Ball Corporation 10-Q Summary: Quarter Ended September 27, 2009
Business Context and Reporting Period
This filing is a Quarterly Report on Form 10-Q for Ball Corporation, a leading global supplier of metal and plastic packaging and aerospace technologies. The report covers the three and nine-month periods ended September 27, 2009. The company operates through five reportable segments: Metal Beverage Packaging (Americas & Asia, and Europe), Metal Food & Household Products Packaging (Americas), Plastic Packaging (Americas), and Aerospace & Technologies.
Key Financial Metrics
| Metric ($ in millions) | 3 Months Ended Sep 27, 2009 | 9 Months Ended Sep 27, 2009 |
|---|---|---|
| Net Sales | $1,969.1 | $5,480.9 |
| Net Earnings (Attributable to Ball) | $103.7 | $306.5 |
| Earnings Per Share (Diluted) | $1.09 | $3.23 |
| EBIT (Earnings Before Interest & Taxes) | $179.5 | $507.1 |
| Cash Flow from Operations | N/A (Quarterly) | $6.1 |
| Total Debt (Short-term + Long-term) | $2,785.8 | $2,785.8 |
| Cash and Cash Equivalents | $418.1 | $418.1 |
Note: Total Debt calculated as Short-term debt ($253.1M) + Long-term debt ($2,532.7M).
Material Changes vs. Prior Period
- Revenue: Net sales decreased 2% in the quarter ($1,969.1M vs. $2,008.2M) and 6% year-to-date ($5,480.9M vs. $5,828.7M) compared to 2008. Declines were driven by lower volumes in the Americas beverage segment and foreign currency translation impacts in Europe.
- Profitability: Net earnings increased 2% in the quarter ($103.7M vs. $101.9M) and 7% year-to-date ($306.5M vs. $285.7M). This improvement occurred despite lower sales, primarily due to cost reduction initiatives, plant closures, and lower freight/energy costs.
- Segment Performance:
- Metal Beverage (Americas & Asia): Earnings rose 34% quarter-over-quarter due to cost savings, despite volume declines.
- Metal Food & Household: Earnings increased significantly (76% QoQ) driven by higher selling prices passing through raw material costs.
- Plastic Packaging: Reported a net loss of $8.8M for the quarter due to business consolidation charges ($12.6M) and volume declines.
- Aerospace: Earnings declined due to the winding down of large government programs.
- One-Time Items: The 2008 year-to-date results included a $34.8M gain on the sale of a DigitalGlobe investment, which was not present in the 2009 period. Conversely, 2009 included $46.8M in business consolidation charges (plant closures and restructuring).
Guidance, Outlook, and Risks
- Capital Spending: Management estimates 2009 capital spending to be approximately $200 million, a reduction from $306.9 million in 2008, to focus on debt reduction.
- Debt Strategy: The company issued $700 million in new senior notes in August 2009 to fund the acquisition of AB InBev assets and reduce seasonal working capital debt. Management intends to use operating cash flow to reduce net debt.
- Subsequent Events:
- On October 1, 2009, Ball acquired four AB InBev plants for approximately $577 million.
- On October 23, 2009, Ball sold plastic pail assets to BWAY Corporation for $32 million.
- Risks: Key risks include the global economic recession impacting demand, volatility in raw material prices (aluminum, steel, resin), foreign currency fluctuations, and potential federal budget reductions affecting the Aerospace segment. The company utilizes hedging strategies to mitigate commodity and currency risks.
Investor Verification Checklist
- Working Capital Impact: Verify the impact of the $250 million accounts receivable sales agreement not being utilized in Q3, which inflated receivables and reduced operating cash flow to $6.1M.
- Restructuring Costs: Confirm the remaining cash outflows associated with the $40.8M balance in business consolidation reserves (plant closures in Americas and Europe).
- Debt Servicing: Assess the impact of the new $700M senior notes (7.125% and 7.375% rates) on future interest expense, which is expected to rise in Q4.
- Acquisition Integration: Monitor the integration and revenue contribution of the newly acquired AB InBev plants, expected to generate ~$680M in revenue in the first full year.
- Commodity Hedging: Review the effectiveness of aluminum and steel pass-through pricing mechanisms in maintaining margins amidst volatile raw material costs.