Ball Corporation Beats Q2 Earnings on Beverage Can Demand

Ball Corporation (BLL) reported second-quarter 2014 adjusted earnings of $1.13 per share, which beat the Zacks Consensus Estimate of $1.02. Moreover, the reported figure surged 33% from the year-ago quarter, aided by brilliant result in its global beverage operations and solid program execution in the aerospace business.

On a reported basis, earnings came in at $1.07 per share, compared with 63 cents in the prior-year quarter.

Operational Update

Total revenue rose 4% year over year to $2.29 billion from $2.2 billion in the year-ago quarter on improving demand for beverage cans. Revenues also surpassed the Zacks Consensus Estimate of $2.25 billion.

Cost of sales increased 2.6% year over year to $1.85 billion. Gross profit grew 10.4% year over year to $445.5 million and gross margin expanded 110 basis points (bps) to r
19.4%.

Selling, general and administrative expenses went up 8.3% year over year to $111 million. Adjusted operating income improved 17% to $264.5 million from $226 million in the year-ago quarter. Consequently, operating margin grew 120 bps to 11.5%.

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Segment Performance

The Metal Beverage Packaging, Americas & Asia segment revenues went up 4% to $1.13 billion from $1.09 billion in the year-ago quarter. Operating earnings grew 13% year over year to $142 million. Strong demand for metal beverage packaging in North America aided results. Double digits year-over-year increase in volume recorded in Brazil and China, driven by increasing can penetration in beer packaging, also facilitated sales growth.

Sales from the Metal Beverage Packaging, Europe segment increased 9.8% year over year to $558 million. Operating earnings also surged 42.3% year over year to $73.7 million, led by mid-single digits volume growth for beverage cans across Europe as well as excellent cost control initiatives.

The Metal Food & Household Products Packaging segment sales fell 3.9% year over year to $367.7 million. Operating earnings also decreased 16% year over year to $39.8 million due to low single-digit volume declines for steel containers and manufacturing inefficiencies in the U.S., partly offset by strong demand for aluminum aerosol containers in Europe and Mexico and improved manufacturing performance in Mexico.

In the Aerospace and Technologies segment, sales grew 6.6% year over year to $241 million. Operating earnings, on the other hand, increased 29.8% year over year to $24.8 million driven by successful program execution and solid contracted backlog.

Financial Condition

As of Jun 30, 2014, Ball Corporation reported cash and cash equivalents of $155 million versus $169.5 million as of Jun 30, 2013. The company’s total debt decreased to $3.54 billion as of Jun 30, 2014 from $3.86 billion as of Jun 30, 2013.

Cash flow from operating activities was $210 million for the period of six months ended Jun 30, 2014 compared with cash usage of $86.6 million in the year-ago period.

Outlook

Ball Corporation expects free cash flow to exceed $550 million for full-year 2014. The company has maintained its long-term earnings per share growth goal of 10%–15%.

Our Take

Ball Corporation will continue to benefit from product launches and expansion in the emerging markets. Metal beverage packaging, Americas & Asia will benefit from the expansion of its Southeast Asia operations with the construction of a one-line plant in Myanmar, which will start up in mid-2015. Ball Corporation has also started construction at existing Oss, Netherlands, facility to increase capacity through the addition of a new line, which will start up in the second quarter of 2015.

Moreover, the company believes that there is growth potential in its Aerospace and Technologies segment. Ball Aerospace began work on a fixed-price contract for the Stalker long-range, electro-optical laser sensor system (:SLREOSS) under a contract to the NATO Seasparrow Project Office during the reported quarter.

However, uncertainty in the global economic scenario remains a headwind. Moreover, manufacturing challenges and tough volume comparisons will remain areas of concern in the second half of 2014.

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 #2 (Buy). Some better-ranked stocks in the sector include Graphic Packaging Holding Co. (GPK), MeadWestvaco Corporation (MWV) and Sealed Air Corporation (SEE). All these stocks carry a Zacks Rank #2.

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