Ball Corporation — Q1 2022 Form 10-Q
Reporting period: Three months ended March 31, 2022. Ball supplies aluminum packaging and aerospace products and services. Packaging results are seasonal, and aerospace revenue can vary with contract timing.
Financial performance and liquidity
| Metric | Q1 2022 | Q1 2021 / comparison |
|---|---|---|
| Net sales | $3.716 billion | $3.125 billion; up 19% |
| Net earnings attributable to Ball | $446 million | $200 million |
| Diluted earnings per share | $1.37 | $0.60 |
| EBIT | $610 million | $300 million |
| Reportable-segment comparable operating earnings | $395 million | $368 million |
| Operating cash flow | $(804) million | $(477) million |
| Capital expenditures | $362 million | $363 million |
Sales growth primarily reflected aluminum-price pass-through and price/mix, partly offset by currency translation. Earnings benefited from improved price/mix and a gain on the Ball Metalpack investment sale, while inflation, supply-chain constraints and higher taxes were offsets. The effective tax rate rose to 18.5% from 13.7%. The filing reports Ball-attributable net earnings equal to 12% of sales, versus 6% a year earlier.
Operating cash use included a $1.004 billion working-capital outflow, $104 million of pension contributions and a $30 million foundation donation. Management attributed working-capital pressure in part to higher aluminum prices and seasonal inventory building. Cash and cash equivalents were $437 million at quarter-end ($446 million including restricted cash).
At March 31, total interest-bearing debt was approximately $8.6 billion, versus $7.8 billion at December 31, 2021. Long-term debt was $8.265 billion and short-term debt/current maturities were $293 million. The company had approximately $1.1 billion available on committed revolving facilities and $890 million of short-term uncommitted facilities, of which $289 million was outstanding and due on demand. It was compliant with debt covenants; the maximum leverage covenant tightens from 5.0x to 4.5x on December 31, 2022.
Segment developments and changes
- North and Central America beverage packaging: Sales rose to $1.609 billion from $1.296 billion; comparable operating earnings increased to $174 million from $140 million. Volume grew 3%; growth was partly offset by inflation and supply disruption.
- EMEA beverage packaging: Sales rose to $942 million from $796 million, while comparable operating earnings were flat at $100 million. Volume grew 10%; currency translation and elevated costs offset volume and specialty-mix benefits.
- South America beverage packaging: Sales were $494 million versus $487 million; comparable operating earnings fell to $78 million from $93 million. Volume declined 21%, which management attributed to unfavorable weather and economic volatility in Brazil.
- Aerospace: Sales increased to $504 million from $424 million and comparable operating earnings to $43 million from $35 million, primarily on new program wins. Contracted backlog was $3.2 billion, versus $2.5 billion at year-end 2021; management cautions that backlog is not necessarily indicative of future results.
Outlook, risks and unusual items
- Ball sold its remaining 49% investment in Ball Metalpack for approximately $305 million, including $298 million received in cash during the quarter, and recorded a further $16 million gain from repayment of a previously reserved loan. These gains materially boosted reported earnings; the filing gives no formal earnings guidance.
- Management expects approximately $127 million of pension contributions for full-year 2022. As of March 31, the company had approximately $1.7 billion of contractually committed capital expenditures and intended to return approximately $1.75 billion to shareholders through repurchases and dividends.
- Ball suspended future investments in Russia and is pursuing a sale of its Russian beverage-can business. The business was not classified as held for sale at quarter-end. Its $435 million of net assets and $211 million of cumulative currency-translation losses are exposed to changing conditions and exchange rates; no impairment was recorded after the company’s recoverability analysis.
- Other notable items included a $30 million donation to The Ball Foundation and $9 million of currency losses associated with the Russian ruble. Management cited inflation, raw-material and logistics availability, supply-chain constraints, customer and supplier concentration, COVID-19, geopolitical conditions and currency movements as risks.
- Known environmental liabilities were estimated at approximately $26 million. Ball is involved in ordinary-course litigation, including a patent dispute remanded for further proceedings; management does not believe the disclosed matters will materially harm liquidity, results or financial condition. Indemnifications and guarantees may have no stated maximum exposure, but no material liabilities were recorded for them.
Key facts for investors to verify
- How much of reported earnings growth is repeatable after excluding the Ball Metalpack sale and related unusual items.
- Whether working-capital outflows and elevated receivables and inventory reverse, and whether operating cash flow improves.
- Progress and potential financial consequences of the proposed Russian business sale, including asset valuation and currency-translation effects.
- Execution of committed capital spending and shareholder-return plans alongside higher debt and the upcoming tighter leverage covenant.
- Whether segment volumes, especially the South America decline, and inflation and supply-chain pressures improve in subsequent quarters.