Ball Corp (BLL) Q2 Earnings In line, Revenues Beat Estimates

Ball Corporation BLL reported second-quarter 2018 adjusted earnings of 58 cents per share, which increased 9.4% year over year. Adjusted earnings came in line with the Zacks Consensus Estimate.

On a reported basis, the company posted earnings of 34 cents per share compared to 28 cents per share recorded in the prior-year quarter.

Total revenues increased 8.6% year over year to $3,101 million in the reported quarter. The revenue figure also surpassed the Zacks Consensus Estimate of $3,020 million.

The company’s results were driven by strong global demand for aluminum packaging and lower corporate costs, despite certain start-up costs, out-of-pattern freight and declines in U.S. beverage can volumes, as well as the short-term impact from the Brazilian truckers' strike.

Operational Update

Cost of sales went up 9.4% year over year to $2,484 million. Gross profit improved 5.5% year over year to $617 million. Gross margin contracted 60 basis points (bps) to 19.9%.

Selling, general and administrative expenses edged down 0.8% year over year to $127 million. Adjusted operating income increased 7% to $490 million from the $457 million reported in the year-ago quarter. The company reported operating margin of 15.8%, down 20 bps year over year.

Segment Performance

The Beverage packaging’s North and Central America segment’s revenues went up 7.8% year over year to $1,241 million in the quarter under review. Operating earnings of $157 million inched up 0.6% year over year.

Sales at the Beverage packaging, Europe segment came in at $703 million in the quarter, advancing 5.7% year over year. Operating earnings climbed 19% year over year to $75 million.

The Beverage packaging South America segment’s revenues jumped 8.6% year over year to $379 million in the June-end quarter. Operating earnings of $66 million declined from $69 million recorded in the prior-year quarter.

The Food and Aerosol Packaging segment’s sales came in at $304 million, up 11% year over year. Operating earnings rose 28% year over year to $32 million.

In the Aerospace and Technologies segment, sales went up 12.8% year over year to $290 million. Operating earnings decreased 7.7% year over year to $24 million. The segment’s backlog came in at around $1.85 billion at the end of the reported quarter.

Financial Condition

Ball Corporation reported cash and cash equivalents of $549 million at the end of the second quarter, up from $433 million witnessed at the end of the year-ago quarter. The company generated $434 million of cash from operating activities during the six-month period ended Jun 30, 2018, compared with $261 million reported in the comparable period last year. Ball Corporation’s long-term debt decreased to $7,171 million as of Jun 30, 2018, from $7,226 million as of Jun 30, 2017.

During the quarter, Ball Corporation began production on time and on budget in its new specialty beverage-can manufacturing facility in Goodyear, AZ. However, it ceased operations at the Birmingham, AL, beverage can end making facility. Further, the company's new aluminum beverage can facility, near Madrid, Spain, commenced production late in the quarter.

Further, its Colorado facility expansions in Westminster and Boulder, CO, are on track for completion in fourth-quarter 2018. The company expects to benefit from outstanding requests for bids and proposals, and contracts wins. It has approximately $4.3 billion as contracts already won, but not yet booked into current backlog which will drive growth.

On Jul 31, 2018, Ball Corporation closed on the sale of its U.S. steel food and steel aerosol packaging assets, and formation of a joint venture, Ball Metalpack. The company received approximately $600 million in after-tax proceeds as part of the transaction. Ball Corporation expects that its 49% ownership of Ball Metalpack's financial results will be reported in equity in results of affiliates within consolidated statements of earnings, in third-quarter 2018.

Outlook

Ball Corporation expects its free cash flow will be around $800 million and capital spending will be in excess of $700 million in 2018. Notably, it reaffirms comparable EBITDA guidance of $2 billion and expects free cash flow of more than $1 billion in 2019.

Ball Corporation remains on track with deleveraging and anticipates net debt to comparable EBITDA ratios in the range of 3.0-3.5 times by the end of this year. Furthermore, the net $50 million of annual fixed cost savings associated with the North American optimization program is anticipated to benefit the fourth quarter’s performance and beyond.

The company also expects return capital to shareholders through share repurchases and dividends in excess of $800 million in 2018. However, headwinds related to currency and softer-than-expected demand in North America and Africa, Middle East and Asia (AMEA) will affect results despite the benefits of acquisitions and growing demand for aluminum beverage packaging.

Share Price Performance

Ball Corporation’s shares have outperformed the industry over the past year. The stock has lost around 6%, while the industry lost around 10% during the said time frame.

Zacks Rank & Stocks to Consider

Ball Corporation currently carries a Zacks Rank #4 (Sell).

Better-ranked stocks in the same industry include Actuant Corporation ATU, Chart Industries, Inc. GTLS and W.W. Grainger, Inc. GWW. All three stocks sport a Zacks Rank #1 (Strong buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Actuant has a long-term earnings growth rate of 15.6%. The stock has gained 18% in a year’s time.

Chart Industries has a long-term earnings growth rate of 26.9%. The company’s shares have appreciated 131% over the past year.

Grainger has a long-term earnings growth rate of 12.5%. Its shares have rallied 101% in the past year.

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