Ball Corporation — Q2 2023 Form 10-Q
Reporting period: Three and six months ended June 30, 2023; filing signed August 3, 2023. Ball supplies aluminum packaging globally and operates an aerospace and related technologies business. Figures below are in U.S. dollars; financial statement amounts are in millions unless stated otherwise.
Financial performance and position
- Q2 revenue: $3.566 billion, down 13.7% from $4.134 billion. First-half revenue: $7.055 billion, down 10.1% from $7.850 billion.
- Q2 earnings: Net earnings attributable to Ball were $173 million, or $0.55 per diluted share, versus a loss of $174 million, or $0.55 per share, a year earlier. First half: $350 million, or $1.10 per diluted share, versus $272 million, or $0.84.
- Operating results: Earnings before interest and taxes were $321 million in Q2 versus a $107 million loss; first-half EBIT was $648 million versus $503 million. Q2 and first-half net margins were approximately 4.9% and 5.0%, respectively; these are calculated from reported attributable earnings and sales.
- Cash flow: First-half operating cash flow was $361 million, compared with cash used of $398 million in 2022. Working capital used $325 million. Capital expenditures were $608 million, so operating cash flow was $247 million below capex. Investing cash outflow was $604 million; financing cash inflow was $644 million.
- Balance sheet and liquidity: At June 30, cash and equivalents were $955 million ($968 million including restricted cash), current assets $5.435 billion, and current liabilities $6.926 billion. Total debt was reported by management at $9.81 billion, versus $9.00 billion at year-end 2022. Long-term debt on the balance sheet was $7.507 billion.
- Borrowing capacity: $1.69 billion was available under committed revolving facilities; approximately $861 million of short-term uncommitted facilities was available. Ball said it could borrow an additional $1.91 billion under these facilities without violating existing covenants, and reported compliance with its leverage covenant.
Material changes and segment results
- Lower packaging volumes, lower aluminum prices passed through to customers, currency translation and the prior-year Russia business contributed to lower sales. Ball sold its Russian beverage packaging business in Q3 2022.
- Q2 2022 included a $435 million impairment of Russian long-lived assets. This was a major reason reported earnings improved in Q2 2023; the comparison also reflects inflation-cost pass-through, production rightsizing savings and lower depreciation. Higher interest expense and lower volumes partially offset these factors.
- Q2 comparable operating earnings by segment: North and Central America $175 million (up $11 million); EMEA $98 million (down $31 million); South America $30 million (down $22 million); Aerospace $54 million (up $18 million). Packaging segment sales declined, while aerospace sales increased modestly.
- Interest expense rose to $115 million in Q2 from $70 million and to $228 million in the first half from $139 million. Management attributed the increase in borrowing cost partly to higher average interest rates.
- May 2023 financing: Ball issued $1.00 billion of 6.00% notes due 2029 and repaid $800 million of revolver borrowings. First-half share repurchases were $3 million, versus $578 million a year earlier.
Outlook, risks and notable items
- The filing provides no numerical full-year revenue or earnings guidance. Management said cash from operations, cash on hand and available borrowing capacity are expected to meet operating, debt-service, dividend and capital-spending needs.
- Management expected approximately $33 million of pension contributions and approximately $250 million of shareholder returns through dividends for 2023. Contracted capital expenditures were approximately $415 million at June 30. Aerospace backlog was $2.56 billion, down from $2.97 billion at December 31, 2022; the filing cautions that backlog is not necessarily indicative of future results.
- Management cited persistent inflation, interest rates, possible recession, supply-chain and demand uncertainty, and the Russia-Ukraine conflict and related sanctions. Customer, supplier and product concentration could amplify disruptions. Packaging results are seasonal, and aerospace revenue depends on contract timing, funding and awards.
- Ball identified exposure to commodity, currency and interest-rate movements and uses contract pricing and derivatives to manage these risks; it cautioned that these measures may not fully succeed. The UK enacted minimum-tax legislation effective for Ball in 2024; the company was evaluating its potential impact.
- Environmental liabilities for known and estimable matters were approximately $23 million. Ball described ongoing litigation and tax and environmental proceedings, but said identified matters were not expected to materially affect liquidity, results or financial condition. On August 2, 2023, after quarter-end, a court granted Ball summary judgment finding relevant Crown patents invalid for indefiniteness.
- Management reported effective disclosure controls and no material change in internal control over financial reporting during Q2.
Investor verification points
- Assess how much of the earnings improvement reflects the absence of the 2022 Russia impairment versus current operating performance, and track packaging volumes and segment margins.
- Reconcile debt and near-term maturities with cash generation, especially the $2.245 billion of short-term debt and current long-term debt shown on the balance sheet and the reported $9.81 billion of total interest-bearing debt.
- Monitor working-capital demands, capex, factoring capacity and supplier-finance balances; confirmed supplier-finance obligations were $488 million at June 30, classified as accounts payable.
- Track refinancing costs and covenant headroom, as well as the effect of interest rates, currency and commodity hedges on earnings and cash flow.
- Review the pace and costs of North American facility closures and EMEA start-ups, the South American volume and mix trends, and aerospace contract awards and backlog conversion.
- Follow the Crown patent ruling and other environmental, tax and legal matters, plus the potential 2024 impact of minimum-tax legislation.