Business context and reporting period
Ball Corporation’s Form 10-K covers the fiscal year ended December 31, 2021; it is an annual filing, not a standalone fourth-quarter report. Ball supplies aluminum beverage and other packaging and aerospace products and services. Packaging represented 86% of 2021 sales and aerospace 14%. Nearly 47% of consolidated sales came from outside the U.S.
Financial and operating performance
| Metric | 2021 | 2020 |
|---|---|---|
| Net sales | $13.811 billion | $11.781 billion |
| Net earnings attributable to Ball | $878 million | $585 million |
| Diluted EPS | $2.65 | $1.76 |
| Operating cash flow | $1.760 billion | $1.432 billion |
| Capital expenditures | $1.726 billion | $1.113 billion |
| Interest-bearing debt | $7.8 billion | $7.8 billion |
- Sales rose 17% year over year, driven by higher volumes, aluminum-price pass-through, improved price/mix and favorable exchange rates. Net earnings attributable to Ball increased 50%; diluted EPS rose 51%.
- Cost of sales excluding depreciation and amortization was 80% of sales, versus 79% in 2020. Reported net margin was approximately 6.4%, versus 5.0%.
- Operating cash flow less capital expenditures was approximately $34 million, compared with approximately $319 million in 2020.
- Cash and cash equivalents were $563 million at year-end, down from $1.366 billion. Current assets were $5.223 billion and current liabilities $5.953 billion.
- About $1.7 billion was available under committed revolving credit facilities through March 2024; an additional $1 billion of short-term uncommitted facilities was available, with $12 million outstanding. Management described liquidity as strong. The company reported compliance with debt covenants.
Segment performance
- North and Central America: sales $5.856 billion, up 15%; comparable operating earnings $681 million, roughly flat. Startup costs at three new plants and supply-chain inefficiencies weighed on earnings.
- EMEA: sales $3.509 billion, up 19%; comparable operating earnings $452 million, up 28%, primarily on volume and favorable mix.
- South America: sales $2.016 billion, up 19%; comparable operating earnings $348 million, up 24%, primarily on volume and favorable mix.
- Aerospace: sales $1.911 billion, up 10%; comparable operating earnings $169 million, up 10%. Year-end backlog was $2.5 billion, including $1.3 billion expected to convert to revenue in 2022.
Material changes, outlook and management commentary
- Operating cash flow increased, but capital expenditures rose substantially and nearly matched operating cash flow. Working-capital movements reflected higher aluminum prices.
- 2021 financing included issuing $850 million of 3.125% senior notes due 2031 and redeeming $748 million of 5% notes due 2022. Share repurchases net of issuances were $719 million; dividends were $229 million.
- Business consolidation and other costs were $142 million versus $262 million in 2020. The 2021 total included a $135 million non-cash pension settlement charge and a $22 million gain from Brazilian indirect-tax rulings.
- For 2022, Ball expected capital expenditures to exceed $2 billion and intended to return approximately $1.75 billion to shareholders through repurchases and dividends. The filing gives no specific revenue or earnings forecast.
- Management cited persistent raw-material inflation and supply-chain transportation disruptions and said a broad cost-recovery program was underway. Pass-throughs may be delayed or incomplete, and some input-cost increases may not be recoverable.
- Key risks include high debt, customer and supplier concentration, aluminum and other input availability and costs, competition from alternative packaging, foreign-exchange exposure, pandemic-related disruption, and U.S. government funding and contract risks in aerospace. Fixed-price aerospace contract estimates are a critical accounting matter; cost overruns or estimate revisions could affect recognized revenue and earnings.
- Environmental and other litigation is ongoing; Ball estimated known environmental liabilities at approximately $26 million and said identified matters were not expected to materially affect its financial condition, results or liquidity. The Crown patent case was remanded for further proceedings; Ball did not expect a material adverse effect. The company reported no material weakness in internal controls, and the auditor issued unqualified opinions.
- Daniel Fisher was elected CEO effective April 27, 2022; John Hayes was to transition to chairman on that date.
Important facts for investors to verify
- Whether planned 2022 price and cost recovery kept pace with inflation, logistics costs and other non-aluminum inputs.
- Whether the elevated capital-spending plan delivered capacity, volume growth and returns, while preserving adequate free cash flow.
- Debt-service capacity and covenant headroom, particularly as the maximum leverage covenant tightens to 4.5 times on December 31, 2022.
- Conversion and funding timing of aerospace backlog, including the portion subject to annual government funding and cost-to-complete estimates on fixed-price contracts.
- Execution and earnings effects of new plant start-ups, pension obligations and settlement charges, tax matters, and material litigation or environmental contingencies.