Ball Corporation BLL reported second-quarter 2015 adjusted earnings of 89 cents per share, which declined nearly 21% from $1.13 earned in the year-ago quarter. Earnings also missed the Zacks Consensus Estimate of 94 cents impacted by foreign currency translation, project start-up costs and aluminum premium headwinds, partly offset by strong demand for European metal beverage and global aerosol volume.
On a reported basis, earnings per share increased 5.6% year over year to $1.13 from $1.07 in the prior-year quarter.
Operational Update
Total revenue went down 5.2% year over year to $2.17 billion in the reported quarter. However, revenues beat the Zacks Consensus Estimate of $2.12 billion.
Cost of sales decreased 3.9% year over year to $1.78 billion. Gross profit declined 10.8% year over year to $397 million and gross margin contracted 110 basis points (bps) to 18.3%.
Selling, general and administrative expenses went up 5.7% year over year to $117.7 million. Adjusted operating income declined 21% to $208 million from $264.5 million in the year-ago quarter. Consequently, operating margin contracted 190 bps to 9.6%.
Segment Performance
The Metal Beverage Packaging, Americas & Asia segment revenues remained flat at $1.1 billion in the reported quarter. Operating earnings of $126.5 million decreased 10.9% year over year. Specialty beverage packaging in North America witnessed mid-single digit growth because of continued weakness in standard 12-ounce carbonated soft drink containers and anticipated softer can demand in Brazil due to challenging year-over-year comparisons following the 2014 World Cup.
Sales for the Metal Beverage Packaging, Europe segment were $481 million in the reported quarter, down 13.9% year over year. Operating earnings declined 19% year over year to $59.6 million owing to unfavorable currency translation, higher aluminum premiums and associated start-up costs.
The Metal Food & Household Products Packaging segment sales were $332 million, declining 9.7% year over year. Operating earnings also fell 27.9% year over year to $28.7 million because of the U.S. food container customer shift project start-up costs and unfavorable currency effects.
In the Aerospace and Technologies segment, sales went down 4.5% year over year to $230 million. Operating earnings decreased 21% year over year to $19.5 million. The segment reported backlog of $641.3 million in the second quarter.
During the quarter, the segment successfully integrated four of the five complex instruments that will fly onboard the Joint Polar Satellite System (JPSS-1), the nation's next polar-orbiting weather satellite, and is moving toward environmental testing by early 2016 with on-time delivery scheduled for late 2016 and launch scheduled in 2017.
Financial Condition
Ball Corporation reported cash and cash equivalents of $227.3 million at the end of second-quarter 2015, up from $155.3 million in the year-ago quarter. Cash provided by operating activities during the first half of 2015 was $211.7 million which increased marginally from $210 million in the prior-year comparable period. Its long-term debt decreased to $2.98 billion as of Jun 30, 2015 from $3.13 billion as of Jun 30, 2014.
On Jul 28, Ball Corporation approved the issuance of approximately 32.3 million new shares to Rexam PLC’s shareholders as partial consideration for the proposed acquisition of Rexam in exchange for the cancellation of each Rexam outstanding share. It also includes 407 pence cash consideration. The new Ball Corporation’s shares will be issued at the closing of the proposed acquisition. The transaction is expected to close in the first half of 2016.
On Jul 29, the company declared to close its Bristol, VA, beverage packaging end-making plant during the second quarter of 2016 to better align its manufacturing footprint. The plant's capacity will be supplied by other Ball Corporation facilities.
Ball Corporation expects to record a total after-tax charge of approximately $19 million, primarily for employee severance and benefits, facility shut down costs and other actions. Majority of the charge is expected to be recorded in the third quarter of 2015.
Outlook
Ball Corporation reaffirmed its 2015 free cash flow guidance of $600 million, excluding cash costs for the proposed Rexam acquisition. The company has initiated multiple currency and interest rate hedges to mitigate risk related to the proposed acquisition.
Our Take
Ball Corporation will continue to benefit from its continuous focus on cost containment. Product launches and expansion in the emerging markets will also drive growth. While difficult year-over-year comparisons and higher aluminum premiums will persist in the near term. Currency translation will also remain headwind for the balance of the year.
Broomfield, CO-based Ball Corporation is the largest manufacturer of beverage cans in North America. It also supplies aerospace as well as other technologies and services to the government and customers.
Currently, Ball Corporation has a Zacks Rank #4 (Sell). Some better-ranked stocks in the sector include Avery Dennison Corporation AVY, Pentair plc PNR and Rockwell Automation Inc. ROK. All these stocks carry a Zacks Rank #2 (Buy).
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