Ball Corporation 2019 Form 10-K Summary
Business context and reporting period
Ball is a global aluminum packaging supplier, with an aerospace business serving government and commercial customers. This filing covers the fiscal year ended December 31, 2019; figures are annual unless identified as fourth-quarter results. Packaging represented 87% of sales and aerospace 13%. Approximately half of consolidated sales came from outside the U.S.
Financial performance and liquidity
| Metric | 2019 | 2018 |
|---|---|---|
| Net sales | $11.474 billion | $11.635 billion |
| EBIT | $932 million | $935 million |
| Net earnings attributable to Ball | $566 million | $454 million |
| Diluted EPS | $1.66 | $1.29 |
| Comparable diluted EPS (non-GAAP) | $2.53 | $2.20 |
| Operating cash flow | $1.548 billion | $1.566 billion |
| Capital expenditures | $598 million | $816 million |
| Free cash flow (non-GAAP) | $950 million | $750 million |
| Interest-bearing debt and capital leases | $7.817 billion | $6.729 billion |
Gross profit was $1.775 billion, or about 15.5% of sales; EBIT margin was about 8.1% and net earnings attributable to Ball were about 4.9% of sales. Cost of sales excluding depreciation and amortization was 80% of sales in both years. The effective tax rate fell to 11.7% from 29.2%.
Cash and cash equivalents were $1.798 billion at year-end, compared with $721 million a year earlier. Current assets were $4.884 billion versus current liabilities of $5.577 billion. Ball reported approximately $1.7 billion available under committed revolving facilities, plus short-term uncommitted facilities; it was in compliance with debt covenants. The current portion of long-term debt was $1.454 billion.
Fourth-quarter 2019 sales were $2.719 billion, net earnings attributable to Ball were $160 million, and diluted EPS was $0.48. Fourth-quarter 2018 comparatives were $2.803 billion, $151 million, and $0.44, respectively.
Material changes versus 2018
- Sales declined $161 million (about 1.4%), mainly due to business divestitures, lower aluminum pass-through prices, the end of a South American sales agreement, and unfavorable European currency translation. Higher can volumes, pricing, and aerospace sales partly offset the decline.
- Net earnings attributable to Ball increased $112 million (about 25%); comparable diluted EPS increased 15%. Higher can volumes and prices, aerospace growth, lower SG&A, and lower tax expense contributed. Higher interest and consolidation costs, North American manufacturing inefficiencies, and unfavorable scrap rates were offsets.
- Operating cash flow decreased $18 million, primarily from higher pension contributions. Lower capital spending helped lift free cash flow to $950 million.
- Debt increased about $1.1 billion. Ball issued €1.3 billion of euro-denominated notes in November 2019 and refinanced its credit facilities; it redeemed $1 billion of notes and €400 million of notes in January 2020.
- Ball repurchased $945 million of shares, net of issuances, and paid $0.55 per share in dividends, up from $0.40 in 2018.
Outlook, commentary, risks and unusual items
- Management estimated 2020 operating cash flow of approximately $1.4 billion, capital expenditures of about $800 million, and free cash flow of about $600 million. Approximately $560 million of capital expenditures was contractually committed at year-end. Ball said cash would support growth investment, dividends, buybacks, debt service, and qualifying acquisitions.
- Ball’s long-term financial strategy targets 10%–15% annual growth in comparable diluted EPS, alongside higher free cash flow and EVA dollars. This is a long-term objective, not specific 2020 EPS guidance.
- Aerospace contracted backlog rose to $2.5 billion from $2.2 billion; $1.5 billion was expected to be recognized as 2020 revenue. Government funding delays, cancellations, contract estimates, and fixed-price cost overruns remain risks.
- Loss of a major customer in Saudi Arabia prompted $64 million of non-cash asset impairment charges in 2019. No goodwill impairment was recorded for the AMEA reporting unit at that time, but Ball said a reorganization of reporting units could lead to a goodwill impairment in the first quarter of 2020.
- Other notable items included $244 million of business consolidation and other costs, including losses on the China beverage packaging and Argentina steel aerosol sales, and the Saudi impairment. A $57 million gain related to Brazilian indirect-tax claims partly offset costs; further recoveries could be material but were not estimable.
- Principal risks include significant leverage, customer and supplier concentration, competition from plastic and glass packaging, raw-material availability and pricing, currency movements, manufacturing start-up and efficiency issues, environmental and legal exposures, pension assumptions, and geopolitical or regulatory changes. Ball estimated known environmental liabilities of about $29 million and did not expect identified legal matters to materially affect its financial condition, liquidity, or results.
- The auditor issued unqualified opinions on the financial statements and internal controls. Management reported effective disclosure controls and internal control over financial reporting, with no material weaknesses.
Most important facts for investors to verify
- Whether 2020 operating cash flow, capital expenditure, and free-cash-flow estimates were achieved, and how much cash remained after dividends, repurchases, and debt service.
- Debt maturities and refinancing progress, leverage covenant headroom, and the effect of higher debt and interest expense.
- Whether the Saudi customer loss, AMEA reorganization, or other developments resulted in additional impairment charges, particularly against goodwill.
- Whether beverage can volume and pricing gains persisted and offset divestitures, currency headwinds, and production inefficiencies.
- Developments in Brazilian indirect-tax claims, environmental matters, pension funding, and aerospace contract funding and backlog conversion.