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Ball Corporation (BLL) Q2: Tops Earnings, View Positive

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Ball Corporation reported second-quarter 2016 adjusted earnings of $1.05 per share, surpassing the Zacks Consensus Estimate of 99 cents. Earnings also increased around 18% on a year-over-year basis, driven by the completion of legacy metal packaging growth projects, a robust aerospace backlog and the recent Rexam acquisition.

On a reported basis, the company posted earnings of $2.54 per share, compared to $1.13 per share in the prior-year quarter.

Operational Update

Total revenue declined 6.5% year over year to $2.03 billion in the reported quarter. Revenues also lagged the Zacks Consensus Estimate of $2.15 billion.

Cost of sales decreased roughly 10% year over year to $1.6 billion. Gross profit rose 9.3% year over year to $434 million. Gross margin expanded 310 basis points (bps) to 21.4%.

Selling, general and administrative expenses dropped 11% year over year to $105 million. Adjusted operating income jumped 20.7% to $251 million from $208 million in the year-ago quarter. The company reported operating margin of 12.4%, increased 280 bps year over year.

Segment Performance

The Metal Beverage Packaging, Americas & Asia segment’s revenues remained flat year over year to $1.1 billion in the reported quarter. Operating earnings of $137 million went up 8.7% year over year.

Sales at the Metal Beverage Packaging, Europe segment were $479 million in the reported quarter, down 0.4% year over year. Operating earnings surged 25.4% year over year to $74 million, driven by lower year-over-year aluminum premiums and sturdy demand for specialty containers.

The Food and Aerosol Packaging segment’s sales were $298 million, declining 10.2% year over year. Operating earnings also saw a 13.8% year-over-year improvement to $33 million.

In the Aerospace and Technologies segment, sales fell 16% year over year to $193 million. Operating earnings plummeted to $19 million from $20 million in the year-ago quarter. The segment’s backlog grew to more than $1 billion at the end of second quarter, with more of the new business awards being oriented to cost-plus contracts.

Financial Condition

Ball Corporation had cash and cash equivalents of $6,399 million at the end of second-quarter 2016 compared with $229 million at second-quarter 2015 end. As of quarter end, Ball Corporation’s long-term debt increased to $8.2 billion from $2.9 billion as of Jun 30, 2015.

BALL CORP Price, Consensus and EPS Surprise

BALL CORP Price, Consensus and EPS Surprise | BALL CORP Quote

Outlook

Ball Corporation is poised to benefit from focus on increasing EVA dollar generation, earnings and cash flow. The company expects full-year 2017 free cash flow to be in the range of $750 million–$850 million, excluding one-time items related to the Rexam buyout.

Given the strength of its underlying businesses and the value potential of the Rexam acquisition, Ball Corporation guides long-term goal of 10%–15% comparable diluted earnings per share growth over each of the next three years. Further, multiple growth capital projects ramping up in the remainder of 2016 and beyond remain tailwinds.

In June, the company started up the second beverage can line at its Monterrey, Mexico, facility, as well as production at its new facility in Myanmar. Ball Corporation’s Aerospace and technologies business will gain from a diverse portfolio of new contracts which will leverage its existing technologies and value-added approach to deliver solutions to customers. The aerospace team is staffing up to further support this backlog and the added labor base will bolster revenue growth in the second half of the year.

Broomfield, CO-based Ball Corp. is the largest manufacturer of beverage cans in North America. It also supplies aerospace as well as other technologies and services to the government and customers.

Zacks Rank

Currently, Ball Corporation has a Zacks Rank #3 (Hold). Some better ranked stocks in the sector are Greif, Inc. (GEF - Free Report) , Avery Dennison Corporation (AVY - Free Report) and ACCO Brands Corp. (ACCO - Free Report) . Each of these stocks carry a Zacks Rank #2 (Buy).

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