Ball Corporation — Q3 2023 Form 10-Q
Reporting period: Three and nine months ended September 30, 2023; comparisons are with the same 2022 periods unless noted. Ball supplies aluminum packaging globally and, during the quarter, agreed to sell its aerospace business to BAE Systems.
Financial performance
- Q3 revenue: $3.571 billion, down 9.6% from $3.951 billion. Nine-month revenue: $10.626 billion, down 10.0% from $11.801 billion. Ball attributed declines mainly to lower aluminum pass-through prices, lower volumes, and the prior-year Russia business sale.
- Net earnings attributable to Ball: $203 million in Q3 versus $392 million; $553 million for nine months versus $664 million. Diluted EPS was $0.64 versus $1.24 for Q3 and $1.74 versus $2.07 for nine months. Reported net margins were 6% versus 10% for Q3 and 5% versus 6% year to date.
- Operating costs and interest: Cost of sales excluding depreciation was 81% of sales in both 2023 periods, compared with 83% in 2022. Interest expense was $122 million in Q3 and $350 million year to date, up from $79 million and $218 million, respectively. Effective tax rates were 1.0% for Q3 and 12.7% year to date.
- Segment comparable operating earnings, Q3 / nine months: North and Central America $196 million / $554 million; EMEA $103 million / $274 million; South America $61 million / $141 million; Aerospace $46 million / $160 million. Year-to-date changes versus 2022 were mixed: North and Central America increased $11 million, while EMEA decreased $37 million and South America decreased $56 million; Aerospace increased $34 million.
- Cash flow: Operating cash provided was $1.127 billion for nine months versus $224 million used in 2022, with working capital a major factor in the comparison. Capital expenditures were $830 million versus $1.262 billion. Operating cash flow less capital expenditures was approximately $297 million; this is a simple calculation, not a company-reported measure.
- Liquidity and debt: Cash and cash equivalents were $1.335 billion at September 30, 2023, versus $548 million at year-end 2022. Current assets were $5.408 billion and current liabilities $6.715 billion. Management reported $9.65 billion of interest-bearing debt, compared with $9.00 billion at year-end. The company had $1.69 billion available under committed revolving facilities and reported compliance with debt covenants.
Material changes and notable items
- The year-over-year earnings comparisons include significant prior-year transaction effects: Q3 2022 included a $222 million gain on the sale of the Russia beverage packaging business; the first nine months of 2022 included a $298 million gain on the sale of the Ball Metalpack investment and Russia-related impairment and disposal effects.
- In August 2023, Ball agreed to sell Aerospace to BAE for approximately $5.6 billion cash. Ball estimated approximately $4.5 billion in after-tax proceeds and a pretax gain exceeding $4.5 billion, subject to closing adjustments. Regulatory approvals and other conditions remained outstanding at quarter-end, and Aerospace was not classified as held for sale.
- Ball issued $1.0 billion of 6.00% senior notes due 2029 in May and used $800 million to repay its U.S. revolver. Debt due within one year increased, including a $1.0 billion note due November 2023 and euro-denominated notes due March 2024.
- Ball recorded $47 million of Q3 and $61 million of nine-month 2023 business consolidation and other charges, primarily transaction costs for the proposed Aerospace sale and facility closure costs. Charges also included damage from a fire at its Verona, Virginia facility, partly offset by anticipated insurance receipts; further proceeds were expected to be recognized as a gain.
Outlook, risks and contingencies
- The filing provides no specific consolidated earnings or revenue guidance. Management said it expected sufficient operating cash flow and borrowing availability to meet operating needs, debt service, dividends, and capital expenditures.
- If the Aerospace sale closes, Ball expected a $1.1 billion cash tax outflow from operations and $5.6 billion of investing cash inflow. Management said it planned to use part of the proceeds to repay debt and accelerate shareholder returns through repurchases and dividends. These plans depend on closing the transaction.
- For 2023, Ball expected approximately $33 million of pension contributions and approximately $250 million of dividends. It also had approximately $321 million of capital expenditures contractually committed at quarter-end.
- Risks include persistent inflation, interest rates, recession and demand uncertainty, geopolitical conflicts and sanctions, currency movements, and dependence on a relatively small group of customers and suppliers. Management noted that these conditions could affect asset impairment, receivable and inventory recoverability, and hedge accounting estimates.
- Contingencies include litigation and environmental matters. Estimated liabilities for known and estimable environmental matters were approximately $24 million. A French competition authority proceeding could result in fines; Ball said it could not predict the outcome and was defending the allegations. The company stated that other specified legal and tax matters were not expected to materially affect its financial condition, results, or liquidity.
Important facts for investors to verify
- Whether the BAE Aerospace sale receives required approvals and closes, and the final proceeds, taxes, gain, and use of funds.
- The near-term debt maturities, refinancing or repayment plans, and effect of higher interest expense on earnings and cash flow.
- Whether beverage-container volumes and segment earnings stabilize, particularly in North and Central America, EMEA, and South America.
- The outcome and potential financial effect of the French competition authority matter, and the timing and amount of insurance recovery for the Verona fire.
- Working-capital cash-flow sustainability and the potential effects of customer and supplier concentration, inflation, and geopolitical developments.