Business context and reporting period
Ball Corporation’s unaudited Form 10-Q covers the quarter and six months ended June 30, 2022. Ball supplies aluminum packaging globally and operates an aerospace business. Comparisons below are with the corresponding 2021 periods unless noted.
Key financial results
| Metric | Q2 2022 | Q2 2021 | Six months 2022 | Six months 2021 |
|---|---|---|---|---|
| Net sales | $4.134 billion | $3.459 billion | $7.850 billion | $6.584 billion |
| EBIT | $(107) million | $373 million | $503 million | $673 million |
| Net earnings attributable to Ball | $(174) million | $202 million | $272 million | $402 million |
| Diluted EPS | $(0.55) | $0.61 | $0.84 | $1.20 |
| Operating cash flow | Not separately provided for quarter | Not separately provided for quarter | $(398) million | $168 million |
| Capital expenditures | Not separately provided for quarter | Not separately provided for quarter | $819 million | $757 million |
- Q2 sales rose about 20%, primarily from aluminum-price and inflation cost pass-throughs and favorable price/mix, partly offset by currency translation. Six-month sales increased about 19%.
- Q2 net margin was approximately -4%, versus 6% a year earlier; six-month net margin was approximately 3%, versus 6%. Reported EBIT margin was approximately -2.6% in Q2 and 6.4% for the six months. Higher costs and the Russia impairment drove the deterioration.
- Cost of sales, excluding depreciation and amortization, rose to 83% of sales in Q2 and 82% for the six months, from 80% in both 2021 periods.
- Six-month operating cash flow was negative, mainly reflecting a $983 million working-capital outflow. Operating cash flow less capital expenditures was approximately negative $1.22 billion.
Balance sheet, debt and liquidity
- At June 30, cash and cash equivalents were $480 million; current assets were $6.493 billion and current liabilities $6.483 billion.
- Total interest-bearing debt was approximately $9.1 billion, up from $7.8 billion at December 31, 2021. Long-term debt was $8.847 billion and short-term debt/current maturities were $251 million.
- Ball reported $1.14 billion available under its long-term revolving credit facilities, which mature in June 2027, plus approximately $1 billion in short-term uncommitted facilities; $233 million of the latter was outstanding and due on demand. The company said liquidity was strong and expected to meet operating and debt-service needs.
- Ball complied with debt covenants. The most restrictive covenant limits the defined leverage ratio to 5.0 times; the limit changes to 4.5 times in September 2025.
Material changes and segment performance
- The $435 million non-cash impairment of the Russian business was the principal driver of the Q2 loss. The impairment included $296 million related to property and equipment, $131 million to intangibles and $8 million to lease assets.
- Ball’s sale of its remaining Ball Metalpack investment generated a $298 million gain in the first quarter, plus a $16 million gain from repayment of a previously reserved loan. A $30 million donation to The Ball Foundation also affected first-half results.
- North and Central America beverage packaging: Q2 sales increased to $1.775 billion, while comparable operating earnings fell to $164 million from $193 million; six-month earnings were $338 million versus $333 million. Higher manufacturing and inflation costs weighed on Q2.
- EMEA beverage packaging: Q2 sales were $1.133 billion and comparable earnings $129 million, versus $906 million and $124 million. Volume and specialty mix helped, partly offset by currency, supply-chain constraints and inflation.
- South America beverage packaging: Q2 sales increased to $534 million, but comparable earnings declined to $52 million from $78 million. Lower volumes and unfavorable customer/product mix in Brazil were cited.
- Aerospace: Q2 sales were $490 million and comparable earnings $36 million, versus $459 million and $34 million. Backlog was $3 billion, up from $2.5 billion at year-end; Ball cautioned that backlog is not necessarily indicative of future results.
Outlook, risks and contingencies
- No numerical earnings or sales guidance is provided in the filing. Management said operating cash flows, cash and borrowing capacity should cover ongoing needs. Ball had approximately $1.5 billion of capital expenditures contractually committed and intended to return approximately $1.0 billion to shareholders through repurchases and dividends.
- Ball is pursuing a sale of its Russian beverage-can business and has suspended future investment there. As of June 30, the business did not qualify for held-for-sale accounting. Further impairment or operating impacts remain possible amid the war, sanctions and Russian government actions.
- Inflation, raw-material and logistics costs, supply-chain constraints, customer and supplier concentration, currency movements, COVID-19 effects and interest rates remain risks. Aluminum price pass-throughs and derivatives mitigate, but do not eliminate, some cost exposure.
- In Brazil, Ball recorded a $22 million charge for increased collection risk involving a regional customer. After the charge, exposure was $37 million. Ball notified the customer of alleged breaches of a committed supply agreement and said it may pursue legal action.
- Ball estimated known environmental liabilities at approximately $26 million. It also described ongoing patent, tax, environmental and other proceedings; management did not expect the discussed matters to materially affect liquidity, results or financial condition.
- On August 4, 2022, after quarter-end, Ball announced it would cease production at its Phoenix, Arizona and St. Paul, Minnesota beverage-can facilities.
- Management concluded disclosure controls were effective and reported no material change in internal control over financial reporting during Q2.
Most important facts for investors to verify
- Whether the Russian business can be sold, its eventual proceeds and any additional impairment or currency-translation impacts.
- Whether working-capital outflows and elevated inventory and receivables reverse, and how operating cash flow compares with planned capital spending and shareholder returns.
- Debt levels, borrowing costs, covenant headroom and ongoing availability of revolving and short-term credit facilities.
- Whether packaging price increases and cost pass-throughs offset inflation, particularly in North America and South America.
- Developments in the Brazilian customer dispute and recovery of the remaining $37 million exposure.
- The financial and operational effects of the announced Phoenix and St. Paul facility closures.