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Ball Corp (BLL) Bets on Beverage Can Demand Amid Cost Woes

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Ball Corporation (BLL - Free Report) is benefiting from the growing preference for aluminium packaging globally. The company has been investing significantly to capitalize on this demand. Robust backlog levels and business wins continues to drive the Aerospace segment. Focus on launching new products and efforts to cut down costs will also aid results. However, supply constraints, start-up costs related to the increased capacity coming on-line and its high debt levels remain concerns.

Riding High on Global Beverage Can Demand

Global beverage-can demand continues to shoot up as consumers now prefer cans over glass and plastic. Ball Corp is investing in capacity and products to meet this demand. In 2020, the company invested around $1.1 billion in capital expenditures and projects another $1.5 billion in 2021. It plans to invest significantly to expand aerospace facilities, and beverage can production capacity in North America, EMEA and South America, while also investing in aluminum cups business.

In the Beverage packaging, North and Central America segment, the new Glendale, AZ, facility successfully started operating during first-quarter 2021 and Pittston, PA facility is expected to be online in ongoing quarter. These facilities are anticipated to end this year with four lines operational in each facility. Both facilities are scalable to add incremental capacity throughout 2022 and beyond to meet the growing demand. The new aluminum end manufacturing facility in Bowling Green, KY is expected to begin production in late 2021. The company envisions volume growth of more than 6% over the next three to five years, which will fuel growth in the segment over the said time frame.

The Beverage Packaging, EMEA segment will gain from multiple beverage can line additions that are being executed across the U.K., Czech Republic and Russia in order to meet demand. European beverage can volumes is anticipated to be up mid-single digits in 2021 and beyond. In the Beverage Packaging, South America segment, the company expects can growth in the mid to high teens. The previously announced multi-line facility in Frutal, Brazil, is on track to commence production in the back half of this year. Multiple production lines are expected to come on line this year and beyond to support the expected growth across the region.

Aerospace Segment Poised Well

The Aerospace segment’s contracted backlog remains strong at $2.2 billion as of first-quarter 2021 end. Contracts already won but not yet booked into current contracted backlog was $5.3 billion. Contracted and won-not-booked backlog are anticipated to go up this year and segment earnings remain on track to deliver double-digit growth.

Program execution remains at a high level across the business. The segment continues to win and provide mission-critical programs and technologies to U.S. government, defense, intelligence, reconnaissance and surveillance customers. Multiple projects to expand manufacturing capacity, test capabilities and engineering and support workspace are on track.

Primary Headwinds

Despite new capacity coming online, demand continues to outstrip supply across North America, South America and EMEA business. Due to these supply constraints, Ball Corp is importing cans to meet demand until its new plants ramp up. This, in turn, will lead to higher freight costs. The company might incur higher-than-expected start-up costs due to the ongoing capacity expansion efforts to meet growing demand for cans. In 2021, start-up costs are anticipated to be around $50 million with three plants coming online in North America.

Despite the company’s efforts to lower its debt levels, its total debt to total capital ratio remains high at 0.68 as of Mar 31, 2021, which is concerning. However, it is lower than the industry’s 0.70. Further, its times interest earned ratio was 4.2 at the end of first-quarter 2021, lower than the industry’s 4.4. High debt levels and the consequent higher interest expense remains a headwind.

Share Price Performance

Ball Corporation's shares have appreciated 34% over the past year compared with the industry’s rally of 44.4%.

Zacks Rank and Stocks to Consider

Ball Corporation currently carries a Zacks Rank #3 (Hold).

Some better-ranked stocks in the Industrial Products sector include AGCO Corporation (AGCO - Free Report) , Avery Dennison Corporation (AVY - Free Report) and Caterpillar Inc. (CAT - Free Report) . All of these stocks carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

AGCO Corporation has a projected earnings growth rate of 54.6% for the current year. Shares of the company have soared 217% over the past year.

Avery Dennison has an estimated earnings growth rate of 20.8% for 2021. The company’s shares have rallied 112% in a year’s time.

Caterpillar has an expected earnings growth rate of 45.6% for the ongoing year. Over the past year, the stock has appreciated 131%.

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