Solid Beverage Can Demand Aids Ball Corp (BLL) Amid FX Woes

On Nov 6, we issued an updated research report on Ball Corporation BLL. The company is well poised to gain from growing preferences for aluminum packaging, robust aerospace backlog, capacity expansion and new products. 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 to Boost Growth

Global beverage-can demand continues to grow as customers now prefer cans over glass and plastic. Ball Corporation remains poised to bank on this demand by investing in capacity and products. The company expects capital spending to be more than $600 million in 2019 and beyond. Ball Corporation continues to execute its strategies of achieving better value for standard products and higher growth for specialty products. Its focus on cost-cutting actions will also bolster margins.

Investments to Spur Growth

The company has been largely investing in aluminum packaging production to serve the rising demand for aluminum cans, bottles and cups. Ball Corporation 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. It also announced its plan to construct a new beverage can plant in Glendale, AZ, to support the new can-filling facility for customers. Also, Ball Corporation completed the sale of its China beverage can business and expects to receive the cash proceeds in the ongoing quarter. This apart, it announced the sale of its Argentine steel aerosol business, subsequently closing on the deal in October.

Segments Poised for Growth

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 in the back half of 2019.

The Beverage Packaging, South America segment is also placed well for improved results in 2019, driven by product launches for beer, wine, energy and still water in cans, as well as 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 revenue to register strong double-digit growth over the next several 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, in order to serve strong demand growth, particularly in specialty can sizes, the North and Central America segment has been battling short-term costs due to tight inventories. Moreover, the business remains challenged with U.S. aluminum scrap headwinds.

Additionally, year-over-year segment volume growth has been limited by the availability of cans. Thus, until new production comes online, the segment’s volume is likely to be suppressed. Moreover, conflicts in the Middle Eastern are likely to unfavorably impact volumes in the region.

Price Performance

Ball Corporation's shares have gained 36.9% over the past year, outperforming the industry’s growth of 35.1%.

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