Ball Corporation 10-Q Summary: Period Ended June 28, 2009
Business Context and Reporting Period
This Form 10-Q covers the quarterly period ended June 28, 2009, and the six months ended on that date. Ball Corporation is a leading global supplier of metal and plastic packaging for the beverage, food, and household products industries, as well as a provider of aerospace and technology services. The company operates through five reportable segments: Metal Beverage Packaging (Americas & Asia and Europe), Metal Food & Household Products Packaging (Americas), Plastic Packaging (Americas), and Aerospace & Technologies.
Key Financial Metrics
| Metric ($ in millions) | Three Months Ended June 28, 2009 |
Three Months Ended June 29, 2008 |
Six Months Ended June 28, 2009 |
Six Months Ended June 29, 2008 |
|---|---|---|---|---|
| Net Sales | $1,926.2 | $2,080.3 | $3,511.8 | $3,820.5 |
| Net Earnings (Attributable to Ball) | $133.3 | $100.0 | $202.8 | $183.8 |
| Diluted EPS | $1.40 | $1.02 | $2.14 | $1.87 |
| Earnings Before Interest and Taxes (EBIT) | $201.4 | $175.6 | $327.6 | $329.0 |
| Operating Cash Flow (Six Months) | $9.2 (2009) vs. $(69.6) (2008) | |||
| Total Debt (Short + Long Term) | $2,373.3 (June 28, 2009) | |||
| Cash and Cash Equivalents | $59.5 (June 28, 2009) |
Material Changes vs. Prior Period
- Revenue Decline: Net sales decreased 7.4% in the quarter and 8.1% year-to-date compared to 2008. This was driven by lower sales volumes in the Americas and Asia beverage segment (down 5% quarterly) and the Plastic Packaging segment (down 10% quarterly), as well as foreign currency translation impacts in Europe.
- Profitability Increase: Despite lower sales, Net Earnings increased 33% in the quarter and 10% year-to-date. This improvement was primarily due to a non-operating gain of $34.8 million from the sale of a 75% stake in DigitalGlobe Inc., lower interest expenses due to reduced rates, and cost optimization measures.
- Segment Performance:
- Metal Food & Household (Americas): Earnings surged from $14.3M to $35.1M (quarterly) due to higher selling prices and lower inventory costs.
- Plastic Packaging (Americas): Reported a net loss of $4.1M for the quarter due to $11.9M in business consolidation charges related to plant closures in New York and Wisconsin.
- Aerospace: Earnings declined due to the winding down of large spacecraft programs and the absence of risk retirement gains seen in 2008.
- Debt Reduction: Total interest-bearing debt decreased by $36.8 million to $2.37 billion, reflecting a strategic focus on reducing debt net of cash balances.
Guidance, Outlook, and Risks
- Capital Spending: Management estimates 2009 capital spending to be less than $250 million, a reduction from $306.9 million in 2008, to prioritize debt reduction.
- Acquisition: On July 1, 2009, Ball announced an agreement to acquire three beverage can plants and one can end plant from AB InBev for approximately $577 million. The transaction is expected to close late in 2009 or early 2010 and is projected to be accretive to earnings in 2010.
- Restructuring: The company continues to close facilities to align capacity with market demand. An estimated pretax charge of $9 million is expected in the second half of 2009 related to the plastic packaging plant closures.
- Risks: Key risks include the global economic crisis impacting demand, volatility in commodity prices (aluminum, steel, resin), foreign currency fluctuations, and potential delays in government contract awards for the Aerospace segment.
Investor Verification Checklist
- Non-Recurring Gains: Verify the impact of the $34.8 million gain on the sale of DigitalGlobe shares on reported earnings, as this is a non-operating item.
- Restructuring Costs: Monitor the execution of plant closures in the Plastic Packaging and Metal Beverage segments and the associated cash outflows for severance and lease terminations.
- Commodity Hedging: Review the effectiveness of commodity price pass-through mechanisms and derivative hedging strategies given the volatility in aluminum and steel prices.
- AB InBev Acquisition: Track the regulatory approval status and closing timeline of the $577 million acquisition to assess integration risks and accretion timing.
- Working Capital: Analyze the significant increase in receivables ($772.7M vs $507.9M prior year) and the impact on operating cash flow.