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Beverage Can Demand to Aid Ball Corp (BLL) Amid High Costs

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Ball Corporation (BLL - Free Report) has been witnessing strong demand for beverage cans for the past few quarters. This is expected to continue on account of customers’ growing preference for cans over plastic owing to increasing awareness about environmental problems. The company has been investing significantly to capitalize on this demand. Robust backlog levels and business wins continue to drive the Aerospace segment. Focus on launching new products and efforts to cut down costs will aid results as well. However, supply constraints, start-up costs related to the increased capacity coming on-line and high debt level remain concerns.

Beverage Cans are Here to Stay

The beverage can industry has been witnessing unprecedented demand over the past few years. Changing lifestyle choices, population growth, increasing disposable income and awareness regarding the environment has led to this shift. An estimated 75% of new beverage product launches are now in cans. By 2025, the global beverage can industry is projected to grow by approximately 100 billion units. Ball Corp is aggressively investing in capacity to capitalize on this demand.

In the Beverage packaging, North and Central America segment, the new Glendale, AZ, facility successfully started up its second and third lines during the second quarter and the Pittston, PA facility commenced initial beverage can production on two lines in the second quarter. 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 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 are anticipated to be up high-single digits in 2021 and beyond. In the Beverage Packaging, South America segment, the company expects can growth in mid-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.  Overall, the company is on track to add at least 25 billion units of capacity by 2023 end.

Aluminum Cup Business to Act as a Key Catalyst

The company has successfully launched its infinitely recyclable Aluminum Cup in more than 18,000 food, drug and mass retailers in the United States. It is providing 16-ounce, 20-ounce and 24-ounce aluminum cup to numerous sports and entertainment venues as COVID restrictions moderate. The company continues to expect the cups business to deliver profits starting in 2022.

Aerospace Segment Poised Well

Contracted backlog at the Aerospace segment, which contributes around 15% to the company’s revenues, was a record $3 billion as of second-quarter 2021 end. Contracts already won but not yet booked into current contracted backlog was $5 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.

Costs to Dent Margins

The company might incur higher-than-expected start-up costs due to the ongoing capacity expansion efforts to meet growing demand for cans. Supply constraints and labor costs will impact results in the near term. Despite the company’s efforts to lower its debt levels, its total debt to total capital ratio remains high at 0.68 as of Jun 30, 2021, which is concerning. High debt levels and the consequent higher interest expense remains a headwind.

Share Price Performance

The company’s shares have appreciated 18.1% over the past year compared with the industry’s rally of 22.8%.

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Zacks Rank and Stocks to Consider

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

Some better-ranked stocks in the Industrial Products sector include Greif, Inc. (GEF - Free Report) , Lindsay Corp. (LNN - Free Report) and Pentair plc (PNR - Free Report) , each carrying a Zacks Rank #2 (Buy), at present. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Greif has an anticipated earnings growth rate of 47.2% for fiscal 2021. The company’s shares have gained 29.9%, in the past year.

Lindsay has an estimated earnings growth rate of 1% for the ongoing fiscal year. In a year's time, the company’s shares have rallied 22.3%.

Pentair has a projected earnings growth rate of 26% for 2021. The stock has appreciated 36.7%, over the past year.


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