Ball Corporation — Q2 2021 Form 10-Q
Business context and period. This unaudited quarterly report covers the three and six months ended June 30, 2021, compared with the corresponding 2020 periods. Ball supplies aluminum packaging globally and operates an aerospace business. Dollar amounts below are in millions unless stated otherwise.
Financial performance
| Metric | Q2 2021 | Q2 2020 | Six months 2021 | Six months 2020 |
|---|---|---|---|---|
| Net sales | $3,459 | $2,801 | $6,584 | $5,586 |
| EBIT | $373 | $178 | $673 | $333 |
| Net earnings attributable to Ball | $202 | $94 | $402 | $117 |
| Diluted EPS | $0.61 | $0.28 | $1.20 | $0.35 |
| Comparable diluted EPS (non-GAAP) | $0.86 | $0.65 | $1.58 | $1.26 |
| Operating cash flow | Not presented for quarter alone | $168 | $(232) |
- Q2 sales rose 24% year over year; six-month sales rose 18%. Management attributed growth mainly to higher beverage-container volumes, aluminum price pass-through, improved price/mix, and favorable foreign exchange in EMEA.
- Q2 net margin was approximately 5.8%, versus 3.4% a year earlier; six-month net margin was approximately 6.1%, versus 2.1%. These are calculated from reported net earnings attributable to Ball and sales.
- Q2 comparable operating earnings, a non-GAAP measure, were $399, up from $327; six-month comparable operating earnings were $744, up from $634. Q2 GAAP EBIT included a $12 credit for business consolidation and other activities; the comparable measure excludes such items and acquired-intangible amortization.
- Segment trends: EMEA comparable operating earnings increased to $124 from $63 in Q2; South America rose to $78 from $46; North and Central America was $193 versus $189; Aerospace was $34 versus $30. For the first half, Aerospace comparable operating earnings were $69 versus $70, while the three beverage packaging segments improved overall.
- Cost of sales excluding depreciation and amortization was 80% of sales in both comparative periods, per management. SG&A rose to $166 from $111 in Q2 and to $323 from $242 for six months, primarily reflecting personnel and other costs supporting growth investments.
Cash flow, debt and liquidity
- For the first half, operating cash flow was $168, versus cash used of $232 in 2020. Working capital consumed $496, including higher days sales outstanding; pension contributions were $167. Capital expenditures were $757, producing calculated free cash flow of approximately $(589) before other investing items.
- Investing cash use was $736, mainly due to capital spending; financing cash use was $222, including $128 of net share purchases and $99 of dividends. Cash and cash equivalents fell to $571 at June 30 from $1,366 at year-end 2020.
- Total interest-bearing debt was approximately $7.7 billion, versus $7.8 billion at year-end. The balance sheet showed $771 of short-term debt and current maturities and $6,970 of long-term debt. The $738 current portion of long-term debt largely reflects the $736 million senior note due March 2022.
- Available liquidity included approximately $1.7 billion under committed revolving facilities and approximately $1 billion of short-term uncommitted facilities, of which $33 was outstanding. Management said liquidity was strong and expected operating cash flow and available borrowing capacity to meet requirements. Ball reported compliance with debt covenants; its leverage covenant limit was 5.0 times, tightening to 4.5 times from December 31, 2022.
Changes, outlook and notable items
- Profit growth reflected higher volumes and favorable price/mix in beverage packaging, lower consolidation-related charges, and improved equity affiliate results, partly offset by higher taxes and growth-related costs. The effective tax rate rose to 37.8% in Q2 and 27.4% for the first half, driven principally by revaluation of U.K. deferred tax balances following an enacted tax-rate change.
- 2020 comparisons included substantial unusual charges: a $97 pension settlement loss, $62 goodwill impairment, and other disposition-related costs. In 2021, the company recorded a $22 gain from favorable Brazilian indirect-tax rulings and a $5 impairment charge related to the pending South Korea investment sale.
- Management expected 2021 capital expenditures to exceed $1.5 billion; approximately $1.6 billion was contractually committed at June 30. The filing did not provide an earnings or revenue forecast. Full-year pension contributions were expected to be approximately $215 million.
- Ball agreed to sell its minority-owned South Korea investment for expected proceeds of $120; $30 was received as a deposit in June, and closing was expected in Q3 2021. The filing also notes the board raised the quarterly dividend 33% to $0.20 per share, effective for the September 2021 payment.
- Risks include COVID-19 uncertainty, inflation and raw-material/logistics constraints, customer and supplier concentration, capacity expansion and startup costs, aerospace contract funding and timing, foreign exchange and tax-rate changes, and litigation/environmental exposure. Management identified approximately $27 of estimated liabilities for known environmental matters. It stated that the cited legal and environmental matters were not expected to materially adversely affect liquidity, results, or financial condition.
Most important facts for investors to verify
- Whether reported volume, pricing and mix improvements are sustainable and how capacity constraints, inflation, and expansion costs affect beverage packaging margins.
- Execution and returns on the elevated capital program, including the expected 2021 spending above $1.5 billion and committed projects.
- Working-capital and cash conversion trends, especially receivables and days sales outstanding, alongside cash balances and use of factoring programs.
- Debt maturity management around the March 2022 note, covenant headroom, and the impact of the covenant tightening in 2022.
- Tax-rate volatility, resolution and cash realization of Brazilian tax matters, and completion and proceeds from the South Korea divestiture.
- Potential changes in COVID-19, supply-chain, customer concentration, aerospace contract, litigation, and environmental exposures.