On Jan 21, 2015, we issued an updated research report on Ball Corporation (BLL). This manufacturer of metal and plastic packaging for beverages and foods reported a 10% year-over-year improvement in its third-quarter 2014 adjusted earnings per share to $1.10. Moreover, the company has maintained its long-term earnings per share growth goal of 10–15%.
Ball Corporation will continue to benefit from expansion in developing regions like Brazil, where demand in the can market is expected to remain strong. Ball Corporation’s joint venture metal beverage can plant in Alagoinhas completed installation of a second can line that will manufacture multiple can sizes. This increased capacity will help the company to capitalize on higher demand. Even though Ball Corporation witnessed weaker-than-expected beverage can demand in the third quarter following the soccer World Cup, it expects volumes to bounce back in the fourth quarter on entering the summer selling season.
Ball Corporation is installing a new swing line in its Oss, Netherlands facility for specialty can growth in the region, along with a new line in North America that is capable of producing cans of various shapes and sizes. Both investments are expected to start up in May 2015. The company is also building a new beverage can plant in Myanmar which is expected to start in mid-2015. Ball Corporation is installing a new impact extruded aluminum aerosol line in India, scheduled to start in late 2015.
Green Sheep Water announced the launch of a new line of bottled water using Ball Corporation’s Alumi-Tek specialty can. With an annual consumption of over 50 billion bottles of water in the U.S., the market is growing at a pace of more than 6% per year. This could represent an attractive opportunity for cans and help sustain the momentum in specialty cans.
Ball Corporation’s Aerospace business continues to perform well. Backlog at the end of the quarter was $846 million. During the third quarter, the company successfully participated in the launch of the WorldView-3 satellite from the Vandenberg Air Force Base. The WorldView-3 satellite is the first multi-payload, super-spectral, high-resolution commercial satellite for earth observations and advanced geospatial data. Management also expects the segment to benefit from potential government and privately sponsored contracts that will come up for bidding in 2015, if they are in the company’s areas of expertise.
However, given that the segment’s primary customers are the U.S. government agencies or their prime contractors, it is subject to several risks, including funding cuts and delays, technical uncertainties, budget changes, competitive activity and changes in scope. The company should reduce its dependency on the U.S. government funding going forward.
Moreover, the LME (London Metal Exchange) aluminum premium in Europe has remained historically high. Ball Corporation does not have pass-through arrangements in the region, which will likely affect results. In the Asia segment, pricing continues to be an issue because of pricing pressure in China due to excess capacity and intense competition from domestic can producers.
Ball Corporation belongs to the Containers- Metal/Glass industry along with its peers Mobile Mini, Inc. (MINI), Crown Holdings Inc. (CCK) and Silgan Holdings Inc. (SLGN).
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