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Ball (BLL) Up 1.7% Since Last Earnings Report: Can It Continue?

Zacks Equity Research

It has been about a month since the last earnings report for Ball (BLL). Shares have added about 1.7% in that time frame, outperforming the S&P 500.

Will the recent positive trend continue leading up to its next earnings release, or is Ball due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important catalysts.

Ball Corporation Q4 Earnings Lag, Sales Top Estimates

Ball Corporation reported fourth-quarter 2018 adjusted earnings of 55 cents per share, lagging the Zacks Consensus Estimate of 56 cents. The reported figure also declined 8% on a year-over-year basis.

On a reported basis, the company posted earnings of 44 cents per share compared with 45 cents per share recorded in the prior-year quarter.
Total revenues inched up 2% year over year to $2,803 million in the reported quarter. The top line surpassed the Zacks Consensus Estimate of $2,677 million.

Operational Update

Cost of sales increased 5% year over year to $2,246 million. Gross profit declined 9% year over year to $557 million. Gross margin contracted 240 basis points (bps) to 19.9%.

Selling, general and administrative expenses went up 9% year over year to $126 million. Adjusted operating income decreased 15% to $298 million from the year-ago quarter figure of $350 million. The company reported operating margin of 10.6%, down 210 bps year over year.

Segment Performance
 
The Beverage packaging’s North and Central America segment’s revenues went up 11.5% year over year to $1,113 million in the quarter under review. Operating earnings of $128 million declined 4% year over year.
 
Sales in the Beverage packaging, Europe segment came in at $624 million in the reported quarter, advancing 16% year over year. Operating earnings climbed 29% year over year to $63 million.
 
The Beverage packaging South America segment’s revenues declined 14% year over year to $472 million in the December-end quarter. Operating earnings declined to $78 million from $128 million recorded in the prior-year quarter.
 
In the Aerospace and Technologies segment, sales surged 40% year over year to $359 million. Operating earnings climbed 36% year over year to $38 million. The segment’s backlog came in at around $2.2 billion, a year-over-year improvement of 26%.

Fiscal 2018 Performance
 
Adjusted earnings per share for fiscal 2018 came in at $2.20, an improvement of 8% from the prior year. Earnings missed the Zacks Consensus Estimate of $2.21. Including one-time items, earnings in the fiscal stood at $1.29, up 23% year over year.
 
Fiscal 2018 revenues were at $11.6 billion, reflecting year-over-year improvement of 6%. Revenues beat the Zacks Consensus Estimate of $11.5 billion.
 
Financial Condition
 
Ball Corporation reported cash and cash equivalents of $721 million at the end of fiscal 2018, up from $448 million held at the end of the prior year. The company generated $1,566 million of cash from operating activities during fiscal 2018, compared with $1,478 million in the last fiscal. The company’s long-term debt decreased to $6,510 million as of Dec 31, 2018, from $6,518 million as of Dec 31, 2017.
 
During the reported quarter, Ball Corporation began production at all four new facilities of its specialty beverage-can manufacturing facility in Goodyear. However, it ceased operations at the   Chatsworth, CL, and Longview, TX, beverage-can facilities.
 
The company expects to benefit from outstanding requests for bids and proposals, and contract wins. It has approximately $5.3 billion as contracts already won, but not yet booked into current backlog which will drive growth.
 
Outlook

Ball Corporation reaffirmed comparable EBITDA guidance of $2 billion and expects free cash flow of more than $1 billion in 2019. This is backed by continued strong demand for aluminum packaging and robust aerospace backlog. In 2019, the company expects to surpass long-term target of 10% to 15% earnings per share growth goal.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed a downward trend in fresh estimates. The consensus estimate has shifted -8.76% due to these changes.

VGM Scores

At this time, Ball has a subpar Growth Score of D, however its Momentum Score is doing a bit better with a C. Charting a somewhat similar path, the stock was allocated a grade of D on the value side, putting it in the bottom 40% for this investment strategy.

Overall, the stock has an aggregate VGM Score of D. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been broadly trending downward for the stock, and the magnitude of this revision indicates a downward shift. Notably, Ball has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.



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