Ball Corporation — Q2 2014 Form 10-Q
Reporting period: Three and six months ended June 30, 2014; unaudited. Ball supplies metal packaging and aerospace and technology products and services. Packaging results are seasonal, and aerospace contract revenue can be irregular.
Financial performance
| Metric | Q2 2014 | Q2 2013 | Six months 2014 | Six months 2013 |
|---|---|---|---|---|
| Net sales | $2,291.9 million | $2,202.4 million | $4,298.7 million | $4,193.4 million |
| EBIT | $255.9 million | $203.5 million | $473.3 million | $346.5 million |
| Net earnings attributable to Ball | $153.1 million | $95.1 million | $246.6 million | $167.1 million |
| Diluted EPS | $1.07 | $0.63 | $1.72 | $1.10 |
| Operating cash flow | Not separately stated | Not separately stated | $210.0 million | $(86.6) million |
- Sales increased 4.1% in Q2 and 2.5% in the first half. Ball-attributable earnings rose 61% and 48%, respectively.
- EBIT margin was approximately 11.2% in Q2 versus 9.2% a year earlier, and 11.0% for the first half versus 8.3%.
- First-half cash from investing was $(124.1) million, including $135.3 million of capital expenditures; financing used $344.0 million. Cash declined to $155.3 million from $416.0 million at year-end.
- At June 30, total debt was $3.537 billion, including $408.0 million current debt and $3.129 billion long-term debt. Net debt was $3.382 billion. The company reported $934 million available on committed revolvers and $791 million in short-term uncommitted facilities, of which $189.9 million was drawn and due on demand.
Changes and segment results
- Growth reflected higher metal beverage volumes, aerospace program revenue, favorable European currency translation, lower depreciation, and reduced consolidation costs. Lower North American tinplate food and aerosol volumes partly offset gains.
- Americas and Asia beverage packaging sales and segment earnings increased; Europe beverage sales and earnings grew, with higher volumes, favorable currency, and lower depreciation supporting results.
- Metal food and household packaging sales and earnings declined, mainly because of lower North American tinplate volumes and weaker manufacturing performance. Aerospace and technologies earnings improved on favorable program execution and increased pension-cost recovery.
- Consolidated results include a $33.1 million pretax charge in the first half for redemption of 7.375% senior notes. Q2 2013 included $26.7 million of refinancing costs. Excluding refinancing and consolidation items, comparable diluted EPS was $1.13 in Q2 and $1.94 for the first half, versus $0.85 and $1.43.
Outlook, risks and unusual items
- Management expected a full-year 2014 effective tax rate of approximately 28% and capital expenditures of approximately $375 million; $209 million was contractually committed at June 30. Management said operating cash flow and available borrowing facilities should meet operating, debt service, dividend and investment needs.
- Funded defined-benefit plan contributions were expected to total approximately $65 million for 2014; payments to unfunded German plans were expected to be approximately $23 million. Aerospace contracted backlog was $858 million at June 30, down from $938 million at year-end; management cautioned that backlog is not necessarily indicative of future operations.
- Ball identified errors in deferred tax calculations originating in 2007 and earlier, principally involving Canadian items. Management deemed prior-period misstatements not material, but said correcting them would be material to 2014 earnings; 2013 comparative statements were revised, and 2013 and 2012 annual statements were to be revised in the 2014 Form 10-K.
- Risks include customer and supplier concentration, packaging demand and pricing, raw-material and energy costs, competition and industry capacity, foreign exchange, pension assumptions, and funding and timing of aerospace contracts. The filing describes environmental, patent, tax and other proceedings; management did not expect the identified matters to have a material adverse effect, but outcomes remain uncertain.
- Debt covenants restrict, among other things, leverage and interest coverage; Ball reported compliance at June 30. The filing cites minimum interest coverage of 3.50 and maximum leverage of 4.00 under the applicable definitions.
Important facts for investors to verify
- Review the deferred-tax correction and revised comparative disclosures, including the planned 2014 Form 10-K revisions.
- Assess whether first-half operating cash flow and working-capital improvement are sustainable, given the substantial cash decline and share repurchases.
- Track debt, short-term borrowings due on demand, revolver availability, and covenant headroom.
- Monitor North American food and aerosol packaging volumes, European beverage performance, and aerospace backlog, funding and contract execution.
- Compare actual full-year tax rate, capital expenditures and pension contributions with management’s estimates.