Ball Corporation — Q1 2015 Form 10-Q
Reporting period: Three months ended March 31, 2015; unaudited. Ball supplies metal beverage, food and household packaging and aerospace and technology products and services.
Financial performance and position
| Metric | Q1 2015 | Q1 2014 / comparison |
|---|---|---|
| Net sales | $1,923.1 million | $2,006.8 million; down 4.2% |
| EBIT | $125.9 million | $217.4 million |
| Net earnings attributable to Ball | $20.7 million | $93.5 million |
| Diluted EPS | $0.15 | $0.65 |
| Operating cash flow | $(180.5) million | $(136.2) million |
| Capital expenditures | $105.5 million | $61.4 million |
- Reported net margin was 1.1%, versus 4.7% a year earlier. Cost of sales excluding depreciation and amortization was 81.2% of sales, compared with 80.4%.
- Management’s non-GAAP comparable net earnings were $96.8 million, or $0.69 per diluted share, versus $117.3 million, or $0.81, in Q1 2014. Comparable EBIT was $177.9 million versus $217.4 million.
- Cash and equivalents were $228.8 million at quarter-end, up from $191.4 million at December 31, 2014. Total debt was $3.50 billion and net debt was $3.27 billion. Approximately $1.7 billion remained available on the revolving facility; $227.2 million was outstanding on short-term uncommitted facilities.
- Current assets were $2.47 billion and current liabilities $2.04 billion. Total shareholders’ equity was $1.15 billion, down from $1.24 billion at year-end.
- Comprehensive loss attributable to Ball was $99.4 million, including a $139.2 million foreign-currency translation loss.
Changes versus the prior comparable period
- Sales declined mainly because of unfavorable foreign exchange in Europe and lower North American metal food container volumes; higher specialty beverage volumes partly offset the decline.
- Europe beverage packaging sales fell to $379.2 million from $450.2 million and segment earnings to $26.9 million from $54.3 million, principally reflecting currency effects and higher costs. Americas and Asia beverage sales rose to $1,023.0 million, while segment earnings were nearly flat at $122.7 million.
- Metal food and household packaging sales declined to $308.3 million from $341.1 million, and segment earnings to $30.0 million from $33.2 million, primarily due to lower volumes following a customer shift and adverse currency effects. Aerospace and technologies sales and segment earnings also declined, to $214.8 million and $20.7 million, respectively.
- Operating cash outflow increased by $44.3 million year over year, with management citing lower earnings and unfavorable working-capital changes. Investing outflow rose to $120.5 million, including higher capital spending and the Sonoco facility acquisition.
Outlook, unusual items and risks
- Management expected a full-year 2015 effective tax rate of approximately 27% and capital expenditures of approximately $400 million; about $165 million was contractually committed at March 31. Contributions to defined benefit plans were expected to be insignificant for 2015, excluding approximately $18 million of payments to unfunded German plans.
- Ball’s proposed acquisition of Rexam was valued at approximately £4.3 billion ($6.6 billion) based on stated reference prices. Completion was expected in the first half of 2016, subject to shareholder and regulatory approvals. A £3.3 billion committed bridge facility was arranged for the cash consideration and related costs. Break payments to Rexam could range from £43 million to £302 million, depending on the triggering event.
- Q1 included $52.0 million of business consolidation and other charges, including $20.2 million of Rexam-related professional and other costs and a $27.7 million loss on currency collars and options. Debt refinancing and other costs were $59.9 million, including redemption premiums and financing-cost write-offs. The lower reported tax rate of 1.8% reflected discrete charges; it should not be taken as the full-year rate.
- Management described liquidity as strong and said operating cash flows and borrowing capacity were expected to cover operating needs, debt service, dividends, planned capital spending and the proposed acquisition. The company was in compliance with debt covenants at quarter-end.
- Key risks include acquisition approvals, financing and execution; foreign-exchange and interest-rate exposure; customer and supplier concentration; commodity costs; seasonal working-capital needs; and variable government contract funding and timing. The filing also describes ordinary-course litigation and environmental matters, including the Lowry Landfill and Lower Duwamish sites; management did not expect these matters to materially affect Ball, while noting outcomes cannot be assured.
- A 10% decline in sterling against the U.S. dollar and euro was estimated to produce an approximately $184 million unrealized pre-tax loss on acquisition-related derivatives; a 10% strengthening was estimated to produce an approximately $204 million gain. The filing states purchase-price changes would offset this exposure. Actual market movements may differ from the sensitivity scenarios.
Investor verification priorities
- Confirm the proposed Rexam transaction’s approvals, timing, final consideration and funding terms, and assess the stated break-payment conditions.
- Reconcile reported earnings with comparable earnings, particularly the acquisition-related currency derivative loss, business costs and debt-redemption charges.
- Monitor operating cash flow and working capital, including receivables, inventory and payable days, alongside planned capital expenditures.
- Track debt levels, revolver availability, covenant headroom and financing costs as the acquisition process proceeds.
- Review segment trends—especially European beverage packaging and North American food-container volumes—and aerospace backlog, which fell to $714 million from $765 million at year-end.