Ball Corporation (NYSE:BALL) Q1 2024 Earnings Call Transcript April 26, 2024
Ball Corporation beats earnings expectations. Reported EPS is $0.68, expectations were $0.56. Ball Corporation isn’t one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).
Operator: Greetings and welcome to the Ball Corporation First Quarter 2024 Earnings Conference Call. At this time all participants are in a listen-only mode. A brief question-and-answer session will follow the formal presentation. [Operator Instructions] As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Brandon Potthoff, Investor Relations for Ball Corporation. Thank you, sir. You may begin.
Brandon Potthoff: Thanks, Christine. Good morning, everyone. This is Ball Corporation’s conference call regarding the company’s first quarter 2024 results. The information provided during this call will contain forward-looking statements. Actual results or outcomes may differ materially from those that may be expressed or implied. Some factors that could cause the results or outcomes to differ are in the company’s latest 10-K and other company SEC filings as well as company news releases. If you do not already have the earnings release, it is available on our website at ball.com. Information regarding the use of non-GAAP financial measures may also be found in the notes section of today’s earnings release. In addition, the release includes a summary of non-comparable items as well as a reconciliation of comparable net earnings and diluted earnings per share calculations.
References to net sales and comparable operating earnings in today’s release and call do not include the company’s former aerospace business, year-over-year net earnings attributable to the corporation and comparable net earnings do include performance of the company’s former aerospace business through the sale date of February 16, 2024. I would now like to turn the call over to Dan Fisher, CEO.
Dan Fisher: Thank you, Brandon. Before we discuss Ball’s strong earnings and improved volume performance, I would like to thank all of the Ball team members that worked tirelessly to achieve the successful aerospace business sale on February 16, 2024. Sale proceeds were immediately put to work to reduce our leverage, strengthen our balance sheet and return value to shareholders. In addition, I would also like to share that Ann Scott has announced her retirement as Head of Investor Relations after 37 years with the company. Just this week, Ann’s first grandchild Isabella Ann arrived safely into the world. Needless to say, we all know what Ann will be doing in retirement, babysitting, golf and being a lifetime Ball cheerleader and will provide behind-the-scenes support to Ball through the end of the year.
So as she winds down her time as a full-time employee, feel free to extend your well wishes via her Ball e-mail. As you can tell from our call introduction today, our Investor Relations succession plan has been activated with Brandon taking the lead as the head of the department. Congratulations to Ann and her family on the new grand baby and her well-earned retirement and for your support of Brandon and Miranda as they take the next steps in their careers at Ball. Today, I’m joined on our call by Howard Yu, EVP and CFO. I will provide some brief introductory remarks. Howard will discuss the first quarter financial performance and key metrics for 2024 and then we will finish up with closing comments and Q&A. Our team delivered strong first quarter results following the successful and earlier than anticipated sale of the aerospace business during the quarter.
Global beverage can shipments increased 3.7% in the quarter, and we immediately executed our plans to deploy sale proceeds to deleverage and initiate a large multiyear share repurchase program. Reflecting further on year-to-date 2024 performance, aluminum packaging continues to outperform other substrates across the globe. In North America and EMEA, first quarter volumes exceeded our internal expectations as customers pulled forward volume in preparation for the summer selling season, following notable fourth quarter 2023 destocking. In South America, strong volume performance driven by our customer mix and warm weather continued in Brazil. For a complete summary of regional shipments for the first quarter, please refer to today’s earnings release.
Given seasonality, our customer mix and incorporating first quarter regional volume performance, we anticipate full year global shipments to grow in the low to mid-single digits range. Key drivers in 2024 are the benefits of deleveraging, repurchasing shares, improving operational efficiencies and fixed cost absorption, and leveraging our well-capitalized plant assets to grow the use of innovative, sustainable aluminum packaging across channels, categories and venues. In addition, to further actions to strengthen the balance sheet and reduce long-term liabilities. Based on our current demand trends and the previously mentioned drivers, we are positioned to grow comparable diluted EPS mid-single digits plus off 2023 reported comparable EPS of $2.90 per share, generate strong free cash flow, strengthen our balance sheet and return of value in the range of $1.5 billion to shareholders via share repurchases and dividends in 2024.
We look forward to showcasing our team and unveiling our future operating model and long-term growth plans at our biannual Investor Day scheduled for June 18 in New York City at the New York Stock Exchange. With that, I’ll turn it over to Howard.
Howard Yu: Thank you, Dan. Turning to our results. First quarter 2024 comparable diluted earnings per share was $0.68 versus $0.69 in the first quarter of 2023. First quarter sales decreased slightly due to the pass-through of lower aluminum prices and lower volumes in North America, offset by the pass-through of inflationary costs and increased volumes in South America. First quarter comparable net earnings of $217 million were flat year-over-year, primarily due to improved year-over-year performance in North America, EMEA and South America, offset by lower year-over-year results in non-reportable other, which were driven by improved comparable operating earnings in our aluminum aerosol business, being more than offset by non-comparable SG&A costs associated with the aerospace sale and higher year-over-year undistributed costs, which are detailed in footnote two of today’s release.
In North America, segment earnings exceeded our expectations and offset notable year-over-year headwinds associated with the U.S. beer brand disruption and the favorable benefits of the virtual power purchase agreement termination. The earlier than anticipated closure of Kent plant, which permanently ceased production during the first quarter, also aided results and supply-demand balance across our system. Benefits of effective cost management and plant efficiencies across our well capitalized plant network will support incremental volume growth without spending incremental growth capital. We continue to anticipate sequential earnings improvement during the seasonal summer quarters driven by modest volume improvement, improve fixed cost absorption, and effectively managing risk.
In EMEA, the business continues to navigate varying consumer end demand conditions, particularly in Egypt. Overall segment volumes were up slightly in the quarter, following notable destocking by certain customers in late 2023. In recent weeks, demand trends have remained favorable and the business continues to be poised for year-over-year comparable earnings growth in 2024, oriented largely to the second half and driven by volume and mix. In South America, our segment volumes increased 26.3% in the first quarter, driven by strong demand in Brazil and our customer mix. The Brazilian can market was up 18% in the first quarter. We continue to monitor the dynamic economic situation in Argentina and potential scenarios that could impact results.
We remain optimistic about Brazil and our ability to deliver sequential earnings and volume improvement as we exit the summer selling season in South America. Additionally, in the first quarter of 2024 and up through the February 16 date of sale, our former aerospace business made $27 million of comparable operating earnings, which is included in the comparable net earnings of $217 million that I referenced earlier. Moving on to additional key financial metrics and goals for 2024, we now anticipate year end 2024 net debt to comparable EBITDA to below 2.5 times. While we are currently at 2.2 times at the end of the first quarter, net debt to comparable EBITDA will nudge slightly higher by year end as the company starts payments of tax due on the gain of the sale of aerospace.
2024 CapEx is targeted to be in the range of $650 million a year-over-year reduction of $400 million, and largely driven by carry in capital related to prior year’s projects. We are on track to achieve our free cash flow target. Share repurchases are expected to be in the range of $1.3 billion by year end. Through today’s call, we have repurchased approximately $350 million in shares year-to-date. And earlier this week the Board increased the share repurchase authorization to 40 million shares. The new authorization replaces all prior authorizations. This increased authorization will enable meaningful share repurchases during 2024 and beyond. Our 2024 full year, effective tax rate on comparable earnings is expected to be approximately 21%, largely driven by lower year-over-year R&D tax credit associated with the sale of the company’s Aerospace business.
Relative to the estimated tax payments due on aerospace sale, the approximate $1 billion taxes due will be paid throughout the remainder of 2024. Full year 2024 interest expense is expected to be in the range of $320 million. Excluding the non-comparable aerospace disposition compensation costs, full year 2024 reported adjusted corporate undistributed costs recorded in other nonreportable are still expected to be in the range of $85 million. And earlier this week, Ball’s Board declared its quarterly cash dividend. Looking ahead to the rest of 2024, we remain laser-focused on operational excellence, driving efficiency and productivity across our business and cost management and monitoring emerging market volatility. We are committed to maximizing the full potential of our company over the long-term.
We have executed on derisking the corporation through recent debt retirements, and we have no significant near-term maturities. The runway is clear for us to activate near-term initiatives to consistently deliver high-quality results and generate compounding shareholder returns. With that, I’ll turn it back to Dan.
Dan Fisher: Thanks, Howard. Given the strong start to the year in 2024, we anticipate growing our comparable, diluted EPS mid-single digits plus by offsetting the divestiture through growth in our aluminum packaging operations, interest income, lower interest expense and the benefit of a lower share count. Looking ahead, we are focused on executing our enterprise-wide strategy to advance sustainable aluminum packaging solutions on a global scale by accelerating our pathway to carbon neutral and unlocking additional value from within the organization by driving continuous process improvement and operational excellence. Together, we will strive to deliver innovative aluminum packaging solutions that can lead to a world free from waste and embark on a path to deliver compounding shareholder returns in 2024 and beyond.
We very much appreciate the work being done across the organization and extend our well wishes to our employees, customers, suppliers, stakeholders and everyone listening today. Thank you. And with that, Christine, we are ready for questions.
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