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Ball (BLL) Up 3.1% Since Last Earnings Report: Can It Continue?

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It has been about a month since the last earnings report for Ball (BLL - Free Report) . Shares have added about 3.1% in that time frame, outperforming the S&P 500.

Will the recent positive trend continue leading up to its next earnings release, or is Ball due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important drivers.

Ball Corporation Q3 Earnings Lag, Sales Top Estimates

Ball Corporation reported third-quarter 2018 adjusted earnings of 56 cents per share, which increased 7.7% year over year. However, the reported figure missed the Zacks Consensus Estimate of 60 cents. The company’s results were driven by strong operational performance in every businesses, as well as lower corporate costs, despite certain start-up costs, elevated transportation costs and higher effective tax rate.

On a reported basis, the company posted earnings of 17 cents per share compared to 13 cents per share recorded in the prior-year quarter.

Total revenues inched up 1.3% year over year to $2,946 million in the reported quarter. The revenue figure surpassed the Zacks Consensus Estimate of $2,777 million.

Operational Update

Cost of sales inched up 1% year over year to $2,362 million. Gross profit improved 2.5% year over year to $584 million. Gross margin contracted 20 basis points (bps) to 19.8%.

Selling, general and administrative expenses went down 11% year over year to $113 million. Adjusted operating income increased 6% to $471 million from the $443 million reported in the year-ago quarter. The company reported operating margin of 16%, up 80 bps year over year.

Segment Performance

In July 2018, Ball Corporation sold its U.S. steel food and steel aerosol business. Thus, the company will now operate in four reportable segments.

The Beverage packaging’s North and Central America segment’s revenues went up 14.5% year over year to $1,237 million in the quarter under review. Operating earnings of $153 million improved 26% year over year.

Sales in the Beverage packaging, Europe segment came in at $683 million in the quarter, advancing 5% year over year. Operating earnings climbed 14% year over year to $84 million.

The Beverage packaging South America segment’s revenues declined 8% year over year to $391 million in the Sep-end quarter. Operating earnings of $71 million declined from $78 million recorded in the prior-year quarter.

In the Aerospace and Technologies segment, sales jumped 17% year over year to $283 million. Operating earnings climbed 13% year over year to $26 million. The segment’s backlog came in at around $2 billion at the end of the reported quarter.

Financial Condition

Ball Corporation reported cash and cash equivalents of $598 million at the end of the third quarter, up from $556 million held at the end of the year-earlier quarter. The company generated $1,027 million of cash from operating activities during the nine-month period ended Sep 30, 2018, compared with $744 million reported in the comparable period last year. Ball Corporation’s long-term debt decreased to $6,523 million as of Sep 30, 2018, from $7,104 million as of Sep 30, 2017.

During the quarter, Ball Corporation began production at all four new facilities of its specialty beverage-can manufacturing facility in Goodyear. However, it ceased operations at the   Chatsworth, CL, and Longview, TX, beverage-can facilities.

The company expects to benefit from outstanding requests for bids and proposals, and contracts wins. It has approximately $5.3 billion as contracts already won, but not yet booked into current backlog which will drive growth.

Outlook

Ball Corporation expects its free cash flow will be around $800 million and capital spending will be in excess of $700 million in 2018. Notably, it reaffirms comparable EBITDA guidance of $2 billion and expects free cash flow of more than $1 billion in 2019.

Ball Corporation remains on track with deleveraging and anticipates net debt to comparable EBITDA ratios in the range of 3.0-3.5 times by the end of this year. Furthermore, the net $50 million of annual fixed cost savings associated with the North American optimization program is anticipated to benefit the fourth-quarter performance and beyond.

The company also expects to return capital to shareholders through share repurchases and dividends in excess of $800 million in 2018. However, headwind related to currency will affect results despite the benefits of acquisitions and growing demand for aluminum beverage packaging. Persistent growth in aerospace backlog will also drive growth.

 

How Have Estimates Been Moving Since Then?

Fresh estimates followed a downward path over the past two months.

VGM Scores

At this time, Ball has a strong Growth Score of A, though it is lagging a lot on the Momentum Score front with a C. Following the exact same course, the stock was allocated a grade of C on the value side, putting it in the middle 20% for this investment strategy.

Overall, the stock has an aggregate VGM Score of B. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Ball has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.




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