Ball Corp. Beats EPS, Sales Lag

Ball Corporation’s (BLL - Analyst Report) second-quarter 2012 adjusted earnings were 89 cents per share, which exceeded the Zacks Consensus Estimate of 87 cents, as well as the year-ago adjusted earnings of 85 cents.

Including business consolidation charges and other one-time items, the company reported earnings of 88 cents per share compared with the year-ago earnings of 84 cents.

Total revenues decreased 0.6% year over year to $2.296 billion, missing the Zacks Consensus Estimate of $2.347 billion.

Cost of sales increased marginally by 0.3% year over year to $1.89 billion. Selling, general and administrative expenses increased 5.9% to $98.6 million in the reported quarter.

Segment Performance

Metal Beverage Packaging, Americas & Asia segment’s sales increased 3.7% year over year to $1.208 billion in the quarter. The growth was attributable to higher demand for specialty packaging in the U.S., offsetting the negative impact of weak demand for cans in North America. Operating earnings increased 8.5% to $136.8 million in the quarter.

Sales for Metal Beverage Packaging, Europe segment decreased 9.3% year over year to $556.2 million in the quarter. The decline in sales was due unfavorable currency exchange. Operating earnings declined 28.9% to $65.7 million in the quarter.

Sales in Metal Food & Household Products Packaging, America segment declined 5.5% to $327.6 million. The decline in sales was due to the absence of inventory holding gains and the decrease in food can volumes, partially offsetting the improved manufacturing and extruded aluminum slug business performance. Consequently, operating earnings dropped 29.5% to $31.9 million.

In the Aerospace and Technologies segment, sales increased 5.2% to $210.3 million. Operating earnings dropped 7.4% to $20.2 million in the quarter. The segment had a backlog of $780.4 million at the end of the quarter.

Financial Performance

Cash and cash equivalents were $123.5 million as of July 1, 2012, compared with $144.8 million as of July 3, 2011. Long-term debt amounted to $2.96 billion as of July 1, 2012, compared with $3.12 billion as of July 3, 2011.

Cash used in operating activities was $75.1 million during the second-quarter 2012 versus $163.1 million during second-quarter 2011. Capital expenditure was $138.5 million in the reported quarter compared with $213.5 million in the year-ago quarter.

Outlook

The company expects free cash flows of approximately half billion dollars. It plans to reduce investment in order to sustain during the weak global economic conditions. The company expects to achieve earnings growth in the range of 10%-15% in 2012 and beyond.

Our Take

We expect that The Drive for 10 strategy will help in delivering better results over the next decade. The company is focusing on expanding its global footprint by constructing new plants in the emerging markets.

However, the company faces intense competition in the packaging business from other established players, such as Crown Holdings Inc. (CCK - Snapshot Report), Rexam Plc. (REXMY) and Silgan Holdings Inc. (SLGN - Analyst Report). Moreover, the weak global economic conditions will also prove to be difficult for its performance moving ahead.

Ball Corp. retains a short-term Zacks #4 Rank (Sell rating). Currently, we have a long-term Neutral recommendation on the stock.