On Apr 12, we maintained our Neutral recommendation on Ball Corporation (BLL - Analyst Report), manufacturer of metal and plastic packaging for beverages and foods, based on expected benefits from growth in its specialty beverage container business, introduction of new products, expansion in emerging markets and strong backlog in its aerospace and technologies segment, offset by concerns regarding loss of a customer, weak economic condition in Europe and pricing pressure in China.
Ball Corporation’s fourth-quarter 2012 adjusted earnings of 64 cents per share fell short of the Zacks Consensus Estimate of 66 cents but increased 33% from the year-ago adjusted earnings of 48 cents. Total revenue improved 3% year over year to $2.114 billion, ahead of the Zacks Consensus Estimate of $2.107 billion.
Ball continues to expand its specialty beverage container business, which accounts for more than 15% of its global beverage packaging sales. Strong customer demand for Ball’s popular Alumi-Tek bottle, the introductions of the new “Royal Pint” 568mL can and further launch of different sized Sleek can formats in North America, and the debut of its premium, “Protected Quality” seal wine can in Europe helped drive double-digit growth in specialty packaging in 2012.
Ball will continue to benefit from expansion in developing regions such as Brazil. The Brazilian can market grew approximately 10% in 2012, and demand is expected to continue to increase. In the region, Ball announced that its joint venture metal beverage can plant in Alagoinhas, which began production earlier in 2012, will start a second beverage can production line in the second half of 2013.
In December, Ball acquired Envases del Plata S.A. de C.V., a leading producer of extruded aluminum aerosol packaging in Mexico. Ball is the largest supplier of extruded aluminum slugs in the world, and this acquisition provides a new end market for its products. Demand for extruded aluminum packaging for personal care products continues to increase, thus providing new opportunities for Ball’s growing business.
Ball Corporation’s aerospace and technologies segment ended 2012 with record sales and profits, driven by exceptional program performance. Despite continued uncertainty around the U.S. federal budget, Ball Aerospace ended the year with a strong backlog of more than $1 billion.
On the flipside, late in the second quarter of 2012, Ball was notified by a customer its intent to source beverage cans from an alternative supplier, effective Jan 1, 2013. The volume loss, continued macro weakness in Europe and pricing pressure in China given excess capacity in the region remain headwinds.
Other Stocks to Consider
Ball Corporation retains a short-term Zacks Rank #3 (Hold). Packaging Corp. of America (PKG - Snapshot Report) with a Zacks Rank #1 (Strong Buy) and Berry Plastics Group, Inc. (BERY - Snapshot Report) and Graphic Packaging Holding Company (GPK - Snapshot Report) with a Zacks Rank #2 (Buy) are more favorable options for investors keen on the packaging and containers industry.