Ball Corporation (NYSE: BLL)

Transcription

1 Nov 23, 2015 Ball Corporation (NYSE: BLL) $69.44 USD ( As of 11/20/15 ) Data Overview 52 Week High-Low $ $ Day Average Volume 888,963 Beta 1.09 Market Cap 9.47 B Dividend / Div Yld $0.52 / 0.75% Industry CONTAINERS-METAL/GLASS Industry Rank 179 / 265 (Bottom 32%) Growth Score Hist. EPS Growth (3-5 yrs) 10.69% Proj. EPS Growth (F1/F0) % Curr. Cash Flow Growth 5.60% Hist. Cash Flow Growth (3-5 yrs) 5.82% Summary Zacks Rank 3-Hold Style Scores: Growth: Value: Momentum: Ball Corporation s third-quarter 2015 adjusted earnings remained flat year over year at $1.10 per share. Revenues went down 6.3% year over year to $2.1 billion. Also, the company slashed its 2015 free cash flow guidance to $550 million. Ball Corporation remains focused on ramping up capital projects and expects to grow through investments, emphasis on continuous improvement and growth in cash flow. Product launches and expansion through acquisitions will also drive growth. However, Ball Corporation expects currency translation, start-up and preproduction costs to remain headwinds. Moreover, uncertainty regarding government funding, modest pressure in the U.S. food can market and strong competition will affect Ball Corporation s performance in the near future. Elements of the Zacks Rank Agreement Estimate Revisions (60 days) Current Ratio 1.05 Debt/Capital 69.84% 67% 100% 80% 50% Net Margin 3.67% Return on Equity 39.77% Sales/Assets 1.07 Q1 (Current Qtr) Revisions: 3 Up: 1 Down: 2 Q2 (Next Qtr) Revisions: 2 Up: 0 Down: 2 F1 (Current Year) Revisions: 5 Up: 4 Down: 1 F2 (Next Year) Revisions: 4 Up: 2 Down: 2 Proj. Sales Growth (F1/F0) -4.89% Value Score Magnitude Consensus Estimate Trend (60 days) Cash/Price 0.03 EV/EBITDA PEG Ratio 1.90 Price/Book (P/B) 7.50 Price/Cash Flow (P/CF) P/E (F1) Current Q1-3.85% Current Q % Current F % Current F2-1.35% Price/Sales (P/S) 1.13 Earnings Yield 5.00% Upside Zacks Consensus Estimate vs. Most Accurate Estimate Debt/Equity 2.32 Cash Flow ($/share) 6.09 Momentum Score Most Accurate: 0.74 Most Accurate: 0.47 Most Accurate: 3.42 Most Accurate: 3.64 Daily Price Chg 0.07% Zacks Consensus: 0.75 Zacks Consensus: 0.63 Zacks Consensus: 3.42 Zacks Consensus: Week Price Chg -0.03% Q1-1.33% Q % F1 0.00% F2-0.55% 4 Week Price Chg -0.01% 12 Week Price Chg 3.84% Surprise Reported Earnings History 52 Week Price Chg 5.51% 20 Day Average Volume 888,963 (F1) EPS Est Wkly Chg 0.00% (F1) EPS Est Mthly Chg 4.01% (F1) EPS Est Qtrly Chg 3.51% (Q1) EPS Est Mthly Chg -2.09% Reported: 1.10 Estimate: 0.95 Q End 09/15 Reported: 0.89 Estimate: 0.94 Q End 06/15 Reported: 0.69 Estimate: 0.79 Q End 03/15 Reported: 0.84 Estimate: 0.85 Q End 12/14 Average 4 Qtr Surprise 2015 Zacks Investment Research, All Rights Reserved 10 S. Riverside Plaza Suite 1600 Chicago, IL 60606

2 The data on the front page and all the charts in the report represent market data as of 11/20/15, while the reports text is as of 11/23/2015 Overview Headquartered in Broomfield, Colo., Ball Corporation is one of the world's leading suppliers of metal packaging to the beverage, food, personal care and household products industries. It also supplies aerospace and other technologies and services to government and commercial customers. The company employs around 15,000 people worldwide and organizes its businesses in 4 segments: The Metal Beverage Packaging, Americas & Asia segment (51% of total revenue in third quarter 2015) consists of operations located in the U.S., Canada, Brazil, and People's Republic of China (PRC). In the U.S., Canada and Brazil, the company manufactures metal container products used primarily in beverage packaging. Ball's Chinese operations manufacture metal beverage containers as well as aluminum containers and ends. The Metal Beverage Packaging, Europe segment (21%) deals with the company's operations in Europe. The segment supplies two-piece metal beverage containers and ends for producers of carbonated soft drinks, beer, energy drinks and other beverages as well as extruded aluminum aerosol containers and aluminum slugs. The Metal Food & Household Products Packaging, Americas segment (18%) is concerned with operations located in the U.S. and Canada, which manufacture metal container products used primarily in food packaging. The Aerospace and Technologies segment (10%) includes national defense solutions, advanced technologies and products as well as civil and operational space businesses. Zacks Equity Research: BLL Page 2 of 8

3 Reasons To Buy: Ball Corporation remains focused on ramping up capital projects. The company expects capital expenditure to be around $500 million. Profitability of Ball Corporation s business will grow driven by investment and focus on continuous improvement. However, Ball Corporation slashed its 2015 free cash flow guidance to $550 million, excluding cash costs for the proposed Rexam acquisition. Ball Corporation expects that capital projects will become operational and largely benefit in 2016 and beyond, including the next generation aluminum bottle-shaping technology in North America. In addition, the new Oss, Netherlands specialty beverage can line and the addition of end manufacturing capacity in the existing Lublin, Poland Ball Corporation will continue to benefit from its continuous focus on cash flow and investments. Product launches and expansion in the emerging markets will also drive growth. facility, will help serve European markets. Further, the construction of Monterrey, Mexico two-line aluminum beverage can facility is on track and on budget and will become operational by early The construction of a new beverage can plant in Myanmar is also progressing and is slated to open in early In addition, a new U.S. tinplate aerosol can manufacturing technology shipped its first commercial product in November; the expansion of aluminum impact extruded container business in the U.K. is expected to come online during the fourth quarter. These projects will assist Ball Corporation s growth. In October, Ball Corporation reached an agreement with its joint venture partners in Brazil to acquire their remaining 39.9% minority interest in the Latapack-Ball beverage can business in exchange for the issuance of 6 million Ball Corporation s shares. The joint venture, established in 1995, supplies cans and ends to the Brazilian market. The buyout will allow Ball Corporation to further leverage, simplify and streamline its business in Brazil, as well as across the broader metal beverage business. The transaction is subject to customary approvals and is expected to close no later than the first quarter of Ball Corporation is also looking forward to work directly and efficiently with Brazil's Tribunal of Administrative Council for Economic Defense to address any remaining competition concerns regarding the proposed offer for Rexam PLC. Ball Corporation remains on track with its Drive for 10 vision, launched in 2011, which encompasses five strategic levers that are key to growing business and achieving long-term success The strategies include maximizing value in existing businesses by rationalizing standard beverage container and end capacity in North America and expanding specialty container production to meet current demand; leveraging plant floor systems in metal beverage facilities to improve efficiencies and reduce costs; consolidating or closing multiple metal beverage and metal food and aerosol packaging facilities and implementing cost-out and value-in initiatives across all businesses. Expanding further into new products and capabilities and aligning with the right customers and markets by investing capital to meet volume growth for specialty beverage containers. The strategies also involve broadening geographic reach with new investments and leveraging its technological expertise in packaging innovation, including the introduction of nextgeneration aluminum bottle-shaping technologies as well as other technologies to maintain competitive advantage in the future. During the second quarter, Ball Corporation acquired two of Sonoco Products metal end and closure facilities in Canton, OH, to broaden its customer product offering of the Metal Food & Household Products Packaging segment. The acquisition will assist Ball to offer the highest quality steel and aluminum easy-open ends to customers. The company continues to invest in next generation steel aerosol manufacturing technology, as well as aluminum aerosol capacity in North America, the United Kingdom and India to drive growth. Ball Corporation s pending acquisition of Rexam plc for a cash and stock deal valued at $8.4 billion will create the world's largest manufacturer of food and beverage cans. The merged company will be better positioned to serve the combined customer base through supply chain efficiency, manufacturing excellence and increased product innovation. Ball Corporation expects the deal to result in synergies of $300 million by 2018 in the areas of general and administrative, sourcing, freight and logistics and process and efficiency savings. The combination is expected to be accretive to earnings per share within the first year of completion. During the third quarter, the Aerospace and Technologies segment successfully integrated the propulsion subsystem for SA's Green Propellant Infusion Mission (GPIM) into the spacecraft bus, and started system performance and environmental testing. GPIM is scheduled for launch in The segment continues to pursue several large programs that are expected to be awarded in the coming months. Reasons To Sell: Ball Corporation s third-quarter 2015 results were unfavorably impacted by the economic hedges taken up to reduce currency exchange rate exposure associated with the British pound-denominated cash portion of the announced acquisition price for Rexam and to mitigate exposure to interest rate changes associated with anticipated debt issuances also in connection with the cash portion of this proposed acquisition. The company entered into interest rate swaps to hedge against rising U.S. and European interest rates to minimize its interest rate exposure associated with anticipated debt issuances regarding the proposed acquisition. On Sep 30, 2015, the company had outstanding interest rate swaps with notional amounts totaling approximately $250 million and 1,750 million. In addition, the company entered into interest rate option contracts to hedge negative Euribor rates with an aggregate notional Unfavorable foreign exchange, elevated aluminum premiums and impact of uncertainty regarding government funding programs on Aerospace segment remain headwinds for Ball Corporation. amount of 750 million. Subsequent to the third quarter of 2015, the company entered into additional interest rate swap contracts to hedge against rising U.S. interest rates with aggregate notional amounts of approximately $100 million. These contracts were not designated as hedges, and therefore, changes in the fair value of these interest swap and option contracts are recognized in the unaudited condensed consolidated statements of earnings in debt refinancing and other costs, a component of total interest expense. The loss included in debt refinancing and other costs during the first nine months of 2015 associated with these contracts Zacks Equity Research: BLL Page 3 of 8

4 was $10 million. The contracts outstanding on Sep 30, 2015, will expire within the next five years. These economic hedges will help the company to secure the transaction's purchase price economics, though they will likely continue to cause disruption to quarterly GAAP earnings and could accumulate to a sizable figure given currency rate volatility and the projected timeline associated with the proposed transaction. Ball Corporation expects currency translation, start-up and preproduction costs to remain headwinds for the balance of the year. As of Sep 30, 2015, the company had aluminum contracts limiting its aluminum exposure with notional amounts of approximately $336 million, of which approximately $130 million received hedge accounting treatment. Cash flow hedges related to the transactions will expire within the next four years. Ball Corporation expects to post a net loss of $12.5 million associated with these contracts during the next 12 months. Ball Corporation s Aerospace segment s backlog at the quarter end was $638 million, which declined significantly from $765 million in 2014-end. Due to uncertainty regarding government funding programs and competitive environment, the company anticipates backlog reduction in the near future. The ongoing decline in the CSD (Carbonated Soft Drink) consumption in the U.S., owing to growing health and wellness concerns, is affecting the results of the Metal Beverage Packaging, Americas & Asia segment. Furthermore, modest pressure in the U.S. food can market will also affect the company s results. Ball Corporation stated that is unlikely that it will be able to attain its long-term 10-15% earnings per share growth goal due to startup costs associated with ongoing expansion efforts, the closure of a North American food can facility as well as the timing of aerospace project awards. Last Earnings Report Ball Corporation Beats Q3 Earnings, Lags Revenues Ball Corporation reported third-quarter 2015 adjusted earnings of $1.10 per share. While earnings effortlessly beat the Zacks Consensus Estimate of $0.95, the figure stood flat on a year-over-year basis. On a reported basis, earnings per share plunged 69% year over year to $0.32 from $1.04 in the prior-year quarter. Quarter Ending 09/2015 Report Date Oct 29, 2015 Sales Surprise -0.82% EPS Surprise 15.79% Quarterly EPS 1.10 Annual EPS (TTM) 3.52 Operational Update Total revenue declined 6.3% year over year to $2.10 billion in the reported quarter. Revenues also lagged the Zacks Consensus Estimate of $2.11 billion. Cost of sales decreased 6.5% year over year to $1.69 billion. Gross profit declined 5.8% year over year to $406.7 million. Gross margin increased 10 basis points (bps) to 19.4%. Selling, general and administrative expenses went down 13.2% year over year to $106.8 million. Adjusted operating income declined 3.9% to $228 million from $237 million in the year-ago quarter. The company reported operating margin of 10.9%, up 30 bps year over year. Segment Performance The Metal Beverage Packaging, Americas & Asia segment s revenues remained flat at $1.1 billion for the reported quarter. Operating earnings of $131.9 million decreased 1.3% year over year. Specialty beverage packaging in the segment witnessed highsingle digit growth which offset single-digit decline in volume and continuing pricing pressure in China. Sales for the Metal Beverage Packaging, Europe segment were $450 million in the reported quarter, down 8% year over year. Operating earnings declined 4.2% year over year to $61.1 million owing to unfavorable currency translation. The Metal Food & Household Products Packaging segment sales were $372 million, declining 17.4% year over year. Operating earnings also fell 28.8% year over year to $30.6 million due to the U.S. food container customer shift, project start-up costs and unfavorable currency effects. In the Aerospace and Technologies segment, sales fell 8.3% year over year to $203 million. Operating earnings increased marginally to $21.4 million from $21.2 million in the year-ago quarter. The segment reported a backlog of $638.4 million for the third quarter. During the quarter, the segment successfully integrated the propulsion subsystem for SA's Green Propellant Infusion Mission ( GPIM ) into the spacecraft bus, and started system performance and environmental testing. GPIM is scheduled for launch in Financial Condition Ball Corporation reported cash and cash equivalents of $244.4 million at the end of third-quarter 2015, up from $189.5 million a year ago. The company generated $597 million in cash from operating activities for the nine months ended Sep 30, 2015 compared with Zacks Equity Research: BLL Page 4 of 8

5 $660 million in the prior-year period. Long-term debt decreased to $2.88 billion as of Sep 30, 2015 from $3.01 billion as of Sep 30, Outlook Ball Corporation slashed its 2015 free cash flow guidance to $550 million from $600 million, excluding cash costs for the proposed Rexam acquisition. The proposed Rexam acquisition, currently pending due to regulatory reviews, remains on track. The company expects multiple-growth capital projects to benefit its results for 2016 and beyond, while difficult year-over-year volume comparisons and aluminum premium headwinds may hurt growth. Recent News Ball Corporation Reveals EU Updates on Rexam Deal Nov 20, 2015 Ball Corporation and Rexam PLC announced the terms of a recommended cash and share offer by Ball UK Acquisition Limited (Bidco), a wholly-owned subsidiary of Ball, for the entire issued and to be issued share capital of Rexam on Nov 19. A day after the announcement, Ball Corporation confirmed that the European Commission (EU) has entered into a period of market testing which has been extended to Jan 22, 2016 based upon commitments proposed by Rexam and Ball Corporation. These commitments have been recommended with a view of obtaining EU Commission clearance for the deal. Ball Corporation Announces Notable Progress in Carbon Footprint Reduction Target Nov 17, 2015 Ball Corporation launched a program, Cut/4 CArboN, to reduce the carbon footprint of its most common beverage can formats by 25% within ten years. With a 10% reduction through the end of 2014, Ball Corporation is on pace to meet the global target. The company developed the comprehensive Cut/4 CArboN program to demonstrate its contribution to product carbon footprint reduction goals which will pave the way for its 2020 objective. Ball Corporation Declares Quarterly Dividend - Oct 28, 2015 Ball Corporation declared a regular quarterly cash dividend of $0.13 per share. The dividend will be paid on Dec 15, 2015 to shareholders of record as of Dec 1, Ball Corporation to Acquire Remaining Interest in Brazilian JV Oct 27, 2015 Ball Corporation reached an agreement with its joint venture partners in Brazil to acquire their remaining 39.9% minority interest in the Latapack-Ball beverage can business in exchange for the issuance of 6 million Ball Corporation s shares. The joint venture, established in 1995, supplies cans and ends to the Brazilian market. The buyout will allow Ball Corporation to further leverage, simplify and streamline its business in Brazil, as well as across the broader metal beverage business. The transaction is subject to customary approvals and is expected to close no later than the first quarter of Ball Corporation is also looking forward to working directly and efficiently with Brazil's Tribunal of Administrative Council for Economic Defense to address any remaining competition concerns regarding proposed offer for Rexam PLC. Ball Aerospace Completes Integration for SA's Green Propellant Infusion Mission Oct 5, 2015 Ball Aerospace, a prime contractor for SA's Green Propellant Infusion Mission (GPIM), has integrated the propulsion subsystem onto the BCP-100 spacecraft bus. The company has also started system performance and environmental testing as the project heads toward a 2016 launch date. Ball Corporation Receives SO from EU over Rexam Deal Concerns Oct 1, 2015 Ball Corporation received a Statement of Objections (SO) from the European Commission in relation to its proposal to buy Rexam PLC. European Commission is concerned over its planned 4.4 billion ($6.6 billion) acquisition of Rexam, whether the deal could lead to higher prices for beverage cans. The company expects to obtain regulatory clearances to close the deal during the first half of Ball Corporation Opens Aluminum Aerosol Can Plant In India Oct 1, 2015 Ball Corporation opened an aluminum aerosol can plant in India to encounter with the rapidly expanding Indian market for beverage cans and the needs of regional customers. The plant located in Ahmedabad will be able to deal with multiple sales contracts with local customers and the surrounding region. Opening of this plant is in sync with the company's Drive for 10 vision of entering into new geographic regions and remaining close to customers. Zacks Equity Research: BLL Page 5 of 8

6 Industry Analysis Zacks Industry Rank: 179 / 265 (Bottom 32%) Top Peers APOGEE ENTRPRS (APOG) APTARGROUP INC (ATR) BERRY PLASTICS (BERY) BEMIS (BMS) CROWN HLDGS INC (CCK) GREIF INC (GEF) MOBILE MINI INC (MINI) SILGAN HOLDINGS (SLGN) Industry Comparison Containers-metal/glass Position in Industry: 1 of 5 Industry Peers BLL Market Cap 9.33 B # of Analysts 5 Dividend Yield 0.76% Growth Score Hist. EPS Growth (3-5 yrs) 10.69% Proj. EPS Growth (F1/F0) % Curr. Cash Flow Growth 5.60% Hist. Cash Flow Growth (3-5 yrs) 5.82% Current Ratio 1.05 Debt/Capital 69.84% Net Margin 3.67% Return on Equity 39.77% Sales/Assets 1.07 Proj. Sales Growth (F1/F0) -4.89% X Industry S&P B B % 1.94% % 8.43% -1.49% 5.66% 5.42% 6.85% 3.37% 10.40% % 39.91% 3.76% 9.41% 35.29% 17.43% % 0.78% CCK GEF MINI 7.10 B 1.58 B 1.58 B % 5.08% 2.15% 7.95% 17.86% 5.02% 19.27% 19.68% -7.68% 5.42% 4.98% -0.13% 3.37% % 23.66% 3.84% 0.41% % 7.29% % 18.55% Value Score - - Cash/Price EV/EBITDA PEG Ratio Price/Book (P/B) Price/Cash Flow (P/CF) P/E (F1) Price/Sales (P/S) Earnings Yield 5.30% 5.41% 7.03% % 3.74% Debt/Equity Cash Flow ($/share) Momentum Score - - Daily Price Chg 1 Week Price Chg 4 Week Price Chg 12 Week Price Chg 52 Week Price Chg 20 Day Average Volume (F1) EPS Est Wkly Chg (F1) EPS Est Mthly Chg (F1) EPS Est Qtrly Chg (Q1) EPS Est Mthly Chg 0.04% 0.03% -0.03% -0.03% -2.41% 0.49% 1.73% 3.90% 2.09% 1.01% 559,063 2,719, % 0.00% 0.56% 0.00% 1.02% -0.14% 0.00% -1.18% -0.25% 1.38% -0.49% -0.05% -0.03% -0.04% -5.42% -5.19% -4.80% 0.65% 14.09% 2.81% 4.17% % % 866, , % 0.00% 0.00% 0.56% 0.00% 1.56% 1.02% 5.79% 0.19% 1.47% 0.00% 1.30% Zacks Equity Research: BLL Page 6 of 8

7 Zacks Rank Education The Zacks Rank is calculated from four primary inputs: Agreement, Magnitude, Upside and Surprise. Agreement This is the extent which brokerage analysts are revising their earnings estimates in the same direction. The greater the percentage of estimates being revised higher, the better the score for this component. For example, if there were 10 estimate revisions over the last 60 days, with 8 of those revisions up, and the other 2 down, then the agreement factor would be 80% positive. If, however, 8 were to the downside with only 2 of them up, then the agreement factor would be 80% negative. The higher the percentage of agreement the better. Magnitude This is a measure based on the size of the recent change in the current consensus estimates. The Zacks Rank looks at the magnitude of these changes over the last 60 days. In the chart to the right, the display shows the consensus estimate from 60-days ago, 30-days ago, 7-days ago, and the most current estimate The difference between the current estimate and the estimate from 60-days ago is displayed as a percentage. A larger positive percentage increase will score better on this component. Upside This is the difference between the most accurate estimate, as calculated by Zacks, and the consensus estimate. For example, a stock with a consensus estimate of $1.00, and a most accurate estimate of $1.05 will have an upside factor of 5%. This is not an indication of how much a stock will go up or down. Instead, it's a measure of the difference between these two estimates. This is particularly useful near earnings season as a positive upside percentage can be used to help predict a future surprise. Surprise The Zacks Rank also factors in the last few quarters of earnings surprises. Companies that have positively surprised in the recent past have a tendency of positively surprising again in the future (or missing if they recently missed). A stock with a recent track record of positive surprises will score better on this factor than a stock with a history of negative surprises. These stocks will have a greater likelihood of positively surprising again. Zacks Style Score Education The Zacks Style Score is as a complementary indicator to the Zacks Rank, giving investors a way to focus on the best Zacks Rank stocks that best fit their own stock picking preferences. Academic research has proven that stocks with the best Growth, Value, and Momentum characteristics outperform the market. The Zacks Style Scores rate stocks on each of these individual styles and assigns a rating of A, B, C, D and F. An A, is better than a B; a B is better than a C; and so on. Growth Score Value Score Momentum Score As an investor, you want to buy stocks with the highest probability of success. That means buying stocks with a Zacks Rank #1 or #2, Strong Buy or Buy, which also has a Style Score of an A or a B. Zacks Equity Research: BLL Page 7 of 8

8 Disclosures The analysts contributing to this report do not hold any shares of this stock. The EPS and revenue forecasts are the Zacks Consensus estimates. Additionally, the analysts contributing to this report certify that the views expressed herein accurately reflect the analysts' personal views as to the subject securities and issuers. Zacks certifies that no part of the analysts compensation was, is, or will be, directly or indirectly, related to the specific recommendation or views expressed by the analyst in the report. Additional information on the securities mentioned in this report is available upon request. This report is based on data obtained from sources we believe to be reliable, but is not guaranteed as to accuracy and does not purport to be complete. Because of individual objectives, the report should not be construed as advice designed to meet the particular investment needs of any investor. Any opinions expressed herein are subject to change. This report is not to be construed as an offer or the solicitation of an offer to buy or sell the securities herein mentioned. Zacks or its officers, employees or customers may have a position long or short in the securities mentioned and buy or sell the securities from time to time. Zacks uses the following rating system for the securities it covers which results from a proprietary quantitative model using trends in earnings estimate revisions. This model is proven most effective for judging the timeliness of a stock over the next 1 to 3 months. The model assigns each stock a rank from 1 through 5. Zacks Rank 1 = Strong Buy. Zacks Rank 2 = Buy. Zacks Rank 3 = Hold. Zacks Rank 4 = Sell. Zacks Rank 5 = Strong Sell. We also provide a Zacks Industry Rank for each company which provides an idea of the near-term attractiveness of a company s industry group. We have 264 industry groups in total. Thus, the Zacks Industry Rank is a number between 1 and 264. In terms of investment attractiveness, the higher the rank the better. Historically, the top half of the industries has outperformed the general market. Zacks Equity Research: BLL Page 8 of 8