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    Ball Corp (BALL)

    Business Description

    Ball Corporation is a leading supplier of aluminum packaging for the beverage, personal care, and household products industries, and it also provides aerospace and other technologies and services. The company's operations are organized into three main reportable segments: beverage packaging in North and Central America, EMEA (Europe, Middle East, and Africa), and South America. In 2023, Ball's total consolidated net sales were $14.03 billion, with the packaging businesses contributing 86% of net sales and the aerospace business contributing the remaining 14% . The largest product line is aluminum beverage containers, which are sold globally to large multinational companies and regional customers. Ball also manufactures extruded aluminum aerosol containers, recloseable aluminum bottles, aluminum slugs, and aluminum cups . The company completed the divestiture of its aerospace business to BAE Systems, Inc. on February 16, 2024, marking a strategic shift and resulting in the aerospace business being reported as discontinued operations .

    1. Beverage Packaging in North and Central America - Supplies aluminum beverage containers to multinational and regional customers across North and Central America.
    2. Beverage Packaging in EMEA (Europe, Middle East, and Africa) - Provides aluminum beverage packaging solutions tailored for the EMEA region.
    3. Beverage Packaging in South America - Delivers aluminum beverage containers to clients throughout South America.
    4. Extruded Aluminum Aerosol Containers - Manufactures aluminum aerosol containers for personal care and household products.
    5. Recloseable Aluminum Bottles - Produces aluminum bottles with recloseable features for various beverage applications.
    6. Aluminum Slugs - Supplies aluminum slugs used in the production of various packaging products.
    7. Aluminum Cups - Offers durable and recyclable aluminum cups for beverage consumption.
    8. Aerospace (Discontinued Operations) - Previously provided aerospace technologies and services before divestiture to BAE Systems, Inc.

    Q2 2024 Summary

    Initial Price$67.64April 1, 2024
    Final Price$59.55July 1, 2024
    Price Change$-8.09
    % Change-11.96%

    What went well

    • Ball Corporation's aerosol business experienced 6% volume growth, outperforming the global market growth rate of about 3%. This growth is driven by their ability to produce bottles with higher recycled content, appealing to sustainability-focused customers like Unilever and Bayer, and leading to disproportionate market share gains.
    • In the EMEA region, Ball saw 6.5% volume growth, exceeding internal expectations. This was due to factors such as favorable product mix, inflation relief leading to strengthened consumer demand, and aggressive pricing strategies by key customers. The company is bullish about Europe over the medium and long term, citing significant opportunities for can growth in the region.
    • Despite challenges in Argentina, Ball remains optimistic about its South American business, particularly in Brazil, where they reported year-to-date volume growth of over 10%. They anticipate sequential earnings and volume improvement in the second half of 2024, driven by strong partnerships and favorable market dynamics. Margin growth is also expected as economic conditions stabilize in Argentina.

    What went wrong

    • Volatile consumer backdrop could impact future earnings: The company acknowledges that the consumer environment remains volatile, which may affect demand for aluminum packaging solutions and challenge their ability to meet 2024 guidance and long-term commitments.
    • Underperformance in South America due to regional risks: Softer-than-anticipated volume performance in South America, specifically driven by exposure to Argentina, indicates regional risks that could negatively impact overall financial performance.
    • Early stages of operational efficiency improvements may delay benefits: The company is in the early innings of implementing operational efficiencies and standardizing best practices, suggesting that significant cost savings and margin improvements may not materialize in the near term.

    Q&A Summary

    1. EPS Growth Outlook
      Q: Can you achieve over 10% EPS growth in coming years?
      A: Management is confident in delivering over 10% EPS growth, potentially reaching 13-15%, by focusing on operational efficiencies, a $500 million cost savings plan, and continued share buybacks totaling over $1.4 billion since mid-February. They emphasize that significant growth isn't required to achieve these targets due to improved cash flow and capital discipline.

    2. Cost Savings Initiatives
      Q: When will standardization efforts boost profits significantly?
      A: They are in early stages but expect meaningful benefits within 2-3 years, achieving about 80% standardization across facilities. This will enhance productivity, reduce capital needs, and contribute significantly to earnings through the gross cost savings plan, with substantial gains in 2024 and 2025.

    3. North America Beverage Market
      Q: How are U.S. consumer trends affecting your business?
      A: In the U.S., high-end brands are driving innovation, while value brands focus on pricing. The middle market, especially premium light beers, faces softness due to consumers trading down. Ball benefits from favorable customer mix and expects inventories to strengthen, aiding second-half performance.

    4. South America Outlook
      Q: What are your expectations for South America amid Argentina's challenges?
      A: Despite challenges in Argentina, including volume declines impacting overall volume by about 1%, they anticipate margin growth and a positive trajectory in Brazil, driven by strong performance from key partners and can's market share gains. They expect Q4 to return to growth.

    5. European Performance
      Q: How did European operations fare, and what's the outlook?
      A: Europe exceeded internal expectations with 6.5% growth, benefiting from favorable mix and aggressive customer pricing. They remain bullish on Europe's medium and long-term prospects due to the can's market potential and anticipate continued strong performance without significant destocking concerns.

    6. Capacity Utilization and Inventory
      Q: What's the current capacity utilization and inventory status?
      A: Capacity utilization is healthy, with low to mid-90% in Europe, low 90% in the U.S., and high 80% in Brazil. Inventories are historically low, especially in North America, but expected to strengthen, improving absorption in Q4. No significant curtailments are anticipated except seasonal ones in South America.

    7. Aerosol Business Growth
      Q: What's driving growth in the aerosol segment?
      A: The aerosol business saw 6% volume growth, outperforming the market due to offering bottles with higher recycled content, appealing to customers focused on sustainability. This strategic advantage contributes to winning market share, and they remain optimistic about continued growth.

    8. Bud Light Impact
      Q: Is Bud Light's decline affecting your sales?
      A: The decline in Bud Light is offset by growth in other brands like Michelob Ultra within the same portfolio. Promotional activities in these growing brands are encouraging, filling the volume gap created by Bud Light's downturn.

    9. Aluminum Cup Adoption
      Q: What's the status of the Ball aluminum cup product?
      A: Adoption of the aluminum cup has been slower than expected due to a weakened consumer impacting volume. While they continue to gain traction in certain venues, it's not at the levels anticipated 2-3 years ago.

    Key Metrics

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    Executive Team

    NamePositionStart DateShort Bio
    Nate C. CareyVice President and ControllerNovember 2017Nate C. Carey has been serving as the Vice President and Controller at Ball Corporation since November 2017. Prior to this role, he was the Assistant Controller from 2014 to November 2017 .
    Carey S. CauseySenior Vice President and Chief Growth OfficerJanuary 2024Carey S. Causey is the Senior Vice President and Chief Growth Officer at Ball Corporation, a position she has held since January 2024. She previously served as President of Beverage Packaging EMEA .
    Daniel W. FisherChairman and Chief Executive OfficerApril 27, 2022Daniel W. Fisher became the Chief Executive Officer effective April 27, 2022, and later became Chairman of the Board effective April 26, 2023. He has been with Ball Corporation since 2010 .
    Deron J. GoodwinVice President and TreasurerSeptember 2022Deron J. Goodwin has been serving as the Vice President and Treasurer of Ball Corporation since September 2022. Prior to this role, he was the Assistant Treasurer from 2016 to September 2022 .
    Ronald J. LewisSenior Vice President, Chief Supply Chain and Operations OfficerJanuary 2024Ronald J. Lewis has been serving as the Senior Vice President and Chief Supply Chain and Operations Officer at Ball Corporation since January 2024. He was previously the COO for Global Beverage Packaging .
    Hannah Lim-JohnsonSenior Vice President, Chief Legal Officer, and Corporate SecretarySeptember 2023Hannah Lim-Johnson has been serving as the Senior Vice President, Chief Legal Officer, and Corporate Secretary at Ball Corporation since September 2023. She held the same position at Meritor, Inc. .
    Kathleen E. PitreSenior Vice President and President, North and Central AmericaJanuary 2024Kathleen E. Pitre is the Senior Vice President and President, North and Central America at Ball Corporation, a position she has held since January 2024. She was previously President of Beverage Packaging North and Central America .
    Stacey Valy PanayiotouSenior Vice President and Chief Human Resources OfficerNovember 2021Stacey Valy Panayiotou has been serving as the Senior Vice President and Chief Human Resources Officer at Ball Corporation since November 2021. She was previously EVP of Human Resources at Graphic Packaging International .
    Fauze C. VillatoroSenior Vice President and President, South AmericaJanuary 2024Fauze C. Villatoro has been serving as Senior Vice President and President, South America at Ball Corporation since January 2024. He was previously President of Beverage Packaging South America .
    Howard H. YuExecutive Vice President and Chief Financial OfficerSeptember 25, 2023Howard H. Yu is the Executive Vice President and Chief Financial Officer of Ball Corporation. He joined the company in this role on September 25, 2023. He was previously CFO at Envista Holdings Corporation .
    Aaron M. ErterDirectorJune 3, 2024Aaron M. Erter serves as a Director at Ball Corporation. He was required to file an initial statement of beneficial ownership of securities on June 3, 2024 .

    Questions to Ask Management

    1. Given the softer-than-anticipated volume performance in South America due to your exposure to Argentina, what specific actions are you taking to mitigate this risk and improve performance in that region?
    2. With the adjustments to North American capacity over the past few years, how does your current capacity compare to 2019, and do you foresee further changes in capacity based on current demand trends?
    3. Considering the decline in domestic beer volumes and challenges in the premium light beer segment, how are you adapting your product mix and customer strategies to drive volume growth in these areas?
    4. Excluding the nearly $40 million R&D tax credit benefit from last year, can you provide more insight into your underlying earnings growth in Q3 and the sustainability of that growth moving forward?
    5. You mentioned being in the early stages of your operational excellence initiatives; can you quantify the expected financial impact of these efficiencies over the next few years and discuss any potential challenges in achieving these targets?

    Share Repurchase Program

    Program DetailsProgram 1
    Approval DateApril 24, 2024
    End Date/DurationN/A
    Total additional amount40 million shares
    Remaining authorization amount29,011,241 shares
    DetailsPart of a commitment to return value to shareholders, with a plan to spend about $1.3 billion on share buybacks for the year.

    Past Guidance

    Q2 2024 Earnings Call

    • Issued Period: Q2 2024
    • Guided Period: FY 2024
    • Guidance:
      1. Comparable Diluted EPS Growth: Mid-single digits plus .
      2. Net Debt to Comparable EBITDA: Below 2.5x by year-end .
      3. Capital Expenditures (CapEx): $650 million .
      4. Share Repurchases: Exceed $1.4 billion .
      5. Effective Tax Rate: Approximately 21% .
      6. Interest Expense: $300 million .
      7. Corporate Undistributed Costs: $90 million .
      8. Return of Value to Shareholders: Exceed $1.6 billion .
      9. Long-term EPS Growth: 10% plus per annum .

    Q1 2024 Earnings Call

    • Issued Period: Q1 2024
    • Guided Period: FY 2024
    • Guidance:
      1. Comparable Diluted EPS Growth: Mid-single digits plus .
      2. Net Debt to Comparable EBITDA: Below 2.5x by year-end .
      3. Capital Expenditures (CapEx): $650 million .
      4. Share Repurchases: $1.3 billion .
      5. Effective Tax Rate: Approximately 21% .
      6. Interest Expense: $320 million .
      7. Global Shipments Growth: Low to mid-single digits .
      8. Free Cash Flow: On track to achieve target .
      9. Return to Shareholders: Approximately $1.5 billion .

    Q4 2023 Earnings Call

    • Issued Period: Q4 2023
    • Guided Period: FY 2024
    • Guidance:
      1. Free Cash Flow: $500 million .
      2. Net Debt to Comparable EBITDA: 2.7x by year-end .
      3. Capital Expenditures (CapEx): $650 million .
      4. Effective Tax Rate: Approximately 21% .
      5. Interest Expense: $330 million .
      6. Corporate Undistributed Costs: $85 million .
      7. Volume Growth: Favorable inflection after Q1 2024 .
      8. Comparable Diluted EPS: Positioned to grow .
      9. Operational Focus: Emphasis on efficiency and productivity .
      10. Share Repurchases and Dividends: Reinitiate meaningful repurchases .

    Q3 2024 Earnings Call

    • Issued Period: Q3 2024
    • Guided Period: N/A
    • Guidance: The documents do not contain information from the Q3 2024 earnings call for Ball Corporation. Therefore, I cannot provide the guidance metrics or the guided period from that specific earnings call.