Ball Corporation (BLL) reported second-quarter 2013 adjusted earnings of 85 cents per share, down 4.5% from the year-ago adjusted earnings of 89 cents per share. The results, however, beat the Zacks Consensus Estimate by a penny.
Including after-tax charges of 22 cents a share related to business consolidation, debt refinancing costs and other activities, the company reported earnings from continuing operations of 63 cents per share compared with 88 cents a year ago.
Operational Update
Total revenue declined 4% year over year to $2.2 billion in the reported quarter due to weak demand for beverage cans in North America. Revenues also missed the Zacks Consensus Estimate of $2.28 billion.
Cost of sales decreased 4.8% year over year to $1.79 billion in the reported quarter. Gross profit fell 0.5% year over year to $403.5 million and gross margin expanded 65 basis points (bps) to 18%.
Selling, general and administrative expenses increased 4% to $102.9 million from the prior-year quarter. Adjusted operating income declined 5.8% to $226 million from $240 million in the year-ago quarter. Consequently, operating margin contracted 20 basis points year over year to 10.2%.
Segment Performance
Metal Beverage Packaging, Americas & Asia segment reported revenues of $1.1 billion in the reported quarter compared with $1.2 billion in the year-ago quarter. Operating earnings decreased 8% year over year to $125.7 million. The segment’s performance was affected by weak demand for 12 ounce beverage containers in North America.
Sales from the Metal Beverage Packaging, Europe segment decreased 0.5% year over year to $508.7 million in the quarter. Operating earnings also dropped 7.5% to $51.8 million due to lower demand, unfavorable mix and higher input costs.
Metal Food & Household Products Packaging, America segment sales increased 2.8% year over year to $382.6 million. Operating earnings increased 14% to $47.5 million from a year ago, driven by improved manufacturing performance and high single-digit volume growth.
In the Aerospace and Technologies segment, sales increased 7.5% year over year to $226 million. Operating earnings, however, decreased 5% year over year to $19 million. The segment had a backlog of more than $966 million at the end of the quarter.
Financial Condition
Cash and cash equivalents were $169.5 million as of Jun 30, 2013 compared with $123.5 million as of Jul 1, 2012. Long-term debt amounted to $3.4 billion as of Jun 30, 2013, compared with $2.9 billion as of Jul 1, 2012. Cash flow from operating activities was $57.5 million in the second quarter versus cash use of $74.7 million in the year-ago quarter.
During the second quarter, Ball Corporation issued $1 billion of 4% senior notes due in Nov 2023 and tendered for the redemption of $375 million of 7.125% senior notes due in Sep 2016.
Outlook
Ball Corporation retained its guidance of free cash flow for full-year 2013 at approximately $450 million. The company expects 2013 earnings per share to exceed 2012 results. According to the company, extension of credit facility and issuance of senior notes will help in increasing financial flexibility.
Our View
Ball Corporation will continue to benefit from product launches, expansion into emerging markets and strong backlog in its aerospace and technologies segment. However, loss of a customer, weak economic condition in Europe and pricing pressure in China will continue to be headwinds.
The company, however, sees growth potential in many segments. Metal beverage packaging, Americas and Asia will be benefited by the Alagoinhas plant's second production line, which is on track. The Aerospace and Technologies segment will benefit from its solid backlog.
During the quarter, Ball Aerospace continued to diversify its contract mix with the award of a contract from the Korea Aerospace Research Institute (KARI) to build the Geostationary Environment Monitoring Spectrometer (GEMS) for the National Institute of Environmental Research in the Ministry of Environment of South Korea. These will act as growth drivers for Ball Corporation in the upcoming quarters.
Broomfield, CO-based Ball Corporation is the largest manufacturer of beverage cans in North America. It also supplies aerospace and other technologies and offers services to government and commercial customers.
Ball Corporation currently retains a short-term Zacks Rank #3 (Hold).
Peer Performance
Crown Holdings, Inc. (CCK) reported second-quarter 2013 adjusted earnings of 96 cents per share, up 14% from 84 cents earned in the year-ago quarter. The results beat the Zacks Consensus Estimate of 93 cents.
Silgan Holdings Inc. (SLGN) posted adjusted earnings of 63 cents per share in the second quarter, up 15% from 55 cents earned in the year-ago quarter. Earnings were consistent with the company’s guided range of 60 cents to 70 cents per share but missed the Zacks Consensus Estimate of 65 cents.
Another peer of Ball Corporation, Mobile Mini, Inc. (MINI) has yet to announce its quarterly results.
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