BLL Ball Corp

Ball Corporation (BLL) reported its reported second-quarter 2011 adjusted earnings of 85 cents per share, in line with the Zacks Consensus Estimate. Results comfortably beat the year ago earnings of 69 cents. Adjusted earnings were $145.1 million, up 13% from $128.8 million in second-quarter 2010.

Solid demand for packaging in China and Europe, strong aerospace program performance and favorable effect of expansion into extruded aluminum packaging led the company to post a solid second quarter.

Adjusting for loss from discontinued operations of $0.3 million and business consolidation and other activities of $1.7 million, the company reported net income of $143.1 million or 84 cents per share in the quarter under review, comparing favorably with $69 million or 37 cents reported in the year ago quarter.

Operational Performance

Net sales of Ball Corporation for the second-quarter 2011 were $2.31 billion, an improvement of 15% form $2.01 billion in the year-ago quarter. Higher contribution across all the segments drove the overall improvement. Result however fell behind the Zacks Consensus estimate of $2.42 billion.

Cost of sales in the quarter increased 15% year over year to $1.89 billion. Selling, general and administrative expense for the quarter increased 20% year over year to $93.1 million.

Ball Corporation reported operating income of $254.1 million in second quarter 2011, up 14% year over year.

Segmental Performance

Metal Beverage Packaging, Americas & Asia: Sales at the segment in the second quarter increased 12% year over year to $1.16 billion.

Operating income in the quarter improved 10% year over year to $126 million in the quarter.

Strong demand in China coupled with higher volumes in America contributed to the increase.

Metal Beverage Packaging, Europe: This segment reported a year over year increase of 27% sales to gross $608 million in the quarter.

Operating income increased 17% year over year to $84.7 million in the quarter.

Increase in European beverage can volumes and Aluminum aerosol volumes largely drove the improved results.

Metal Food & Household Products Packaging, Americas: Sales in the second quarter were $345.7 million, up 11% year over year.

Second quarter operating income was $41.3 million, up 24% year over year. The increase was driven by solid operating performance, improvements in sales price/mix and earnings from the aluminum slug business.

Aerospace and Technologies: Sales improved 11% year over year to $199.9 million in the quarter.

Operating income was $21.7 million in the quarter, up 17% year over year.

The segment had a contracted backlog of $903 million at second quarter end.

Financial Performance

Ball Corporation ended the quarter with cash and cash equivalents of $144.8 million, substantially higher than $75 million at second quarter 2010 end.

Long term debt increased to $3.12 billion at quarter end, from the prior year level of $2.12 billion.

Operating cash from operations during the first half of 2011 totaled $163.1 million, a substantial improvement from $8.8 million in the year ago period.

Capital expenditure incurred by the company was $213.5 million in the first half of 2011, substantially higher than $69.1 million incurred in the prior year period.

Insights to 2011

Ball Corporation expects to generate at least $400 million in free cash flow. The company expects to deploy $500 million in capital expenditure of which $300 million will be invested in growth projects.

Management also expects to deploy most of the free cash flow to buy back stock.

Peer Comparison

Alcoa, Inc. (AA), which competes with Ball Corporation, reported second quarter 2011 operating earnings of 32 cents, missing the Zacks Consensus Estimate of 34 cents. Revenues for the quarter were up 27% year over year to $6.585 billion, outpacing the Zacks Consensus Estimate of $6.434 billion. The increase was due in part to higher alumina shipments, and higher realized pricing for both alumina and aluminum.

Our Take

Ball Corporation is set to deliver better results due to the successful integration of acquisitions, continued growth in the emerging markets and a focus on enhancing shareholder value. However, tough competition in the packaging business keeps the company under stress to maintain profitability.

We maintain our long-term “Neutral” recommendation on Ball Corporation. The quantitative Zacks #2 Rank (short-term Buy rating) for the company indicates upward pressure on the shares over the near term.

 
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