Sequential Q3 improvement in shipments for Ball
Ball Corporation has announced its Q3 results, with sequential quarterly improvement in 2023 global beverage can shipments. 3Q shipments were down 3% versus 2Q shipments down 5%, excluding impact of the 2022 Russian business disposal.
Ball’s third quarter and year-to-date 2023 comparable earnings per diluted share were 83 cents and $2.13, respectively, versus third quarter and year-to-date 2022 comparable earnings per diluted share of 75 cents and $2.34, respectively.
“We delivered strong third quarter results. Improved operational efficiencies across our global aluminum packaging operations, inflationary cost recovery and benefits of cost-out actions offset higher interest costs and challenging year-over-year volume comparisons,” said said Daniel W. Fisher, chairman and chief executive officer. “During the third quarter, the initial phase of sequential improvement in our quarter-over-quarter global beverage can shipments emerged and was driven by double-digit volume growth in our Brazilian beverage can business.
“In North America, we further optimised our plant network to ensure proper supply/demand balance while continuing to enable access to high-quality, innovative aluminium beverage cans and bottles at a growth cadence appropriate for current market conditions and our customer mix.
“These actions and improved plant performance, in addition to deploying the aerospace sale proceeds to significantly reduce our leverage and increase share repurchases, serve as catalysts for higher shareholder returns,” said Daniel W. Fisher, chairman and chief executive officer.
Details of segment comparable operating earnings, business consolidation and other activities, business segment descriptions and other non-comparable items can be found in the notes to the unaudited condensed consolidated financial statements that accompany this news release. References to volume data represent units shipped. Year-over-year global and EMEA segment volume data exclude the impact of the Russian beverage can business sale completed in third quarter of 2022, unless specifically noted otherwise.
On 17 August 2023, the company announced that it reached an agreement to sell its aerospace business to BAE Systems for gross proceeds of $5.6 billion in cash. The transaction is subject to regulatory approvals and certain closing conditions and adjustments, therefore, prospective estimates for certain financial metrics provided in today’s release exclude any potential impact of the aerospace business sale.
Beverage Packaging, North and Central America
Beverage packaging, North and Central America, segment comparable operating earnings for third quarter 2023 were $196 million on sales of $1.54 billion compared to $205 million on sales of $1.80 billion during the same period in 2022. Third quarter sales reflect lower shipments and the contractual pass through of lower aluminum costs favorably offset by incremental inflation recovery.
Third quarter segment comparable operating earnings decreased year-over-year reflecting incremental inflation recovery and improved operational performance being more than offset by 9.9% lower volumes driven by our customer exposure to the continuing US mass beer brand disruption.
To maximise returns on invested capital and position our North American plant system for near-term demand trends, the company will permanently cease operations at its leased Kent, Washington, facility, and, in alignment with our customer’s timeline, defer the Concord, North Carolina, beverage can plant project until 2028. In addition, the company has permanently discontinued plans to construct the North Las Vegas beverage can plant. The combination of these actions will ensure supply/demand balance is appropriate for current macroeconomic conditions while also providing our customers access at scale to high-quality, innovative aluminium cans and bottles from our agile plant network and, also enable our ability to achieve appropriate returns on capital for the value delivered.
Fixed and variable cost management, continued improvements in operational performance and our ability to leverage the flexibility of our manufacturing network to serve customers experiencing challenges and opportunities are expected to improve year-over-year results, in 2023 and beyond. Aluminium beverage cans continue to outperform other substrates, and we remain dedicated to enabling the greater use of low-carbon, best-value innovative aluminium packaging solutions across our customer mix.
Beverage Packaging, EMEA
Beverage packaging, EMEA, segment comparable operating earnings for third quarter 2023 were $103 million on sales of $902 million compared to $82 million on sales of $1.03 billion during the same period in 2022. Third quarter sales reflect lower year-over-year shipments due to the sale of the Russian operations during the third quarter of 2022 and the contractual pass through of lower aluminium costs. Historical results for the Russian operations will continue to be reflected in beverage packaging, EMEA segment results prior to the sale.
Third quarter operating earnings reflect favourable price/mix and inflationary cost recovery, partially offset by the year-over-year $14 million operating earnings headwind due to the sale of the Russian operations during the third quarter of 2022. Packaging mix shift to aluminium cans supported by ongoing packaging legislation in certain countries continues to be a long-term growth driver despite recent inflation-induced consumer demand weakness, largely in the U.K. Year-over-year third quarter segment volumes decreased approximately 1.9%, excluding Russia, and were down 15.2%, including Russia.
During 2023, contractual recovery of 2022 inflation and cost savings are anticipated to offset the year-over-year earnings headwind associated with the Russian business sale.
Beverage Packaging, South America
Beverage packaging, South America, segment comparable operating earnings for third quarter 2023 were $61 million on sales of $489 million compared to $67 million on sales of $466 million during the same period in 2022. Year-over-year sales reflect higher volumes, offset by the contractual pass through of lower aluminium costs. Third quarter segment comparable operating earnings decreased year-over-year due to unfavourable regional product mix in Brazil and challenging economic conditions in Argentina.
Segment volumes increased 14.1% in the third quarter in preparation for the busy fourth quarter summer selling season. Across South America, multi-year customer initiatives to increase the use of sustainable aluminium packaging are expected to continue, and in Brazil, package mix shift to aluminium is expected to continue to improve exiting 2023.
Aerospace segment comparable operating earnings for third quarter 2023 were $46 million on sales of $460 million compared to $47 million on sales of $477 million during the same period in 2022. Backlog remained strong at $2.9 billion, and contracts won, but not yet booked into backlog, finished the quarter at $6.2 billion.
Third quarter 2023 segment comparable operating earnings reflect solid performance despite short-term, isolated supply chain and US government customer inefficiencies pressuring results. Demand for Ball Aerospace’s services and technologies for mission-critical programmes remains strong. During the quarter, backlog and won-not-booked into backlog increased $300 million and $200 million, respectively.
On 17 August 2023, Ball Corporation announced that it reached an agreement to sell its aerospace business to BAE Systems for gross proceeds of $5.6 billion in cash (after-tax proceeds of approximately $4.5 billion). The transaction is subject to regulatory approvals and customary closing conditions and adjustments. The process to achieve necessary regulatory approvals is underway and when appropriate, a progress announcement will be made.
In addition to undistributed corporate expenses, the results for the company’s global aluminium aerosol business, beverage can manufacturing facilities in India, Saudi Arabia and Myanmar and the company’s aluminium cup business continue to be reported in other non-reportable.
Third quarter 2023 results reflect lower year-over-year undistributed corporate expenses, solid operational performance in the extruded aluminum aerosol business and improved results in the other non-reportable beverage can manufacturing facilities. Volume across the company’s global extruded aluminium bottles and aerosol containers increased 10.4 percent during the quarter.
During the quarter, the company’s global aluminum aerosol customers and regional water and personal care brands continued to pursue next generation lightweight sustainable packaging solutions and expand usage of refillable aluminium bottles for certain venues. The company continues to execute incremental extruded aluminium line investments to provide increased production capabilities to serve contracted growing customer demand.
Late in the quarter, a fire occurred at the company’s Verona, Virginia, extruded aluminium slug manufacturing facility. The company is grateful that all employees were evacuated safely from the facility during the incident and that no injuries occurred while extinguishing the blaze. The extruded aluminium aerosol business team continues to support the well-being of our employees impacted by the incident and is also working very hard to try to meet aluminium slug customers’ needs from the company’s remaining global aluminium slug manufacturing facilities.
“Our teams are doing an excellent job of managing costs, working capital and short-term customer demand and supply chain issues. We remain well-positioned to deliver free cash flow of approximately $750 million in 2023 and, utilising existing cash on hand, we are prepared to address our near-term debt maturities in advance of receiving proceeds from the announced aerospace sale.
Looking ahead, increased free cash flow generation and approximately $4.5 billion of after-tax proceeds from the aerospace sale are intended to be used to immediately reduce debt by approximately $2 billion driving leverage to in the range of 3.0x net debt to comparable EBITDA and, approximately $2 billion of proceeds are intended to be used to increase return of value to shareholders via share buybacks and dividends moving forward,” said Howard Yu, executive vice president and chief financial officer.
“Maximising returns, improving free cash conversion, driving organic growth across our customer mix and being good stewards of our capital are our core areas of focus. In addition to unlocking value from the announced sale of our aerospace business, we look forward to driving the broader use of low-carbon, best-value aluminium packaging solutions to preserve our planet and achieve the best outcomes for our stakeholders.
“Despite higher interest costs, year-to-date demand trends and the Russian business divestment headwind, the potential remains for us to grow comparable diluted earnings per share, improve EVA generation, and increase cash flow to deleverage and return value to shareholders in 2023. Moving forward, our improved operational performance, improved financial flexibility and ability to leverage our well-capitalised and optimised plant network to deliver best-in-class innovative aluminium packaging to our customers will expand shareholder value creation for many years to come,” Fisher said.