Ball Corporation — Q1 2021 Form 10-Q
Business context and reporting period. The unaudited quarter ended March 31, 2021, compared with the quarter ended March 31, 2020. Ball supplies aluminum packaging globally and provides aerospace products and services. Its reportable segments are beverage packaging in North and Central America, EMEA and South America, and Aerospace.
Financial performance and position
| Metric | Q1 2021 | Q1 2020 / comparison |
|---|---|---|
| Net sales | $3.125 billion | $2.785 billion; up 12% |
| Net earnings attributable to Ball | $200 million | $23 million |
| Diluted EPS | $0.60 | $0.07 |
| Comparable diluted EPS (non-GAAP) | $0.72 | $0.61 |
| Operating cash flow | $(477) million | $(708) million |
| Capital expenditures | $363 million | $213 million |
| Cash and cash equivalents at quarter-end | $461 million | $1.366 billion at December 31, 2020 |
| Total interest-bearing debt | $7.7 billion | $7.8 billion at December 31, 2020 |
Net earnings attributable to Ball were 6% of sales versus 1% a year earlier, as reported by the company. Operating cash flow less capital expenditures was approximately negative $840 million. Current assets were $4.237 billion and current liabilities $4.984 billion at March 31. Ball had $1.7 billion available under committed revolving facilities and approximately $1 billion in short-term uncommitted facilities, with $21 million drawn under the latter. It reported compliance with debt covenants.
Changes versus the prior comparable period
- Sales increased primarily on higher beverage-packaging volumes, with higher aluminum prices also contributing to reported segment sales.
- Comparable operating earnings were $345 million versus $307 million. EMEA and South America improved; North and Central America and Aerospace declined. The company cited new-facility startup costs and winter-storm production losses in North America, and contract cost timing and supply-chain matters in Aerospace.
- GAAP earnings benefited from business consolidation and other charges falling to $7 million from $115 million, and total interest expense declining to $67 million from $111 million. The 2020 charges included a $62 million goodwill impairment and other items.
- Operating cash outflow narrowed year over year, but remained substantial. Working-capital outflows were $703 million; Ball also contributed $162 million to pension plans, versus $11 million in Q1 2020.
Outlook, commentary and risks
- Ball expects 2021 capital expenditures to likely exceed $1.5 billion, with approximately $1.4 billion contractually committed at quarter-end. It expects full-year pension contributions of approximately $185 million.
- Management said liquidity was strong and expected operating cash flows, cash and available borrowing facilities to cover operating needs, debt service, dividends and investment. No specific earnings or EPS guidance was provided in the filing.
- Management described global beverage and aerosol container industries as growing over the medium to long term. Aerospace contracted backlog was $2.2 billion at March 31, down from $2.4 billion at December 31, 2020; the filing cautions that backlog is not necessarily indicative of future operations.
- COVID-19 impacts remained difficult to estimate. The filing highlights exposure to major customers and suppliers, raw-material and logistics costs, demand and supply disruptions, manufacturing startup execution, foreign exchange, and aerospace program timing and funding.
- Environmental liabilities for known and estimable matters were approximately $28 million. Ball discussed ongoing litigation, environmental proceedings and Brazilian tax matters, while stating it did not expect the identified matters to materially adversely affect its financial condition, results or liquidity. Potential additional Brazilian ICMS recoveries were not estimable.
- The U.K. proposed raising its corporate tax rate from 19% to 25% effective April 1, 2023; Ball was assessing the potential impact. The 2021 effective tax rate was 13.7%, compared with negative 9.1% in Q1 2020.
Important facts for investors to verify
- Whether working-capital movements and large capital spending continue to weigh on operating cash flow and liquidity.
- Progress, timing and returns from the planned 2021 capital program, including new-facility startup performance.
- Debt maturity and refinancing plans: $745 million of long-term debt was classified as current at March 31, 2021, including senior notes due in March 2022.
- Whether segment earnings trends persist, particularly in North America and Aerospace, and how aerospace backlog converts to revenue and cash flow.
- Potential changes in COVID-19, customer or supplier concentration, commodity and logistics costs, tax matters and environmental or legal contingencies.