Crown Holdings Q3 2026 Earnings Call Transcript
Crown Holdings (NYSE:CCK) reported third-quarter financial results on Tuesday. The transcript from the company’s third-quarter earnings call has been provided below.
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Summary
Crown Holdings reported a strong third quarter with diluted earnings per share of $2.08, up from $1.85 in the previous year. Adjusted EPS increased by 7% to $2.39.
Net sales rose to $3.7 billion, driven by higher global beverage can shipments and increased material costs, despite unfavorable foreign currency impacts.
Global beverage can volumes grew over 6%, with notable growth in Asia, North America, and Europe, offset by inflationary pressures and lower transit packaging results.
Capital spending reached $310 million, with investments in Brazil, Spain, and Northern India. Share repurchases totaled $598 million year-to-date.
The company projects full-year 2026 adjusted EPS of $8.35 to $8.45, with a strong balance sheet and cash flow positioning for continued investment and shareholder returns.
Challenges included inflationary pressures from the Middle East conflict, impacting segment income by $17 million and adjusted EPS by $0.12.
Capacity expansion projects in Europe and Brazil are on track, with strong demand for cans and equipment supporting growth.
Management remains confident in global beverage can demand, projecting full-year growth of 4% to 5% and continued strong demand in 2027.
Full Transcript
OPERATOR
Good morning and welcome to Crown Holdings’ third quarter 2026 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. Kevin Clothier, Senior Vice President and Chief Financial Officer. Sir, you may begin.
Kevin Clothier (Senior Vice President and Chief Financial Officer)
Thank you, Rich, and good morning. With me on today’s call is Tim Donahue, Chairman, President and Chief Executive Officer. If you don’t already have a copy of the earnings release, it is available on our website at crowncork.com. On this call, as in the earnings release, we will make a number of forward-looking statements. Actual results could differ materially from those statements. Additional information concerning factors that could cause actual results to vary is contained in the press release and our SEC filings, including Form 10-K for 2025 and subsequent filings.
Reported diluted earnings per share were $2.08 compared to $1.85 in the prior-year quarter. Adjusted earnings per diluted share were $2.39 compared to $2.24 in the third quarter of 2025, an increase of 7%. Net sales increased to $3.7 billion compared to $3.2 billion in the prior-year quarter. The increase primarily reflected higher global beverage can shipments and the pass-through of higher material costs, partially offset by $8 million of unfavorable foreign currency translation.
Global beverage can volumes increased more than 6%, including double-digit growth in Asia, 6% growth in North America, and 4% growth in Europe. Segment income was $484 million compared to $490 million in the prior-year quarter. Higher global beverage can shipments were offset by inflationary cost pressures and lower results in transit packaging. Inflationary pressures from the Middle East conflict impacted third quarter segment income by approximately $17 million across all businesses and adjusted diluted earnings per share by $0.12.
We have included a similar impact in our fourth quarter estimate. Adjusted free cash flow was $771 million through the first nine months of the year with capital spending of $310 million as we continue to invest in growth projects in Brazil, Spain, and Northern India. Capital allocation remains an important component of our value-creation strategy. During the third quarter we repurchased $81 million of the company’s shares, bringing year-to-date share repurchases to $598 million. Including $115 million of dividends, we returned more than $700 million to shareholders during the first nine months of 2026 while maintaining net leverage ratio at approximately 2.5 times.
Based on our strong year-to-date performance, we expect full-year 2026 adjusted diluted earnings per share to be in the range of $8.35 to $8.45 and the fourth quarter adjusted diluted earnings per share to be in the range of $1.63 to $1.73. Our full-year outlook assumes net interest expense of approximately $355 million; exchange rates at current levels, including a euro/dollar at approximately $1.12; effective tax rate of approximately 25%; depreciation of approximately $325 million; noncontrolling interest expense of approximately $145 million; dividends to noncontrolling interest of approximately $110 million; adjusted free cash flow of at least $950 million; capital spending approximately $550 million; and year-end adjusted net leverage of approximately 2.5 times.
The company is executing well and delivered another strong quarter. As we look ahead, our strong balance sheet, consistent free cash flow generation, and disciplined capital allocation strategy position us well to continue to invest in attractive organic growth opportunities while returning capital to shareholders. With that, I’ll turn the call over to Tim.
Tim Donahue (Chairman, President and Chief Executive Officer)
Thank you, Kevin, and good morning to everyone. As Kevin just summarized, the company had another solid quarter of performance as continued strong global demand for beverage cans helped offset the majority of rising input costs. Global beverage can shipments advanced 6% in the quarter following 5% growth in both the first and second quarters, with year-to-date growth standing at close to 6%. We remain confident in the outlook for beverage can demand with our full-year global growth target in the 4% to 5% range.
The company’s businesses are responding well to global economic challenges to continue supporting our customers’ needs as we all navigate a world of growing tensions. As Kevin described, inflationary headwinds, primarily a result of the Middle East conflict, were greater in the third quarter than previously anticipated and we have included a similar headwind in our fourth quarter estimate. Energy, industrial gases, freight, among other costs all remain elevated from pre-conflict levels and, as many of you are aware, the contractual recovery of these and other non-metal costs will occur in 2027 via a look-back formula.
Revenues in the Americas Beverage segment advanced 20% in the quarter, primarily a result of $240 million in the pass-through of higher metal costs and higher sales unit volumes. Volumes in North America grew 6%, Brazil was up 4%, with Mexico down about 1% in the quarter against a strong prior-year comp. Income improved in the quarter on the back of contribution from volume gains, although the majority of the volume contribution was offset by rising input costs.
Adjusting for the pass-through of higher material costs, segment income margin was 17.7% of sales in the quarter. Can demand remains strong in North America and we expect full-year shipments to be up in the 3% to 4% range. European volumes increased 4% in the third quarter, with 7% growth recorded across the continent, offset by a 4% reduction in the Gulf States. Capacity expansion projects in Greece and Spain remain on plan and we are also installing a third line to the Peterborough, UK plant. These capacity additions will bring much-needed capacity to our system, helping to serve our customers’ growing needs. Income level to the prior year reflects higher volumes offset by rising input and startup costs.
Income in Asia Pacific advanced during the quarter on the back of mid double-digit Southeast Asian volume gains, helping to offset higher energy and transport costs. Performance across the transit packaging business disappointed in the third quarter with both volumes and profits falling short of prior expectations. Soft volumes across all product offerings were compounded by higher input costs, notably freight. While we do see some green shoots, we remain cautious until increased quoting activity results in firm orders.
Strong vegetable and pet food demand contributed to high single-digit volume gains in North American food, offsetting softer aerosol can sales. And activity across our beverage can equipment business remains strong as global beverage can makers look to increase their capacity to meet a world of continuing growing can demand. To summarize, before opening the call to questions: Global beverage can volumes advanced 6% in the quarter. Full-year growth now estimated at 4% to 5%. Earnings per share advanced 7%, up 11% through nine months. Cash flow remains robust and, as Kevin described, the company has now returned more than $700 million to shareholders year to date. The balance sheet remains strong with leverage remaining unchanged at 2.5 times through the peak summer selling season.
And with that, Rich, we are now ready to take questions. Thank you.
OPERATOR
Thank you. We will now begin the question-and-answer session. If you would like to ask a question, please press star followed by the number one. Please unmute your phone and record your name clearly when prompted. Your name is required to introduce your question, and to withdraw your request you may press star two. One moment please for the first question. Our first question is from George Tavas from Bank of America. Your line is now open.
George Tavas (Analyst at Bank of America)
Thank you. Hi everyone. Good morning. Thanks for the details. Tim, I wanted to ask a question maybe with a couple of parts trying to get at the fourth quarter. So can you talk about what sort of exit rate you’re seeing on volumes from the third quarter into the fourth quarter for your key regions? And, relatedly—and again trying to get at the fourth quarter—and you said most of this is the elevated level of inflation, with inflation being higher than expected, what’s the offset such that your free cash flow is actually going up?
You would think that with inflation being a bigger burden, understandably, that the free cash flow guide would have been lower, but it’s higher. So help us understand what’s going on: volume in the fourth quarter as you’re entering and how you’re offsetting the inflation such that free cash flow’s up. And then I had a quick follow-on.
Tim Donahue (Chairman, President and Chief Executive Officer)
Okay, so very quickly, I’ll let Kevin deal with the cash flow element. We’ve got two things in our fourth quarter estimate. One, as Kevin described, if we had previously told you that we expected inflation to be about a 10-cent headwind in the back half of the year, it’s probably a little bit more than double that, split equally between third and fourth quarter. So we’ve got another, what, Kevin, $0.13 baked into our estimate for the fourth quarter.
The way we’re able to offset that, at least in the third quarter, was exceptionally high volume. As you know, contribution from more volume can cover a lot of costs and other problems. As you describe, exit rates coming into the fourth quarter still fairly strong. You know, it’s hard for us to sit here, though, and anticipate that we’re going to have 6% global volume growth in the fourth quarter. So, you know, our estimate for the fourth quarter probably on the order of 3.5% to 4% global volume growth, which, historically speaking—George, you’ve been around a long time like I have.
I always say that it helps to have you around because I don’t feel so old.
George Tavas (Analyst at Bank of America)
But watch it, too.
Tim Donahue (Chairman, President and Chief Executive Officer)
3% to 4%. Historically, you know, in the can business we would all do backflips if we could do that every quarter. It’s just not the 6% we had in the third quarter, but 3% to 4%, maybe a little bit better than that, we’re quite happy. So continued elevated costs, continued volume growth—although hard to sit here today with an estimate to give you to think that while we’re going to have volume growth, it could be as strong as the third quarter. Still have volume growth, maybe a touch lighter.
And I’ll let Kevin deal with the inflation vis-à-vis cash flow.
George Tavas (Analyst at Bank of America)
Yeah, we were just trying to see that there wasn’t something that had now become negative. But I appreciate that, Tim. Keep going. Hey, Kevin.
Kevin Clothier (Senior Vice President and Chief Financial Officer)
Hey, George. Yeah, George, I mean, think about it—look, the guide, the midpoint of the guide, is still exactly where it was at the end of the second quarter. So even though we’ve had higher inflationary pressures, we basically offset it with volume here. And that’s the expectation, because we’ve maintained the midpoint; we just narrowed the range. And then the delta to get the cash flow higher is just working capital—is just running better than it ever has.
So we expect working capital to be better than what we originally expected, and that’s why we feel we can get at least $950 out versus at least $900. So.
Tim Donahue (Chairman, President and Chief Executive Officer)
Okay, George, I just want to—one last thing I’ll talk about, because Kevin talked about working capital. We have two primary metrics whereby our managers are compensated in their bonus: economic profit and cash flow. And people will perform based on how you compensate them. They are well aware of how they’re compensated and they work to generate as much cash as possible. So it’s just a function of a compensation program that we’ve had for more than almost two decades that works quite well.
George Tavas (Analyst at Bank of America)
Understood, Tim. You know, I’ll turn it over, to be fair. And it’s tenure—it’s not age. Anyway, thanks.
Tim Donahue (Chairman, President and Chief Executive Officer)
Rich, next question.
OPERATOR
Thank you. Our next question is from Matt Roberts from Raymond James. Your line is now open.
Matt Roberts (Analyst at Raymond James)
Hey, Tim. Kevin. Tom, good morning. I’m at volume strength. So North America 3Q really strong and actually better than 2Q despite World Cup benefit last quarter. So in hindsight, is the strength in 2Q still due to World Cup, whereas North America is generally stronger given it carried through into 3Q? Any timing or spot volume considerations in second half here? And given those strong underlying trends despite harder comps in ’27, any early indications on what we could expect for North America in ’27?
Tim Donahue (Chairman, President and Chief Executive Officer)
Well, the first thing I’ll answer is Q3. You know, the comp last year, Q3, was very high. As you say, we had a very strong Q3 in earnings terms. Would have liked it to have been better given the volume growth. But I think what you don’t see is that, although we’ve talked about it before, we had positive volume momentum in Brazil in the third quarter, whereby in the second quarter I think we had negative volume momentum. So Brazil was a little bit of a turnaround, I don’t believe.
Although we had 4% growth in Brazil in the third quarter, I think the industry probably did better than that. We’re still running behind the industry a bit in Brazil, given customer mix. But our third quarter in Brazil was stronger than our second quarter in Brazil. And that’s the reason why you might be referencing that Q3 was better than Q2. You know, a little early to say what 2027 is going to look like. I hesitate to say this, but it feels like we’re going to be full next year in North America. You know, the upshot of that is that we won’t have a lot of spare capacity. So we’ll see how it progresses from here until the next time we talk to you.
Matt Roberts (Analyst at Raymond James)
Thanks, Tim. And on Europe, another strong growth there on volume. Segment income was flat. Was that really all the inflation impact, or any impact from startup costs?
Tim Donahue (Chairman, President and Chief Executive Officer)
You’ve got startup costs, Kevin? I don’t know, maybe $4 or $5 million or something like that. I think the other thing you have is on the continent we were up 7%, and in the Gulf states, that is the Middle East, we were down 4%. And so you’ve got some mix issues. But again, given everything that’s going on in Europe, we’re not disappointed with that result.
Matt Roberts (Analyst at Raymond James)
Right, right. And with the startup costs, is there any way 4Q operating income could be up, or should we have more startup in 4Q, or any considerations there?
Tim Donahue (Chairman, President and Chief Executive Officer)
I think we’re going to continue to have startup costs and that’s already baked into the fourth quarter estimate. And we’ll even have a little bit of startup cost in the first quarter. That’s right. We’ve got enough projects going on right now. Between the three projects in Europe, we’ve got a project in Brazil. And you know, as I mentioned to you in the prepared remarks, our equipment business, the order book is really firm and it’s not just a North America or European thing.
It is a global growth spurt right now we’re experiencing across beverage cans. It feels a little bit like pre-COVID. Although this feels a bit more organic, it’s not fueled by COVID. This feels like there’s a real momentum globally towards beverage cans, either from the growth of beverages and/or substrate changes globally. So this feels really positive as we look forward.
Matt Roberts (Analyst at Raymond James)
Very good. Appreciate that.
Tim Donahue (Chairman, President and Chief Executive Officer)
Thank you.
OPERATOR
Thank you, Matt. Thank you. Our next question is from the line of Ghansham Panjabi from Baird. Your line is now open.
Ghansham Panjabi (Analyst at Baird)
Thank you, operator. Good morning, everybody. You know, on the cost inflation piece, I understand there’s been a lot going on this year and it just continues to get more volatile, et cetera. But if costs hold at this point for 2027, will you be price/cost at least neutral, or will there be some lags, or will you be ahead of the cost curve?
Tim Donahue (Chairman, President and Chief Executive Officer)
So, you know, as we sit here today, you all are well aware of the contractual mechanism we use, at least in the North American market, which is PPI. I think—correct me if I’m wrong, Kevin or Tom—but I think PPI right now is running at about 9%.
Kevin Clothier (Senior Vice President and Chief Financial Officer)
That’s right.
Tim Donahue (Chairman, President and Chief Executive Officer)
So it’s a pretty big number as we get into 2027 as we reprice mostly around the April 1st timeline, but it’ll be a fairly large repricing, which will recapture much of the headwind we’ve had in 2026, and we’ll see where prices go next year. You know, with any luck, we’ll get some abatement on rising prices. We’re already starting to see LME levels come down now. That’s not part of the PPI, but declining LME is a good sign with respect to the affordability of cans for our customers and the consumers.
So why don’t you give—I’d like to say yes. To answer your question, Ghansham, why don’t you let us come back to you in late January when we talk to you and just firm that up? But it feels like we’re going to be in a much better position next year than we are this year with respect to the Middle East inflationary pressures.
Ghansham Panjabi (Analyst at Baird)
Okay, perfect. And then for volumes, again looking out to 2027—I realize it’s early—so it sounds like the Americas segment is in a pretty good spot. You mentioned being sold out, certainly North America. What about the other regions? Would Europe start to benefit from the incremental capacity additions? Can Asia sustain the growth? I’d love to hear your initial thoughts on those regions.
Tim Donahue (Chairman, President and Chief Executive Officer)
Yeah, I think—listen, there’s always—you and I have talked before, Ghansham—there’s always business that moves around. People don’t always like to hear that perhaps some business has moved around. But we’re going to be full next year, and we think we’re going to be full with a better mix. I’ll just say it that way. In the North American market, we are hopeful that customer mix will be a benefit to us in Brazil next year as opposed to a headwind this year.
Europe, we expect to continue growing in the order of 3% to 5%, or 2% to 4%. You know, it’s off a much bigger base now, the market, and we are as well positioned to benefit from market growth as anybody else. So we feel like we’re at least in line with market growth in Europe. Hopefully—and it is a big hope—but we get a resolution to the Middle East conflict, or we get the Strait of Hormuz loosening up a bit, perhaps we can return to growth. We’ve had a little headwind in volumes in the Middle East operations.
If we get a little return to growth there—and Asia will continue to grow. It will not grow next year at the rates that it grew this year, but it will continue to grow in the low- to mid-single-digit range. So I think, as I said to Matt—Matt gave me the opening to comment about global beverage can demand—I think, not just for Crown Holdings but for all canmakers, we’re entering a world over the next couple of years where we’re going to see very strong demand.
Ghansham Panjabi (Analyst at Baird)
Perfect. Thank you so much.
Tim Donahue (Chairman, President and Chief Executive Officer)
Thank you.
OPERATOR
Thank you. Our next question is from the line of Phil Eng from Jefferies. Your line is now open.
Phil Eng (Analyst at Jefferies)
Bill. Hey, Tim, how are you doing? Sorry about that. Volumes are strong, certainly in an inflationary backdrop. I mean, you’re still growing earnings this year, so kudos to the team. When we look at ’27, you obviously gave some great color on PPI, how that kicks in for North America. Europe, I believe, there’s an element that’s tied to that. But I’m most curious about other markets like Asia, transit—your ability to take price and to offset inflation.
Certainly a very strong demand environment right now.
Tim Donahue (Chairman, President and Chief Executive Officer)
So Asia, we do have a few long-term contracts. Many of the contracts in Asia are annual in nature, so we reprice those annually. Having said that, there are some markets in Asia that are very competitive. So we always look to remain competitive and either maintain a very stable business with a lot of cash flow or grow it when there’s an opportunity. So I do think we’ll have an opportunity to grow the business next year. Little early to say where income will come in, but perhaps marginally up next year compared to this year.
I’m very hopeful that we’ll see the Middle East return to volume growth next year as well as Brazil, and again pass-through mechanisms in those markets a little different than North America and Europe.
Phil Eng (Analyst at Jefferies)
Okay, helpful. And then given the cash flow generation, you’re buying back stock, returning cash. What about growing the business outside of projects you have? I’m most curious about North America. I mean, as you kind of alluded to, you’re sold out. What’s the path on that front? Is that something we should be focused on? And any other markets where you see an ability to deploy capital for organic growth?
Tim Donahue (Chairman, President and Chief Executive Officer)
Yeah, I think until we announce a project, I would tell you right now we’ve got four fairly large projects underway right now—three in Europe and we’re finishing one in Brazil. So it’s a lot of work for our team. You know, we do all of the work ourselves in-house. We don’t outsource the work. So we’ve got a big, very sophisticated, competent project management and engineering team. We make a lot of our own equipment. And, you know, I would just tell you that we continue to evaluate the opportunity with respect to how much we can sell ahead of—ahead of making a commitment to put more capital in the ground.
And so, until we make an announcement, you should assume that the four projects we have is what we have at this point.
Phil Eng (Analyst at Jefferies)
Okay. Appreciate the color, Tim.
Tim Donahue (Chairman, President and Chief Executive Officer)
Thank you.
OPERATOR
Thank you. Our next question is from Hilary Cacanando from Deutsche Bank. Hilary, your line is now open.
Hilary Cacanando (Analyst at Deutsche Bank)
Great, thank you. So, on transit, you mentioned some green shoots in quoting activity. Can you give us a little more color on where you’re seeing that improvement and what would need to happen for you to become more constructive on the demand outlook into 2027?
Tim Donahue (Chairman, President and Chief Executive Officer)
Yes, you could probably tell from my prepared remarks we’re a bit disappointed with the performance in transit. We’ve started to see an uptick in industrial demand. Certainly PMI in both the United States and Europe has been running in the expansion category for the last several months, and we have yet to benefit from that. We are starting to see quoting activity pick up across the equipment sector. Obviously, we’d like to sell more equipment. You sell more equipment, you get more tools and service in the future—and a lot of quotes.
But we need to get some firm orders before we’re going to get a little bit more constructive, to use your words, or confident, to use my words, before I want to put my neck back out there again. So disappointing, but it feels like things could be getting better. We’re just not ready to say it yet.
Hilary Cacanando (Analyst at Deutsche Bank)
Got it, got it. Thank you. And then as a follow-up, you recently broke ground on your first beverage can facility in India. So can you talk about the opportunity you see in the Indian market and how you’re thinking about the ramp and return profile of that investment?
Tim Donahue (Chairman, President and Chief Executive Officer)
So I think one thing I’d like to say is that, you know, it’s our first plant in India. But let’s be clear. Crown has been at the forefront of entering new markets well ahead of anybody else for decades. We were the first Western can company in China, we’re the first western can company across Southeast Asia. In the Middle East, we’ve not had a lot of hesitancy to go into new markets. Our hesitancy with India over the years had more to do with the fact that it was more of a spirits market than a beer market.
That is changing as the Indian consumer continues to consume more beer as well as soft drinks. And it appears that cans are becoming a more preferred package as well in that market like many other regions in the world. So I think it’s fair to say that India is a very large country with a very large population and a very large middle class. I mean, you know, the population of the United States is 330 million. The population of India is pushing a billion and a half. And I’ll bet you the middle class in India is the entire population of the US such that 20%, at least 20% India, 300 million is middle class and they have growing disposable income. And the opportunity set would be there for us to have not one plant.
We, I don’t think we ever would envision going to a market as large as India over a three, five or ten year period and only want to have one location. So we’ll look to get this capital in the ground to get started up as quick as possible. You know, it’s a big two line plant. I would tell you that right now more than 90% is under contract. Our challenge is to get it up and running as quick as possible to serve those contracts. And the payback should be in line or better than we’ve seen with other large projects that we’ve put in the ground over the last six years.
You’re welcome. Thank you.
OPERATOR
Thank you as well. Our next question is from Aaron Vishwanathan from RBC Capital Markets. Aaron, your line is now open.
Aaron Vishwanathan (Analyst at RBC Capital Markets)
Great. Thanks for taking my question. Congrats on the strong Q3 on the volume side. So I just, I guess I wanted to continue that discussion. So obviously maybe you can just offer some of your thoughts on what you’re hearing from some of your customers. We know that inflation is up. The beverage companies I think have been struggling with balancing promotions and price with volume. So I guess what are you hearing on that front? Do you expect promotions to continue as you enter into 27 and do you expect you are facing a pretty tough comp?
So do you think you can still grow volumes off of this, say mid single digit performance in 2016?
Tim Donahue (Chairman, President and Chief Executive Officer)
Yes, I think as I’ve said to some, Arun, to some of the previous questions, I think we see continued volume growth in 27, albeit perhaps not to the same level, certainly in Asia that we see this year. You’re not going to grow business double digit every year, but. And some of the Asian growth we had this year was on the back of a renewed commercial strategy. After a couple of years of getting our cost structure in line, we’re now back in the market with a renewed commercial strategy.
We’ll have growth next year, but as I said, low to mid single digits. Middle East I would hope is better than this year. In the face of a war, Europe is going to continue to grow. It’s just a matter of how quickly we can get capital in the ground and others can get capital in the ground to meet customers growing needs across the European continent. As I said, we were very hopeful that customer mix next year is more positive for us in Brazil than it was this year.
And in North America, we’re going to be sold out and the limits of our capacity will be tested and that will determine whether or not our growth next year is 2% or 4%. And we’ll come back to you. Phil wanted to press the issue on new capacity in North America. We’re not there yet, but we’ll come back to you in due time if we feel that’s necessary.
Aaron Vishwanathan (Analyst at RBC Capital Markets)
Okay, thanks for that. And then just real quickly on the promotional activity, I guess that’s more what I’m wondering about is just, you know, customers. I guess last time when there was some inflation, the beverage companies raised prices and then when the inflation retreated, they weren’t really willing to promote this immediately. So do you think those promotions will continue that kind of buy two get one free in North America specifically?
Tim Donahue (Chairman, President and Chief Executive Officer)
I think they need to move volume. Right. And the parent companies look to sell syrup and the bottlers look to move volume. I think the one thing that’s very positive for the can makers, where the can makers sit right now is LME looks like it’s dropped below 3,000 or very close to 3,000 from. From a high of what, Kevin? 3,500 or 3,600. So we’re starting to see some easing on LME. It would be nice to see some easing on the Midwest premium, but certainly the LME has come off almost 20%.
And that’ll give the beverage companies the opportunity to promote if they continue to want to do so.
Aaron Vishwanathan (Analyst at RBC Capital Markets)
Okay, I appreciate that. And then just real quickly, if I could just squeeze in one more just on PPI. So, you know, in years past when you’ve had, you know, an inflationary pass through, you know, maybe that weighed on EPS a little bit. Could you just kind of speak to, you know, how that would impact your 27 outlook, if at all, you know, you know, will it take some, will there be a lag before you can see some earnings growth, you know, due to that PPI pass through.
Tim Donahue (Chairman, President and Chief Executive Officer)
Well, the pass through will occur by contract. It is formulaic. Some contracts are early in the year. The majority I think are April 1st. So you know, it is formulaic and it’s going to happen. And you know, the timing is as it relates to 3Q26 is unfavorable. But we know how this works every year. I think as Kevin has said before for the last couple of years, I think PPI was flattering 1 or 2% and clearly flat to 2% doesn’t reflect the cost environment post April this year when the war started.
So we’ll get it back next year. Thank you.
OPERATOR
Thank you. Our next question will be coming from the line of Jeff Sakauskis from JP Morgan. Jeff, your line is now open.
Jeff Sakauskis (Analyst at J.P. Morgan)
Thanks very much. I think this summer was the hottest on record in the United States and Europe. Do you think that that affected beverage demand and your can demand?
Tim Donahue (Chairman, President and Chief Executive Officer)
I don’t know, Jeff. I don’t know, to be honest with you. I think globally and even in the North American market, people are embracing cans, more fillers and more companies that are introducing new beverage products are introducing them in higher rates into cans than ever in the past. And I think the younger consumer, which isn’t me, but the younger consumer is well aware of the sustainability benefits surrounding the can and the infinite recyclability of aluminum as opposed to mass piles of plastics that are floating in the ocean and clogging our nation’s waterways.
So I think there’s a lot of things that are positive for the can. It’s, you know, you could argue if it’s too hot, people don’t go outside and if people don’t go outside, they don’t have picnics. So you can, you can look at it a lot of different ways. I’m going to try to stay out of the global warming debate. I don’t know. But I think we’re in a world where cans are being recognized for the benefits that they offer versus other substrates and I’ll leave it at that.
Jeff Sakauskis (Analyst at J.P. Morgan)
Okay. And you talked about a look back benefit in 2027 because of the inflation that was felt in 2H26, but not immediately recouped. So all things being equal, should there be, I don’t know, a 20 cent a share benefit that accrues to Crown in 2027 because of the inflation in 26?
Tim Donahue (Chairman, President and Chief Executive Officer)
Well, there is a benefit, yes. It won’t be the full amount we incur this year because not all regions have that contractual look back mechanism. We certainly have it in North America and we have it to a large extent in Europe. We do not really have it in the Middle East or Asia as more of those contracts are annual in nature. So perhaps, perhaps half of that number, you might want to fairly say that we should see next year.
Jeff Sakauskis (Analyst at J.P. Morgan)
Great. Thank you so much.
Tim Donahue (Chairman, President and Chief Executive Officer)
You’re welcome.
OPERATOR
Thank you. Our next question is from Chris Parkinson from Wolfe Research. Chris, your line is now open.
Chris Parkinson (Analyst at Wolfe Research)
Thank you so much, Tim. Can we just circle back at, you know, kind of the beginning of this year? Obviously there are a lot of moving parts. When you take a step back and look at where you stood then versus where you stood now, what are the things you feel generally better about in terms of the way the industry’s trending, specifically North America? And what are the kind of one or two things we should be focusing on the most for 2027 in terms of moving parts in terms of your own thinking as CEO?
Tim Donahue (Chairman, President and Chief Executive Officer)
Thank you. Well, listen, I think that if you had told me on January 1st that we’d get through nine months of the year and we’d be global beverage can shipments for Crown would be up on the order of 5 to 6%, I’d have taken that in a heartbeat on January 1st. And if you. And if you told me then that my quoting activity and my order book at CMB Engineering, our beverage can equipment company, would be as full as it is now for the outlook, I’d be thrilled. I don’t think we anticipated demand for us in North America or the world to be as strong as it has been this year on January 1st. And we certainly didn’t anticipate the strength of equipment demand that we’re seeing right now as we look forward. So I think, as I said earlier, it feels like we’re entering a world of increased beverage can growth. And it certainly feels, as I said earlier, much more organic than it felt during the COVID period. So I think the only thing I would tell you to look at as we get into next year, because things feel pretty good as relates to demand and hopefully we see some easing on input cost pressures such that when we do get the contractual mechanisms, we recover what we lost this year.
That we’re just not keeping pace with further cost pressures next year.
Chris Parkinson (Analyst at Wolfe Research)
And just a quick follow up. A couple of questions ago you kind of ran through some quick math in terms of the entry into the Indian market. You obviously have been focusing on a couple of anchor customers per the press releases. But how are you thinking about that intermediate and long term? Is that mainly, is that the beer thesis? Are there possibilities with additional CSD customers? Just any additional color on how you’re going to anchor yourself into that market and eventually obviously grow would be greatly appreciated.
Thank you.
Tim Donahue (Chairman, President and Chief Executive Officer)
I’m sorry if I gave you the impression that we only had beer customers. What I was trying to say that historically the Indian consumer was more of a spirits drinker than a beer drinker. But we do have soft drink customers under contract and I’d say that perhaps at least 40% of what we have under contract in this new facility is soft drink, with 60% of it being beer. So we have a number of soft drink customers, including some of the very largest soft drink companies in the world.
And our growth aspirations requirements in that country will be anchored to our customers as they want us to go to other regions of a very large market with a very large consumer base.
Chris Parkinson (Analyst at Wolfe Research)
Thanks for the clarification.
Tim Donahue (Chairman, President and Chief Executive Officer)
Thank you.
OPERATOR
Thank you. Our next question is from Mike Roxland from Choice Securities. Mike, your line is now open.
Mike Roxland (Analyst at Choice Securities)
Thank you, Tim, Kevin, Tom, for taking my questions. Tim, you mentioned in the last few years that you were focused on reducing costs, but now you’re back to a renewed commercial strategy or commercial focus. Can you provide some more color on what that strategy or commercial strategy entails and maybe what has changed versus your prior strategy?
Tim Donahue (Chairman, President and Chief Executive Officer)
Well, I was specifically talking about Asia. So we had one thing that happens in Asia. I’ll just give you a quick recap here. One thing that happens in Asia, when you build a facility in many countries, you don’t own the land, you get a long-term lease on the land. Fortunately or unfortunately for Crown, we’ve been there so long that some of the leases came due. The properties happened to be in areas which, while they were industrial in nature in the past when the factories were built, they’re now more residential and the government wanted those back to build residential housing as opposed to industrial complexes.
So we had to exit two locations across Southeast Asia, three can lines and three end lines. So we took the opportunity as we were doing that to reset the cost base across Southeast Asia in the 23-24 time frame. And having completed that and getting the cost base back to where we wanted it, we had a look at our commercial strategy and understood that we could use that lower cost base to go back into the market and grow our business and increase utilization or absorption in the remaining factories that we had.
No, we had a— I would tell you we have a pretty balanced food can business. We have a number of East Coast producers, Southeast producers, and a big strong presence in the upper Midwest, not the lower Midwest. So really, it’s been a tremendous year. We have a— we have what we think is— it’s not the biggest food can business, but we believe it’s the best food can business. Really great partnerships with some great people, great family businesses and other businesses, and we really enjoy the business and it does well and we continue, where we have opportunity, to invest smartly to support those customers.
But it’s been a— but it’s been a great last couple of years and again another great campaign this year. Thank you.
OPERATOR
Thank you. Our next question is from Anthony Petnary from Citigroup. Your line is now open. Anthony,
Anthony Petnary (Analyst at Citigroup)
Good morning, Tim. Hey, just following up on the Middle East. I think you previously had estimated $0.07 to $0.10 headwind in the second half after a $0.05 headwind in 2Q. I’m just wondering how you think that might shake out. And you talked about Gulf volumes down 4% in 3Q. I mean, is that what you’re seeing in October, or is there any—
Tim Donahue (Chairman, President and Chief Executive Officer)
Again, Anthony, just to be clear, when we said $0.05 in Q2 and then $0.10 in the back half, we were talking about the inflationary impact of the Middle East conflict across our global operations. We clearly got that wrong. In the back half, $0.05 in Q2 and $0.10 in the back half has morphed into $0.20 to $0.25, split equally between Q3 and now our estimate for Q4, some of that being volume declines in the Middle East, much of it being elevated energy costs and elevated freight costs globally.
Anthony Petnary (Analyst at Citigroup)
Got it, got it. And then the Gulf volumes down mid-single digits, I mean, is that reasonable for 4Q? Are you seeing any change there? Is there any kind of comp we should be mindful of?
Tim Donahue (Chairman, President and Chief Executive Officer)
No, I think we should— until we see the Strait of Hormuz, the restrictions there, ease, I think you should consider that our estimate for Q4 includes continued declines across a couple of the Middle East operations.
Anthony Petnary (Analyst at Citigroup)
Got it, got it. And then maybe just one more. You know, you’ve been taking share from glass, maybe in most of your markets. I’m just curious, as you see these moves in aluminum, with LME spiking and now coming back down, does that really drive or impact adoption of cans versus glass, or substitution out of glass? Like if you just think about the last three to five years, I’m wondering if you can talk about that dynamic. If it’s accelerating, slowing— like how sensitive is it to LME?
Just any kind of—
Tim Donahue (Chairman, President and Chief Executive Officer)
Yeah, you’re going to give me a chance to talk about sustainability. And Kevin’s going to get real excited here because he loves this, I think. Let’s be clear, in North America, there’s almost no CSD in glass any longer. The CSD guys are not going back to glass. So where a declining LME helps us, it makes the can much more competitive against the PET bottle from a cost perspective. And we all know it’s much more competitive across an environmental spectrum globally.
Glass only works globally when it’s returnable glass. And for those of you who have traveled internationally, you know that many storefronts are very, very small. Those shopkeepers do not want to recollect glass and have empty used bottles sitting there waiting for somebody to come pick them up because it’s taking up very precious real estate. They have to put saleable product— they prefer to have saleable product on the floor, not empty bottles waiting to be picked up.
So the movement towards cans away from glass is real. I don’t need to pile— glass has a problem. I don’t need to pile on the glass’s problem. I’m not trying to do that. But the opportunity for cans to continue growing at the expense of glass is very real.
Anthony Petnary (Analyst at Citigroup)
Okay, that’s helpful. I’ll turn it over.
OPERATOR
Thank you. Our next question is from the line of Josh Spector from UBS. Josh, your line is now open.
Josh Spector (Analyst at UBS)
Hi, good morning. I wanted to come back to the inflation questions, and I feel like you’ve been pretty comprehensive on North America and Europe. And just given the comments around Asia not having the pass-throughs, is that a good or bad thing for you now? I guess is a tighter environment for cans something you think you can get pricing faster, or do you see that being more of a lag recovery?
Tim Donahue (Chairman, President and Chief Executive Officer)
Well, you know, depending on who the competition is and how realistic the competition is and where the competition is in terms of their own profitability, you would expect that we’re larger, we have a much better footprint. I firmly believe we operate better— that is, more efficiently, with less spoilage. We should have opportunities as the competition looks to raise price. And we saw a little bit of that in China this year. For the first time in a long time, the Chinese competition raised price in China.
I think we’re going to expect to see that as we go forward, that as prices or as contracts reprice on an annual basis, we’ll see the competition becoming more responsible.
Josh Spector (Analyst at UBS)
Okay, thanks, that’s helpful. If I could shift gears quickly here just on M&A. I mean, there’s plenty of noise going around on one of the smaller competitors about potential restructuring. Can you just talk about your appetite for doing any large-scale M&A in cans today?
Tim Donahue (Chairman, President and Chief Executive Officer)
Well, I think, as Kevin said, we are well positioned to continue organic growth opportunities and returning cash to shareholders. Organic growth may contain can acquisitions. It’s hard to see how we could do a large-scale can acquisition just given the concentration across so many of the markets. Would we, or do we, have opportunity to pick up a plant here or there? Yes, and we’ll see what happens. It’s too early to say what might become available from any of the two or three situations that are out there or recently announced.
But as we sit here today, no large-scale M&A because we just don’t think it’s available in cans. And certainly no large-scale M&A outside of cans.
Josh Spector (Analyst at UBS)
Okay, thank you.
OPERATOR
Thank you. Our next question is from Edlin Rodriguez from Mizuho. Your line is now open.
Edlin Rodriguez (Analyst at Mizuho)
Thank you, and good morning, everyone. Kevin, Tim, quick one on Transit. I mean, as you noted, you know, a little disappointment there. So what does 4Q look like? You know, given seasonality and, of course, inflation, does it get much worse before it gets better? Like should we expect a big step down in 4Q’s earnings for Transit?
Kevin Clothier (Senior Vice President and Chief Financial Officer)
Well, I think that we would expect Q4 in Transit to have a similar comparison to the prior year as Q3 did. So it’ll be down a little bit, but similar to— maybe similar to the third quarter.
Edlin Rodriguez (Analyst at Mizuho)
Okay, makes sense. And also in the Other segment, should we expect similar trends in 4Q? You know, that $45 to $50 million in terms of earnings, because it’s been pretty steady this year, but not last year. Like should we expect something similar to what we’ve been seeing the past couple of quarters?
Kevin Clothier (Senior Vice President and Chief Financial Officer)
Yeah, I think you could expect— we were flat year on year in the third quarter. I think we’re flat to maybe slightly down in the fourth quarter is what I would expect. But definitely not in the 40 to 50 range.
Edlin Rodriguez (Analyst at Mizuho)
Okay, so compared to last year, you’re saying like flat to slightly lower. Okay.
Kevin Clothier (Senior Vice President and Chief Financial Officer)
Yeah. Flattish.
Edlin Rodriguez (Analyst at Mizuho)
Okay. Thank you very much.
OPERATOR
Thank you. Our next question is from Kiran Mumtara from BMO Capital Markets. Kiran, your line is now open.
Kiran Mumtara (Analyst at BMO Capital Markets)
Thanks for taking my question. Just coming back to North America volumes, Tim, any additional color you can provide as to kind of how some of the products within product categories did, whether it is energy drinks, CSD, beer.
Tim Donahue (Chairman, President and Chief Executive Officer)
Well, energy has been exceptionally strong, as you know. What has been positively surprising this year is CSD. And for us, sparkling water is a big category and we’ve done well in sparkling water. And, you know, I always hate to say this, but it feels like beer is stabilizing. But no, listen, it’s been a— it’s been a really good— it’s been a really good campaign. I think if we look at the last 52 weeks, at least the data I saw recently, it looks like every category was up over the last 52 weeks.
Beer might have been slightly down, but it might have only been down like 1 or 2%. It wasn’t down much bigger than that, but certainly offset by all the other categories.
Kiran Mumtara (Analyst at BMO Capital Markets)
Understood. That’s helpful. And then over in Brazil, last quarter you mentioned that the team was targeting sort of flat volume for the year. Is that still sort of how you all are thinking about it?
Tim Donahue (Chairman, President and Chief Executive Officer)
Yeah, I think what we said is the team was targeting flat volume. We weren’t sure we believed it. We’re still targeting— on the top side, maybe we’re going to be down 2% for the full year.
Kiran Mumtara (Analyst at BMO Capital Markets)
That’s helpful. I’ll turn it over. Good luck.
Tim Donahue (Chairman, President and Chief Executive Officer)
Thank you.
OPERATOR
Thank you. Our last question is from George Staffis from Bank of America. Your line is now open. George.
George Tavas (Analyst at Bank of America)
Hey, thanks very much for taking the follow-on. Hey, Tim, you were candid and we appreciate the comments on Transit. And you also talked earlier about your philosophy on managing and incentivizing. What do you think will improve? What changes might you make in terms of the incentives or anything else so that you do get better performance out of Transit over the next year or two? And then separate question. If you look out over the next year or so, assuming we continue along this path— right, there are no guarantees in life— but nonetheless, the company and the industry generate a lot of cash. Large acquisitions are seemingly less likely for obvious reasons. Can you help us think about what your goals might be on capital allocation— really, share repurchase— over the next year or so? Thank you. And good luck in the quarter.
Tim Donahue (Chairman, President and Chief Executive Officer)
Thank you. So on the first thing, George, I’ll be further candid on the transit and I’ll tell you the team does a very good job in transit with respect to cash. If you want to blame somebody, blame the CEO of the company — that’s me — for not giving them capital and/or bolt-on acquisition dollars that they would otherwise like. We made a decision several years ago we were going to run this business for cash and use that cash to support our beverage can growth strategy globally, as well as our opportunity to return cash to shareholders.
Now we probably do need to look to spend a little bit more capital per year in that business, but nothing on the order of more than $20 million a year. So not massive numbers, but maybe we need to give them a little bit more money. And so if you want to — if we want to say where the blame lies, you can blame me. The team would like a little bit more money. We’ve said no. We’ve generated a lot of cash and we’ve used it for what we believe have been good reasons: de-lever the balance sheet, rapidly return a lot of capital to shareholders, and grow the beverage business as we look at the future.
Again, as you rightly point out, hard to understand how we could do large-scale metal M&A; unlikely we’re going to do large-scale non-metal M&A. We’re going to generate on the order of $900 million to a billion of free cash flow every year. I think Kevin would probably tell you he feels pretty confident about that. And, you know, we pay a dividend right now on the order of $1.40. Maybe that increases a little. But that leaves a lot of money to repurchasing shares. And in the absence of something that we believe returns more value to shareholders, we’re going to continue to buy back shares.
George Tavas (Analyst at Bank of America)
Would you put any goals out there, Tim, at this juncture or not? At this juncture?
Tim Donahue (Chairman, President and Chief Executive Officer)
Well, we’ve bought back $600 million year-to-date this year, and maybe Kevin would like to buy a little bit more than $100 million throughout the rest of the year. So that’d be like $700 million. And, you know, if you thought about 6, 7, 800 million a year for the next several years, I don’t think that’s too far out of the question. I think the share count’s quickly approaching. I think we’re at 108 right now. I would say by mid next year could we get down to 100 million on a share count?
That’s 8 million shares. That would be roughly another $800, $900 million. There’s no reason to believe we couldn’t do that. And then we’ll see where we go from there. But listen, 6, 7, 800 million a year in share buyback — going to get the denominator down pretty quick.
George Tavas (Analyst at Bank of America)
Understood. Thanks so much, Tim. Good luck in the year, the rest of the year.
Tim Donahue (Chairman, President and Chief Executive Officer)
Thank you, George. Rich, I think you said that was the last question, so thank you very much. And as that was the last question, we again thank you all for joining us. And we’ll speak to you again in early 2027. Bye now.
OPERATOR
And that concludes today’s conference. Thank you, everyone, for participating. You may now disconnect.
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