Ball Corporation Q1 Earnings Outperform, Up Y/Y - Analyst Blog

Ball Corporation BLL reported first-quarter 2014 adjusted earnings of 81 cents per share, which handily beat the Zacks Consensus Estimate of 68 cents. Moreover, the reported figure surged 40% from the year-ago quarter, aided by global packaging volume growth and manufacturing efficiencies.

On a reported basis, earnings came in at 65 cents per share, compared with 47 cents in the prior-year quarter.

Operational Update

Total revenue rose 0.8% year over year to $2.01 billion from $1.99 billion in the year-ago quarter. However, revenues lagged the Zacks Consensus Estimate of $2.03 billion.

Cost of sales decreased 1.9% year over year to $1.61 billion. Gross profit grew 13% year over year to $393.9 million and gross margin expanded 210 basis points (bps) to 19.6%.

Selling, general and administrative expenses fell 1.5% year over year to $107.7 million. Adjusted operating income improved 31% to $217 million from $165.7 million in the year-ago quarter. Consequently, operating margin grew 250 bps to 10.8%.

Segment Performance

The Metal Beverage Packaging, Americas & Asia segment revenues inched up 0.2% to $997.6 million from $995.2 million in the year-ago quarter. Operating earnings grew 20% year over year to $124.9 million. Strong demand for specialty beverage packaging, increased beer can volumes in North America and a lower cost asset base offset the weakness in carbonated soft drink consumption.

Volume growth due to the addition of the second production line in Alagoinhas, Brazil, favorable weather conditions and strong demand ahead of the 2014 World Cup aided the increase as well. The segment's performance was also driven by contribution from the Foshan plant in China.

Sales from the Metal Beverage Packaging, Europe segment increased 11.7% year over year to $450 million. Operating earnings also surged 79.6% year over year to $55.5 million, led by mid single-digit volume growth for beverage containers across the region as well as excellent plant performance and implementation of cost control initiatives.

The Metal Food & Household Products Packaging segment sales fell 7% year over year to $341.1 million due to weak demand in U.S. food and aerosol containers. Operating earnings, however, increased 4.6% year over year to $36.3 million.

In the Aerospace and Technologies segment, sales declined 4.6% year over year to $220.7 million. Operating earnings, on the other hand, increased 34.6% year over year to $24.1 million.

Financial Condition

As of Mar 31, 2014, Ball Corporation reported cash and cash equivalents of $175.4 million versus $208 million as of Mar 31, 2013. The company's total debt decreased to $3.77 billion as of Mar 31, 2014 from $3.83 billion as of Mar 31, 2013.

Cash flow used in operating activities was $136.2 million in first-quarter 2014 as compared with $324.6 million in the prior-year quarter.

Outlook

The company affirmed free cash flow range of $550 million for full-year 2014. The company has maintained its long-term diluted earnings per share growth goal of 10%–15%.

Our Take

Ball Corporation will continue to benefit from product launches and expansion in emerging markets. Moreover, the company believes that there is growth potential in many of its segments. Metal beverage packaging, Americas & Asia will benefit from the Alagoinhas plant's third production line, which remains on track. However, uncertainty in the global economic scenario remains a headwind.

Broomfield, CO-based Ball Corp. is the largest manufacturer of beverage cans in North America. It also supplies aerospace as well as other technologies and services to the government and customers.

Currently, Ball Corp. has a short-term Zacks Rank #3 (Hold). Some better-ranked stocks in the sector include Crown Holdings Inc. CCK, Berry Plastics Group, Inc. BERY and Graphic Packaging Holding Co. GPK. While Crown Holdings has a Zacks Rank #1 (Strong Buy), Berry Plastics and Graphic Packaging carry a Zacks Rank #2 (Buy).