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Ball Corp (BLL) Rides on Expansion, Domestic Beer Markets Ail

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On Jun 8, we issued an updated research report on Ball Corporation (BLL - Free Report) . The company will gain from its focus on expanding geographic footprint, aligning with the right customers and markets, expanding with new products and capabilities along with leveraging technical knowhow. However, declines in domestic beer consumption, slowdown in Brazil and demand volatility in the EMEA region remain headwinds.
 
Ball Corp’s first-quarter 2018 adjusted earnings of 50 cents per share beat the Zacks Consensus Estimate of 45 cents. Earnings also jumped 32% year over year, mainly driven by improved performance in all product lines and lower corporate costs. 
 
For fiscal 2018, Ball Corp expects free cash flow to be around $900 million and capital spending to be at least $600 million. Notably, the company reaffirmed that its comparable EBITDA will be $2 billion and free cash flow to be in excess of $1 billion in 2019.
 
The company's recent $750 million senior notes offering also bodes well for the long term. It remains optimistic about the recent tax reform which is likely to benefit Ball Corp’s end markets. The company estimates itwill reduce its effective tax rate on comparable earnings from approximately 25% in 2017 to around 24% in the current year.
 
Expansion in Capacity to Fuel Growth 
 
In 2018, Ball Corp will focus primarily on expanding geographic footprint, aligning with the right customers and markets, growing with new products and capabilities along with leveraging its technical knowhow. In line with this, the company’s construction of a state-of-the-art specialty beverage can-manufacturing facility in Goodyear, AZ, is right on schedule and budget with production beginning early in the second half of 2018.
 
Further, construction continues on the company's new aluminum beverage can facility in Madrid, Spain, which is scheduled to commence production in mid-2018. It also stated that the Colorado facility expansions in Westminster and Boulder, CO, are on track for completion in fourth-quarter 2018.
 
Increased Focus on Aluminium Packaging
 
Concerns regarding plastic pollution have persuaded consumers to increasingly prefer aluminum packaging. Further, aluminum has higher economic value currently. Further, the metal can be collected, sorted and recycled quite easily and cost effectively.
 
Per studies, aluminum packages have the highest global recycling rate of all beverage packaging substrates with more than 70% of all beverage cans recycled on a global basis compared with less than 15% for plastic. Consequently, Ball Corp is increasingly focused on promoting aluminum packaging and executing on growth capital projects
 
Weak Volumes in Domestic Beer Markets & Brazil 
 
Ball Corp. continues to face headwinds in domestic beer consumption in 2018. Due to continued domestic mass beer declines, the company's North American segment volumes were flat in the first quarter compared with the industry.
 
In Brazil, the company’s volume growth is predicted to be slower than the market rate during 2018 due to competition. It also anticipates tougher year-over-year comparison in the second half of 2018 for the business, due to the lack of profit recorded on the INS manufacturing contract in 2017.
 
The company's performance will be marred by volatile volumes in the EMEA beverage can business due to governmental regulation. Additionally, the 50% carbonation tax in Saudi Arabia and continued pricing pressures in China will dampen results. Further, ongoing geopolitical volatility will impact Middle Eastern operations. Ball Corp. is also facing tight supply and demand situation in the global aluminum aerosol business.
 
 
 
Ball Corp dropped 7% in the past year, outperforming the industry’s 9% decline.
 
The company currently carries a Zacks Rank #3 (Hold).
 
Stocks to Consider
 
Some better-ranked stocks in in the same sector include Axon Enterprise, Inc (AAXN - Free Report) , Caterpillar Inc. (CAT - Free Report) and Terex Corp. (TEX - Free Report) . All three stocks sport a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
 
Axon Enterprise has a long-term earnings growth rate of 25%. Its shares have appreciated 170% over the past year.
 
Caterpillar has a long-term earnings growth rate of 13.3%. The company’s shares have been up 46% in the past year.
 
Terex has a long-term earnings growth rate of 21%. The stock has gained 14% in a year’s time.
 
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