Ball Corporation — Q1 2023 Form 10-Q
Reporting period: Three months ended March 31, 2023; comparisons are with Q1 2022 unless noted. Ball supplies aluminum packaging and aerospace products and services. All dollar amounts are in millions unless stated otherwise.
Financial performance and position
- Revenue: Net sales were $3,489, down 6% from $3,716. The company attributed the decline principally to lower volumes, the 2022 sale of its Russian beverage-can business, currency translation and lower aluminum-price pass-throughs.
- Earnings and margins: Earnings before interest and taxes (EBIT) were $327, versus $610; net earnings attributable to Ball were $177, versus $446. Diluted EPS was $0.56, versus $1.37. Net earnings attributable to Ball were 5% of sales, versus 12%. The comparison was affected materially by $281 of business-consolidation and other income in Q1 2022, primarily the gain on the Ball Metalpack investment sale; Q1 2023 recorded $20 of charges, primarily facility closure costs.
- Segment comparable operating earnings: North and Central America beverage packaging $183 (up from $174); EMEA $73 (down from $100); South America $50 (down from $78); aerospace $60 (up from $43). Segment sales were lower in each packaging region and slightly higher in aerospace.
- Cash flow and investment: Operating cash outflow was $275, compared with $804 outflow in Q1 2022; working capital outflows were $686, largely from accounts payable. Investing cash outflow was $336, including $343 of capital expenditures. Financing provided $649, including $700 of net borrowings and $63 of dividends. Cash and cash equivalents ended at $572.
- Debt and liquidity: Total interest-bearing debt was $9.72 billion, up from $9.00 billion at year-end 2022; balance-sheet short- and long-term debt totaled $9.68 billion, with the difference reflecting debt-related presentation details. Interest expense increased to $113 from $69; average borrowing cost rose to 4.8% from 3.3%. At quarter-end, $890 was available under committed revolving facilities and approximately $1.02 billion under short-term uncommitted facilities, of which $153 was drawn. Ball reported covenant compliance; its leverage covenant limit was 5.0 times. Current assets were $5,507 versus current liabilities of $7,220.
- Other measures: The effective tax rate was 19.2%, versus 18.5%. Backlog in aerospace was $2.77 billion, compared with $2.97 billion at December 31, 2022.
Material changes and management commentary
- Packaging results reflected weaker volumes and regional mix. Ball cited fixed-cost savings from production rightsizing, cost-out initiatives and inflation pass-throughs as offsets. Aerospace earnings benefited from new program wins, backlog performance and favorable operations.
- Ball ceased production at its St. Paul, Minnesota facility in Q1, following the Phoenix closure in Q4 2022, and announced a planned Wallkill, New York closure. It also cited the prior closure of a facility in Santa Cruz, Brazil.
- Revised useful-life estimates reduced Q1 2023 depreciation by approximately $25 ($19 after tax, or $0.06 per diluted share) versus the prior estimates.
- Management said available cash, operating cash flow and borrowing capacity are expected to meet ongoing operating needs, debt service, dividends and planned capital expenditures. It planned approximately $250 of shareholder dividends for full-year 2023 and reported approximately $526 of contractually committed capital expenditures at March 31. No earnings-per-share guidance is provided in the supplied filing text.
- Multi-year contracts outstanding at March 31 had $2,687 of allocated remaining performance obligations, with $1,370 expected to be recognized in the next twelve months.
Risks, contingencies and unusual items
- Management highlighted inflation, interest rates, recession risk, supply-chain disruption, changing demand, and the Russia-Ukraine conflict and related sanctions. Customer and supplier concentration may amplify these risks; actual results may differ from estimates affected by these conditions.
- Environmental matters had estimated known liabilities of approximately $26. Ball disclosed ongoing litigation and tax matters, including a patent dispute and Brazilian assessments; management did not expect the identified matters to materially affect liquidity, results or financial condition. A Brazilian customer repayment agreement covers a remaining $37 exposure over four years; Ball had previously recorded $18 of charges related to that customer.
- Ball recorded $20 of Q1 2023 consolidation charges, primarily facility closures. Q1 2022 included $281 of net consolidation and other income, principally the Ball Metalpack sale gain. The Russian business sale and related impairment occurred in 2022, not Q1 2023.
- Ball stated that its disclosure controls were effective and that there were no material Q1 changes to internal control over financial reporting.
Important facts for investors to verify
- Whether packaging volumes and segment earnings stabilize, particularly in EMEA and South America, and the financial effects of announced and completed plant closures.
- How working-capital movements, capital spending and borrowing affect cash generation and leverage in subsequent quarters.
- The effect of higher borrowing costs and upcoming debt maturities, including the $1,000 senior note due November 2023 and euro-denominated notes due March 2024.
- Whether the planned 2023 dividends and capital expenditures remain consistent with liquidity and debt-covenant capacity.
- Developments in the disclosed legal, environmental and customer-credit matters, and any change in management’s stated assessment of their materiality.