Yahoo Finance Ball Corporation (NYSE:BALL) Q3 2023 Earnings Call Transcript
Ball Corporation (NYSE:BALL) Q3 2023 Earnings Call Transcript November 2, 2023
Ball Corporation beats earnings expectations. Reported EPS is $0.83, expectations were $0.82.
Operator: Greetings, and welcome to the Ball Corporation Third Quarter 2023 Earnings Call. [Operator Instructions] As a reminder, this conference is being recorded on Thursday, November 2, 2023. I would now like to turn the conference over to the Chairman and CEO, Mr. Dan Fisher. Please go ahead.
Dan Fisher: Thanks, Frank. Good morning, everyone. This is Ball Corporation's conference call regarding the company's third quarter 2023 results. The information provided during this call will contain forward-looking statements. Actual results or outcomes may differ materially from those that may be expressed or implied. Some factors that could cause the results or outcomes to differ are in the company's latest 10-K and in other company SEC filings as well as company news releases. If you do not already have our earnings release, it is available on our website at ball.com. Information regarding the use of non-GAAP financial measures may also be found in the notes section of today's earnings release. Historical financial results for the divested Russian operations are reflected in the beverage packaging EMEA segment.
See Note-1, business segment information. For a quarterly breakout of Russia's historical sales and comparable operating earnings. In addition, the release includes a summary of noncomparable items as well as a reconciliation of comparable net earnings and diluted earnings per share calculations. Before we dive into our discussion about Ball's solid third quarter earnings and cash flow performance, I would like to reference some important announcements made recently by the company. On August 17, the company announced an agreement to sell its Aerospace business to BAE Systems, Inc. for $5.6 billion in cash proceeds, achieving a premium multiple for a premium business. The transaction is subject to regulatory approvals and customary closing conditions and adjustments.
Therefore, prospective estimates for certain financial metrics provided in today's earnings release and conference call commentary exclude any potential impact of the Aerospace business sale. The process to achieve necessary regulatory approvals is underway and when appropriate, a progress announcement will be made. Also, in early September, the company announced Scott Morrison's well-deserved retirement as Ball's CFO; and then Howard Yu has assumed the role of EVP and CFO. To ensure a smooth transition and to enable a successful close to the aerospace transaction, Scott has agreed to stay on with Ball as an adviser until September of 2024. It is a pleasure to have both Scott and Howard joining me on the call today. I'll provide some brief introductory remarks and provide Howard an opportunity to introduce himself.
Scott will execute his last earnings call for Ball and discuss key financial metrics, and then we will finish up with closing comments and our outlook for the remainder of 2023 and Q&A. First, let me begin by taking a few minutes to thank Scott for his 23 years of service to Ball and his 13 years of serving as Ball's CFO. Some of you may not know that Scott has been an integral part of every Ball M&A deal since 1998. Pre-Ball, he was actually one of our outside bankers arranging the financing for the Reynolds Metals acquisition. In 2000, Scott joined Ball as our Treasurer and the rest is history. He has executed multiple transformative M&A and record-setting bond deals, successfully navigated ball through numerous economic cycles, always stepped up when called upon and he's completed 55 of these wonderful earnings calls now.
Scott is sailing off into the sunset, literally. Our company is better because of Scott Morrison and personally I am thankful to have worked with him since 2010. At my request, Scott agreed to stay on a bit longer as CFO than he originally planned. And I'm so grateful he did. Nothing like a multiyear global pandemic land wars, the steepest rise in interest rates and inflation since the '70s and helping onboard a new CEO to finish off your incredibly successful career. Scott, thank you for your commitment to Ball, for being a friend, a trusted year, for being a candid mentor, a leader who surrounded himself with a capable team and someone who bled Ball blue. On behalf of the entire team, we wish you a long, happy and healthy retirement. I'm excited to introduce Howard Yu. Paul welcomed Howard as our new CFO in late September.
Howard joins Ball with a wealth of experience as a public company CFO, and a CV packed with global experience and fresh eyes to unlock even more value for our stakeholders. Howard's focus on continuous improvement and passion for operational excellence will help lead all for the next decade. Howard, I'll turn it over to you to say a few words.
Howard Yu: Thank you, Dan, and the entire Ball team for your warm welcome. Scott, congratulations on your retirement, and I really appreciate your insights and introductions during the first 30 day. My onboarding and immersion have been excellent, meeting with leaders across three continents, participating in the recent Board meetings and touring several manufacturing facilities. I look forward to meeting many of you in person at future investor events and industry conferences. We have a packed investor relations schedule to close out 2023, including a reception at the New York Stock Exchange on November 14. Reach out to Ann and the Investor Relations team for details about our upcoming outreach schedule. With that, I'll turn it back over to Dan.
Dan Fisher: Thanks, Howard. Our team delivered strong third quarter results, improved operational efficiencies, inflationary cost recovery, the benefits of cost-out actions and a lower effective tax rate offset the impact of tough year-over-year volume comparisons. $43 million of higher interest expense and a $14 million operating earnings headwind from the Russian sale. I'm proud to say that our team did an excellent job of managing both costs working capital and isolated volatility across supply chain partners in our packaging and aerospace businesses during the quarter. Our overweight positions to the ongoing mass beer brand demand disruption in the U.S. and past regional customer mix decisions are evident in Ball's volume performance.
Double-digit volume growth in Brazil and better than industry volume performance in EMEA helped to offset some of the North American headwind resulting in our global shipments being down 3% in the third quarter, a sequential improvement versus second quarter 2023, which was down 5%. Moving forward, our actions to tighten supply demand domestically, lower costs, improve operational efficiencies, leverage the sustainability attributes of our innovative aluminum packaging portfolio and our ability to lean into our well-capitalized low-cost plant assets will position Ball to win commercially and improve returns on invested capital. In addition, our actions to unlock value via the announced sale of our Aerospace business and utilize net proceeds to rapidly leverage in the range of three times, strengthen the balance sheet and return substantial value to shareholders via share repurchases and dividends will provide financial flexibility and drive value creation now and in the years to come.
I would also like to extend my gratitude to our employees for working with the utmost level of respect, care and concern for one another while adapting to the recent company decision to sell Aerospace and further reduce fixed costs across our plant network. We're beginning to see some sequential improvement in our global beverage shipments, particularly in Brazil, as we head into their busy summer selling season. Given the current in-consumer demand trends in North America and EMEA, we will continue to run the business for cash and with an eye on reducing fixed costs and being fit for the future in the current macroeconomic environment. In our Aerospace and Aluminum Aerosol Businesses, demand for our products and technologies continues to grow.
In Aerospace, our backlog and one not booked backlog both increased. And in our Global Aluminum Aerosol Business, third quarter shipments increased 10.4%. Our growing extruded aluminum business continues to serve new categories and offer reuse refill bottle innovations to a broader set of customers and occasions, emphasizing aluminum over other substrates. Very late in the quarter and as mentioned in the press release, Ball experienced a fire at its Verona, Virginia aluminum slug manufacturing facility, which is part of our extruded aluminum aerosol business. We are thankful that all plant personnel were evacuated safely during the incident and that no injuries occurred while first responders extinguish the blaze. Unfortunately, the fire damaged 95% of the plant's equipment and the structure is a complete loss.
The extruded aluminum team continues to support the well-being of our colleagues and it's also working very hard to try to meet our customers' demand from our remaining global aluminum slug facilities. Insurance coverage will handle the majority of the financial impact. However, we have determined that going forward, we will be unable to operate at the current site. Employees and key stakeholders were notified of this decision yesterday evening. Consistent with our prior commentary, we remain positioned to deliver on our cash flow, deleveraging and return of value to shareholder goals. Based on our current expectations for end consumer demand trends in EMEA and North America, and other activities and items referenced on today's call, we anticipate growing comparable diluted EPS low to mid-single digits in 2023 and look forward to discussing our growth targets for 2024 on our February earnings call.
We appreciate the work being done across the organization and extend our well wishes to our employees, customers, suppliers stakeholders and everyone listening today. With that, for the last time, I'll turn it over to Scott.
Scott Morrison: Thanks, Dan. Third quarter 2023 comparable diluted earnings per share were $0.83 versus $0.75 in the third quarter of 2022. Third quarter sales decreased compared to the same period in 2022, primarily due to the pass-through of lower aluminum prices, lower volumes in the sale of our Russian business in the third quarter of 2022, offset by the pass-through of inflationary costs and currency translation. In the third quarter, comparable net earnings increased compared to the same period in 2022 primarily due to the contractual pass-through of inflationary costs, a lower tax rate, fixed cost savings and benefits of prior year SG&A cost-out initiatives, offsetting notably higher interest expense, the headwind from the sale of our Russian business in the third quarter of 2022 and lower volumes.
To reiterate our prior earnings call commentary, we have proactively managed supply demand across our system of plants and significantly reduced raw and finished goods inventory. Including our most recent actions to close Kent, permanently ceased plans to build North Las Vegas and defer the Concord facility into 2028. North America supply-demand has tightened up significantly, and we are lowering costs across our well-capitalized plant network. As a result, we are positioned to improve returns on invested capital, deliver our customers' pack size and reclosability innovation at scale across a national footprint. And in future years, when end customer demand inflects more favorably utilize the operational efficiencies we are achieving now to serve our customers' future growth without spending significant growth capital.
In EMEA, the business has successfully lapped its last quarter of Russian business sale headwinds and is on track in 2023 to fill the $86 million of comparable operating earnings hole from the business sale. The team continues to operate at a high level as they navigate varying consumer and demand conditions, particularly in the U.K. In South America, our volumes increased 14.1% in the quarter as we teed up on our prior earnings call, regional product mix and the volatility in Argentina weighed on segment earnings during the quarter. The busy fourth quarter summer selling season is underway and segment earnings are anticipated to inflect very favorably in the fourth quarter. As we sit here today, some very consistent commentary and key metrics, we ended third quarter in a very solid liquidity position with approximately $3 billion in cash and committed credit facilities.
Cash on hand will be used to address the mid-November bond maturity. 2023 CapEx will be in the range of $1.2 billion, driven by cash outflows related to prior year's projects. 2024 CapEx is targeted to be much lower than and in the range of GAAP DNA levels. We anticipate generating free cash flow of approximately $750 million in 2023 and our 2023 full year effective tax rate on comparable earnings is expected to be in the range of 17% to 18%. For clarity, it's important to note that an R&D tax credit benefited our third quarter ETR, so modeling the fourth quarter ETR in the low 20% range is appropriate. Full year 2023 interest expense is expected to be a touch higher than what we said last quarter in the range of $460 million. Full year 2023 corporate undistributed costs recorded in other nonreportable will be in the range of $75 million we had previously said $80 million.
And taking into account demand trends experienced so far in the fourth quarter, fourth quarter comparable operating earnings are on track to be consistent with third quarter results. We continue to expect year-end 2023 net debt to comparable EBITDA to trend in the range of 3.7 times. And following the receipt of net proceeds from the Aerospace sale, we intend to drive leverage in the range of three times. Last week, Ball declared its quarterly cash dividend. And as Dan mentioned, reducing leverage and getting back to share repurchases are top of mind. As I wrap up my comments, I want to express what a privilege it has been to be part of Ball for so long. Thank you again for all your banter on the 55 earnings calls I've shared with Dave, Ray, John and Dan over the years.
I'm pretty sure you won't miss me, and it's great to be leaving the company and you with in great hands of Dan, Howard and the team. With that, I'll turn it back to you, Dan.
Dan Fisher: Thanks, Scott. We continue to believe that the actions we have taken in 2023 and will continue to execute in 2024 and beyond will improve earnings, generate cash flow enable low-carbon best value innovative aluminum packaging offerings on a global scale and will expand shareholder value creation for many years to come. Thank you to everyone listening today. And with that, Frank, we're ready for questions.
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