Ball's Earnings and Sales Miss Est.

Zacks

Ball Corporation (BLL) reported first-quarter 2013 adjusted earnings of 58 cents per share; an 8% decline from the year-ago adjusted earnings of 63 cents per share. The results also fell short of the Zacks Consensus Estimate of 64 cents.

Including charges regarding business consolidation, discontinued operations and other one-time items of 11 cents a share, the company reported earnings from continuing operations of 47 cents per share compared with the year-ago earnings of 55 cents.

Operational Update

Total revenues remained flat at $2 billion in the reported quarter compared with the year-ago quarter, due to lower volume. It narrowly missed the Zacks Consensus Estimate of $2.08 billion.

Cost of sales decreased 3% year over year to $1.64 billion in the reported quarter. Gross profit went down 2% year over year to $347.5 million. Gross margin was 17.4% in the reported quarter, flat compared with the prior-year quarter.

Selling, general and administrative expenses increased 10% to $109 million from the prior-year quarter. Adjusted operating income declined 11% to $165.7 million in the quarter compared with $186.4 million in the year-ago quarter. Consequently, operating margin contracted 80 basis points year over year to 8.3%.

Segment Performance

Metal Beverage Packaging, Americas & Asia segment reported revenues of $995.2 million in the reported quarter compared with $1 billion in the year-ago quarter. Strong demand for specialty packaging in North America offset volume declines in the 12 ounce cans. Operating earnings went down marginally 1% to $104 million in the quarter.

Sales from the Metal Beverage Packaging, Europe segment decreased 3% year over year to $403 million in the quarter. Operating earnings dropped 27% to $30.9 million in the quarter due to lower demand, unfavorable mix and higher input costs.

Metal Food & Household Products Packaging, America segment sales declined 3% to $367 million. Operating earnings were reduced by 12% to $34.7 million, driven by volume declines and higher cost inventory in the domestic tinplate operations, partly offset by an improved product mix and manufacturing performance.

In the Aerospace and Technologies segment, sales increased 15% to $231 million. Operating earnings, however, decreased 9% to $18 million in the quarter. The segment had a backlog of more than $1 billion at the end of the quarter.

Financial Condition

Cash and cash equivalents were $208 million as of Mar 31, 2013 compared with $107 million as of Apr 1, 2012. Long-term debt amounted to $3.4 billion as of Mar 31, 2013, compared with $3.1 billion as of Apr 1, 2012. Cash flow from operating activities was $325 million as of Mar 31, 2013 versus $218 million as of Apr 1, 2012.

Outlook

Ball Corp. retains its guidance of free cash flow for the full year 2013 of about $450 million as spending for certain growth investments announced but not completed in 2012 will pass into 2013. The company also maintains its long-term goal of 10% to 15% earnings per share growth.

Our View

Ball Corp. will continue to benefit from growth in its specialty beverage container business, introduction of new products, expansion in 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.     

Broomfield, Colo.-based Ball Corp., which belongs to the containers and packaging industry along with Greif, Inc. (GEF), Mobile Mini, Inc. (MINI) and Silgan Holdings Inc. (SLGN), 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 Corp. currently retains a short-term Zacks Rank #3 (Hold).
 

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