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Will Ball Corp (BLL) be Affected by Dismal Can Business?

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On Aug 10, we issued an updated research report on Ball Corporation (BLL - Free Report) .

Issues in the EMEA segment’s food can business, as well as additional depreciation and non-steel related amortization are expected to hamper the company’s performance. In addition, elevated expenses, and political and economic unrest in Egypt remain concerns.

In its second-quarter conference call, Ball Corporation anticipates earnings per share growth for 2017 to be lower than the guidance range of 20–30% due to issues in the EMEA segment’s food can business. The company expects that the decline in food can business will continue due to timing issues with some customers. Further, one of the company’s large customers is experimenting with an alternative substrate which remains a concern for Ball Corporation’s volume.

Also, Ball Corporation expects to report $11 million of depreciation per quarter. This depreciation will offset the segment earnings with $8 million per quarter in Europe, and $1 million for each quarter in North America, South America and the balance for EMEA. The increased depreciation is expected to hurt the company’s results.

The company’s performance will also be marred by political and economic unrest in Turkey and Egypt. There has been a 40% increase in retail price points in Egypt due to the devaluation. Additionally, the 50% carbonation tax in Saudi Arabia remains an issue as it has been marring consumer demand in the region.

Ball Corporation projects full-year 2017 interest expense in the range of $280 million. The company anticipates its year-end net debt to be at the higher end of the $6.2–$6.3 billion range due to the strength of the euro. It also estimates corporate undistributed cost to be nearly $140 million for 2017, due to escalated IT and certain project costs, as well as European pension expenses. These elevated expenses will adversely affect earnings for 2017.

Moreover, Ball Corporation underperformed the industry with respect to price performance over the past one year. The stock lost around 0.6%, while the industry recorded growth of 7.8%.

Ball Corporation currently has a Zacks Rank #4 (Sell).

Stocks to Consider

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