Ball (BLL) Down 2.5% Since Last Earnings Report: Can It Rebound?

A month has gone by since the last earnings report for Ball (BLL). Shares have lost about 2.5% in that time frame, outperforming the S&P 500.

Will the recent negative trend continue leading up to its next earnings release, or is Ball due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important catalysts.

Ball Corp's Earnings Beat, Sales Trail Estimates in Q4

Ball Corporation reported fourth-quarter 2019 adjusted earnings of 71 cents per share, beating the Zacks Consensus Estimate of 68 cents. The reported figure improved 29% on a year-over-year basis.

On a reported basis, the company posted earnings of 48 cents per share compared with 44 cents in the prior-year quarter.

Total sales came in at $2,719 million in the reported quarter, down from $2,803 million in the year-ago quarter. The top line missed the Zacks Consensus Estimate of $2,887 million.

The fourth-quarter results reflect the 2019 sale of the company's Argentine steel aerosol business and Chinese beverage can assets, and the 2018 sale of the company's U.S. steel food and steel aerosol business.

Operational Update

Cost of sales declined to $2,159 million from $2,246 million the year-ago quarter. Gross profit was up $560 million from the year-ago quarter’s $557 million. Gross margin came in at 20.5% during the fourth quarter compared with the prior-year quarter figure of 19.8%.  

Selling, general and administrative expenses fell 29.3% year over year to $89 million. Adjusted operating income increased 14% to $340 million from the year-ago quarter figure of $298 million. The company reported operating margin of 12.5% compared with 10.6% in the year-ago comparable period.

Segment Performance

The Beverage packaging’s North and Central America segment revenues decreased to $1,111 million in the fourth quarter from $1,113 million a year ago. Operating earnings went up 8.6% year over year to $139 million.

Sales at the Beverage packaging, Europe segment came in at $599 million in the reported quarter, declining 4% year over year. Operating earnings increased 6.3% year over year to $67 million. Segment volume was driven by customers’ increasing preference for can over glass packaging, strong growth for energy drinks and growing demand for specialty cans.

The Beverage packaging South America segment’s revenues declined to $460 million during the fourth quarter from $472 million in the prior-year comparable period. Operating earnings moved up to $95 million from $78 million in the year-earlier quarter. Industry beverage can demand in South America remains strong as customers are shifting from glass packaging to aluminum cans.

In the Aerospace segment, sales rose 10.8% year over year to $398 million. Operating earnings fell to $37 million from year-ago quarter figure of $38 million. As of the end of 2019, the segment’s contracted backlog increased to $2.5 billion. Since then, the company has won contracts worth $4.2 billion, which have not yet been included in the backlog.

Financial Condition

Ball Corp reported cash and cash equivalents of $1,798 million at the end of 2019, up from $721 million at the end of the prior year. Cash flow from operating activities were $1,548 million during 2019, compared with the $1,566 million in 2018. The company’s long-term debt decreased to $6,337 million as of Dec 31, 2019, from $6,510 million as of Dec 31, 2018.

The company has returned more than $1 billion to shareholders in 2019 through dividends and share repurchases.

2019 Performance
 
Adjusted earnings per share for 2019 came in at $2.53, an improvement of 15% from the prior year. Earnings beat the Zacks Consensus Estimate of $2.50. Including one-time items, earnings in the period came in at $1.66, up 29% year over year.
 
Revenues were at $11.5 billion in 2019, reflecting year-over-year decline of 1.4%. The top line missed the Zacks Consensus Estimate of $11.6 billion.

Outlook

Ball Corp continues to anticipate long-term earnings per share growth of 10-15% and EVA dollar growth in the current year. The company is committed to improving earnings and cash flow in order to support disciplined capital investments and return value, worth $1 billion, to shareholders in 2020.

How Have Estimates Been Moving Since Then?

It turns out, fresh estimates have trended upward during the past month.

VGM Scores

Currently, Ball has a great Growth Score of A, though it is lagging a lot on the Momentum Score front with an F. Charting a somewhat similar path, the stock was allocated a grade of D on the value side, putting it in the bottom 40% for this investment strategy.

Overall, the stock has an aggregate VGM Score of C. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been trending upward for the stock, and the magnitude of this revision has been net zero. Notably, Ball has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.

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