Business News
Crown Holdings Reports Third Quarter 2008 Results
Thursday 16. October 2008 - Crown Holdings, Inc. (NYSE:CCK) today announced its financial results for the third quarter ended September 30, 2008.
Third Quarter Highlights
— Net sales grew 10% to $2,369 million
— Gross profit improved 21% to $378 million
— Segment income rose 28% to $276 million
— Earnings per diluted share increased 25% to $0.70
Commenting on the results, John W. Conway, Chairman and Chief Executive Officer, stated, “We continued to build on the momentum from the first half of the year with an outstanding third quarter. The continuation of improved results was driven by volume growth and margin expansion across our global beverage and food can businesses. In addition, unit volume demand and profitability were firm in our global aerosols businesses. Our results demonstrate the value of our diverse global portfolio. We continued to benefit from our beverage can capacity investments in the higher growth, underserved markets of the Middle East and Southeast Asia. Equally important, Crown is uniquely positioned with strong food and aerosol can businesses in both North America and Europe.”
Third Quarter Results
Net sales in the third quarter rose to $2,369 million, up 10.0% over the $2,153 million in the third quarter of 2007. The increase was primarily due to sales unit volume growth in beverage and food cans, $90 million from foreign currency translation and the pass-through of higher raw material costs in the form of higher selling prices.
Gross profit in the third quarter grew 21.2% to $378 million over the $312 million in the 2007 third quarter. As a percentage of net sales, gross profit expanded to 16.0% in the third quarter from 14.5% in the third quarter last year. Growth in beverage and food can sales unit volumes, ongoing efficiency improvements and $15 million from foreign currency translation primarily drove the improvement.
Selling and administrative expense in the third quarter was $102 million compared to $97 million in last year’s third quarter. The increase includes foreign currency translation of $2 million.
Segment income (a non-GAAP measure defined by the Company as gross profit less selling and administrative expense) grew to $276 million in the third quarter, up 28.4% over the $215 million in the 2007 third quarter. Foreign currency translation increased segment income by $13 million in the third quarter of 2008 compared to the same period last year. Segment income as a percentage of net sales expanded to 11.7% in the third quarter compared to 10.0% in the third quarter last year.
“During the quarter, we also announced the signing of a license agreement with Toyo Seikan Kaisha, Ltd. to manufacture and sell our SuperEnd(R) beverage ends in the Japanese market. Our patented design uses 10% less metal than traditional beverage ends and this license further illustrates the cost savings and sustainability advantages provided by SuperEnd(R). Through Crown and its licensees, SuperEnd(R) beverage ends are commercially available to beverage customers in North and South America, Europe, Africa, Asia and Australia,” Mr. Conway added.
Interest expense in the third quarter was $76 million compared to $79 million in the third quarter of 2007. The decrease reflects lower average debt outstanding partially offset by foreign currency translation of $1 million.
The provision for income taxes in the third quarter of 2008 was $45 million for an effective tax rate of 23.7% compared to $22 million, or a 15.9% effective rate in the same 2007 period. The increase in the effective tax rate is primarily due to the release of U.S. deferred tax valuation allowances in the fourth quarter of 2007. Included within the provision for income taxes for the third quarter of 2008 was a $5 million tax credit for a change in UK law related to depreciation on buildings.
Net income in the third quarter improved 22.6% to $114 million compared to $93 million in the third quarter of 2007. Earnings per diluted share in the third quarter grew 25.0% to $0.70 over the $0.56 in the 2007 third quarter.
Included within net income from continuing operations, the Company recorded a net charge of $1 million, or $0.01 per diluted share, reflecting a $6 million net charge related to the provisions for restructuring and asset impairments offset by the $5 million UK tax credit described above. In the 2007 third quarter, the Company recorded a net charge of $5 million, or $0.03 per diluted share, reflecting a net charge of $8 million for restructuring offset by a $3 million net gain on sales of assets.
Nine Month Results
For the first nine months of 2008, net sales grew 9.8% to $6,428 million over the $5,856 million in the first nine months of 2007. The increase reflects foreign currency translation of $348 million, sales unit volume growth in beverage and food cans and the pass-through of higher raw material costs in the form of higher selling prices. Approximately 74% of net sales were generated outside the U.S. in the first nine months of 2008 compared to 72% in the first nine months of 2007.
Gross profit for the nine month period improved 21.3% to $986 million, or 15.3% of net sales, compared to $813 million, or 13.9% of net sales in the first nine months of 2007. The improvement was driven by beverage and food can sales unit volume growth, increased operating efficiencies and foreign currency translation of $52 million.
Selling and administrative expense for the nine month period ended September 30, 2008 was $309 million compared to $285 million for the same 2007 period and includes $15 million from foreign currency translation.
Segment income in the first nine months of 2008 grew 28.2% to $677 million over the $528 million in the first nine months of 2007. Foreign currency translation increased segment income by $37 million in the first nine months of 2008 compared to 2007. Segment income as a percentage of net sales improved to 10.5% in the first nine months of 2008 compared to 9.0% for the same period last year.
Interest expense was $232 million for the first nine months of both 2008 and 2007. Lower average debt outstanding was offset by foreign currency translation of $10 million.
The provision for income taxes for the nine month period ended September 30, 2008 was $113 million compared to $62 million in the first nine months of 2007. Included within the provision for income taxes for the first nine months of 2008 was a $5 million tax credit for a change in UK law related to depreciation on buildings. For the nine months ended September 30, 2008, the effective tax rate increased to 26.1% from 19.5% in 2007 due to the release of the U.S. deferred tax valuation allowance in 2007.
Net income for the first nine months of 2008 increased 18.8% to $240 million, compared to net income of $202 million for the same period in 2007. Earnings per diluted share for the first nine months of 2008 rose 21.5% to $1.47 compared to $1.21 in the first nine months of last year.
In the first nine months of 2008, the Company recorded a net charge of $3 million, or $0.02 per diluted share, reflecting an $8 million net charge related to provisions for restructuring and asset impairments and the loss from early extinguishments of debt offset by the UK tax credit of $5 million described above. During the first nine months of 2007, the Company recorded a net charge of $1 million, or $0.01 per diluted share, reflecting a net charge of $12 million related to restructuring actions offset by a net gain of $11 million related to gains on sales of assets.
Net debt (a non-GAAP measure defined by the Company as total debt less cash) decreased by $287 million from June 30, 2008 primarily as a result of cash provided by operating activities and $123 million due to foreign currency translation (from December 31, 2007 foreign currency translation has reduced net debt by $49 million).
Debt and cash amounts were:
September 30, June 30, December 31, September 30,
2008 2008 2007 2007
Total debt $3,533 $3,799 $3,437 $3,763
Cash 332 311 457 348
Net debt $3,201 $3,488 $2,980 $3,415
Receivables
securitization $308 $279 $272 $328
Non-GAAP Measures
Segment income, free cash flow and net debt are not defined terms under U.S. generally accepted accounting principles (non-GAAP measures). Non-GAAP measures should not be considered in isolation or as a substitute for net income, cash flow or total debt data prepared in accordance with U.S. GAAP and may not be comparable to calculations of similarly titled measures by other companies.
The Company views segment income and free cash flow as the principal measures of performance of its operations and for the allocation of resources. The Company believes net debt is a useful measure of the Company’s debt levels. Segment income, free cash flow and net debt are derived from the Company’s Consolidated Statements of Operations and Cash Flows and Consolidated Balance Sheets, respectively, and reconciliations to segment income, free cash flow and net debt can be found within this release.