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Ball Corporation (BLL - Analyst Report) reported third-quarter 2012 adjusted earnings of 90 cents per share, which exceeded the Zacks Consensus Estimate of 87 cents, as well as the year-ago adjusted earnings of 81 cents.

Including business consolidation charges and other one-time items, the company reported earnings of 73 cents per share compared with the year-ago earnings of 79 cents.

Total revenues increased 1.1% year over year to $2.283 billion, missing the Zacks Consensus Estimate of $2.286 billion.

Cost of sales edged up 0.2% year over year to $1.866 billion. Selling, general and administrative expenses dipped 3.8% to $86.3 million in the reported quarter.

Segment Performance

Metal Beverage Packaging, Americas & Asia segment’s sales increased 3.9% year over year to $1.170 billion in the quarter. The growth was attributable to higher sales volumes in Brazil and China as well as to new plants in Alagoinhas, Brazil and Qingdao. Operating earnings rose 18.4% to $142.2 million in the quarter.

Sales from the Metal Beverage Packaging, Europe segment decreased 4.3% year over year to $493.4 million in the quarter. The decline was due to unfavorable currency exchange movements. Operating earnings declined 4.8% to $61.8 million in the quarter.

Sales in Metal Food & Household Products Packaging, America segment declined 2.4% to $403.2 million. The decline was due to lower volumes, hurt by the impact of drought on the seasonal fruit and vegetable harvest. Operating earnings, however, went up 7.8 % to $42.6 million.

In the Aerospace and Technologies segment, sales increased 5.5% to $219.9 million. Operating earnings increased 6% to $22.5 million in the quarter. The segment had a record backlog of $1.1 billion at the end of the quarter.

Financial Condition

Cash and cash equivalents were $181.2 million as of September 30, 2012, compared with $190.1 million as of October 2, 2011. Long-term debt amounted to $2.93 billion as of September 30, 2012, compared with $2.98 billion as of October 2, 2011.

Cash used in operating activities was $388.3 million for the first nine months ended September 30, 2012, versus $441 million for the first nine months ended October 2, 2011. Capital expenditure was $206.9 million for the first nine months ended September 30, 2012, versus $323.8 million in the year-ago comparable period.

Outlook

The company expects free cash flows of approximately half billion dollars. It plans to reduce expenses and focus on growth opportunities 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.

Our Take

Ball Corp. intends to acquire the leading extruded aluminum aerosol packaging producer, Envases del Plata S.A. de C.V, with a manufacturing facility at San Luis Potosi, Mexico. Furthermore, Ball Corp. and Envases del Plata group have decided to form a joint venture in Argentina. Under the deal, Ball Corp. will own 25% of the joint venture while Envases owning the remaining 75%.

As a result, Ball Corp. will get the opportunity to improve its technologies in the manufacturing of extruded aluminum packaging and cater to a wide client base in North America as well as in Argentina and Brazil.  

However, the drought conditions in the U.S. are expected to hinder volume growth in the Metal Food & Household Products Packaging, in the America segment. Moreover, weak economic condition in Europe will be a headwind in the upcoming quarters.

Ball Corp. retains a short-term Zacks #3 Rank (Hold). We have a long-term Neutral recommendation on the stock.
 

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