Ardagh Metal Packaging - Earnings Call - Q1 2025

Transcript

Operator (participant)

Good day and welcome to the Ardagh Metal Packaging S.A. Quarterly Results Call. Today's call is being recorded. At this time, I'd like to turn the call over to Mr. Stephen Lyons. Please, Investor Relations, please go ahead.

Stephen Lyons (Head of Investor Relations)

Thank you, Operator, and welcome everybody. Thank you for joining today for Ardagh Metal Packaging's First Quarter 2025 Earnings Call, which follows the earlier publication of AMP's earnings release for the first quarter. I'm joined today by Oliver Graham, AMP's Chief Executive Officer, and Stefan Schellinger, AMP's Chief Financial Officer. Before moving to your questions, we will first provide some introductory remarks around AMP's performance and outlook. AMP's earnings release and related materials for the first quarter can be found on AMP's website at ir.ardaghmetalpackaging.com. Remarks today will include certain forward-looking statements and include use of non-IFRS financial measures. Actual results could vary materially from such statements. Please review the details of AMP's forward-looking statements disclaimer and reconciliation of non-IFRS financial measures to IFRS financial measures in AMP's earnings release. I will now turn the call over to Oliver Graham.

Oliver Graham (CEO)

Thanks, Stephen. Our first quarter performance represents a strong start to the year, with 6% global shipments growth and 16% adjusted EBITDA growth versus the prior year, ahead of initial guidance and reflecting a strong performance across our business. Adjusted EBITDA growth in the quarter was driven by higher volumes and improved fixed cost absorption. The quarter also finished strongly, particularly in the Americas. Against the backdrop of a highly dynamic macro environment, this performance is testament to the resilience of our business, its well-balanced portfolio of customers and end markets, and the attractiveness of the beverage can as a packaging choice for our customers. At the current time, we anticipate minimal impact to our business arising from the tariff measures announced. In North America, we have no can-making operations outside of the United States. Across our global operations, our suppliers, customers, and end consumers are mostly regional in nature.

Our customers' products are defensive, and beverage cans are typically resilient across economic cycles. In all our markets, the beverage can continues to gain share in our customers' packaging mix. Despite the uncertain macroeconomic environment, the can's attractiveness to our customers supports our expectations for continued favorable shipments growth. Secular trends, such as customer innovation favoring the beverage can, were strongly evident in the first quarter, and we are encouraged by our performance so far this year and our momentum into the second quarter. Before going through the results in further detail, briefly, I'll touch on the tariff situation. While the situation remains uncertain, based on the current announcements, we do not anticipate a material impact to our business. Our customer contracts have robust pass-through mechanisms for LME and premiums. In addition, AMP and our customers are largely hedged on metal exposure to mitigate short-term volatility.

Specifically, in the U.S., the increase in the Midwest Premium represents a minimal impact to the overall retail cost of the beverage can, less than one cent, and this recent increase has also been offset by the decline in the LME price. Our supply chain and customer filling locations are regional in nature. Again, looking specifically at the U.S. market, our can sheet is largely sourced domestically, and end consumption of our customers' products mostly occurs within market. We do not import empty cans, and our indirect exposure to customers' filled beverage can imports into the U.S. is very low. Now, looking at AMP's quarter one results by segment. In Europe, first quarter revenue increased by 10% to $528 million, or 14% on a constant currency basis, compared with the same period in 2024, principally due to volume growth in the past year of higher input cost to customers.

Shipments grew by 5% for the quarter, ahead of our expectations as the beverage can continues to take share in our customers' packaging mix. First quarter adjusted EBITDA in Europe increased by 14% to $49 million, or by 20% on a constant currency basis, driven by volume growth and stronger input cost recovery and lower operating costs, mainly due to stronger fixed cost absorption. Our positive early start to the year supports our expectation for shipments growth of 3-4% for full year 2025. Capacity remains tight in the region, but the continued ramp-up of our more recently installed capacity will support this growth. We do not ship any empty cans from Europe into the U.S., and from our customer dialogue, we estimate that our indirect exposure to customers' filled beverage can exports to the U.S. is minimal, representing only a very low single-digit percentage of our European shipments.

In the Americas, revenue in the first quarter increased by 12% to $740 million, which reflected higher volumes and the pass-through of higher input cost to customers. Americas adjusted EBITDA for the quarter increased by 16% to $106 million due to favorable volume growth, positive mix effects, and lower operating costs. In North America, shipments increased by 8% for the quarter, reflecting our portfolio's mix of attractive and growing customers and product categories. Market demand for non-alcoholic beverages was strong in the quarter, supported by continued strengthening of promotional activity, and we believe that we outperformed the market, growing ahead of scanner data. This included strong double-digit growth in our energy drinks category. Given our strong shipments performance in Q1 and continued momentum into the second quarter, we are increasing our guidance for full year North America shipments growth from at least low single-digit to mid-single-digit growth.

In Brazil, first quarter beverage can shipments increased by 4%, outperforming the industry, which grew only modestly. Following a soft start across the first two months of the year, both AMP and the industry recorded strong growth in March, boosted by strong demand from Carnival celebrations. We retain our guidance for full year shipments growth for Brazil of a low single-digit percent. This maintains our cautious outlook, despite our positive start to the year, to reflect the volatility in industry shipment trends over the last couple of quarters. We are also now entering the quieter winter selling period in Brazil, which naturally limits our full year visibility. In summary, we expect shipments growth in the Americas segment of a low to mid-single-digit percentage for 2025, an increase from our previous guide of at least low single digits.

I'll hand over now to Stefan to talk through our financial position before finishing with some concluding remarks.

Stefan Schellinger (CFO)

Thanks, Ollie, and good morning, good afternoon, everyone. We ended the quarter with a robust liquidity position of $570 million. The reduction in our liquidity versus the end of last year reflects the usual seasonal working capital outflow in the first quarter. We note that in addition to our strong liquidity position, we have no near-term bond maturities. Also, the currency mix of our debt broadly matches the currency mix of our earnings. Net leverage of 5.5 times net debt over the last 12 months' adjusted EBITDA similarly reflects the seasonality of our working capital movements. Given the strength of our adjusted EBITDA growth, our leverage ratio is much improved versus the 6.2 times reported in Q1 2024. In line with our improved outlook for adjusted EBITDA, our expectation for adjusted free cash flow for 2025 has increased to at least $150 million.

In terms of the various components of the free cash flow, our expectations are mostly in line with what we said in February. We still expect maintenance CapEx of around $135 million, lease principal repayments of approximately $100 million, cash interest to increase to just over $200 million, and small exceptional cash outflows of less than $10 million. Our expectations have slightly changed for the following cash flow items, and we now expect slightly lower cash tax of approximately $45 million. Still a small but reduced outflow in working capital and slightly higher growth CapEx of around $70 million, given the acceleration of the timing for certain high-return projects, generating new and more flexible capacity in our European business. Our current expectations for future annual growth CapEx are unchanged in the range of $50-$60 million.

We have today announced our quarterly ordinary dividend of $0.10 per share, and there is no change to our capital allocation policy. With that, I'll hand it back to Ollie.

Oliver Graham (CEO)

Thanks, Stefan. Before moving to take questions, I'll just recap on AMP's performance and key messages. Firstly, adjusted EBITDA growth in the first quarter of 16% was ahead of guidance, underpinned by global shipments growth of 6%, and a strong performance in each of our regions. We anticipate minimal impact to our business arising from the current tariff measures announced so far, as our suppliers, customers, and end consumers are all typically regional in nature. The beverage can continues to outperform other substrates in our customers' packaging mix, supporting our growth. Reflecting our strong start to the year and recent favorable currency movements, and assuming no further adverse change to the current macro environment, we are upgrading our full year guidance. We now expect shipments for AMP to grow between 3-4%, which compares with our initial guidance range of between 2 and 3%.

Full year adjusted EBITDA is now expected to be in the range of $695-$720 million, with the upgrade split between improved underlying business performance and a more favorable currency outlook based on current FX rates. In terms of guidance for the second quarter, adjusted EBITDA is expected to be in the range of $195-$205 million, ahead of the prior year of $178 million. Having made these opening remarks, we'll now proceed to take any questions you may have.

Operator (participant)

Thank you. If you would like to ask a question, you may signal by pressing star one on your telephone keypad. If you're using a speakerphone, please make sure your mute function is turned off to allow your signal to reach our equipment. Once again, star one for questions. We'll go first to Anthony Pettinari with Citi.

Anthony Pettinari (Research Analyst)

Good morning. I'm wondering if you could talk about, hey, hey, good morning. I'm wondering if you could talk about April, you know, kind of month-to-date trends, and specifically after the, you know, Liberation Day announcements, which I guess was the second. Did you see any change, you know, either from channel partners, suppliers, end consumers in terms of people pulling back or order behavior or just kind of any change in behavior? And then, you know, understanding you don't have much direct impact to tariffs, do you think, you know, maybe an inflation-stressed consumer could, you know, could impact demand for beverage cans?

Oliver Graham (CEO)

Sure. No, I mean, I think the answer to the first question is definitely not. We haven't seen any change in April. In fact, one of the reasons, you know, we're upgrading guidance is because of a continued momentum of our sales into April, particularly in North America, where, you know, the growth is pretty broad-based. You know, we've seen a lot of inflation go into the North American beverage can market in the last few years, and in fact, it's been moderating. At the moment, we're not seeing, you know, direct inflationary impacts from the tariffs.

I mean, I mentioned in the prepared remarks that if you play through the increase in the Midwest Premiums coming from the tariffs, you get to sort of around a one-cent increase in the retail cost of the can, which I think is a number that's been, you know, talked about pretty broadly. With the overall economic backdrop, you know, we're seeing LME falling. If you were buying today, you're not far off roughly the aluminum costs you were, you know, before any of these announcements. As I also said in the remarks, Anthony, I think, you know, most people will be hedged for this year, so it'd be unlikely it has a significant effect for this year anyway. You know, we're not, as I say, anticipating any major impacts from the current set of announcements.

Obviously, things can change in this environment, but as we sit here today, we don't see any big impact on the business.

Anthony Pettinari (Research Analyst)

Got it. Got it. Just zooming in on North American energy, can you—are you confident that that's kind of turned the corner? Or, you know, given some of the challenges you saw last year, can you maybe give a little bit more color on energy and kind of where you think that that end market is?

Oliver Graham (CEO)

Yeah. I mean, I would be quite confident, actually. I think that the reason for that is that the growth is pretty broad-based across our customer base. We're seeing it, you know, with the more traditional energy players. We're seeing it with the newer players. We've got a lot of growth with some of the more innovative players in the space. It does seem to be quite a broad-based recovery. I think I was always confident that it was a strong category with strong players who would get back on the innovation train. They've been pushing, clearly been pushing a bit more on price. Last year, it looks like a bit of a breather after some, you know, some big growth in the previous few years.

Obviously, we're still early in the year, so, I mean, I, you know, do have to sound, you know, a note of caution that we haven't been through the summer season yet. You know, some of what we're seeing in our numbers is inventory build. I think until we go through the summer, we won't know the full picture. You know, from where we're sitting today and with the trends that we're seeing in April and the way customers are talking about Q2, it does look like the category has turned the corner.

Anthony Pettinari (Research Analyst)

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

Stephen Lyons (Head of Investor Relations)

Thanks, Anthony.

Operator (participant)

Thank you. We'll take our next question from Stefan Diaz with Morgan Stanley.

Stefan Diaz (VP of Equity Research)

Hello, everybody, and congrats on a good quarter. Thanks for taking my questions. Maybe, Ollie, you continue to sound confident as far as there being limited impact on your volumes from tariffs. Maybe, how do you think about the potential, you know, substrate switch risk, just given, you know, the increased premium in the U.S.? And then maybe the strength in 1Q numbers. You know, do you allocate any of that to a pull forward in demand ahead of potential tariffs?

Oliver Graham (CEO)

Taking that second one first, no. I don't think we see any pull forward from what we're, you know, hearing from the customer base and what we're seeing. I mean, most of our customers are pretty just in time, you know, in the way that they operate their businesses. Obviously, we're building inventory for them in some situations, but, you know, I don't get the feeling that consumers are stockpiling, you know, soft drinks, to be honest. That's certainly—we've had no feedback on that. What we could be seeing is people building inventory for, you know, the anticipation of a strong summer season. Sometimes that doesn't play through exactly how our customers, you know, expect. Sometimes we do, therefore, see a bit less growth, you know, at the back end of Q2 or Q3 if the summer doesn't fully play out.

I don't think we're seeing any pull forward that we're aware of from the tariff situation. Yeah, the substrate switch, I think, honestly, is a bit overplayed. You know, as I said, I think there's some increase in premiums, but mostly major players will be hedged. We're certainly hedged for this year. With the LME coming down, you know, the overall cost of the can is actually pretty unchanged from a metal perspective. I don't see this driving any particular substrate shift. To be honest, what we see in our numbers in all our markets is that actually we're the ones benefiting still from substrate shift. You know, I talked about the innovation trend. That's very significant in North America. I think sustainability is still a tailwind. The efficiency and cost position of the can is still a tailwind.

At the moment, we remain positive that we're the right side of substrate shifts in beverage packaging.

Stefan Diaz (VP of Equity Research)

That's very helpful. Thanks. Maybe for my second question, you had the customer mix drag on your volume numbers for the past couple of quarters in Brazil. You know, for 1Q, it came in better than we were modeling. You know, maybe what are you seeing down there in the region? You know, is the customer mix issue sort of behind us going forward? Thanks.

Oliver Graham (CEO)

Yeah. I think it's still volatile. You know, certainly January, February, we were up and down, but then March, as I mentioned, was really strong for the industry and particularly for us as well. I think Carnival went well, and so, you know, customers were rebuilding after that, which is a good sign. Yes, you know, we were sitting on the right side of the customer mix. I think we're maintaining some caution, as I mentioned in the remarks. I think we've had volatility. The market's had volatility the last six, nine months. You know, although we've had a positive start, we're not really changing our guidance at this point for Brazil, reflecting, you know, a bit of caution, you know, to make sure that those situations are fully behind us.

Look, long term, I think, you know, it remains a very attractive market for beverage cans, and we still anticipate good growth there. I think we're just being cautious on 2025 still at this point.

Stefan Diaz (VP of Equity Research)

Great. Thanks. Maybe if I could just sort of slip in one more here. Does Brazil use the Midwest Premium for pricing, or is it more of a local premium? Thanks. I'll turn it over.

Oliver Graham (CEO)

There is a mix. Then there is also whether it is duty-paid or duty-unpaid. There is some impact of the Midwest Premium in Brazil, though, as I say, there is a mix of situations going on there. Obviously, one very beneficial impact for Brazil at the minute is the devaluation of the dollar, which reduces overall metal costs for our customers in Brazil. That has been very good news the last few weeks.

Operator (participant)

Thank you. We'll take our next question from George Staphos with Bank of America.

George Staphos (Managing Director)

Thanks very much, everyone. Good morning. Thanks for the details.

Hey, Ollie. You know, it's great that you're raising guidance and the outlook is better for the year. You know, as you sit back and think about where you were, I don't know, two, three months ago, is it that your customers are seeing a better development in their volume, and that's then flowing to you? Is it that they were relatively constructive on the year, but, you know, given the volatility that we've seen in the markets the last two, three years, you wanted to keep a little bit in reserve until you saw, you know, so to speak, the whites of their eyes? You know, as you think about it, what was the one or two things that drive the better-than-expected outlook for the year as you think about it?

Oliver Graham (CEO)

Yeah. Hi, George. Look, I think particularly North America, the strength of some of the customers in some key categories for us, so energy, sparkling water, some of the cocktails, some of the health and wellness drinks, the gut health drinks, you know, some very innovative younger customers, and then also some are more established. I think it is that portfolio, it does have growth and upside in it, but you can't always predict it because it is a mix of customers with some really innovative new players in there. I think that is the key thing that is going on this year, which is some of those players and some of those categories have performed ahead of our expectations. I think, you know, to be honest, theirs as well in terms of the sort of guidance we had at the beginning of the year.

As I say, you know, you never quite know in Q1 what you're looking at, but I think that the continued momentum into April and the sort of messages we're getting on the outlook for Q2 looks pretty positive. I think that's the core piece to this and to the upgrade. Obviously, FX is also a piece to the upgrade. I think, you know, we're also feeling good about the way the year has started in Brazil and Europe. You know, we haven't upgraded anything there, but certainly it's been a very solid start relative to our expectations. That also gave us the confidence, I think, to say, you know, there's enough here despite the very volatile macro environment to see an upgrade to, you know, Q2 in the full year.

I think at the heart of it is the very strong North American performance, which is, I think, a, you know, a testament to the portfolio we've built there, both of customers and the categories we're operating in.

George Staphos (Managing Director)

Ollie, that's great. I really appreciate the detail there. If I can just dig in on one thing, on the products like energy, sparkling water, the gut health drinks, if you will, is it from what you're hearing from your customers or what you're seeing? Is it a proliferation of new labels, or is it those existing products that were in those categories are actually gaining share of stomach with the consumer in terms of what's moving the needle? Again, to the extent that you have a view on that. Second question and third question, I'll turn it over. I know in the fourth quarter guide, you were expecting, I think, some margin compression in Europe because of PPI effects and some cost increases. How are those playing out again in Europe?

While it's not a huge factor, you did up the Growth CapEx number for this year. That's good. Where are you finding that you need to do that? Thanks. I'll turn it over.

Oliver Graham (CEO)

Yeah. Thanks, George. I think on the question of what's really driving the growth, we're seeing some existing products that have been in the market, you know, really driving strongly. It's not just completely new labels, new products, but we have got some, you know, really innovative young companies in there as well that are, you know, spiking. I think we've got a mix of both, and our portfolio is exposed to both through, you know, directly, but also through distributor relationships that work well for us. I think it's a bit of both, but I think, again, testament to the way our customers are putting more and more innovation in the can and are really trying to drive their innovation through beverage cans.

On the Europe question, yes, look, there still is some headwinds in our Europe numbers this year from the increased aluminum conversion costs and the fact that PPI went negative coming into this year. It is true that in Q1, we had a slightly better performance than expectations through really, really good input cost management on the energy side and the metal side. Good work by the team to control those costs, manage mix, and really drive, you know, everything that we could out of those categories to improve our results. We did have some upside there, but that is not to say that, you know, in our overall numbers, there is not still some headwind on the PPI and alu conversion cost.

Yeah, I think the growth CapEx means not a big increase, but I think it's reflecting the fact that if you look at our European business now, it's pretty tapped out. We're probably running in the high 90s utilization. We're ramping up capacity this year from the projects that were not complete. We're also de-bottlenecking and improving performance in other plants. We're seeing, as we look out, you know, a year or two, that that's not going to be enough for the growth in Europe. Therefore, we are starting to target some high-return projects that increase both the capacity but also the flexibility of our capacity. I think it's a good sign. You know, we're seeing other of our peers announcing additional capacity for Europe. I mean, Europe's nearly a 100 billion can market now.

If it grows 3%, you need 3 billion a year to keep it satisfied. It is not surprising, I think, that we and our peers are putting in little bits of incremental capacity into the market to make sure we can serve that growth.

George Staphos (Managing Director)

Thank you, Ollie.

Oliver Graham (CEO)

Thanks. Cheers, George.

Operator (participant)

We'll take our next question from Mike Roxland with Truist Securities.

Mike Roxland (Managing Director and Equity Research)

Thank you, Ollie, Stefan, and Stephen for taking my questions. And congrats on a good quarter. Just wanted to follow up quickly on North America and what George is drilling down on. You know, 60% of your mix is CSD and sparkling water. Those categories did well last quarter. They seem to do well again this quarter. So, the remaining 40% roughly is what, energy, mixed cocktails, gut health drinks, and the like. It sounds like they just started to grow a lot more strongly than had been the case. And correct me if I'm wrong there, which is why your North America volumes were up. But anything around share gains, maybe customer contractual stimulation?

I'm just trying to get a sense of how you went from being down, let's say, a few percent last quarter, when 60% of your mix was still growing, to being up the way you were in 1Q.

Oliver Graham (CEO)

Yeah. Hi, Mike. Yeah. Good question. I think, you know, you're right. Q4 Sleek and specialty in those categories was not particularly strong for us. I think it was both a customer mix issue. In that quarter, we were a bit the wrong side of some of the customers and which ones were growing. I think there must have been also some share slippage in Q4, you know, relative to some of our peers just in certain customer situations, which, you know, we think is being corrected this year. We think it's mostly them in the market. You know, some of these are sole supply positions where they're just performing extremely well. We think that's a big part of it, which is that they're just having a much better year.

You know, I think the category did, as I say, took a bit of a breather last year, got a bit overstocked in retail. Some of the innovation is not working quite so well. I think, you know, our customers went back to the drawing board on innovation and worked on their portfolios and are clearly driving a bit of price promo activity up in the space. I think it's a host of factors, but broadly, the energy market category you can see is back in growth. You can see that in the scanner data. Yeah, look, I think we're the right side of it in our customer mix this quarter relative to last quarter. Maybe there's, you know, a little bit of share gain in there. Nothing dramatic.

Mike Roxland (Managing Director and Equity Research)

Got it. Got it. Thank you, Ollie. Just one quick follow-up. You know, I know this question has been asked on prior calls, but I just wanted to get a sense for you as to the competitive landscape, particularly in North America. You have contracts. The industry more broadly has contracts that are coming up for renewal 2026 and 2027. You have competitors who are trying to fill up their new capacity. You know, at the same time, CPGs are being squeezed given persistent volume weakness. You had one report this morning where volumes were down in North America 3%-4%. I would assume that they would likely get some of the price back that they gave up when contracts were less negotiated, you know, five years ago.

Just trying to get a sense, you know, of the competitive landscape and what do you think is going to happen with contract renewals and pricing given a more dynamic, more competitive environment?

Oliver Graham (CEO)

Yeah. Look, I think, you know, I think the first thing to say is that if you look at 12-ounce pricing over the cycle, it's not that it dramatically moved in COVID times. I mean, it did strengthen, and we talked about that. I think the big area where there was better pricing was clearly in specialty with the, you know, the very strong growth in Sleek. I don't think that there's something particular for our customers to go after in the 12-ounce space, frankly, in terms of our margin profile. I look at, therefore, the competitive environment and the way these are playing out. I don't at this time see any, you know, material risk to the business, you know, in volumes or margins. I think discussions are progressing well. Obviously, we're not going to give running commentary on that.

You know, most of it will be resolved in the next 6 to 12 months. As I say, at the moment, as we look into our planning cycle, we're not seeing anything particularly material from that. While the competitive environment, there is capacity in North America, there is also growth in certain pockets. Also, we're seeing some players coming out of the industry. We're not seeing that the market is particularly irrational or anything particular happen. Yeah, we're confident that with the strength of our relationships, the filling locations we have, and with the market, we'll come through those recontracting events.

Mike Roxland (Managing Director and Equity Research)

Got it. Thanks very much, and good luck for the rest of the year.

Oliver Graham (CEO)

Thanks, Mike.

Operator (participant)

We'll take our next question from Josh Spector with UBS.

Anojja Shah (Director Equity Research)

Hi there. It's Anojja Shah sitting in for Josh. Just kind of following up on that last point, I wanted to talk about utilization rates. You said Europe was very strong, very tight, but utilization rates in North America and Brazil. Also, we read recently about a new plan coming up in Brazil from the number four global player. How does that factor into that?

Oliver Graham (CEO)

Yeah. Sure. Look, I think that the North America we believe is operating in the 90s utilization as a market, which I think is a reasonable place for it to be. With the growth we've had this quarter and what we're seeing in Q2, we're also now into the 90s without curtailment. Obviously, we still have some curtailment activity that will take us into the mid to high 90s this year. Actually, our network is feeling extremely tight at the moment with all the pressure that's coming in from the, you know, the increased specialty sales. I think North America is sort of growing into a balanced position. As I say, I think it's operating rationally with the capacity position that is in place. In Brazil, I mean, again, I think the market is in either the late 80s or early 90s.

Brazil is a more complex market logistically with, you know, big distances. It tends to feel a bit tighter, lower utilization rates. We are, you know, we started the year with a mid 80s number. That's after some hard curtailment. At the minute, we're obviously not changing that prediction for the year because we haven't changed our guidance. Equally, we're obviously operating a bit ahead of that with the performance we had in Q1, Q2. Yeah, look, I think that announcement was long planned. It was delayed by two or three years with the delay to the customers' brewery, but they're now going ahead with that. You know, as I said earlier, I think Brazil remains a very attractive market for beverage cans. There's a long-term secular shift out of two-way glass packaging into one-way packaging, which is principally beverage cans.

You know, you have got that sort of mid-single-digit growth trajectory over the medium term, and that therefore does need additional capacity to come in. Particularly regionally, you get shortages. No particular concern with that investment. It was long anticipated, and I think just reflects the good growth that that customer has in the market.

Anojja Shah (Director Equity Research)

Okay. Great. Thank you for all that detail. I wanted to go back to the EBITDA guidance raise. By my math, I think you raised it by about $23 million at the midpoint for the full year, which is a bit less than the overrides in Q1 and Q2 versus consensus and also versus your guidance. Is that just conservatism built in for the back half, or is there anything that we should be thinking of in the back half, any things to watch out for in the back half?

Oliver Graham (CEO)

Yeah. Maybe I take that in part a little bit to Stefan. I don't mean the same thing in particular in the back half. We are, yeah, cautious. You know, we've had a good start to the year. As I say, until you go through the summer season in Europe and North America, you don't really know where you are. We'd be pretty optimistic based on the momentum going into Q2. I think we're very early in the year. The macro environment does remain volatile. We said it clearly in our remarks. I think that in the current macro environment, we're confident in raising the guidance, but we don't know what's happening in the world today. You know, it's another reason to be a little bit cautious. I don't think there's anything specific. I'll just check that with Stefan.

Stephen Lyons (Head of Investor Relations)

Yeah. Yes. I confirm all that. I think there's nothing particular, no specific factor that is driving what you pointed out. I mean, we have obviously relatively good visibility in Q2, Q2. That is a reflection of what we're seeing in the business. Yeah, I think, yeah, you might say it's maybe a little bit conservatism, but I think in the world we're currently living in, that might be appropriate from our perspective.

Anojja Shah (Director Equity Research)

Great. Thank you for that. Congratulations on a good quarter.

Oliver Graham (CEO)

Thank you.

Operator (participant)

We'll take our next question from Gabe Hajde with Wells Fargo.

Gabe Hajde (Equity Research Analyst)

Hi, Steven. Good morning. Just most of my questions have been asked, to be honest. Just one on sort of the conservatism baked in. I mean, again, you did not put any specificity on volumes. I do not think you did in April. But just 6% in the first quarter, if we assume second quarter kind of up mid-singles, it sort of implies a decel in the back half of the year. Is that something that you are seeing, or is it, again, just conservatism in the outlook given we have had some false starts here in the past two years? Obviously everything that is going on in the macro environment.

Oliver Graham (CEO)

Yeah. I think it's exactly that, Gabe, which is, you know, we think about Brazil. You know, last year we were sitting mid-September, you know, market up double digits, you know, looking at some pretty good numbers. We hadn't captured all that growth. And then, you know, suddenly we, you know, had an unexpected event that pulled us right back to Q3, Q4. You know, again, we're not upping the Brazil guidance yet, even though, you know, when you play it through mathematically, you'd expect to see a bit of upside. We're being cautious there. I think, you know, on Europe again, you know, we have to recognize that last year our customers did not build inventory to the extent needed. The industry didn't do that. They were all cautious after, you know, a pretty rough end to 2023.

As a result, this year customers are building inventory, and we are too. You know, we have to be cautious, as I say, until we go through the summer seasons. We are absolutely sure that we are going to get the rate of sell-through that they are predicting. Same with North America. Again, trends are very strong. Until you have really been through the summer, you do not absolutely know what you have got. I think it is appropriate, as Stefan just said, and you mentioned, you know, we are in a very volatile macro environment. I think that we are demonstrating how strong the business is in the face of that macro environment because structurally it is well positioned for that environment and, you know, naturally somewhat defensive in nature. Equally, you know, big things can happen that can knock us off course.

Yeah, I think it's just that we're early in the year and we want to be somewhat cautious about, you know, the back half.

Gabe Hajde (Equity Research Analyst)

Got it. Okay. On the CapEx side, just a point of clarification. I thought I heard going up to $70 million for expansion/return capital this year. Did Stefan say up from $50 million-$60 million, or was that $50 million-$60 million sort of like a baseline that we would expect on a go-forward basis? Really.

Oliver Graham (CEO)

Yeah. The last.

Gabe Hajde (Equity Research Analyst)

Again, Ollie. Sorry. Ollie, I think you mentioned.

Oliver Graham (CEO)

Sorry. Go ahead. Yeah.

Gabe Hajde (Equity Research Analyst)

Yeah. You feel good about your brick-and-mortar infrastructure as it sits right now in Brazil and North America. If the growth persists in Europe, can you talk about maybe the need for a new factory or anything like that?

Oliver Graham (CEO)

Yeah. Sure. I think, yeah, Stefan's comment was back to run rate. He was saying that the sort of run rate we expect is the $50 million-$60 million at the moment, but we'd increase to $70 million this year. That was the second one that you mentioned in terms of those two options. Yeah, look, I think Europe, the way we're seeing it, as I say, is we're pretty tapped out. We're growing capacity through existing projects that are ramping up. We're de-bottlenecking and improving the performance of other factories. That'll get us about 1 billion of capacity this year. You know, we see we need another 1 billion or so going through the next year or two.

We're starting to target mostly, in fact, entirely within our existing footprint projects to increase capacity and increase flexibility with particular projects linked to particular customer contracts and growth projects. You know, we'll talk more about those details as they firm up over the next six, nine months. I think, you know, our prediction is that Europe is the place that needs it. Whereas, as you say, I think although we're feeling very tight in North America right now, that's because some of this growth is a bit unexpected. We have got the capacity in North America to get some good growth in the next year or two. Similarly with Brazil. I think Europe is the place where we definitely need a little bit more. At this stage, with what we see in front of us, it's not a new factory.

You know, it can be done within the existing footprint.

Gabe Hajde (Equity Research Analyst)

Got it. Thank you.

Oliver Graham (CEO)

Thanks, Gabe.

Operator (participant)

We'll take our next question from Arun Viswanathan with RBC Capital Markets.

Arun Viswanathan (Senior Equity Analyst)

Great. Thanks for taking my question, guys. I guess, yeah, I just wanted to continue along the discussion around volumes. It sounds like, you know, volumes have been a little bit more robust than what you thought, especially in North America. Understanding that has been led mostly by the non-alcoholic beverages side. Do you feel comfortable at all kind of at the upper end of the longer-term outlook? Maybe are we talking about 2-3% kind of consistent growth going forward? Maybe I can just get your thoughts on the beer category as well. We've obviously seen continued weakness there. Do you think that is going to persist, or do you think that could also turn around as you move through the year and into next year? Thanks.

Oliver Graham (CEO)

Sure. Yeah. I mean, as you say, we're not big players in the mass beer segment. We do still see the weakness in the scanner data, which obviously a big part of that has been the decline in domestic produced and filled beer relative to imported beer. Because, I mean, if you go back 10 years, beer grew in cans, and it was actually the soft drink side of the house that was struggling with the growth of PET. Yeah, look, I think if domestic beer, you know, started to take share back from imported beer, which, you know, potentially the tariff situation could drive some of that, you could see beer go back into growth. I think it is all about which brands are growing because there's no reason why, you know, cans wouldn't be taking share in that category.

In fact, they are taking share in that category from glass. As I say, you're just seeing it going outside the U.S. instead of production. Yeah, no reason why that came back and no reason why the U.S. can market can't grow 2-3%. As I say, I think, you know, there's been a lot of commentary around the category recently that has been a little bit negative, you know, about possible trends and, you know, SNAP and weight loss drugs. I think that commentary has been a bit overweight things that aren't yet happening and a bit underweight things that are happening, which is innovations going into the can. The can is still very strong from a sustainability point of view, and the can is still super efficient from a filling and economics point of view.

You know, we see those long-term trends as driving the category. There is no reason therefore why North America cannot grow at that sort of rate, which it grew pre-COVID at that kind of rate. Yeah, I would remain optimistic on North American can growth for sure.

Arun Viswanathan (Senior Equity Analyst)

Thanks for that. Just on the balance sheet, you know, obviously leverage is still relatively high, but you guys have made some nice progress in seeing that, you know, better than expected EBITDA growth. How are you guys feeling about free cash flow and I guess year-end leverage and maybe, you know, any plans to bring that down a little bit more? Are there any other options to consider, whether it be, you know, asset disposition or anything along those lines? Thanks.

Stefan Schellinger (CFO)

Yeah. I think overall we are feeling good about free cash flow generation. You know, we've slightly increased our expectations for the full year, as I mentioned earlier. I think in terms of the leverage towards year-end, certainly we expect that to come down from where we are here at the end of Q1, probably direction of travel similar to what we had shown at year-end 2024. Just under five times. In terms of what are the key levers for deleveraging, I think predominantly it's really growing the business, EBITDA growth, and being disciplined on our capital allocation. Yeah, managing the working capital and the balance sheet. I don't think there's any bigger structural, I think, thing we have in mind at this particular juncture.

Arun Viswanathan (Senior Equity Analyst)

Thanks.

Operator (participant)

Thank you. With no additional questions in queue, I'd like to turn the call back over to our speakers for any additional or closing remarks.

Oliver Graham (CEO)

Thanks, Katie. Thanks for everyone for joining the call. Just to summarize, we had a good quarter, global shipments up by 6%, adjusted EBITDA up by 16%, both ahead of guidance. With both regions performing strongly and reflecting that encouraging start, also favorable currency movements and the strength of our business overall, we're raising our expectations for the full year shipments growth and our adjusted EBITDA. We look forward to talking to you again at our Q2 results. Thank you very much.

Operator (participant)

That will conclude today's call. We appreciate your participation.