Crown Earnings: Margin Improvement Outweighs Lackluster International Volume; Shares Attractive

Crown Holdings CCK delivered solid first-quarter results as sequential margin improvement and resilient volume from the Americas beverage segment helped to offset moderating international demand. Slowing economies and tighter consumer spending weighed on can demand in Crown’s international markets. Nevertheless, management reaffirmed its $6.30 (midpoint) adjusted EPS guidance, which seems achievable to us given the strength in North America and expected boost in the second half of the year. We believe Crown is well-positioned to benefit from persistent long-term demand for aluminum cans and is poised to deliver modest margin expansion through the remainder of the year. As such, we maintain our $97 fair value estimate.

Crown’s top line fell by 6% in the first quarter over the prior year, driven by double-digit declines in the Asia Pacific and transit packaging segments. Contrarily, Crown’s top line was partially buoyed by resilient customer demand in the Americas beverage segment. Segment sales improved 3%, driven by a 6% increase in unit volumes (up 4% in North America) despite signs of broader demand softness. Management noted that the North American can market was down 2% in the quarter, with imported cans taking almost all of the decline.

Weak sales during the Lunar New Year pressured unit demand and prompted elevated inventory levels in the Asia Pacific region, though management expects demand to recover in the latter half of 2023. Sales in the transit packaging segment weakened during the quarter, though the segment delivered a robust 14% operating margin due to materializing cost initiatives. European beverage volumes also faced pressure during the quarter, with unit volumes down 9%. However, contractual cost recovery initiatives prompted strong sequential improvement in the segment’s operating margin, leading to better-than-expected profit performance. We expect European demand to rebound in the following quarters as inventory levels have mostly normalized.