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Ball Corp Strong on Solid Beverage-Can Demand Amid FX Woes

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On Feb 11, we issued an updated research report on Ball Corporation (BLL - Free Report) . Overall global beverage-can demand continues to grow as customers now prefer cans over glass and plastic. The company seems well poised to capitalize on this demand by investing in capacity expansion and new products. Robust backlog also suggests continued momentum in the aerospace segment. However, headwinds related to currency, higher freight rates and tight metal supply in the United States concern us.

Rising Beverage Can Demand: A Key Catalyst

Global beverage-can demand continues to shoot up as consumers now prefer cans over glass and plastic. The company remains well positioned to bank on this demand by investing in capacity and products.

The company expects capital spending of $800 million in the current year.  Ball Corporation continues to focus on initiatives, in order to achieve better value for standard products and higher growth for specialty products. The company’s cost-cutting actions will also bolster its margins.

Investments in Capacity to Meet Demand

Ball Corporation’s balance sheet remains healthy and provides flexibility to invest in capacity, while returning value to shareholders. The company has been primarily investing in aluminum packaging production, in a bid to cater to the rising demand for aluminum cans, bottles and cups. It is focused on improving operational efficiencies, sustainability benefits and ramping-up the previously-announced line additions and greenfield-plant expansions, in order to add at least 8 billion units of capacity by the end of 2021.

Furthermore, the company has launched lightweight aluminum cups in response to increasing demand for sustainable products. Ball Corporation has announced its plan to construct two new specialty beverages can manufacturing facility in Glendale, AZ, and in the Northeast U.S. as well, in order to support the new can-filling facility for customers. Further, the company has closed the sale of its China beverage can business and the Argentine steel aerosol business.

Ongoing Momentum in Segments

The Beverage Packaging, North and Central America segment will benefit from operational efficiency, benefits from new customer contracts, mitigation of U.S. aluminum scrap headwinds and increased availability of cans in the current year.

The Beverage Packaging, South America segment is also poised well for improved results in 2020 on favorable market trends for cans across the regions, better customer mix and improved manufacturing efficiencies. The new beverage-can plant in Paraguay is on track and the company is poised to add additional capacity in Brazil during fourth-quarter 2020.  The Beverage Packaging, Europe segment will gain on customers’ growing preference for cans and increased production from new lines in the company’s existing facilities.

Ball Corporation expects the Aerospace segment’s earnings and revenues to register strong double-digit growth over the next few years. The Aerospace segment’s year-end backlog increased 14%. The segment has won contracts worth $4.2 billion since the end of fourth-quarter 2019.

Headwinds Ahead

Headwinds related to currency and higher freight rates are likely to affect Ball Corporation’s performance in the days to come. Furthermore, the North and Central America segment has been incurring short-term costs due to tight inventories. Apart from this, year-over-year segment volume growth has been limited by the availability of cans. Thus, until new production comes online, the segment’s volume is likely to be suppressed in the first half of the ongoing year.

Share Price Performance

Ball Corporation's shares have appreciated 40.6% over the past year compared with the industry’s growth of 37.2%.

Zacks Rank & Stocks to Consider

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

Some better-ranked stocks in the Industrial Products sector are SPX FLOW, Inc. FLOW, Tennant Company TNC and Cintas Corporation CTAS, each currently carry a Zacks Rank #2 (Buy).You can see the complete list of today's Zacks #1 Rank (Strong Buy) stocks here.

SPX FLOW has a projected earnings growth rate of 9.1% for 2020. The company’s shares have rallied 37.6% in the past year.

Tennant has an estimated earnings growth rate of 30.7% for the ongoing year. In a year’s time, the stock has appreciated 28.7%.

Cintas has an expected earnings growth rate of 15.6% for the current year. The stock has surged 49.3% over the past year.

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