quarter a bit skewed by the flatness last year. But this is probably a bit closer to what we would expect going forward in terms of the phasing of quarterly performance.

In large part the volume and margin growth that we’re seeing is coming from the equipment and tools business. Hard to expect, you all to be so familiar with the various product lines and equipment and tools that they offer throughout the world but they offer a leading equipment and tools and service across not just strapping but stretching and other hood wraps and other materials as well that are used by a variety of industries not just food and beverage and that continues to go well. As well as the introduction of several backend automation products, projects that they have underway to help their customers in various industries. Deal with rising cost and rising labor cost i.e., become more efficient and take cost out of their own system.

So very well positioned business, the consumables business is that is stretch film, strapping protective products extremely firm throughout the first half of the year and in the second quarter. And perhaps, we’ve benefited a little bit just in terms of timing when we close the deal April 3rd. In large part some of the headwinds they would have faced in Q1 in terms of material increases or freight increases some of that getting pass-through in the second quarter that wasn’t recovered in the first quarter. So a lot of reasons, as we described you before it’s a very broadly diversified business across not only a number of products but across a number of end markets. And certainly much more broadly diversified than it was 10 years ago.

So, how they deal with passing-through rising material costs, they certainly have a different model in their business than we have in the metal can business. So they deal with passing-through materials into their end markets. I don’t want to say on a more real time basis, but they have more opportunity during the year to do that than we do in the metals businesses as we are largely – as the year begins we are largely fixed on price and we recover increases or decreases in our non-metal costs in the prior year on a formula basis. They do have some formulas but they have a large part of their business, which is not formula driven which gives them the opportunity to recover or not throughout the year, whether that’s one or more times.

G
Ghansham Panjabi
R.W. Baird

Okay. That’s helpful. And I guess, just for my second question. Did European beverage play out the way you thought it would for the second quarter because it was quite a bit weaker than what we had modeled? Can you just give us some color as to what’s actually happening in the UK et cetera apart from the weakness in the Middle East?

T
Tim Donahue
President and Chief Executive Officer

Yes. The Middle East I think, Ghansham is something we’ve been – I think we’ve been pretty open. We were down about I don’t know, 10% or 11% and volumes in the Middle East again this quarter. This is an ongoing transformation of our European beverage business where we are less reliant on the Middle East and more reliant on Continental or Western Europe. And this is ongoing, we’ve expected this, we’re planning for it. We’ve added capacity in Europe, we’re transforming our steel business in Spain to aluminum.

We’ve modestly sped up and added other capacity in Europe to rebalance our business and obviously meet the demands of our customers who are growing year in and year out in European beverage. The European beverage business continues to grow 2% to 3% to 4% every year, so that requires capacity increases not only by us but by our competitors as well. That’s what’s going on there. We would expect the weakness that we – that you saw in Q2 to on a year-on-year basis continue in Q3 and Q4 but that’s within the guidance we’ve given you. So you should expect Q3 and Q4 European beverage results to be down versus the prior year. But that’s well within plan.

The UK, I think much of decline that we saw in the UK was related to the CO2 shortage that’s been well publicized in the media. But that’s something that will be rectified throughout the balance of the year. We don’t expect that to be an ongoing issue.

G
Ghansham Panjabi
R.W. Baird

Got it. Thanks so much guys.

T
Tim Donahue
President and Chief Executive Officer

You’re welcome.

Operator

Our next question is coming from the line of Adam Josephson from KeyBanc. Your line is open, sir.

A
Adam Josephson
KeyBanc

Tim and Tom, good morning.

T
Thomas Kelly

Good morning.

T
Tim Donahue
President and Chief Executive Officer

Good morning.

A
Adam Josephson
KeyBanc

Tim, just on the freight issue in North America, can you just help us understand precisely what your exposure is your ability to pass on changes in freight cost to your customers. How much you cover? How much your customers cover? Just help us better understand what exactly is happening there.

T
Tim Donahue
President and Chief Executive Officer

So we have a variety of contracts some customers under contract actually pick up and some of the businesses delivered pricing. And as I just said, to Ghansham’s question, the formula for us to recover freight, labor utilities et cetera, anything that’s non-metal generally is associated with a formula and that formula is typically revisited and adjusted up or down in the year following. So we’re doing our best to manage the situation now.

And obviously freight has persisted to be much higher through the second quarter. We probably expected at the end of the first quarter in mid-April, when we talked to you for freights to moderate a bit. I think the economy has stayed exceptionally strong, our demand has stayed strong. So we have a – we’ve got volume situation where we’re oversold. But we’ve also – we’re asking the freight haulers for more and more service. So that kind of exacerbates the issue but we’ll get a chance to adjust or recover some of this freight with the formula price that we have next year.

A
Adam Josephson
KeyBanc

Thanks. Tom, on the FX situation, can you separate the estimated impact from the FX losses in Brazil from the full year FX translation impact that you’re guiding to. And just help us with what your updated sensitivity is post Signode and why assumptions are embedded in your guidance.

T
Thomas Kelly

Yes. So the impact that we called out for the full year of more or less $0.11 includes the second quarter impact in Brazil after tax and minority interests. So the headline number of $10 million gets diluted a bit by those two items. So that’s probably a few cents. And then beyond that, we have a few cents from the euro and that sensitivity hasn’t really changed with the addition of the Transit Packaging. And we have a rate going from $123 in the previous guidance to $119 in the revised guidance.

So in addition to – the first quarter impact in Brazil and the euro, which we’ve always had we do have some impact in the second half of the year in Transit Packaging compared to our previous guidance because of the declines in other currencies like the rupee, Swiss franc and Swedish krona.

A
Adam Josephson
KeyBanc

Thanks. Tim, just one last one on North America bev cans. You talked about some of your CSD customers particularly private-label doing really well. I know your Pepsi had almost 5% volume decline in CSD in the quarter. Can you just help me understand, why one large customer might be doing so badly and others might be doing so well within CSD? It doesn’t obviously make sense to me.

T
Tim Donahue
President and Chief Executive Officer

Well, I wouldn’t describe the customer that you mentioned as doing badly. Keep in mind that they are selling volume variety of packages and as we’ve described to you the can continues to be increasingly favored not only by our customers but by retailers and by consumers. So, if you look at the total industry, I think CSD for the total industry was up a couple percent in the quarter and that’s the can industry, right. So you’ve got a mix going on, a mix shift going on from other packages towards the can.

I think the other thing that’s going on and it’s sometimes overlooked by a lot of people not overlooked by us in the can industry. There’s been a huge move towards carbonated flavored waters, which largely are being delivered in cans given the cans superior properties the whole carbonation in flavor versus other package type. So there’s a lot going on and I don’t – the industry is down about 0.5%, CMI data has it’s down about 0.5% this year and that’s largely being driven by this near-term or recent decline in mass beer that will moderate and come back in the future, I’m confident of that.

I think the marketers of mass beer have too much invested to let that go away. That’s going to come back and I think there’s pretty good signs as we look forward on the beverage can side for growth as we see not only CSD’s but also other carbonated drinks or flat drinks in cans. Be they waters or teas or juices. So I wouldn’t – you pick out one customer and from what they release and you can make – you can come to a lot of bad assumptions out of them, if you just pick out one customer or one release. So it’s a much broader business then one customer and it’s a much broader business than one customers overall volume, which doesn’t specifically deal with the package that we provide.

A
Adam Josephson
KeyBanc

Thanks, Tim. Appreciate it.

T
Tim Donahue
President and Chief Executive Officer

You’re welcome.

Operator

The next one is coming from the line of George Staphos from Bank of American Merrill. Your line is open.

G
George Staphos
Bank of American Merrill

Hi, everyone, good morning. I just wanted to go back to Europe, so to speak Tim, first one or two questions. So could you help us bridge year-on-year of the various factors you cited in terms of the percentage growth in revenue. The context for the question, obviously, first quarter you saw, I think something around 20%-plus growth year-on-year. This quarter obviously at the CO2 shortages but you’re still passing-through aluminum. So that would tend to bias revenues as you pointed out but we had a flat quarter. So can you more or less, can you help us understand a bit more in terms of what happened sequentially in the quarter in terms of those factors?

T
Tim Donahue
President and Chief Executive Officer

Yes, so just one clarification, George. We had a flat quarter in Continental Europe, we were down 10% or 11% in the Middle East, so overall volumes are down…

G
George Staphos
Bank of American Merrill

I’m just looking at European beverage revenue, you did 402 last year, you did 405 this year, so you’re up fractionally, so more or less flat.

T
Tim Donahue
President and Chief Executive Officer

No, so the revenue is flat, which is the pass-through of higher aluminum offset by the decline in overall volumes, right?

G
George Staphos
Bank of American Merrill

Correct. And so if you could help us understand what was the effect of the CO2 shortage in terms of volume and other factors. Was there any kind of price compression that sort of thing?

T
Tim Donahue
President and Chief Executive Officer

No. There’s no price compression, price hasn’t changed from January 1. I think CO2 in the UK – maybe UK volumes were down 3% or 4% but that’ll come back, George. That’s a near-term thing that will get resolved and the fillers in the retailers will look to restock their inventories. So that’s not something that concerns us that. That’s something that happens two weeks in the quarter that gets fixed two weeks in the next quarter. So, I wouldn’t spend a lot of time on that, I think the bigger issue is and as we’ve planned for has been a change in the Middle Eastern landscape. There’s been – over the last couple of years several fillers that have decided to install their own can lines and we saw that coming and we’ve made efforts to reposition our business geographically. And I think that’ll – you’ll see that next year that it will prove out quite healthy for us.

I think the first quarter – one of the things that helped us in the first quarter on a year-on-year comparison is, we had both lines up in the Custines factory after the steel-to-aluminum conversion in Custines. That was completed in probably mid or at least the second quarter of 2017. So we had the benefit of two lines in Custines versus only one line. And you’re selling aluminum cans, not steel cans, so you get a higher revenue.

G
George Staphos
Bank of American Merrill

Okay. So the comparison got tougher on that, because by second quarter last year, you had both lines more or less running in Custines, whereas 1Q versus 1Q, there’s only one line.

T
Tim Donahue
President and Chief Executive Officer

That’s true. And then I think the other thing – don’t lose sight of the fact that Q1 2017 would’ve been our lowest euro rate quarter last year, and Q1 2018 would’ve had a much higher euro rate year-on-year. So currency probably had a bigger impact in Q1. But I think what you’re seeing in European Beverages, as we expected, we’re – this year, we knew it’s going to be tough, given what’s going on in the Middle East. We planned for it. And it may not match your models, but it’s well within our expectations.

G
George Staphos
Bank of American Merrill

Okay. And did the Middle East declined year-on-year in volume? If we look at the 1Q over 1Q trend to the 2Q over 2Q trend, I don’t remember it being down 11% in the first quarter. But if you can remind us, that’d be great.

T
Tim Donahue
President and Chief Executive Officer

I forget what it was down in the first quarter, but we would have sold more cans in the second quarter just because of the season. Yes, second quarter sales are higher than first quarter sales in gross numbers. I think the decline is slightly greater in the second quarter than the first quarter. But if it’s 10% or 11% in the second quarter, it was 9% or 10% in the first quarter.

G
George Staphos
Bank of American Merrill

Okay. And I remember my last question on this, and I’ll add a quick follow-on and turn it over. I remember in the first quarter, Europe benefited from the fact that you’re absorbing more fixed cost because you had both lines running in Custines. This quarter, obviously, EBIT is down quite a bit. Again, could you help us bridge the $71 million to $59 million? Is that all more or less Middle Eastern volume decline? Or is there anything else that we should be mindful of in terms that EBIT variance?

And then quickly on freight. From April, what intensified in terms of freight pressure relative to your guidance? Again, because from our vantage point, a little – you’re the first quarter report earnings, so we’ll find out what happens over the next couple of weeks, it didn’t seem like freight got any worse from our own trade checks. It was high at a relatively high level, but no further intensity. What changed there? Thank you, guys. Good luck in the quarter.

T
Tim Donahue
President and Chief Executive Officer

So the biggest decline in the Middle East is the decline in Middle Eastern volumes, coupled with the mix that Middle Eastern cans have higher margin traditionally than Western Europeans. So that’s the whole story in European Beverage. On the freight side, a couple of things. As I said earlier, we expected freight costs to somewhat moderate when we talked to you back in April, mid-April. They haven’t on that. And in fact, line haul rates have continued to escalate as well as the fuel surcharge, coupled with stronger volume than we had anticipated earlier in the year, which exacerbates the situation because now you’re scrambling to find more freight carriers to handle the increased volume to get cans to your suppliers and – or your customers. And everybody’s doing the same thing.

The economy is generally very healthy right now. So line haul rates are up. And this – if you’re a freight hauler, now is your time to make money. It’s a strong economy. It’ll probably moderate when the economy weakens, whenever that is sometime in the future. But right now, it’s their time to make money, and they’re making money.

G
George Staphos
Bank of American Merrill

Understood. Thank you, Tim.

T
Tim Donahue
President and Chief Executive Officer

You’re welcome.

Operator

The next one is coming from the line of Scott Gaffner from Barclays. Your line is open, sir.

S
Scott Gaffner
Barclays

Thanks. Good morning.

T
Tim Donahue
President and Chief Executive Officer

Good morning.

S
Scott Gaffner
Barclays

Tim, I – just focusing a little bit more on the U.S. and the oversold position you keep mentioning in the U.S. I mean, can you talk about where that came from? Is it – did you pick up some new contract wins in the business? Or is this more you’ve shuttered some capacity and so now your volumes are coming in better? Just kind of what drove the overcapacity and where are those cans actually coming from?

T
Tim Donahue
President and Chief Executive Officer

Yes, so I think it’s all CSD, largely private label, as I’ve said. They’re doing exceptionally well, coupled with the fact we closed our Lawrence, Massachusetts plant in January, and perhaps we closed it too soon. Perhaps, we should have kept it open till the end of March and built some inventory. So – but it is what it is at this point, and we’ll just have to do a better job of planning and building inventory ahead of next season. But it’s largely private label, and their demand has been exceptionally strong.

Their promotions, not only for their carbonated sodas, but also the carbonated water, flavored waters, is – has gone great guns for them this year, so.

S
Scott Gaffner
Barclays

So if we think about the excess freight costs, I mean, how much of that do you think is self-imposed from – I don’t – maybe self-impose is a bad word. But how much of it is driven by this tight supply/demand situation for you and how much is just higher freight costs?

T
Tim Donahue
President and Chief Executive Officer

Well, I mean, I think if we looked at line haul rates and fuel charge – fuel surcharges, that’s the large majority of our freight increase. Volume is up. So we’ve got more freight costs because of volume. You would expect to make similar margins with higher volume. But as I said, it exacerbates the problem. So you’ve got even higher line haul rates because of more volume. But the self-imposed, it’s not a big number. That’s not the issue. I think the issue is the economy is strong. The market is tight for freight, and the freight guys are – this is their time to make money and shine, and they’re trying to shine.

S
Scott Gaffner
Barclays

Okay. And just as far as the pass-throughs are concerned, I mean, if we see a moderation freight rates as the year progresses, is that something you can still recover in 2019? Or how exactly do the pass-throughs generally work for freight?

T
Tim Donahue
President and Chief Executive Officer

I think as we’ve said before, not all contracts, but depending on contract, we have formulas to recover non-metal costs, and freight is one component of that formula. So it’ll be an average over the period blended with other costs, whether it be labor, utilities, et cetera.

S
Scott Gaffner
Barclays

Okay. One last one for me, just on Signode. I mean, obviously, a strong quarter. But can you talk a little bit about the volumes, say, equipment versus consumables? Was there one that stuck out versus the other in the current quarter?

T
Tim Donahue
President and Chief Executive Officer

No. I think as we’ve described to you before, they have a leading equipment and tools franchise, and they had exceptional growth, not only in equipment, but also tools and consumables that have been firm, depending on the region and the consumable, anywhere from flat to up 5% on consumables. But equipment and tools, the growth this year has been quite strong, on the order of 10% so far.

S
Scott Gaffner
Barclays

So similar though, for equipment and tools, one – there’s not one that’s leading the charge.

T
Tim Donahue
President and Chief Executive Officer

Yes. Well, I mean, tools has a – there are a lot more tools at a lower revenue number than the equipment. But tools – in volume terms, tools are up a lot more than equipment. But the revenue associated with the tools is certainly much lower than a piece of equipment.

S
Scott Gaffner
Barclays

Understood. Thanks, Tim.

T
Tim Donahue
President and Chief Executive Officer

You’re welcome.

Operator

The next question is coming from the line of Mark Wilde from Bank of Montreal. Your line is open sir.

M
Mark Wilde
Bank of Montreal

Good morning, Tim. Good morning, Tom.

T
Thomas Kelly

Hey, Mark.

T
Tim Donahue
President and Chief Executive Officer

Hey, Mark.

M
Mark Wilde
Bank of Montreal

Tim, I wondered – just going back down to Brazil first. Did you have any meaningful impact from that trucker strike?

T
Tim Donahue
President and Chief Executive Officer

Well, the strike happened, Mark. You guys have written a lot about it. The strike happened sometime in late May, and it was resolved in early June. And it’s kind of – I ran into a fellow who was born in Bulgaria, and he reminded me of his life in Bulgaria as a child where they had toilet paper Tuesday. And if he didn’t get to the supermarket on Tuesday, he didn’t get any toilet paper. It’s kind of the same thing happened in Brazil. The shelves – everybody was out of beer very quickly as well as all kinds of products in Brazil by the time you got to the middle or the end of that trucker strike, which means by the time the trucker strike was resolved, everybody was back to full production. And we largely made up all of the impact from that 10 or 11-day strike that we had.

And there was enough – I – my view is there was enough time remaining in the month of June for the industry to make up the volume that was soft during that trucker strike. So I don’t – overall in the quarter, was there any impact? I don’t think so. I think the market was up about 10%. The market was up 10% in the second quarter over last year. We were up about 9%. I don’t think we had any impact. Now should the market have been up 14% because of the World Cup? I don’t know. But the market was up 10%, which largely tells me that the market corrected itself in the last three weeks of June and was able to replenish the supply chain once trucks started moving again.

M
Mark Wilde
Bank of Montreal

Okay. So there’d be no carryover effect into the third quarter then?

T
Tim Donahue
President and Chief Executive Officer

I don’t believe so. I think we’re expecting a pretty healthy second half in Brazil. And as usual, we’re going to have a firm fourth quarter, which, as you know, is their strongest quarter ahead of Carnival, and nothing to suggests that materially moves one way or the other.

M
Mark Wilde
Bank of Montreal

Okay. Could you also – just going a little further north in Latin America. Could you just talk about sort of how the Mexican business ran in both cans and glass in the second quarter?

T
Tim Donahue
President and Chief Executive Officer

Yes. So I think we had pretty good performance in both countries – or in both product lines, I’m sorry. As you know, we had some startup costs in the glass facility in Q1. That’s largely behind us. We’ve got a few little mix to work out, but we’re shipping all the tonnage we can put through the furnace. And then I think on the can side, demand has remained firm. It’s the summer. So we’re sold out from – essentially, we’re oversold from April 1 through the end of September. And obviously, given the oversold position we have in the United States, we are trying to move some cans from Mexico into the United States. So it’s a pretty tight season in North America, especially when you consider Mexico into the North American marketplace and the proximity of Monterrey to the Texas market. So all things going well.

M
Mark Wilde
Bank of Montreal

Okay. And any thoughts on that second line down at Monterrey that you were looking at one point?

T
Tim Donahue
President and Chief Executive Officer

Yes. I think we continue to evaluate it. We have other demand needs from our customers in various regions of the world. So we don’t have an unlimited balance sheet, as you know, and so we try to be prudent with capital when and where we put it in. And we continue to monitor that market for the possibility and when it would be required for us to put a second line in.

M
Mark Wilde
Bank of Montreal

Okay, all right. right. Last question I had. Just could you give us an update on when Mark Burgess is going to be leaving Signode?

T
Tim Donahue
President and Chief Executive Officer

Yes. So as we stated in the release, Bob Bourque will take over August 1. Mark has agreed to stay with the company from August 1 through the end of September, so 60 days to help with the transition. It could be that beyond that, we have some soft agreement for him to stay on a little longer to help with other matters, if he’s still available. But you know Mark. He’s a pretty well-respected, seasoned packaging executive across – and respected by a lot of people. And so he’ll have, I have no doubt, numerous opportunities, which he wants, to run another company. And – but to the extent he doesn’t have one of those in the interim, perhaps we benefit by having him still around.

M
Mark Wilde
Bank of Montreal

Okay. That’s helpful. Thanks and good luck in the second of the year, Tim.

T
Tim Donahue
President and Chief Executive Officer

You’re welcome. Thank you.

Operator

Next one is coming from the line of Arun Viswanathan from RBC Capital Markets. Your line is open sir.

A
Arun Viswanathan
RBC Capital Markets

Great. Thanks. Good morning. I guess first question was just maybe you can just help us bridge. It looks like you’re reducing EPS guidance by about 4% for the year. What are the offsets that keep your free cash flow guidance relatively whole?

T
Tim Donahue
President and Chief Executive Officer

It’s working capital. I think, Arun, you’ll remember, in Q1, we took the guidance up about 2.5%, 3%, and we didn’t change free cash flow at that point. So we’re coming down 4%, which is a touch below the – i.e., a touch below the initial guidance we gave you for EPS. And so the cash flow stays the same.

A
Arun Viswanathan
RBC Capital Markets

Great. And then you made a comment that reduction is due to equal parts freight and FX. I guess what’s your confidence level in this new level of guidance? I mean, is there a possibility that freight could get worse? What’s embedded? Are you expecting a moderation in freight costs or just freight costs kind of stay where they are? And similarly, maybe just some of the other items in the guidance, like volume and price. Obviously, price is mostly pass-through. But volumes, do you expect more deterioration in Mid-East or Europe or a reacceleration because you’re on easier comps? If you can just help us understand what the swing factors are within the guidance.

T
Tim Donahue
President and Chief Executive Officer

I think freight – we expect freight to remain at these levels for the balance of the year, that is we don’t expect it to moderate. On volumes, I think we expect demand to remain exceptionally firm throughout most of the businesses through the balance of the year. It’s been a strong campaign from demand side, and it doesn’t look like that’s going to let up certainly through the end of the summer.

I think on price, price is largely fixed early in the year, as you know. So we don’t expect any changes on price. And the Middle East, I think what you’re seeing in the Middle East is what we expected and what we planned for. We’re not somebody that’s going to give you our model at the beginning of the year. So you’re going to have – you’re going to be right or wrong in your model compared to actuals as we go along, but I think the Middle East is largely as we expected. And as I’ve said earlier, you should expect the Middle East to drive down the reported or the comparable European Beverage numbers in the third and fourth quarter. And we’ll get a reset, and we’ll have increases in 2019.

A
Arun Viswanathan
RBC Capital Markets

And then just lastly, on Signode. It’s encouraging to see the growth year-on-year. Maybe you can just help us understand that what’s going on there. You described maybe an equipment cycle in the past, replacement, and then strong growth. How much do you expect this to continue? Or how long do you expect this to continue? Is Signode kind of experiencing anything unusual per se that’s driving better performance? Or is it something that you think will be sustained? Thanks.

T
Tim Donahue
President and Chief Executive Officer

Yes. So I think what we saw in the second quarter is a – is largely a function, as we said earlier. The – traditionally, the second quarter is their strongest quarter. And as I mentioned, they were a little flatter in 2017 between Q1 and Q2, that is Q1 of 2017 might have been a little stronger and Q2 of 2017 a little weaker than historically did. And so I think this year, they’re back to more traditional performance, and that’s why Q2 this year looked so strong compared to Q2 last year. But in large part, that explains it, plus the inflection point at when we closed the deal and they recover some of the material increases that they’ve had this year, perhaps they recovered more in Q2 and less in Q1.

But what’s driving the business overall is their customer’s desire to reduce their cost, become more efficient, automate more, take labor and other costs out, and they’re a huge beneficiary of that, as we say. And I think we’ve described the consumable business has been firmed up, and the equipment and tool business has been exceptionally strong, which is what we saw when we looked at the business. And we were extremely impressed, not only with the technology, but the folks who ran that business and the opportunities for further growth, be they organic or bolt-ons as we look into the future.

So I think the back half of this year probably looks a bit flatter compared to last year. You’re not going to see the remarkable upside in Qs three, four like you saw in Q2, but largely, they’re going to be on a number that we described to you earlier. If you want to think about EBITDA, $390 million to $400 million. But short of $400 million, it’ll just be the currency impact that Tom took you through earlier. So that’ll be a handful of EBITDA dollars and currency that we didn’t anticipate.

They’re probably – if we thought – when we talked to you in December, we gave you an adjusted EBITDA number, which embedded some currency improvement year-on-year versus their actual reported number. And so we probably don’t see that currency improvement, but they’re going to significantly be above last year. I think if last year, the EBITDA was $370 million, they’re going to be in the $390 million to $400 million range, plus or minus some currency. So going to be a strong performance, and the business is really set up well to continue to perform well in the future.

A
Arun Viswanathan
RBC Capital Markets

Great. And last one I have was just on deleveraging. Is there anything you can do to accelerate that process? We saw another transaction with the competitor’s food can business here in North America. Is that something that you’d be open to? Or any other businesses, i.e., China, that could be viewed as noncore or potentially you could accelerate your deleveraging with? Thanks.

T
Tim Donahue
President and Chief Executive Officer

Well, I think Tom has described, we – leverage will be down to about 4.6 times by the end of the year. And by the time you get to that end of 2019, it’ll be about 4.14 times, and we’re going to delever pretty rapidly just from free cash flow. And obviously, we look at all our alternatives. We review any and all alternatives with the board, and we’ll look at that. But we’re not going to do something foolish and trade assets that generate very good cash and meaningful contribution to earnings just to accelerate a deleveraging target that you may feel pressure for us, but we don’t feel any pressure.

Given our capital structure and the debt we have, that we’ve got a significant amount of debt that’s fixed at very attractive rates for eight to 10 years and the floating rate debt, we’re going to quickly pay off with the cash flow in 2018, 2019 and 2020. And by the end of 2020, we’ve described to you we’re going to be back in the mid-3s, and that doesn’t give us any heartburn. It may give you heartburn, but we’re pretty confident in our ability to generate cash flow and delever as we’ve done post other acquisitions.

A
Arun Viswanathan
RBC Capital Markets

Great. Thanks.

T
Tim Donahue
President and Chief Executive Officer

Thank you.

Operator

The next one is coming from the line of Brian Maguire from Goldman Sachs. Your line is now open.

B
Brian Maguire
Goldman Sachs

Hey, good morning guys. Just wondered if you could provide any updates on the European competitiveness investigation. That’s been a couple of months since the new developments there. Just wondered if you had a opportunity to size what the incremental impact could be from that or lay out for us any timing you’d expect for resolution of that.

T
Tim Donahue
President and Chief Executive Officer

Well, I think there’s no update to provide you. We’ll file our 10-Q in a couple of weeks. I don’t think you’ll really see any meaningful update. We may change some disclosure language. Clearly, our disclosure was a bit more belt and braces than the others. But I think we continue to maintain that there are no actions across Continental Europe which give rise to the European Commission to investigate. This was largely transferred to the European Commission because the German authorities were disappointed that if they found a wrongdoing and they thought they could assess a fine, that given the laws in Germany, we and one of the other companies had the opportunity to restructure our businesses, and therefore, we were immune from German – any German assessment of fine. And so they kind of got themselves in a knicker and decided to transfer it to European Commission. We still maintain we don’t have any liability at the European level, and we’re going to continue to fight this.

B
Brian Maguire
Goldman Sachs

Okay, appreciate that. The corporate line was a little bit higher than we were expecting. Just wondered if there was any impact from Signode there, like transferring any corporate expenses that they might had into that bucket, or just sort of general guidance on where you think corporate might become and then for the rest of the year.

T
Tim Donahue
President and Chief Executive Officer

All – well, I’ll answer very quickly, and then Tom will give you some detail. All the costs for Signode are in the Transit Packaging line. There is no corporate cost – there is no Transit Packaging cost in the corporate line. Tom, you’ve got any details?

T
Thomas Kelly

Yes. I think, Brian, if we look to about $150 million for the full year, at this point, that feels about right, although it will be choppy. It’s just the nature of what’s in the account.

B
Brian Maguire
Goldman Sachs

Okay. And just one last one for me also, the non-reportable one with the kind of various smaller businesses. It was also a little bit lower on the EBITDA than were expected. Just – I think, Tim, you called out the aerosol European business, maybe some pull-forward there. But I just wondered about the other segments, like food and closures. Any comments on that…

T
Tim Donahue
President and Chief Executive Officer

No. So I think year-to-date, we’re flat year-on-year on that business. Obviously, we’re a few short in the second quarter, we were a few long in the first quarter. Largely, all the businesses on year-to-date business – basis are performing in line with the prior year. We had some pull-ahead in Q1 in European aerosols. We just gave it back here in Q2. But the businesses are firm and fairly strong, so nothing really to report.

Food’s doing okay in North America, and we continue to do well in Food North America. Just – it’s a collection of three-piece metal packaging businesses where we do well, where we’re committed to. And we don’t spend a lot of capital there, but they generate pretty good returns and they generate a lot of cash flows. So we continue to press ahead.

B
Brian Maguire
Goldman Sachs

Okay. Thanks very much.

T
Tim Donahue
President and Chief Executive Officer

You’re welcome.

Operator

Next one is from Gabe Hajde from Wells Fargo. Your line is now open.

G
Gabe Hajde
Wells Fargo

Good morning. Thanks for taking the questions gentlemen. First one is on the Transit Packaging business. Tim, now you’ve had a chance to truly look under the hood of business, is there anything in your mind that’s changed in terms of the vision or strategy? And I’m sort of asking the question in the context of you talked about it being a pretty fragmented market while Signode has a leading position. Just help us maybe with timing or how you’re thinking about growing that business?

T
Tim Donahue
President and Chief Executive Officer

Yes. So I think the one thing that’s perhaps a little bit different from when we looked at the business, the difference between looking at the business and now, we kind of – we’ve kind of learned a lot, even after the announcement in December, because we’ve had pretty good access to the team. We’ve been working with the team for a long time. I think the one thing that’s a little different is the number of opportunities for bolt-on or medium-size acquisitions, perhaps a little bit greater than we had thought, which obviously affords us numerous opportunities to grow the business in the future and either expand businesses in existing markets and product lines that we’re currently in or get into other adjacencies or other back-end automation opportunities.

And so with that, it allows us to be certainly much more selective in terms of what we might want to buy. And obviously, when you’re allowed to be much more selective, you’re allowed to be much more selective on what you’re willing to offer in terms of price. But as we’ve said to you, the primary goal for the next couple of years is to delever rapidly. And so we’re going to be pushing most, if not all, of the free cash flow we generate towards delevering the business over the next couple of years, and – but there is no shortage of opportunities to grow that business as we look ahead.

G
Gabe Hajde
Wells Fargo

Okay. Thank you. And then one just quick one on Brazil. I know demand has been tracking a little bit below expectations or at least what some people were looking for, and it seems like it started this year a little bit better in what is traditionally their seasonally slower period. You talked about running pretty well through the back end of the year. I mean, how do you feel inventories are positioned down there? And do we roll forward to next year and maybe we see flattish demand because we had the World Cup stuff? Just trying to understand that dynamic.

T
Tim Donahue
President and Chief Executive Officer

Yes. I mean, listen, we’re – I think we’re up 9% in the second quarter, we were up probably mid-single digits, I guess, in the first quarter, and the market continues to be strong. We have an estimated crown. We think the market will be up 7% to 8% for the year. So that’s not disappointing. I don’t – I’m not sure why you would call that disappointing. But I think next year, too early to say what demand will be next year.

But certainly, the Brazilian economy is a strong, strong global economy. It is – it has its socioeconomic issues from time to time, as many countries do, but it is truly a global economy. And regardless of politics or other social issues, they continue to press ahead and they continue to grow their economy. And beer continues to – beer consumption continues to grow in liters, and the can continues to take share from other packages. So we’re extremely positive and we’re extremely confident on the future of the can business in Brazil.

And if you want to look at any one quarter or any one year compared to the prior year or prior quarter, again, you’re going to make assumption or a conclusion that’s pretty short-sighted. Because when you look at Brazil in three or five-year chunks, it’s done nothing but continue to grow at pretty attractive rates over the last decade.

G
Gabe Hajde
Wells Fargo

Understood. Maybe one last one for you, Tom. The working capital benefit, can you help us understand magnitude of that? I mean, I’m coming up, with a back of the envelope, maybe $25 million to $40 million. You mentioned that you could get some, I think, from the Signode business, even into next year. Can you help with that?

T
Thomas Kelly

No. That’s exactly right, Gabe. So essentially, we’re offsetting the earning shortfall with working capital, and the numbers are in the range of what you just mentioned.

G
Gabe Hajde
Wells Fargo

Okay. Anything for next year, to quantify what Tim said?

T
Thomas Kelly

Yes. I think there are additional opportunities next year. We’re working on that now. We’ll see what falls out. But we’re comfortable that as – equally, as we go into 2019, we can make up. If the – if you start with this year’s earnings down, we can make it up in working capital next year as well.

G
Gabe Hajde
Wells Fargo

Understood. Thank you, gentlemen.

T
Tim Donahue
President and Chief Executive Officer

You’re welcome.

Operator

Next one is coming from the line of Anthony Pettinari from Citigroup. Your line is open, sir.

A
Anthony Pettinari
Citigroup

Hey, good morning. Just on European Food. You had a pretty strong quarter there. Any color on what drove that? Did you see any prebuying in the quarter or anything that would be a read for 3Q, either positive or negative?

T
Tim Donahue
President and Chief Executive Officer

No. I think what we said in the prepared remarks is currency was$7 million, so that’s about half of the improvement. And in fact, the volumes were actually down a bit compared to the prior year’s second quarter. So there was no buy ahead. The – some of the early crops peas and some of the early bean crops were a little slow. They’ve been delayed, just given some of the weather, colder weather – colder wet weather in Northwest Europe. So no read-through into the third quarter. I think as we said, we expect the packing season to be a normal or a good packing season. So we expect a firm result in the third quarter.

A
Anthony Pettinari
Citigroup

Okay. That’s helpful.

T
Tim Donahue
President and Chief Executive Officer

I’m sorry. To answer your question, we did – our production schedule was full, so you’re recovering fix when you’re producing. And we had some cost-reduction activities we undertook last year, so we had some benefit of that as well.

A
Anthony Pettinari
Citigroup

Okay, okay. And then switching to freight. You talked about Transit passing through raw material costs in kind of a real time basis. Did they do something similar with freight? Or do they have a different model? I guess I’m just wondering how Transit handles freight? Is it better or worse in the current environment than the bev can business and the food can business?

T
Tim Donahue
President and Chief Executive Officer

Well, I don’t know if it’s a better or worse than the bev can business. It’s different. Different in that on the can side, we have this convention where, annually, we adjust based on an index, and we’ve got to wait till next year to get that annual indexation. Signode has some of that, but a large part of their business is more open. And as we’ve described to you before, their customer base is highly fragmented in that no customer accounts for more than 1% of sales globally. So they have a better ability to recover cost in the current year. I don’t want to say real term, whether that’s – real time, whether that’s real time or whether it’s one month or three months, they certainly have a better opportunity, given the fragmented nature of their customer base, to try to recover that within the same calendar year.

A
Anthony Pettinari
Citigroup

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

T
Tim Donahue
President and Chief Executive Officer

Thank you.

Operator

Next one is coming from the line of Debbie Jones from Deutsche Bank. Your line is open, ma’am.

D
Debbie Jones
Deutsche Bank

Hi, good morning. Thanks for taking my question. Obviously, deleveraging is pretty important to you. You’ve made that clear. But I think you sound pretty optimistic about some of the growth opportunities that are out there. You did a great job the last few years of growing the business. Can you help us understand where some of the capital allocation decisions lie in the next couple of years? So what is most interesting to you, either by segment or region? I know you can’t get too specific?

T
Tim Donahue
President and Chief Executive Officer

Well, I think, Debbie – thank you for your comments, first of all. I think the – as we look at the global beverage can business, we continue, at least at Crown, to have beverage can volume growth year in and year out of 3%, 4%, 5%. So we expect there’s going to continue to be opportunities to grow the beverage can business around the world. And whether that’s parts of Asia or parts of Europe, South America, we’re going to continue.

Mexico, we’re going to continue to look at the opportunities that are presented and try to make the investments at the right time to get the quickest payback possible. That is not try to get there too early and not try to miss the opportunity by waiting too long. So I think that’s principally the capital allocation beyond debt paydown at this point.

D
Debbie Jones
Deutsche Bank

Okay. So my second question on Asia Pac. I mean, you called out a few things on Myanmar and China volumes, which were expected. But it’s a little unclear to me if I should start seeing earnings growth accelerate in the back half of the year. I think it was up about $2 million in the quarter. Could you just comment on that and when we start lapping some of these headwinds?

T
Tim Donahue
President and Chief Executive Officer

Yes. I mean, it’s – trying to looking for something here. But just trying to remind myself where we’re at through the middle of the year. I think we’re going to see – if we’re up – we’re up $7 million year-to-date, right, which is on the order of 9%. Year-to-date, I think we probably see something similar to that in the back half of the year. How it split between Q3 and Q4, I don’t know.

D
Debbie Jones
Deutsche Bank

Okay. Great. Thank you.

T
Tim Donahue
President and Chief Executive Officer

You’re welcome.

Operator

Next one is from the line of Tyler Langton from JPMorgan. Your line is open.

T
Tyler Langton
JPMorgan

Good morning. Thank you. I just had a question on, I guess, beer volumes in the U.S. I think cans were down 5%. I know, Tim, you said you’re sort of confident they were to come back. I just wondered if you could provide some color on that, sort of what you’re seeing, I guess, with domestic sort of beer consumption in the U.S. versus the imports. Just any color on that situation would be helpful.

T
Tim Donahue
President and Chief Executive Officer

Yes. So we don’t have a big beer position in North America, as you know. We have a very strong position with Canadian beer and a very small position in U.S. beer. The Canadian beer guys have not had the same volume declines as the U.S. beer guys. So that business has been exceptionally firm. U.S. beer, U.S. mass beer has been down. And we basically shift beer from one factory in the United States for U.S. beer, and so we don’t have a great read into that market. You’ll have to talk to some others. But imports from Mexico have been strong and continue to be strong.

So I think in the near term, certainly, for the next couple of quarters, we would expect Mexican imports to continue to be strong. What the mass U.S. guys do to counteract that is – remains to be seen. But it’s not something that impacts our business a whole lot, given our under-weighting to U.S. beer.

T
Tyler Langton
JPMorgan

Got it. Understood. And then just last question on Brazil. I think your volume was up 9%. I think you said industry up 10%, which I’m guess is can. But just – I mean, does that growth – give a sense from how much might be cans taking share from glass, like you mentioned, versus just underlying beer production growth.

T
Tim Donahue
President and Chief Executive Officer

I think – boy, the last number I saw, and I saw a number the other day, I think if cans are – cans are probably 48.5% of the beer mix, and maybe that was 48.3% or 48.4% last year. So it’s a little bit of that. But overall, beer leader inches up year-on-year. So it’s just – it’s volume.

T
Tyler Langton
JPMorgan

Got it. Okay, thank you so much.

T
Tim Donahue
President and Chief Executive Officer

You’re welcome.

Operator

Next one is from the line of Chip Dillon from Vertical Research. Your line is open.

C
Chip Dillon
Vertical Research

Yes. Good morning, Tim and Tom. First question is – Tim, you mentioned the heavily sold – I don’t know if you said sold out or just full business in North America for the rest of the year. Could you talk a little bit about your mix in terms of standard and specialty cans and how that’s changing over time?

T
Tim Donahue
President and Chief Executive Officer

So we said sold out, and we said it’ll remain that way through the summer. Our nonstandard 12-ounce volume is probably 13% to 15% of our overall volume, and that’s up from 10% to 12% a few years ago.

C
Chip Dillon
Vertical Research

Got you. Okay, that’s helpful. And I know it’s still early. But as you think about the CapEx levels and you think about what your plans over the balance sheet, should we expect any significant change in CapEx levels next year? It sounds like at current levels, you’re adding two to three lines somewhere in the world on an annualized basis. Is that something that we should expect in 2019 and/or 2020, especially as we think about your deleveraging guidance?

T
Tim Donahue
President and Chief Executive Officer

Yes. I think what we’ve said is that if in the can business, we had capital of $425 million in 2018, we’re probably looking at a number more like $400 million in 2019. And $30 million to $40 million for the Transit business. But the can business will come – and that’ll be steady, and the can business will come down $25 million year-on-year.

C
Chip Dillon
Vertical Research

Got you. And I don’t know if you look at it this way. But it seems to me that if you take that $390 million to $400 million of EBITDA, you apply your tax rate to whatever that EBIT is, net of the amortization, and you subtract that CapEx and you allocate interest, it looks like your free cash flow conversion is still safely north of 50%. Is that the way you look at it when you think about Signode? And therefore, if we did hit an economic air pocket, wouldn’t it be hard to see it ever become a detraction from free cash flow?

T
Tim Donahue
President and Chief Executive Officer

We agree with you.

C
Chip Dillon
Vertical Research

Easy enough. Thank you.

T
Tim Donahue
President and Chief Executive Officer

Thank you.

Operator

The next one is from the line of Edlain Rodriguez from UBS. Your line is open.

E
Edlain Rodriguez
UBS

Thank you. Good morning guys. Just one quick clarification, maybe I miss something. I thought – like in the comments, in the opening comments, you have mentioned something about achieving some synergies at Signode. Can you elaborate on that? Like how much are we talking about? And where are they coming from?

T
Tim Donahue
President and Chief Executive Officer

No. I think what we said – not in the opening comments, but in reference to one of the earlier questions, this was not a deal that was predicated on synergies. The accretion, both earnings and cash flow, they stand on their own without the need for significant synergies to justify the deal. But we will experience and have experienced some synergies already. There’s some back office synergies we’ve already experienced, but – if you want to think about a number in the $5 million to $10 million, $5 million to $15 million range. But we’re early in that process, and the goal is to run the business well and to continue to grow the business, not to shrink it.

E
Edlain Rodriguez
UBS

That makes sense. Thank you. That’s all I have.

T
Tim Donahue
President and Chief Executive Officer

Thank you.

Operator

At this time, speakers there are no further questions.

T
Tim Donahue
President and Chief Executive Officer

Okay. Haley, well, thank you very much, and thank you to everybody who joined us today. And we’ll look forward to speaking with you again in October. Bye now.

Operator

Thank you, speakers. And that concludes today’s conference. Thank you all for joining. You may now disconnect.