Ball Corporation 10-Q Summary
Reporting period: Third quarter and nine months ended September 30, 2021. Dollar amounts are in millions unless otherwise noted. Ball supplies aluminum packaging and aerospace products and services.
Financial performance
| Metric | Q3 2021 | Q3 2020 | 9M 2021 | 9M 2020 |
|---|---|---|---|---|
| Net sales | $3,553 | $3,093 | $10,137 | $8,679 |
| Net earnings attributable to Ball | $179 | $241 | $581 | $358 |
| Diluted GAAP EPS | $0.54 | $0.72 | $1.75 | $1.08 |
| Comparable diluted EPS (non-GAAP) | $0.94 | $0.89 | $2.52 | $2.15 |
| Comparable operating earnings (non-GAAP) | $417 | $419 | $1,161 | $1,053 |
- Sales rose in both periods, driven principally by higher volumes, aluminum-price pass-through, improved beverage packaging price/mix, and favorable EMEA currency effects.
- Q3 GAAP earnings fell despite higher sales, primarily reflecting a $130 million non-cash pension settlement charge, higher growth-related personnel and startup costs, and delayed recovery of non-aluminum input costs. Lower taxes partly offset these factors. Nine-month GAAP earnings increased, helped by volume and mix, lower consolidation charges, lower interest expense, and improved affiliate results.
- GAAP net earnings as a share of sales were 5% in Q3 2021 versus 8% in Q3 2020, and 6% for nine months 2021 versus 4% in 2020. Cost of sales excluding depreciation and amortization was 80% of sales in 2021, compared with 79% in 2020.
- Segment results were mixed. Nine-month comparable operating earnings rose in EMEA ($349 vs. $248) and South America ($245 vs. $173), but declined in North and Central America ($519 vs. $544); Aerospace was nearly flat ($115 vs. $114).
Cash flow, liquidity and debt
- Nine-month operating cash flow was $876, compared with $345 in 2020. Investing cash outflow was $1,104, including $1,204 of capital expenditures; financing cash inflow was $327.
- Cash capital expenditures exceeded operating cash flow by $328 for the nine-month period. The company says capital spending primarily supported large growth projects; approximately $1.7 billion of PP&E expenditures was contractually committed at quarter-end.
- At September 30, cash and cash equivalents were $1,446; current assets were $5,917 and current liabilities were $6,131. Total interest-bearing debt was approximately $8.5 billion, including $762 of short-term debt and current maturities and $7,755 of long-term debt.
- Available liquidity included approximately $1.7 billion under committed revolving facilities and approximately $1 billion under short-term uncommitted facilities, of which $24 was outstanding. Ball reported compliance with debt covenants; the maximum permitted leverage ratio was 5.0x, tightening to 4.5x on December 31, 2022.
- Share repurchases, net of issuances, were $325 for the first nine months, and dividends paid were $164. The company issued $850 of 3.125% senior notes due 2031; after quarter-end, it redeemed $736 of 5.00% notes due March 2022.
Outlook, risks and unusual items
- The filing provides no specific earnings or sales guidance. Management said cash flows, cash on hand, and available borrowing facilities were expected to meet operating needs, debt service, dividends, share repurchases, and anticipated capital expenditures. It expected facilities to operate without disruption in the foreseeable future.
- Management expected full-year 2021 defined-benefit pension contributions of approximately $215; $203 had been contributed through September. This estimate could change based on legislation, plan-asset returns, and other factors.
- COVID-19, supply and logistics constraints, inflation in materials and other inputs, labor and startup costs, customer and supplier concentration, and changes in demand remain risks. Management also cited weather-related volume weakness in South America during July and August. Aluminum price pass-through provisions and derivatives mitigate, but do not eliminate, some commodity exposure.
- Q3 included a $130 non-cash pension settlement loss following annuity purchases and lump-sum settlements. The nine-month period also included a $22 gain from Brazilian indirect-tax rulings and a $5 loss on the sale of Ball’s minority-owned South Korean investment. Ball received $110 of the $120 sale proceeds, with $10 due by December 31, 2022.
- Estimated liabilities for known environmental matters were approximately $26. Ball described other litigation, tax, environmental, and indemnification matters; it did not expect the identified matters to materially affect liquidity, results, or financial condition. Some guarantees have no stated maximum exposure, which Ball said it could not reasonably estimate.
Investor verification priorities
- Assess whether Q3 weakness in GAAP earnings and North American packaging profitability reflects temporary startup, labor, inventory, and input-cost timing pressures or more persistent margin deterioration.
- Review the sustainability and timing of the large growth-capex program, associated commitments, and its expected returns relative to operating cash generation.
- Monitor working capital, particularly receivables and days sales outstanding, and the company’s use of receivables factoring and credit facilities.
- Reconcile GAAP results with comparable non-GAAP measures, including the pension settlement charge and other excluded items.
- Track debt maturities, covenant headroom as the leverage limit tightens, and the impact of input-cost, supply-chain, labor, COVID-19, and customer-concentration risks.