On Dec 6, we issued an updated research report on Ball Corporation BLL. Overall global beverage can demand continues to grow as customers are now preferring cans over glass and plastic. The company seems well poised to capitalize on this demand by investing in capacity expansion and new products. Robust backlog also signals continued momentum in the aerospace segment. However, headwinds related to currency, higher freight rates and tight metal supply in the United States remain headwinds.
Let’s analyze these factors in detail.
Rising Beverage Can Demand: A Key Catalyst
Global beverage-can demand continues to grow as customers now prefer cans over glass and plastic. The company remains well positioned to bank on this demand by investing in capacity and products.
It expects capital spending to be more than $600 million in 2019 and days ahead. Ball Corporation continues to focus on initiatives in order to achieve better value for standard products and higher growth for specialty products. The company’s cost-cutting actions will also bolster margins.
Investments in Capacity to Meet Demand
Ball Corporation’s balance sheet remains healthy and provides flexibility to invest in capacity while returning value to shareholders. The company has been primarily investing in aluminum packaging production to cater to the rising demand for aluminum cans, bottles and cups. It is focused on improving operational efficiencies and ramping-up the previously-announced line additions and greenfield-plant expansions, in order to add at least 5 billion units of capacity over the next 12-18 months.
Additionally, the company successfully launched lightweight aluminum cups in response to customers’ increasing demand for sustainable products. Ball Corporation also announced its plan to construct a new beverage can plant in Glendale, AZ, to support the new can-filling facility for customers. Further, the company completed the sale of its China beverage can business and expects to receive the cash proceeds in the ongoing quarter.
Ongoing Momentum in Segments
The company expects to achieve EBITDA of $2 billion and free cash flow of $900 million in 2019, backed by continued strong demand for aluminum packaging and robust aerospace backlog. The Beverage Packaging, North and Central America segment will benefit from volume growth, product introductions and capacity expansion.
The Beverage Packaging, South America segment is also poised well for improved results in 2019, driven by product launches for beer, wine, energy and still water in cans, and multiple brewery expansions. The Beverage Packaging, Europe segment will gain on customers’ growing preference for cans and increased production from new lines in the company’s existing facilities.
Ball Corporation expects the Aerospace segment’s earnings and revenues to register strong double-digit growth over the next few years. The Aerospace segment has won contracts worth $4.5 billion since the end of third-quarter 2019.
Few Headwinds Ahead
Headwinds related to currency and higher freight rates are likely to affect Ball Corporation’s results. Furthermore, the North and Central America segment has been incurring short-term costs due to tight inventories. This can be attributed to strong demand growth, particularly in specialty can sizes. Moreover, the business remains challenged with U.S. aluminum scrap headwinds.
Ball Corporation's shares have gained 31.5% over the past year against the industry’s growth of 35.3%.
Zacks Rank & Stocks to Consider
Ball Corporation currently carries a Zacks Rank #3 (Hold).
Some better-ranked stocks in the Industrial Products sector are Northwest Pipe Company NWPX, Tennant Company TNC and Sharps Compliance Corp SMED. All of these stocks sport a Zacks Rank #1 (Strong Buy), at present. You can see the complete list of today's Zacks #1 Rank stocks here.
Northwest Pipe has an expected earnings growth rate of 15.8% for the current year. The stock has appreciated 53% over the past year.
Tennant has a projected earnings growth rate of 29.8% for 2019. The company’s shares have rallied 41% over the past year.
Sharps Compliance has an estimated earnings growth rate of 500% for the ongoing year. In a year’s time, the company’s shares have gained 38%.
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