Ball Sheds Extra Flab

Yesterday, metal and plastic packaging manufacturer, Ball Corporation (BLL - Analyst Report), announced the sale of its plastic pail assets to BWAY Corporation (BWY - Snapshot Report) for approximately $32 million. The sale, which is expected to close by the end of October, primarily involves the sale of a pail manufacturing plant in Newnan, Georgia. 

Ball acquired this plant in 2006 as part of its purchase of U.S. Can Corporation. The plant produces injection molded plastic pails and drums for products such as building materials and pool chemicals and employs approximately 110 people. Ball said that the plastic pail product line is a small part of its Plastic Packaging segment (9.7% of 2008 revenue) and is not a strategic focus area. 

The company is now focusing on its core businesses. As a part of this strategy, Ball plans to expand its global metal beverage can business. Accordingly, the company recently acquired four low-cost metal beverage packaging manufacturing plants in the U.S. 

Also, it upgraded its metal beverage packaging pilot manufacturing line at the Ball Technology & Innovation Center (BTIC) in Broomfield, Colorado, by adding a new palletizer, a state-of-the-art decorator and several other improvements. Given its ability to generate strong cash flows, we believe Ball is in a good position to invest for growth in its core businesses. 

Ball generated free cash flow of $321 million in 2008 and expects to generate approximately $375 million in free cash flows in 2009. However, until we see some substantial recovery in the company’s end markets, we would remain on the sidelines. We maintain a Neutral recommendation on the stock.