Q3 2023 Crown Holdings Inc Earnings Call
Participants
Kevin Charles Clothier; Senior VP & CFO; Crown Holdings, Inc.
Timothy J. Donahue; Chairman, President & CEO; Crown Holdings, Inc.
Adam Samuelson; Equity Analyst; Goldman Sachs Group, Inc., Research Division
Anthony James Pettinari; Director & US Paper, Packaging & Building Products Analyst; Citigroup Inc., Research Division
Arun Shankar Viswanathan; Senior Equity Analyst; RBC Capital Markets, Research Division
Cashen John Keeler; Analyst; BofA Securities, Research Division
Gabrial Shane Hajde; Senior Analyst; Wells Fargo Securities, LLC, Research Division
Ghansham Panjabi; Senior Research Analyst; Robert W. Baird & Co. Incorporated, Research Division
Jeffrey John Zekauskas; Senior Analyst; JPMorgan Chase & Co, Research Division
Michael James Leithead; Research Analyst; Barclays Bank PLC, Research Division
Philip H. Ng; Senior Research Analyst & Equity Analyst; Jefferies LLC, Research Division
Unidentified Analyst
Presentation
Operator
Good morning, and welcome to Crown Holdings Third Quarter 2023 Conference Call. (Operator Instructions) 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 Charles Clothier
Thank you, Elmer, and good morning. With me on today's call is Tim Donahue, President and Chief Executive Officer. If you do not already have the earnings release, it is available on our website at crowncork.com.
On this call, as in the earnings release, we will be making a number of forward-looking statements. Actual results could vary materially from such statements. Additional information concerning factors that could cause actual results to vary are contained in the press release and in our SEC filings, including our Form 10-K for 2022 and subsequent filings.
Third quarter earnings were $1.33 a share compared to $1.06 in the prior third quarter. Adjusted earnings per share were $1.73 per share in the quarter compared to $1.46 in 2022. Net sales in the quarter were down 6% from prior year, as higher sales unit volumes in Americas Beverage and $60 million positive impact from foreign currency translation were offset by the pass-through of $187 million of lower raw material costs and lower unit volumes in most other businesses.
Segment income at $430 million in the quarter compared to $336 million in the prior year and reflects the benefit of higher unit volumes in North America, the contractual recovery of prior year's inflationary cost increases in European beverage and the cost reduction initiatives in Transit Packaging.
Cash flow of $832 million for the first 9 months of '23 compared to $134 million in the prior year, the result of better working capital management. Net leverage improved to 3.5x, a half turn improvement from the second quarter, driven by higher third quarter operating income and better operating cash flow.
Fourth quarter adjusted EPS is projected to be in the range of $1.40 to $1.50 per share with a full year adjusted EPS of $6 to $6.10 per share. Our guidance includes the following: net interest expense of approximately $390 million, a $0.40 incremental noncash pension and postretirement costs, average common shares outstanding of approximately 120 million and full year tax rate of approximately 24%. Depreciation of approximately $340 million compared to $301 million in '22, noncontrolling interest expense to be approximately $135 million, dividends and noncontrolling interest, approximately $120 million.
After capital spending of $900 million, free cash flow is projected at $500 million, and we currently expect year-end leverage to be 3.25x. With that, I'll turn the call over to Tim.
Timothy J. Donahue
Thank you, Kevin, and good morning to everyone. Kevin just provided a sea of numbers, so I'll be brief, and then we'll open the call to questions.
As reflected in last night's earnings release and as Kevin just summarized, third quarter performance was in line with expectations as each of our 3 larger businesses, that is Americas Beverage, European Beverage and Transit Packaging all continued to perform well, offsetting softness in North American aerosols in Asia.
For the quarter, total company segment income improved by 28% from a challenging prior year third quarter and we expect similar improvement in the fourth quarter. Importantly, through 9 months, and as Kevin just noted, free cash is $700 million ahead of the prior year 9-month period due to an improved working capital position with net leverage being reduced by a full 1/2 turn in the quarter. As Kevin noted, we estimate year-end net leverage to be around 3.25x after giving effect to the Helvetia packaging acquisition completed in early October.
North American volumes advanced 12.6% in the third quarter, helping to advance income in the Americas Beverage segment by 25% over the prior year. Through 9 months, unit volumes in North America are up more than 6% over the prior year. And while we are still early in the fourth quarter, demand remains firm and we maintain our estimate of 7% growth for the full year.
Earlier this month, commercial shipments commenced from Line 1 at the company's new plant in Mesquite, Nevada, with the startup of Line 2 scheduled before the end of the year. Post-pandemic economic conditions appear to be improving in Brazil, and we remain positive as we enter the busy summer selling season.
Income performance in European Beverage was up significantly over the prior year as inflationary pass-throughs helped the business recover margin from the challenging prior year third quarter. Our unit volumes in the quarter were down 5% across the segment as our regional mix, which is weighted more towards Southern Europe sell our volumes underperform a flattish market.
More important than volumes, acceptable operating margins have been restored to the business. Unit volumes across Asia Pacific were down 9% with continued weakness in Vietnam as fillers across that country look to adjust their filled goods inventory into weakening economic conditions. Volumes across Cambodia and China remained firm in the quarter.
Income in Transit Packaging was up almost 20% in the quarter as continued positive price/cost management, combined with reduced overhead costs and higher equipment deliveries more than offset lower consumables volumes. A solid performance through 9 months with income at 15% of net sales and tracking for another very strong full year cash flow performance. With a more streamlined cost structure, the business is well positioned to benefit further as industrial activity improves in the future.
Performance across North American tinplate and can-making equipment continued to be impacted by a very soft aerosol can demand with aerosol volumes in the quarter of 15% to the prior year.
So in summary, and as we said earlier, third quarter performance was on plan, income up, leverage down and our expectation is that fourth quarter EBITDA should improve by a similar percentage as the third quarter, delivering further debt and leverage reduction.
And before we open the call to questions, we again would ask that you limit yourselves to 2 questions so that as many of you as possible will have an opportunity. And with that, Elmer, we are now ready to take questions, please.
Question and Answer Session
Operator
(Operator Instructions) And our first question is from the line of Mr. Mike Leithead from Barclays.
Michael James Leithead
I know the world is a bit uncertain right now but can you maybe speak to any early thoughts about Crown's 2024 earnings potential or company-specific drivers?
Timothy J. Donahue
Why don't we leave that till February. I think we're -- I wouldn't say we're early in the budget process, but we're not yet complete. Still some things moving around. And I think that will be better served if we wait until we're complete the process.
Michael James Leithead
Fair enough. And then second, just on North America. You've sort of reaffirmed kind of your outlook for volumes for the full year. Can you speak to -- obviously, you have your own company-specific tailwinds, but just what your conversations with your customers are, demand, et cetera, just in the North America market today.
Timothy J. Donahue
Yes. So our mix, perhaps a little different than some of the others, but weighted more towards CSD nutraceuticals, light energy drinks, carbonated water. Our customers continue to push cans. They see cans as an important element in their sustainability journey. And we're going to continue to benefit as long as they can continue to promote the can.
So as we sit here today, I would say a very positive on the volume outlook for Q4. And obviously, we've got a higher base, but the absolute number of can growth that we see in '24, probably similar to the absolute level of can growth we saw in '23. So significant can growth again.
Operator
Next question is from the line of George Staphos from Bank of America.
Cashen John Keeler
This is actually Cashen Keeler on for George. We had conflicting calls this morning. So I guess just first on the revised guidance, I guess what segments saw the biggest change in your forecast relative to prior expectations? Was that primarily Asia and aerosol? And I guess is it possible to put any numbers around changes in expectations there?
Timothy J. Donahue
I think it's -- as we said in the release, last night's release and as both Kevin and I said in the prepared comments, it's the aerosol business in North America and also Asia, offset somewhat by better performance in the Americas and in Transit. But I think the order of magnitude, if you put those 2 businesses in the order of magnitude, perhaps $15 million to $20 million down for Qs 3 and 4 than what we would have saw when we talked to you back in July.
Cashen John Keeler
Got it. Okay. And then just quickly in terms of the Helvetia acquisition, is there a way to think about the impact from an earnings or revenue standpoint from here?
Timothy J. Donahue
So it's a high-speed one-line can plant with an end line. What I would tell you is we haven't talked about the value we paid for. We paid around $125 million. And if you've been following what it costs to build a can plant -- especially a can plant, a high-speed line with an in line, you'll quickly come to conclusion, that's a pretty good deal for the company at that level, significantly below what we're -- what we and others are paying to build similar can plants.
We have the plant down right now only because we're into the fourth quarter, and it's a little light slower. And what we're doing is using this time to do some much-needed preventative maintenance work and clean up the plant back to what we would consider Crown standards and ensure that all of their KPIs, including efficiency and spoilage will improve next year from where they're at. So depreciation, obviously, we got to take a look at -- see what they were using for their depreciable lives. And -- but think about it on the order of somewhere between $5 million and $10 million segment income.
Operator
Our next question is from the line of Arun Viswanathan from RBC Capital Markets.
Arun Shankar Viswanathan
I guess, yes, so overall, North American volumes have been quite strong, in line with your expectations. Obviously, promotional activity does appear to be in line with your expectations as well. Maybe you could just comment on that. And then as it relates to Europe, it looks like you are ahead a little bit on your profit recovery there. So how do you see that trending into next year? I guess, specifically, do you expect low single-digit volume growth for North America and then expect maybe Europe to improve on the profitability that you've seen before that $259 million in EBIT?
Timothy J. Donahue
Yes. So we stay on the call because I'm probably going to forget one of these questions. But the first thing I would say is that as we said, North American volumes up 12.6%. That's against last year's third quarter where we were down 6%, maybe the market was down 5% or 6% as well last year in the third quarter. And for a market that's as big and stable historically as North America, that's the worst quarter I can remember in my 30-plus years for the North American can market. Certainly, we have other markets based on their emerging status around the world that could be plus or minus big numbers. But a market as big and stable as North America, we never experienced anything like we did in the third quarter last year.
So roughly half of the gain we had this year was a recovery from an extremely weak third quarter last year. And in the balance, really customers beginning to pick up their promotions perhaps as early as May, as we said on the second quarter call and pushing well into the third quarter. And as we sit here today in October, we are still promoting at much greater levels than we saw last year. So that's that.
On Europe, yes, I think we always told you that -- I think we initially told you that we thought in '23, we'd be halfway back to our '21 income levels. We're probably going to be closer to 75% of the way back to the '21 income level, and the goal is to be fully back to that '21 level through the end of next year, plus or minus a couple of bucks for currency, always hard to estimate what currency is going to do. Did I answer all your questions or not.
Arun Shankar Viswanathan
Yes, that was great. If I could have one follow-up. Just on capital return, you are seeing that inflection point on free cash flow next year with the lower CapEx. So how do you expect to kind of use those extra free cash flow dollars? Would they be allocated more towards share repurchase potentially?
Timothy J. Donahue
Yes. So historically, the packaging industry, the can industry, we've used a method of generating a lot of cash flow in lower growth scenarios, generating a lot of cash, using that to pay down debt and buy back stock and pushing EPS growth, 5% to 10% and 10% to 12% each year. I think increasingly, we're hearing from many shareholders that given where interest rates are and where they're likely to go and where they're likely to stay for a prolonged period of time, they would prefer that leverage might necessarily need to be lower than our 3 to 3.5x. And so we'll continue to look at that.
In the face of upcoming maturities, and it's not just our maturities that we have coming due, but the entire high-yield bond landscape has maturities coming due. And most of those bonds will be refinanced at higher rates than we currently have on the balance sheet now. And I think the -- if you do the math, it's not so clear that buying back stock is better than paying down debt at this point. So we are listening closely to many of our shareholders, especially our larger shareholders who are now calling for a little less leverage than we would have been more comfortable with in the past.
Operator
Our next question is from Anthony Pettinari from Citi.
Anthony James Pettinari
I'm wondering if you can talk about kind of operating rates maybe broadly by region. And you've given preliminary CapEx guidance for '24, '25. Assuming this CapEx guidance doesn't include big greenfields. Just wondering if you could talk about where you think you may be able to grow volumes over the next couple of years without adding kind of big projects?
Timothy J. Donahue
Yes. Listen, we can grow in every market without adding more capital. We brought up 2 large can plants in the United States this year, Virginia and Nevada. And clearly, as they go through learning curve and their productivity improves and more good saleable cans come out the back end of the line, we grow. I would say that operating rates in North America are fairly healthy. I would say that if the industry currently -- I'm thinking about the second quarter, but the third quarter was a little stronger. We got to be around 90% to 91%, 92%. I don't think there's a supply-demand imbalance in North America. And I think as customers continue to push cans, we all have a little bit of spare capacity. We can fill that demand. And I don't think we're going to see a supply-demand imbalance in North America. Things are pretty healthy and they're going to get healthier.
I think in most other markets, there probably is a little bit of slack. That doesn't mean the markets are not healthy. I think -- as we said in the prepared remarks, Brazil is starting to improve economically. Interest rates coming down a little, unemployment coming down a little, consumer spending starting to rise a little, albeit a little slower than we've seen in the past, but GDP turning positive. And so over the next several years, we and others are well positioned to continue to meet the ongoing growth in the Brazilian market as we have for the last 2 decades.
Obviously, the Vietnamese market has been exceptionally soft this year. I think the onne number I could give you is that beer fillings in Vietnam for 9 months this year compared to last year, down about 25%. So again, as that market recovers, we are well positioned to grow. And in Europe, we're bringing on a very large 2-line can plant in the U.K. now. Not all of that is incremental capacity.
Some of it replaces the other plant in the U.K. that we're moving out of. But certainly, there is incremental capacity there as well as the capacity that we added in Italy and Spain early this year or late last year. So we are well positioned to grow without having to spend any more than this $500 million number that we've talked about for the next couple or 3 years.
Anthony James Pettinari
Okay. That's very helpful. And then just switching gears. Can you help us understand kind of what's going on with aerosol and maybe the outlook moving forward? If this is destocking, maybe where are we in that process? And just any additional color you can give on aerosol.
Timothy J. Donahue
Yes. So I mean, as we said before, aerosol is more of an economically sensitive product. If you think about the aerosol can, it's a really convenient way to dispense product, a very clean and convenient way, albeit a little bit more expensive for the consumer. So things start to tighten up, the consumer starts to tighten their belt. They don't need to buy air freshener, they don't need to buy bug spray, less and less man are shaving than ever shaved before. So they're not buying as much shave cream or they shave with a bar of soap, a little less comfortable, maybe a couple more nicks and cuts, but if you don't have to spend the money, you don't spend the money, you just blot your cut on your face, I guess.
So now having said that, that's one area. So the -- economically, the market is down. I think everybody in the steel aerosol can market is down. And I would expect that the onw other company that you'll talk to will probably tell you the same. There's also a slight move for some products from steel aerosol to aluminum aerosol. Historically, that's been more of, let's say, women's products and, let's say, suntan lotions. Slowly, some of the other products are moving from steel to aluminum. But that's a slow move. It's more economic-related now than anything else.
Operator
Our next question is from Ghansham Panjabi from Baird.
Ghansham Panjabi
So I guess going back to the North American Beverage for 3Q, up 12.6%. Was that in line with your internal plan? Or was it better? And if so, what drove that? Was it promotional spending? Maybe a very hot summer, et cetera? And then what do you estimate the market itself in North America grew in the third quarter?
Timothy J. Donahue
So Ghansham, I would say it was a touch better than what we anticipated. I -- we were -- as we sat here in July, nobody believed this when we told you we're going to be up significantly in Q3. We kind of got a pretty good handle on it. We probably thought 11% to 11.5%. So maybe we're 1 point or 1.5 points higher than we thought we would be. And that's just more and increasing promotions by a number of the large carbonated soft drink companies as well as some of the better-known national and regional sparkling water brands.
As for the market, we don't get data anymore from CMI, but I've got to believe it feels like at least for domestic producers, we were up a few percent. And I guess if you think about the total market, if you were to include lower imports this year compared to last year, imports are almost nil at this point. Maybe the market was flattish to up 1%. But for domestic producers, we have to be up a few percent. That would be my guess. I'm purely guessing.
Ghansham Panjabi
Okay. Okay. That makes sense. And then you made some constructive comments on supply/demand, again, specific to North America. But there are new players. Your customers are dealing with persistency of inflation. The consumer is resetting purchasing patterns and being much more price conscious, et cetera. As we kind of think about contract renewals for the industry going forward, should we expect a paradigm where maybe volumes are very lumpy between the different players as contracts come up for renewal? I'm just trying to think this out as it relates to the next couple of years, assuming we have the current operating environment we do over the next 2 years.
Timothy J. Donahue
Well, I think we have the current operating environment. Based on capacity installed today, and it doesn't appear that anybody is putting any more capacity after the Mesquite project and perhaps one of the lines still to go into the Midwest by one of the new entrants. It does not -- I don't know of any other capacity going into the market. So based on that installed capacity, and the lack of imports that we're competing with now, let's just say that we're -- we've got a domestic market now served by the entire domestic manufacturing footprint and a market in which our customers are promoting cans. They all have sustainability goals and sustainability agendas they promise to meet. They cannot meet their sustainability goals without the can. So based on that, that's why I feel that supply/demand currently in pretty good shape and will only get better.
Now I can't talk for everybody, but for the most part, we don't have any contracts coming due until the end of maybe '26. So we're a couple of years out. Now incrementally, if there's growth and/or volumes outside of existing contracts, then perhaps there's, as you want to say, a scramble for that growth. But I don't think there's any reason why, as we sit here today, looking out 2, 2.5 years, we should be overly concerned. But anything is possible, Ghansham.
Operator
Our next question from the line of Gabe Hajde from Wells Fargo.
(technical difficulty)
Timothy J. Donahue
Gabe, you've got a connection problem, Just be careful of that. Go ahead, Gabe.
Gabrial Shane Hajde
Is that any better?
Timothy J. Donahue
You're better, yes.
Gabrial Shane Hajde
I wanted to revisit Europe a little bit and ask about -- I think you indicated market flattish. I appreciate it's a regional market and it can vary by a player. I think there's a Chinese competitor that's adding a second plant there. It seems like it's customer specific at this point but maybe that would be the market where we might see a little bit more competitive activity because I think contracts are a little bit shorter there. It seems like you guys are pretty well set in the '24. You're speaking highly confidently about next year. I'm just curious kind of the revisit the question about utilization. Are there specific pockets or regions or kind of your antenna in terms of competitive activity or anything like that?
Timothy J. Donahue
Yes. The first thing I'd say about the Chinese competitor, they built the first plant in Belgium, customer-specific. They don't -- listen, they have advantages while they're in China. That is whether they're getting government-sponsored aluminum reductions and/or very cheap Chinese labor, they don't have that same advantage in Europe. They're in Belgium, they're paying Belgian labor rates. And they're either importing cheap Chinese metal litter or they're buying a European metal. So the challenges that you might foresee competing against the Chinese in China, not the same challenge competing against them in Europe or other markets.
We are -- we, at Crown are more weighted towards the perimeter that is the U.K., Spain, Italy, Greece, Turkey. And certainly, we have the one plant in France and now with the Helvetia acquisition, we now have a presence in Germany and then one in Slovakia. So I think that we were down a bit, the market probably flattish, maybe plus 1, minus 1, and that growth is probably weighted more towards Northern or North Central Europe where we're not as prevalent. And -- but as I said, we -- as we sit here today, there's no reason to believe we won't have a another increase next year, certainly not to the level we increased this year, but we get back to where we were in '21. We've got a capacity footprint with some new capacity, new high-speed very efficient lines to benefit the company well into the future. The sustainability story is alive and well in Europe as well. So it's the same sustainability story as we have in North America, maybe even more so.
Gabrial Shane Hajde
Okay. I sort of asked this, and I apologize, I'm going to try to squeeze in 2 more. And I'm definitely opening myself up for a little bit of criticism here. But the first one, anything -- I know you guys have operated there for a long time, Middle East that you can comment on, I'm sure what's going on right now is a little bit disruptive, but just help us with that maybe a little bit. And then secondly, it's obviously gotten a lot of attention in headlines, and we wrote about it. Anything from your customers or conversations that you're having in terms of obesity drugs and potential impact on sugary drinks.
Timothy J. Donahue
Yes. So the first one in the Middle East, we've seen no impact. We don't have any operations in Palestine or Israel. I'm not aware of us shipping any cans in the Palestine. I don't even know if there's a filler in Palestine to be honest. Israel, there are fillers. From time to time, we import cans in Israel, but it's a small amount. Our footprint in the Middle East is Saudi, Tunisia, North Africa, Saudi, the Emirates, in Dubai and in Jordan. So Jordan, a little closer to that region. But to date, Jordan has been insulated from the skirmish between Israel and Palestine, so no impact there.
As it relates to Ozempic and Wegovy and these other drugs, I'm aware of the comment that the major large retailer made, I would have liked to add a little more color on that before every hedge fund decided to jump off the boat at the same time. When they say the clientele they have who's pulling those drugs at the Walmart pharmacy is buying less food, I don't think they're buying less beer or soft drinks.
They may be buying less macaroni and cheese, frozen pizza and other fatty type items that, from what I understand, the body doesn't want when you take these drugs. You still need a some level of a treat. And we've seen no impact. And I think if you were to talk to our large multinational and even regional fillers of beverage products in the United States, they're going to tell you the same thing. No impact whatsoever.
Remarkable to me that very low take-up rate at this point, projected -- even if you want to project out to what some take-up rate might be in the future and some miraculous calorie reduction you think Americans are going to experience if they can afford the drug, that goes out 10 or 11 years, you want to discount that back and try to ascribe to packaging and other companies, it's just remarkable that if it's had the move that we think it's had, it's remarkable to me that somebody thought they can measure that.
I don't see this as being an impact to our business or our customers' businesses for the foreseeable future.
And that doesn't deal with the side effects that more and more starting to be reported. So I'll leave it at that.
Operator
Our next question is from from Jeff Zekauskas JPMorgan.
Jeffrey John Zekauskas
There we go. Your CapEx, you think will go down to $500 million next year. Is that a maintenance level? Or is there a growth component? That is what's the growth component in the $500 million, if there is one?
Timothy J. Donahue
Yes. So I would think about $250 million to $300 million is maintenance and the balance is minor growth and/or product replacement. And so that's always -- product replacement is a growth or maintenance. If you don't do it, you have negative growth. So -- and like product maintenance, let's say, we go from standard cans to slim cans, et cetera, things like that. So think about $300 million, $200 million.
Jeffrey John Zekauskas
Great. And -- is it easy to forecast when Asia Pacific turns around?
Timothy J. Donahue
I don't know, Jeff, you work for the biggest bank in the United States or the most well-capitalized bank in the United States, you've got to have people in your bank that are more attuned to Asian economics in any one of those countries than I am. The answer is, I don't mean to be a smart a**, I apologize. But it's a region that's had tremendous growth for a number of industries and specifically the beverage can industry as beer fillings have increased and for incremental beer fillings, they've jumped past the bottle and going right to the can.
So -- but again, if you're -- if you've been to Asia and you've spent any time there, there is a growing Asian middle class, but their disposable income level, certainly less than ours, but a small treat, and they like their beer and they like to gather. And -- but I don't know if -- I don't know if I can project it. The population is extremely young. And so as you think about the next decade with a young population, the opportunity for growth is -- for continued growth is there. But I can't sit here today and project for you when that's going to -- when we expect Vietnam to recover.
I wouldn't expect it stays down for all of next year. Will it recover by this time next year? I don't know.
Operator
(Operator Instructions) And we have a question on the line from Phil Ng from Jefferies.
Philip H. Ng
I'm shock it took half an hour to get a GLP-1 question so far, but I appreciate the insights you offer, Tim on the subject matter.
Timothy J. Donahue
Well, I don't -- I just find it hard to believe that anybody who's watched consumption levels of food products by Americans, we actually believe that any drug is going to have a an impact on American's desires to eat the food they want to eat and drink and gather and have a good time. Maybe from time to time, somebody wants to trim 10 pounds off and maybe there are some people that really need to lose weight because of diabetes or something else. But listen, this is -- we're talking about a $120 billion can market. This is a spec on the market. This is remarkable to me that it's gotten this far.
Philip H. Ng
Well, I guess more importantly, if I heard you correctly, Tim, you're expecting North America, your business to be up 7%, and you calling for a similar growth profile in 2024. So help us (inaudible)...
Timothy J. Donahue
What I said was that the absolute level of cans would be up by the same amount next year, the percentage of them because the base is higher, right?
Philip H. Ng
Okay. So can you help size what that percent would imply then, I guess? And what's driving that? Are you assuming a flattish market? Or is it -- or you're seeing share gains like you've seen this year as well?
Timothy J. Donahue
We'll quantify it for you in February, early February, but I would tell you that there's share gain combined with -- we believe the market is going to continue to grow. We believe the customers are going to continue to promote cans in support of their sustainability efforts as well as the unique features of the can, which -- for stackability, filling speeds, transport, et cetera. The can is just a -- it is a remarkable product. There's certainly no doubt about that.
Philip H. Ng
I mean I guess the great thing is it sounds like you've locked up pricing. So you got a good line of sight there too as well. I guess pivoting to your 2 more economically sensitive businesses. And to be clear, you've managed Transit exceptionally well this year. But from a volume standpoint and quoting and bidding activity, how has that progressed for aerosol in Transit so far this year?
Timothy J. Donahue
Well, aerosol -- just across the board, aerosol is down. We've got some segments of our aerosol business, it's a small business, right? But we've got some segments of the business which are up, maybe automotive and some of the other DOT-sensitive products. But for the most part, air fresheners, bug sprays, shave creams, down across the board.
Transit, listen, it's a -- we've had a hard time getting the investor community, and we've had a hard time getting the analyst community to appreciate the benefit of a business that generates anywhere between 13% to 15%, 16% here in the third quarter, requires almost no capital, has a cash conversion rate of 85% plus. And year in and year out, delivers unlevered cash flow in excess of $300 million.
So I -- yes, we've done a good job managing the business this year. The team is -- it's an exceptional team. It's an exceptional business. It's a very broad-based business, supplying a variety of industries. I've said this before, to anybody who wants to listen, but when you're on the highway, every time you see a truck go by, there's a 60% chance that there's a Signode product in the truck, not a Signode like product, an actual Signode product in that truck. So the transportation industry does not perform without Signode. And so it's a much more stable business.
Yes, it's economically sensitive. We don't spend a lot of capital. So our growth is somewhat limited to GDP. But even in a down market, we've got some products. The equipment and automation business, a very high-margin business. And in a down consumable market, we're still delivering equipment and automation for those customers who wish to take cost out of their process. So I'll leave it at that. I don't want to sound too defensive, but it's a very good business.
Philip H. Ng
Tim, I asked the question incorrectly. I'm just trying to gauge, are you getting to the point where demand and your quoting activity is getting less bad in stabilizing for either aerosol or Transit?
Timothy J. Donahue
Okay. I'm sorry. You probably didn't ask the question poorly. I probably got a little overly defensive, but I would say that in aerosol, no, we've not seen quoting activity improve. In Transit, had you asked me this question at the beginning of September, I would have said, no. It felt like the month of September was better in a few markets, especially in the equipment market. But I think that -- I have a budget -- preliminary budget for Transit. I actually feel better about the budget now than I did a couple of weeks ago. The market can't stay down for too long. And as I said, the transportation industry can't operate without Signode. So we are going to see consumables come back but in the near term, we are starting to see a little better traction for equipment and automation.
Operator
Next one is from Michael Roxland from Truist Securities.
Unidentified Analyst
This is actually [Nico Pacini] on for Mike Roxland today. I was hoping you could just talk about the cadence of shipments in North America during the quarter from month to month?
Timothy J. Donahue
I don't have it in front of me, but I can -- just off the top of my head, but I could -- I think if you go back to our July transcript, you'll see that we told you that April was exceptionally weak. We saw mid-single digit, maybe 6%, 7% growth in May and June. And then I would tell you that each month in the third quarter got progressively better. We probably saw 8% to 9% July, August, and we had a really strong September, leading to 12.5%, 12.6%.
Unidentified Analyst
Perfect. And then a follow-up. Just you spoke on it briefly earlier about your start-up in the U.K. I think Peterborough wanna start Line 1 in August and was Line 2 starting October?
Timothy J. Donahue
That's been delayed. We're probably starting Line 1 now and Line 2 will start in a month or 2. We've had some electrical and other delays, components and contractor issues. So we're getting there.
Operator
Our next one is from Adam samuelson from Goldman Sachs.
Adam Samuelson
There's been a lot of ground covered, but maybe coming back to Brazil and the demand environment there, obviously, you're getting into their peak season. Does seem like a more favorable consumer backdrop than there in the last couple of years going into their summer. Any kind of additional kind of color on what you're seeing from your customer base and order patterns there would be helpful.
Timothy J. Donahue
Yes. So what I would say, it's interesting, last year, third and fourth quarter, the market was actually fairly strong. I looked at volumes, last year in the third quarter, I think we were up 6% or 7%. I think the fourth quarter, maybe we were up 8% or 9% or more. So we are -- as opposed to an easy comp that we had in North America, we have firmer comp in Brazil, but the market seems to be settling. The one major customer is -- I don't know if all the [T's] and the [I's] have been dotted in their reorganization process, but they're pretty close to completing their reorganization and they're going to operate as a going concern, and we're well positioned with them, not only in can supply, but in terms of coverage on our receivable balance and the assets they have in place. So we feel pretty good about that. So I think the market should be firm.
And as I said earlier, markets -- and as you just said, the market is slowly recovering economically from the pandemic. And probably takes a couple of years, 2, 3 years for the market to eat up the excess capacity that's in the market, but I think it's going to get continually healthier for the beverage can companies as we look forward.
Adam Samuelson
Okay. That's helpful. And then just quickly for the fourth quarter, there's the allusion to some kind of production downtime in aerosol can in Asia and in Transit. Any way to just quantify kind of the volume impact and/or any specific kind of unallocated overhead that will flow through the P&L as a result of that.
Timothy J. Donahue
Yes. So you've heard us talk briefly about our desire or allude to our desire to reduce working capital, generate more free cash flow, reduce leverage, reduce absolute levels of debt. Interest is -- it's not 2% anymore, right? It's 7% or whatever we're paying. So really critical that we get debt levels as low as possible, and that's why we made such an effort in Q3, and we're going to continue to do as much as we can in Q4. So we start the new year with a much better positioned balance sheet.
But aerosol cans, shipments were down 15% in Q3, and that's after a pretty crappy Q3 last year. And it's been a fairly soft performance all year for the market -- aerosol market. Transit, I would say volumes equipment and all up, but consumables down in the order of mid- to high single digits. They don't -- we can adjust that without as much margin impact as you might otherwise think. But again, we don't need to carry more inventory than we need to carry. And in Asia, as I said, Vietnam, very weak. I don't know if I gave a -- I don't know if I gave a number, but I'll bet you Vietnam was down on the order of 15% or 17% in volume in the quarter. And it is our largest market in Southeast Asia.
So Cambodia, China, a little firmer. But just trying to get the inventory work along. And there will be -- I'll be a little careful how I talk about absorption. There may have been some absorption in the third quarter from this. And I think we're prepared to absorb or withstand any further absorption loss in Q4 to get the debt down as low as possible as we go forward.
So I don't know, you want to throw a number out there. It's just a number, $10 million, $12 million. But similar to the $15 million I threw out there earlier for the Asia and aerosol, call down from perhaps where we were in July when we last talked to you.
Operator
I don't have any further questions. I'd like to hand the floor back to our speakers.
Timothy J. Donahue
Okay. Elmer, thank you very much. That will conclude today's call. We'll look forward to speaking with you again in the new year, I think early February. Bye now.
Operator
Thank you, speakers, and that concludes today's conference, and thank you all for joining. You may now disconnect. Thank you very much.
