On Jun 3, we downgraded our recommendation on Ball Corporation (BLL), manufacturer of metal and plastic packaging for beverages and foods, from Neutral to Underperform. This was based on continued challenges for the company - weakness in Europe, pricing pressure in China, loss of market share and the impact of sequestration on the Aerospace and Technologies segment.
Ball Corporation’s first-quarter 2013 adjusted earnings declined 8% year over year to 58 per share. Total revenue remained flat at $2 billion due to lower volume.
In Europe, soft beverage can volumes, higher costs and operational setbacks related to its regional office move and higher input costs affected Ball in the quarter. Continued macro weakness in Europe will continue to weigh on Ball’s European business over the next year. Furthermore, the company continues to face pricing pressure in China given excess capacity in the region.
In the second quarter of 2012, Ball was notified by a customer about its intent to source 12-ounce beverage cans from an alternative supplier, effective Jan 1, 2013. Again in the first quarter of 2013, Ball was notified by a food can customer of their decision to shift buying from Ball to a new supplier effective 2015. This loss of share will weigh on Ball’s results as well as on investor sentiment.
Primary customers for the products and services provided by the Aerospace and Technologies segment are the U.S. government agencies or their principal contractors. The segment showed some weakness during the quarter as a result of sequestration. The implementation of sequestration in the U.S. federal government has impacted the timing of projects.
Given the weak first quarter results and a slow start to volumes in the second quarter, Ball stated that the company will be unable to achieve its long-term target of 10% to 15% diluted earnings per share growth in 2013.
Other Stocks To Consider
Other stocks in the containers industry that are currently performing well and have a good visibility include Berry Plastics Group, Inc. (BERY), Bemis Company, Inc. (BMS) and UFP Technologies, Inc. (UFPT), all carrying a Zacks Rank #2 (Buy).
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