Ball Corporation Q1 2009 Filing Summary
Business Context and Reporting Period
This Form 10-Q covers the quarterly period ended March 29, 2009. Ball Corporation is a leading global supplier of metal and plastic packaging for beverage, food, and household products, as well as an aerospace and technologies provider. The company operates five reportable segments: Metal Beverage Packaging (Americas & Asia, Europe), Metal Food & Household Products Packaging (Americas), Plastic Packaging (Americas), and Aerospace & Technologies.
Key Financial Metrics
| Metric ($ in millions) | Q1 2009 | Q1 2008 |
|---|---|---|
| Net Sales | $1,585.6 | $1,740.2 |
| Net Earnings (Attributable to Ball) | $69.5 | $83.8 |
| Earnings Per Share (Diluted) | $0.73 | $0.85 |
| Earnings Before Interest and Taxes (EBIT) | $126.2 | $153.4 |
| Cash Used in Operating Activities | ($307.8) | ($214.6) |
| Total Debt (Short-term + Long-term) | $2,659.4 | $2,410.1 |
| Cash and Cash Equivalents | $53.1 | $89.9 |
Note: Total Debt calculated as Short-term debt ($302.3M) + Long-term debt ($2,357.1M) for Q1 2009.
Material Changes vs. Prior Period
- Revenue Decline: Net sales decreased 9% year-over-year, driven by volume declines in the Americas and Asia beverage segment (down 12%) and the Europe beverage segment (down 15%).
- Profitability Pressure: Net earnings dropped 17% to $69.5 million. The Metal Beverage Americas & Asia segment earnings fell 44% (excluding consolidation costs) due to volume declines and higher cost inventory.
- Segment Performance: The Metal Food & Household Products Packaging segment was a bright spot, with earnings rising to $49.6 million from $14.8 million, primarily due to lower inventory costs carried into 2009.
- Working Capital: Cash used in operating activities increased significantly to $307.8 million, attributed to a rise in receivables and lower payables.
- Debt Levels: Interest-bearing debt increased by approximately $249 million to $2.66 billion, primarily to fund seasonal working capital needs.
Guidance, Outlook, and Risks
- Capital Spending: Management estimates 2009 capital spending to be less than $250 million, a reduction from 2008, to focus on reducing net debt.
- Plant Closures: The company announced the permanent cessation of operations at two PET plastic packaging plants (Watertown, WI, and Baldwinsville, NY) in Q2 and Q3 2009. A pretax charge of approximately $24 million is expected in Q2 2009.
- Business Consolidation: A $5 million pretax charge was recorded in Q1 2009 for the closure of the Kansas City metal beverage plant. Total consolidation costs since Q4 2007 have reached $101.7 million.
- Liquidity: The company maintains approximately $228 million in available committed revolving credit facilities and $333 million in uncommitted short-term facilities. Management expects liquidity to meet operating and debt service requirements.
- Risks: Key risks include the global credit crisis, customer concentration, raw material price volatility (aluminum, steel, resin), and foreign currency fluctuations. A hypothetical 10% adverse change in commodity prices could reduce net earnings by $7 million.
Investor Verification Checklist
- Working Capital Trends: Verify the sustainability of the $307.8 million cash outflow from operations and the increase in receivables ($691.5M vs $507.9M prior year).
- Debt Reduction Strategy: Monitor the execution of the plan to reduce net debt given the increase in total debt to $2.66 billion.
- Upcoming Charges: Confirm the timing and impact of the anticipated $24 million pretax charge related to the Q2/Q3 plastic plant closures.
- Volume Recovery: Assess whether volume declines in the core beverage packaging segments stabilize as the economic environment improves.
- Commodity Hedging: Review the effectiveness of pass-through pricing mechanisms and derivative hedges in mitigating raw material cost volatility.