Q3 2020 Ball Corp Earnings Call
Please standby the conference will begin momentarily we thank you for your patience and ask that you. Please remain on the line.
[music].
Greetings and welcome to the Ball Corporation third quarter 2020 earnings call during.
During the presentation, all participants will be in a listen only mode. Afterwards, we will conduct a question and answer session.
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As a reminder, this conference is being recorded.
His day November 5th 2020.
I would now like to turn the conference over to John Hayes CEO. Please go ahead.
Thank you Jimmy truck and good morning, everyone. This is ball Corporation's conference call regarding the company's third quarter 2020 results.
Nation provided during this call will contain forward looking statements actual results or outcomes may differ materially from those that may be expressed or implied some factors that could cause results or outcomes to differ or in the company's latest 10-K and in other company I see see filings as well as company news releases.
You don't already have our third quarter earnings release. It is available on our website at <unk> Dot com information regarding the use of non-GAAP financial measures May also be found in the notes section of today's earnings release.
The release also includes a table summarizing business consolidation and other activities as well as a reconciliation of comparable operating earnings and diluted earnings per share calculation and.
In addition, the press release financials include descriptions of new segment reporting for our AMEA and other non reportable segments.
Joining me on the call today are Scott Morrison, our senior Vice President and Chief Financial Officer, and Dan Fischer Senior Vice President and Chief operating officer of our global beverage business.
I will provide some introductory remarks, Dan will discuss the global beverage packaging performance and trends Scott will discuss key financial metrics and then we'll finish up with comments on our aerosol and aerospace businesses as well as our outlook for the company.
Let me begin by thanking those of you who joined our virtual Investor day in early October. We appreciate the high level of attendance and engagement yeah that was a great opportunity for us to highlight our culture sustainability leadership and capabilities, while laying out our long term investment plans to address sustainable organic growth in our businesses.
And deliver the ball equation of at least 10% to 15% diluted earnings per share growth over the long term, while meaningfully growing or E. V. $8. If you are unable to join the virtual Investor day, a webcast replay the of that as well as the transcript and supporting slides and resources are available at Www Dot poll Dot com.
Backslash investors under the presentations tab.
Now moving on to today's commentary.
Third quarter results were very strong and the positive momentum across our businesses continues ongoing strength in global beverage volumes in future expected growth supported by numerous long term contracts are proof points for in increased Capex and 2020 and beyond our.
Our focus remains on working safely executing on numerous capital projects and investing in talent training processes and systems to deliver our long term growth.
Our third quarter comparable operating earnings grew 14% and comparable diluted earnings per share increased 27% driven by our north and central American beverage business, our AMEA beverage business and our aerospace business, Dan Fischer will elaborate more on our beverage segments in a moment, but over the course of the quarter global beverage can demand.
And which was up 9% in the quarter continues to outstrip supply and our beverage can businesses in each region or sold out in advance new capacity coming online, we're thankful to all of our colleagues and contractors executing startups of new line some facilities across our global network.
Our aerospace business, we continue to see strong growth with quarterly year over year revenues up 21% comparable operating income up 26% and our won not booked backlog up 14% since the second quarter of 2020 significant progress has been made on the previously disclosed aerospace supply chain issue and with the.
Leave our supplier and our program team have the matter under control.
Last night, we announced the well deserved retirement of Rob strain as senior Vice President of the Corporation and President of our aerospace business as well as the promotion of Dave Cough, and currently Chief operating officer of our aerospace business to succeed him Rob has done a fantastic job, leading and growing our aerospace business over the past eight years and were excited for.
Him as he answers this new phase of life. He's done a great job in preparing data for these new responsibilities and we're all are very excited for Dave to continue to drive the business for greater success.
Other highlights around the company include our.
Our air so aluminum aerosol business successfully closed on the aluminum aerosol manufacturing plant acquisition in Brazil. We welcome you to people the team to the ball family. Our first dedicated aluminum cups manufacturing facility will be starting up very shortly here during the fourth quarter, and our cups, Amazon platform and accelerated retail launches.
Are at or above our expectations.
While our aerospace business has hired approximately 750 people year to date, our global beverage business has hired over 1250, a year to date and we have significantly increased our efforts around employee onboarding training and development to ensure smooth startups of our various projects.
And since the Investor day into further enhance getting the word out about our sustainable aluminum packaging solutions.
All announced this global partnership with Cranky Sports and entertainment at three marquee venues in Denver, which is now the ball Arena, Los Angeles, and London. Our partnerships shared vision is to advance sustainability in sports and entertainment by strengthening recycling, providing fans with an enhanced environmentally friendly experience.
And showcasing aluminum beverage packaging is the most sustainable choice Denver's ball arena will become the first ever professional sports venue with exclusively aluminum packaging, whether it be cans cops are bottles for its cold beverages.
Before I turn it over to Dan Scott I do want to thank our colleagues here at ball for both being who they are carrying for one another being vigilant with their physical and mental mental wellbeing and living our culture your dedication and hard work to support our customers our communities and the local economies, where we operate this forever appreciated.
Thank you.
So in summary ball continues to operate from a position of strength in this new environment. Despite the rise in global confirmed cases of COVID-19 recently, we exited the quarter with continued momentum and are excited to bring additional capacity online as quickly and as safely as possible and continue to believe that the overall strength of our business will allow us.
To further grow operating earnings this year and beyond we also want to extend our well wishes to everyone for persevering and we wish all of you listening for your continued safety and good health and with that I will turn it over to Dan. Thanks.
Thanks, John I also want to thank our employees customers and supply chain for their collaboration to maintain our industry's ability to serve consumer demand.
In North America, and EMEA we.
You would typically see a seasonal slowdown by this time in the year. However, our global beverage teams in all regions continue to operate at maximum capacity.
Our operations HR, and environmental health and safety professionals continue to keep our vault family safe and vigilant.
Which will enable our all our ability to respond to our customers and consumers growing demand.
As we laid out at our virtual Investor day. It is an exciting beverage can market with more customers and consumers choosing sustainable aluminum packaging for their beverage of choice.
Then you get into the fourth.
Additional capital projects in the UK and across Eastern Europe provided needed capacity and we foresee European beverage can volumes up mid single digits in 2020 and beyond.
In South America volumes were up 30% in the third quarter driven by increased package mix for aluminum cans in the beer category.
Year over year earnings growth in the quarter was dampened due to adverse customer mix that will moderate by 2021 and higher cost inventories being carried over from second quarter created by curtailed lines during the height of the pandemic.
Beverage cans have been very resilient with store owners, leveraging recycled aluminum cans over the other substrates and package mix on the shelf remains in the 60% range versus a rate of 50% at the end of the first quarter of 2020.
Following discussion with customers in Brazil, we anticipate can growth in the mid to high teens and can mix on the shelf remaining high.
Beyond 2020, and we will bring numerous line additions online in mid 2021.
Given our recent virtual Investor day, I'll save some extra time to take your questions during Q and a.
In summary, global beverage can demand was very strong during the third quarter and momentum is building for the remainder of 2020 and beyond.
Thank you again to all of our teams around the Globe 2020 has provided us all with unprecedented challenges and you have risen to the challenge time and time again.
Your leadership has been nothing short of remarkable.
$5 million or 2020 cash from operations will continue to be strong and longer term, we see a path to doubling our cash from operations by 2025.
We will be investing even more growth capex to expand arrow aerospace facilities beverage can't production capacity in North America EMEA in South America, while also investing in our aluminum cups business with this growth. We also anticipate working capital to be of use of cash, but it's too early to quantify the amount at this time cut.
Contrary to pass sizeable M&A deals balls embarking on a multiyear phase of internal investments to serve organic growth for beverage cans and support new contracted volumes at this point 2020, Capex is expected to exceed $900 million ball continues to be good stewards of our cash and will prudently balance.
Real time growth opportunities with consistent return a value to our shareholders given are strong operating cash flow, we're managing the business appropriately for the long term investing capital with an iron EMEA returns managing our balance sheet effectively and consistently returning value to our long term shareholders with that I'll turn it back to you John Great. Thanks, Scott.
Or aluminum aerosol business, so global volumes in the quarter decline low teens, driven primarily by double digit growth in India offset by double digit declines in Europe and North America.
Looking ahead, we welcome our new colleagues from the Tubac acts was acquisition in Brazil, and we look forward to integrating the plants indoor global aerosol operations.
As mentioned previously or aerospace business reported power approximately 21% revenue growth, 26% segment earnings growth due to strong contract performance offset by some continued operational inefficiencies created by the COVID-19 environment. Looking ahead the growth trajectory of the business is even stronger with contracted backlog grown.
14% since second quarter and whatnot book backlog at 4.9 billion. We continue to be very excited about the long term prospects of the business as well and summary, all continues to be uniquely positioned to lead and invest in sustainable growth, while delivering value to our shareholders as we sit here today, our ability to grow.
Comparable too diluted earnings per share greater than a long term goal, 10% to 15% in 2020 is certainly in our reach our teams will do everything possible to outperform this will be keenly focused on working safely and executing capital investments.
Beyond 2020, we look forward to driving our business to deliver long term diluted earnings per share growth of at least 10% to 15% and achieve or exceed our EVGA dollar growth goals are 4% to 8% per year on our growing invested capital base. Our time is now and we are thankful for one another and the exciting opportunities in front of us at ball.
And with that the Mitra, we're ready for questions.
Thank you if you'd like to register a question. Please press the one followed by the four on your telephone.
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How our first question comes from the line that again 10, Punjabi with buried please go ahead.
Hey, guys good morning good.
Mourning mourning.
I guess, just first off given how tight supply demand will be in 2021 in North America, how should we sort of think about the impact of auto pattern production.
Relative to normal seasonality and <unk> and perhaps in one Q I assume you will try to minimize seasonal downtime. So just any color you can provide on that and then the second part of that.
Question is on the importance of Kansas to North America, which regions did you ship in from and how does that dynamic impact your segment profitability specific to three Q.
Okay. Thank you Yeah, I guess the first part of the question is I guess, you get the sense that we're going to be running all out.
Little things that I think specifically the North America team has been doing in particular I think we've gone too.
Much deeper statistical models on how to run our <unk>. So we're actually hoping to pick up a day or two in terms of less downtime heading into next year, but.
There is.
Really know seasonality relative to curtailments are typical downtime, we're just going to continue to run all out.
And one of the things that I think most of the most of the folks on the call understand is.
And second and third quarter, there's really no ability to ramp up via our customer networks. There already traditionally running full out so at times like now where they have.
Filling capacity for cans.
We will be stepping into that and there's there's some momentum and hope for a little stronger Fourthquarter, then as normal just just with the desire to move some of the can filling and getting away from just in time inventory constraints that a lot of our major customers are are enabling.
And then the second question.
Traditionally for us.
We continue to partner with a lot of our joint ventures around the world, where we have minority Stakes.
And we're tapping into a much more global network supply demand supply chain process at forecasting process. So cans are coming from southeast Asia, they're coming from Korea. They are coming from Africa or coming from Central America. The majority of what we're shipping though is continuing to balance and a lot of it has.
To do with.
Year over year.
The beer market was really.
Deemed nonessential in Mexico, So we used in the second quarter and even the third quarter, we probably have a higher concentration of shipments coming up from Mexico.
We will continue to use every route available.
Around the world now that we have a much better process a much more agile process and there will continue to be imports heading into next year, but hopefully faster we're ramping up obviously the domestic supply in the domestic cans that don't burden our customer base with the.
The longer inventories supply chain and the higher freight cost is all going to be hugely helpful. So we're we're trying to manage a much more disconnected much more fragmented supply chain, but our customers would be the beneficiaries of this domestic supply coming online and we we hope to get it to him sooner than.
We're planning right now.
Okay and then just second question do you feel that supply chain inventory levels in Europe were relatively aligned as you exited <unk> and how do you sort of think the second set of Lockdowns will impact you in the region relative to the first one.
Yeah, we've been so so right now the lockdowns aren't.
As constrained if you will as the early parts of the spring in general.
With Europe.
I think last Friday, we saw the Nordics in Germany that border has been shut.
Our plan right now is to continue to run.
Run full out the demand profile is still right in line from a shipment basis to what we expected entering the quarter.
We have we obviously have we're mirroring our workforces mirroring a lot of the hotspots within areas of Europe, but up to now we're still running we still plan to run our projects are on time.
In.
Worst case scenario, we have a small build a inventory, which we probably need heading into next year, but right now I'm not seeing much change from what we anticipated from a forecast standpoint, even six to eight weeks ago from a demand standpoint.
Awesome. Thank you so much.
Our next question comes from the line Anthony nine with city. Please go ahead.
Hi, This is actually Brian birchmeier sitting in for Anthony.
Brazil, obviously did quite well in the quarter, but we've seen some comments from brewers, saying they want to try to get back to their.
Covid pack mix of about 50 50 between glass in cans.
That consistent with what you're seeing so far in four Q and do you think you can kind of offset that with just the underlying demand in the region.
We are not seeing.
Ah.
Two things, we're not seeing it in terms of the current pack mix and we're also not hearing that we're hearing the opposite actually from the strategics that would really move the needle in that arena.
And so yeah, that's somewhat news news to us and in fact, the trends all throughout South America, whether it's chilly weather, it's Peru, Ecuador.
The move toward cans from returnable glass, it's being driven as much by the retailers.
Not wanting to carry.
The inventory swell of glass and the perishable nature of it.
And if you really look at a number of the customers in Brazil, specifically that are winning they are winning with specialty can introductions and.
A different recipe a beer that's moving away from the corn base. So that's what were those are those are the conversations we're having with our large customers and that's what we're investing behind.
So not not not aligned 100% with those comments.
Got it thanks, that's helpful and.
<unk>.
Any impact from rising free costs in North America in either <unk> or <unk> and can you remind us how you pass along those costs. After your recent round of contract renegotiations.
Yes that would have been an issue probably 36 months ago. It is.
I think we've corrected.
Those types of pass through we're we're burdening the inefficiencies in our freights in our system and our supply chain on about 80% of the contracts.
There's still a little bit of exposure there but.
Most of what we're seeing now is given how tired it is.
If we're talking about spot freight arrangements were able to negotiate even with the 20% that hasn't been fully corrected and longer term contracts were able to.
Have very different freight discussions if we if we have to shift to a different can size for a location that hasn't been forecast ahead of time. So it's.
Very minimal we're keeping our eye on it though.
Got it thanks, I'll turn it over.
Our next question comes from the line.
Neil Kumar with Morgan Stanley. Please go ahead.
Hi, good morning.
Morning in North North and Central America operating earnings go in about 33% against mixing will get get volume increase.
You just help Greens for us the comments mean earnings premium came from improved operational efficiency lack of scrap headwind and perhaps some benefits and the new contractual terms.
How should we think about the level.
Segment in the fourth quarter.
Yes. This is Scott.
They have really good margin performance a lot of it is.
Much more efficient and the production processes that we have versus a year ago I would say the one thing to think about in the fourth quarter. As we will have more startup than we had last year, we had virtually no startup costs in the fourth quarter last year and as we wrap up Glendale in pittston.
We'll see some of that before the quarter. So I wouldn't expect that margin performance.
To remain in the fourth quarter, but it will still be good yes, I do think that what you're seeing in that particularly in the third quarter. You are seeing is Scott mentioned good operating performance you're also seeing the benefits of long term, what we've talked strategically from a commercial point of view as well, whether it's mixed whether it's terms whether it's.
The freight that we were just talking about it's a whole host of things and so it's R North American.
Beverage can team is.
Hitting on all cylinders, which is exciting.
One thing to keep in mind as you're transitioning in the fourth quarter.
And we talked.
A lot about it last year was the scrap headwinds they lapsed basically at the beginning of the fourth quarter. So what you saw in Q1, two and three with improved contracts, we had nice year over year benefits and all three of those quarters.
That benefit won't be as pronounced in the fourth quarter because.
Metal moved in.
Closer to the scrap differential.
Okay very helpful contents, and then in South America, you mentioned emerged customer mix and higher inventory impacting earnings for the quarter can you just quantify housing impact Icabad had on three keeps hanging results and you expect any lingering impact in the fourth quarter.
Yes, I would say what we've characterized.
And we don't have.
A professional process to earmark coasted impacts, but what we believe it somewhere in the neighborhood of $4 million of higher cost inventory that rolled from Q2 into Q3.
And with the rate, we're selling right now in Q3, I believe all of that inventory would have been consumed in the third quarter. Yeah. The real thing issue, though has to do with the mix of both size of and customer and it was really.
And the fourth quarter, Yeah, we expect some of that to continue but as Stan said in his prepared remarks going into 2021, particularly as we go through 2021 and beyond we feel pretty confident that we're going to be able to get those.
That margin profile back too if not historic levels much better than it was in the third quarter.
Great. Thank you.
Our next question comes from the line of.
This my Nathan with RBC capital markets. Please go ahead.
Alright, Thanks for taking my question.
I also wanted to ask about.
Performance in Europe, Europe's slightly ahead of US there could you just contextualize that.
Noted that.
<unk>.
Maybe you don't see as many headwinds from from covered related shutdowns I think but.
Yeah, what else could you I guess add to the performance.
In Europe.
We.
It's almost the the.
The counter of what happened in South America, we actually benefited from some some more favorable regional mixing customer mixed there.
<unk>.
That was the big driver.
Okay I appreciate that and then.
I guess.
There have been obviously a lot of capacity announcements you guys talked about the opportunity to add 25, and then potentially even 45.
<unk>.
You've made some some.
Announcements about new new new plants as well constantly think about the phasing in of that capacity.
Could you just remind us of the cadence of.
How that evolves over the next couple of years.
Sure I would.
Let's focus on 2021 for now because the other items that we've earmarked we're still working on the plans and the execution phase.
But.
What what we've communicated previously as we should exit the year 2021, with an incremental 6 billion units of capacity being put into North America that number can increase I think there have been comments that we've shared relative to the fact that we're building candidly bigger <unk>.
Lectures, so the speed and the timing, where we can execute longer term contracts. We will then be able to move pretty quickly on the process equipment and and we've demonstrated we can hire at a at a very fast rate.
So the 6 billion could be higher and as we make those decisions to invest in additional lines will certainly.
Comment on that it could be as much as 10 billion.
In Europe, it's we're investing and we've commented on that.
In the UK.
In Eastern Europe, and we're executing against our short term growth plans in Russia. We've also added.
Some in capacity in.
Poland.
So all of those things are happening.
To keep pace with the higher end of the growth rates today.
Discussed at the Investor Day in Europe, and we've commented on about 2 billion units of additional capacity coming online by the end of the year in South America. Those are the most.
I think so synced comments and the most concrete volume lifts.
Rest assured.
We've been.
Having ongoing conversations with customers and we have a number of.
Opportunities to speed the right volume increase that most of that will probably happen for 2022 and.
And as those come to fruition, we'll certainly be communicating those.
Great that sounds great detail and then lastly, just on the buyback front is there any concrete plans you can share for 21 as to how much you'd be deploying into my box.
As we talked about before we're we're in a growth mode. So, we'll probably or at more of that free cash flow or more of our cash flow to be investing in our business. So at this point worldwide enough. So that we're not issuing shares as it relates from option plans and things like that.
But at this point, we don't have any.
Any defined buyback plans for 21, one thinks I will just said, though that we talk a fair amount internally is even after all this internal growth Capex, we're still generating free cash flow and with your earnings growth on a net leverage basis, we're actually deleveraging and that way and so we're very cognizant, we're all big shareholders. So.
We're very cognizant of that fact, and whether it's every quarter with our board talking about dividends talking about we share repurchases, we have those discussions each and every quarter.
But as as it relates to that we don't expect a delever. So you think about the plug being share buyback in dividends.
Thanks.
Our next question comes from the line of Adam Joseph Penwith Keybanc. Please go ahead with your question.
Thanks, Good morning, everyone I Hope you and your families are well.
Scott a couple for you just one on free cash I think you indicated working cap would be an additional use a 50 compared to what you communicated three months ago are you updating your free cash flow guidance, just based on that or are you keeping it in that in the range of $400 million.
I think I think we're increasing both the capex spend that we're going to spend over $900 million. This year and we're also going to have a little more investment in working capital. So think of the difference year over year about half of that half.
Half of the difference from from last year will be increased capital spend and the other half being increased working capital.
Got it okay.
More on Capex Scott so.
You talked about growth capex being in excess of 1 billion over the next couple of years and over the next five years for that matter can you talk about just in light of how big the growth Capex will be what you're expecting maintenance to be at least over the next year or two.
Yeah, I think maintenance maintenance ramps up a little bit as you bring on new plants, but it's still in the $275 million to $300 million range and think of a new plaid.
It comes on line. These are bigger plants. So you might have 3 million bucks of maintenance a year and a plant.
Right got it okay on the important topic, Dan or John can you talk about how much do you how high you expect north American imports to be this year.
4 billion high billion, whatever you think the number is and how much lower you think there'll be next year and just relatedly you've talked about the market being short 10 billion at your analyst day, how much on met demand do you think will will have been the case upon the conclusion of this year.
Yes, the unmet demands pretty hard.
To couch.
I can tell you on that that one I know that there are.
Eight and why why.
Hesitant to give you a number there I can tell you that.
The speed with which innovations are coming in the alcohol space. That's what has been curtailed.
And so.
The success rate of those new products is hard too.
It's hard to earmark, but that's really where we're seeing it I think you'd see a much greater proliferation of new product launches all in cans all on specialty containers.
I'm hesitant to to make a call and how big those could be.
Yeah, I think we referenced about 10 million units being undersold.
My belief is.
That 2021 will look similar in terms of the number of imports just because a lot of these ramp ups will be happening throughout the year.
And.
Depending on when our customers, especially in the alcohol space get comfortable that they can launch these new products.
And then put some.
Put can volume behind it if they are wildly successful.
That will be a contributing factor to just how long.
That that important number kind of.
Sits in that same range I would think it starts to moderate by 2023 and 24, but again so much of this is going to be how.
How much more space or retailers going to provide in North America.
Alcohol. It seems like there is a real discernable belief, that's driving a lot of foot traffic and is that continues to grow there's a space for it.
There'll be an ability for new products to be launch and again those are going to be in can so difficult to make a call on the import but I would I would foresee two to three years at least at a pretty high level, maybe similar to what we're seeing now kind of thanks Dan.
Alright next question comes from the line.
England Jeffries. Please go ahead.
Good morning done in Scott.
John for sale congrats on the the strong print and.
I'm doing well.
First I wanted to ask on the.
On Europe.
The end of the lease.
Then it provided minimal can into North America could you give us a little more details on that is that is that because the local demand got tighter or maybe north America with a little bit less.
Last thing you had expected.
Warren.
Imports from that region.
And then maybe you can kind of touch on.
Hi, you're thinking of that region going forward, you talked about a little bit with the build up of inventory hopefully in four Q maybe.
Maybe with some of the line it down when is it is it potentially setting up for entitled environment in EMEA could that be positive for pricing negotiations, maybe as you go through next year.
Yeah, let me try to take the.
The first question about exports from Europe, There's two things are number one yes, it's been incredibly tight.
As reference to our kind of historical performance here in Q3, and what we're seeing in terms of growth rates in queue for even with the lockdown.
The can sizes are slightly different not to get too technical so.
You've got to have the right hands in the right spot able to run the right labels in order to ship them and then fill them in North America and the folks that are fundamentally able to do that our folks big CPG companies that are in control of their primary billing and so you're not talking to every cut.
<unk> about those opportunities you are talking to the few that can actually execute.
And to your very good point I mean, we need all the cans and then some in Europe. So.
We're doing our best to make sure that we are managing allocations in an equitable way.
And a fairway and where there are pockets of opportunity for us to run a few cans for export.
We will do that it's just you've got to have all the stars line up to make sure that supply chains able to absorb them film and and get them into the retail outlets. Yes, Let me give you some a little additional color around it. The overall package liquid volume was down in Europe as download of mid single digits, but yet the can.
Was up.
We think in around where ball is 67% increase of of the can is is clearly taking share and so I I say that as as we go into the fourth quarter, we see those trends still continuing so what Dan was talking about is if if things slowed down because of these lockdown in Europe are inventories are so low right now we're just.
Can be replenishing inventory so.
We're not we're not concerned about that as you go into first quarter second quarter. These lockdowns continue will then obviously you're going to have to revisit that but as we sit here right. Now is to be early November looking into the end of the year, we should be in pretty good shape.
And and your last.
Hey, our last question on pricing.
The euro zones, not a monolith so yes, there are tighter markets and.
Economics would dictate pet supply demand.
It works and that should provide us with some opportunities we.
We haven't had those conversations as of yet, but we're entering into some different dialogue.
Got it thanks for the color.
And then just.
One more for John I think you mentioned that you're seeing some longer term customer contracts I believe you are saying in North America.
Is that just at the higher end of the three to five year reign cable you here customer contracts or.
Is that going well beyond that and is that something that you think you could see more going forward as demand is going to be tight are expected to be tight for the next three to five years.
Yeah, I think it was actually Dan who said that he said longer than the typical I agree to five years. So what I would say, yes kind of trending more towards five to seven years, depending on what the customers and for the exactly. The reason you said in that we've been talking about when we have environments like this and we've been talking with our customers for a couple of years that we see because of the sustainability.
Friends, because we see the new product growth because of the consumer demanding.
More sustainable packaging. We think this is a long term secular thing and our customers are are beginning to see that as well as understanding it so they're going a bit longer and we're delighted to help them with that particular as we make these new investments.
Keep in mind, the three to five year historical context is coming in Ah North American market that was.
That had excess capacity.
And so work completely full in any conversation that we're having right now to grow requires investment and I think that's a lot of times when Scott's referencing. These are these are good contracts, but they look different they look different in terms of the length of contract will look different in terms of the economics associated with them.
Got it thank you very much.
Our next question comes from the line as that Mike M. I said with back. Please. Please go ahead.
Great. Thank you and good morning, guys.
Good morning.
I think in your release, you called out eschew rescue rationalizations that certain customers curious curious if that's more driven by you being selective in terms of what you can or are able to serve your customers rather as your customers being more selective in terms of kind of what they want to emphasize or put into the market and related to Lee.
Does that positively or at all impact your business makes it all.
Great question.
I would say, we it's ultimately it's ultimate and our customers call, we work with them and some of the conversations with basically boiled down too.
If you have those three can sizes on one line and you want to launch those different labels. We can give you X cans or you can constrain it and we can give you why cans and then this environment there why being more they're taking fewer labels to get more volume because.
They don't have.
The pub Inbar infrastructure to sell through is Johns indicated earlier on the call. This is them opportunity and this is the market they have so.
Constraining the marketeers on product launches an S. K U proliferation is benefiting and I thought you could see a lot of the big CPG companies that took that to heart early in the pandemic their results were extraordinarily strong.
Think in the in the last press releases.
Mix.
It's.
I think.
It can have an impact.
But this quarter it was favorable in Europe and it was negative in South America. So net net.
The ball as a whole we're not seeing much movement, one way or another.
Now there may be a quarter, where where I reference.
A lot more positive and there might be a quarter, where where I referenced a little bit more negative so.
That can have an impact we haven't fundamentally seen it over the last couple of quarters in a result, and that's the only thing I that is let's not forget in the beginning of this pandemic. It was as much about trying to get product on the shelf and so is the retailers played an important part of it and so they were trying to reduce the number of sku's. If they were loading on the shelves. So it really was a true supply chain effort working.
Hand in hand with each other.
Great. That's super helpful and maybe related question tie in to kind of us imports of cans.
Obviously as you just mentioned the Mark I think it was quite by surprise with the level of strength this year.
Got a bit lucky with spare international capacity during Covid and your customers, probably paying a bit higher grade just to get any can they could as we kind of get ready for 2021 would you assume to be another oversold year has there been more preparation our dialogue with your customers about how do efficiently serve them within.
Ports next year and does that create any incremental value capture for you with that.
That's a great question there has been much more dialogue.
It has been.
Wonderful from that perspective is there more value capture not necessarily simply from the fact that there may be more from our customers because they're not in as much of a reactionary position as it is we're being proactive with them finding those pockets of additional can opportunity around the world.
That's not something where we.
We're helping as the industry leader getting folks and can so we don't we don't necessarily view those as.
Opportunities to margin up if you will.
Just give you a context so.
We have a new plant in Glendale, Arizona, and we haven't been made Canjet. In fact, we are still installing equipment and we will be for the next couple of months, we're already talking about building that out to the brenham in terms of the bricks and mortar and being done within 12 to 18 months doing that we when we announced that plan that was more of a 36.
Each month plan to do that and so we've accelerated because that reduces the number of imports, but as this growth continues what we've realizes not only will be filling out that plant, but they also need those important cans and that's what dan's been talking about a bit and that's why we are moving as fast as we can in terms of these new capacity startups.
Great. Thank you.
Alright next question comes from the line is George Snafu with Bank of America. Please go ahead.
Hi, everyone. Good morning, Thanks for all the details congrats.
Congratulations on the progress Hey, guys I Wanna come back to the question on the contracts now obviously it is a very tight market.
And your customers are coming to you because you have or will be able to provide capacity.
What else are you offering.
These contrasts in exchange for.
Longer term for maybe it's just availability of cans.
And Ah question that we've asked I think it was touched on earlier on this call as well what I.
I know you won't line item it for us, but what additional benefits qualitatively or just in general are you getting on contracts now well to what you were getting say a year or two or three ago.
Yes, George this this is John maybe I'll, let Dan take the second part in a minute and I'll try and tack. The first part because you've been around this industry a long time at the end of the day. It sure. He's supply is what they are what they are relying on and it's in an environment where supply exceeds demand, it's very easy to chair.
<unk> <unk> and have annual tenders and and move your volume around because you know there's enough access in the system that you can play that game when it's tight and the outlook says it will not only continue to be type of perhaps getting even tighter shirdi supply matters and we've been talking about this for or.
Two years now in fact, probably three years from now and it's here and some customers decided early on that.
That they saw what we saw and move forward under long term agreements and others didn't and the other should didn't are the ones scrambling a bit more today, we continue to work with our customers because at the end of the day, we want the can to be growing and we want our customers to win because when our customers when we win and so to that.
Point, what we've been saying is we've got the surety of supply for you. It's important in today's environment and let US work with you to make sure that you have long term availability at your disposal.
Maybe I'll turn it over to Dan talk about the second part, yes, I think the.
The qualitative this is.
We are definitely hearing this in North America and to a lesser extent in South America, but who we who we partner with George and you know this is the CPG companies that are big innovators.
And on the alcohol side, we are finally, starting to see the large CPG companies really start to put out products that are winning in the market.
And so what I think they appreciate about our network and what we're offering is we're offering agility and flexibility for their marketing teams and for them.
And that agility and flexibility.
Is something coupled with the immediate need shirty supply.
That's a really compelling.
Reason, why you want to partner with ball and.
So we're seeing that.
B a.
An excellent path in too much longer much more strategic dialogue and the same thing goes with our supply base.
Understood.
Whatever it was two years ago three years ago, we used to talk on this call about how the alcoholic.
Companies, we're not really doing innovation, they need to do and it's obviously done a full 180 and you're seeing that and you returned.
Back then it was the carbonated soft drink companies and non alcoholic companies who were pushing innovation.
I don't know if you would agree with this view or you disagree are you seeing the CSD companies loading up the next pipeline of new products and how I imagine, it's going to be in Cannes, but how you see that playing out.
And related to that back then.
Call. It the 16 analyst day, you talked a lot about how the can hopefully was going to create greater profit pools for your customers. If you look back over the last four years I think it was really more of a soft drink comment.
Was it successful in doing that and turn does that mean leveraging for more growth and cans looking out.
Wanted to jump into that and because I distinctly remember the 2016 and it was it was focused on on soft drink, but it was also focused on thier. The can and the alcohol segment is a very profitable segment and so I think it's done both and on the CSD side I think the answer is yes I do.
Thank you see now it depends by country independence by region, but you have seen the the non alcoholic companies use the can portfolio to differentiate and create different price points that is abundantly clear and I can give you plenty of different examples offline.
On the alcohol side, you seen the same thing as well, but the differences they've also pushed new products I think what we see today.
Two big trends that I'll turn it over Dan number one there's a blurring of these lines, where it used to be alcohol companies and non alcohol companies and you're seeing a blurring of that because I think you're seeing a blurring from a consumer and a retailer perspective, and then the second point I would say is on the non alcoholic side.
You are continuing to see a proliferation and just think about.
Sparkling water and where it wasn't 2016 and where it is today, it's it's still growing 20% a year.
Even pre covid so.
And it's accelerated from Covid so.
All different types of sparkling water not just flavored, but you actually have real fluke fruit flavors and some of these types of things and so you are seeing I don't know if I'd call. It brand extensions that you are seeing new products and that CSD and you're going to continue to along with that blurring then yes, I think the comment that John made about some of these companies trans.
<unk> into quote unquote beverage companies by doing that they are able to go into a number of bigger profit pools, and we've stated that statistic.
Time and time again over the last couple of years about just new product launches in North America are almost exclusively going into cans. So all of that is kind of breathing on itself.
There are.
It's.
I would not characterize the.
Innovation pipeline.
Potentially in the CSD side as robust as maybe what we're seeing from the alcohol side right now but.
Part of that has to do with.
Can supply candidly, we're probably.
If we had if we had more hands I think you'd see a lot more.
Introductions from from the CSD side of the house and I know, there's one aforementioned.
Big product launch that was called out a couple of months ago by one of the large CSD providers and I think.
If that's wildly successful.
Then George I think you're you're.
Your theory May may play out.
Alright.
I had more questions, but to be fair to everybody else I'll turn it over thanks, guys. Good luck in the quarter.
Thank you.
Our next question comes from the line of Salvatore panel with Seaport Global. Please. Please go ahead.
Yes, hi.
Firstly I was wondering building on the previous discussion.
You can discuss a little bit above the announced capacity addition, some of the ones that you have not yet disclosed one how.
Does your customer mix look there in terms of existing customers nurse new ones.
Usual and margins versus new ones.
Think we all expect others highway.
Seltzer and other products like that but can you provide some more color.
Overwhelmingly their existing customers an existing customers with the products that are winning disproportionately in the marketplace.
And why I say that you can you can kind of mirror.
Some of the some of our customers investments in filling operations in new breweries et cetera.
Those opportunities.
Are the ones that were having conversations with disproportionately versus new new entrants and some of those.
As it relates to North America. Some of those products. One you mentioned selzer's are necessarily in Europe. They are not necessarily in some other parts of the world. So.
They can be customers that we're dealing with that were helping in other parts of the world potentially.
Still I would characterize as an existing customer.
Yeah actually that was setting up for the follow up which is the heart shelters haven't been such a good tailwind forget North America, how do you see the market in Europe expanding there.
You kind of the market actually well do you see demand for house shelters in the next few years in Europe and would it be mainly <unk> seeing corkwood, we see.
Packaging split between can simple attention glass.
Yeah, I would say.
I think this this data point is quite helpful. As it relates to spike Selsor market two years ago. The top two category leads in the spikes Elsa market head roughly 75% of market share with.
10 to 12 Sku's.
Fast forward to today those two category leaders still have 75% except for there is 120 different.
Different products in the marketplace.
So I think.
The leaders in the market are probably the ones that lead elsewhere in the world.
Have figured out how to grow maintain the category position.
And typically what we've seen is.
New product introductions happened much much faster in North America than they do in other parts of the world. So that's how I would.
Potentially see the cell submarket playing out it is hard for me to believe that.
You're not going to be drinking beer in Austria, and Germany, but who knows.
Okay, perfect and it was very quick one on the aluminum production you mentioned that.
The new plant in Rome, Georgia is up and running I'm just wondering.
How's the manufacturing process from the start up going so far easier thumbs efficient as you expected.
We're not yet running we believe that we will be running here.
The the end of the year heading into 2021.
Every indication, though every step of the way on the startup on the testing of the equipment. It's all in line with what we expected.
And there's no reason to believe that we won't be exiting next year it kind of the annualized run right that we anticipated in our business case.
Perfect. Thank you very much.
HM.
Our next question comes from the line of the game Patchy with Wells Fargo Securities. Please go ahead.
Good morning.
Hope all is well.
Curious about the.
Capacity additions in line additions that you talked about in Europe, specifically.
Maybe I missed it I don't recall, you guys kind of calling that out before but.
A couple of your other competitors and talked about maybe the market not being as attractive and.
Probably throttling back maybe capital or just.
In a holding pattern until returns get a little bit better I know we can't.
Paint Europe with a broad brush, but just curious what you're seeing that's different maybe from from some of your competitors.
Yeah, I think it's your very last comment you can't paint it with a broad brush, where we're investing we liked the economic profile and the returns.
UK.
From that perspective, it's a huge tailwind on sustainability.
Similar in many instances in Russia in a very difficult place to do business. So we've already got a great team and a great footprint. There. So we've been able to benefit with the growth in that marketplace and then other pockets, where it's made sense for us.
To expand expand quickly.
Good EVGA returns were taken advantage of that but yeah, I would say looking at if you characterize the investments and look at what we've called off we're investing more in North America.
To a lesser extent in South America and Europe.
Not as a result of you can't fun really good business opportunities there.
Thanks, Dan and I get the last one would be on what you guys talked about it the investor day, the source I mean other than kind of outside perspective, though they're being and ordering platform that maybe has more more robust than what you had before.
Any early wins that you can talk about and maybe Dan This plays into.
What are you talking about kind of sharpening the pencil with more statistical data to go about <unk> and other things.
Yes, I would say.
An earlier conversation on this call is like having data at your fingertips to work.
Across.
All of our regions to try to keep keep folks in cans, having having one.
One set of the truth, if you will to.
Respond quicker fashion those have been the most important early wins, we're still at the early out. So if there's an awful lot you can do with these tools as you can imagine.
So right now.
As opposed to embarking on more in terms of module.
Adaptation, it's Keith is Johns.
Sure. It is supplies everything right now so we're really focused on those aspects of the tool.
And then make the customer experience better.
To make sure we have time for one more yeah. Thank you to make sure. We have time for one more question. If there is one.
Thank you.
Our next question comes line as that Mark Wild with Bank of Montreal. Please go ahead.
Good morning.
I'll I'll try to keep the site I Wonder if Dan Fisher. If you can just give us a general sense with the new contracts that are being put in place.
What are the elements of uncertainty with those contracts for ball.
Are you locked up for 100% of the volume or what are the things that you don't know.
Going forward about the about the business around those contracts.
Yeah good point.
With what we've characterized today and what I talked about on this phone call. Those are all anchored with long term contracts and.
We understand very well what the products are there is a home forum.
And.
Probably for the next year when we talk about any investment you are talking about simply moving important cans into domestic can production. So not a lot of risk not a lot of unknowns.
And you can characterize it.
As a pretty rigid set of terms in terms of forecasting even even production runs even deliveries throughout the year with these anchor tenants.
Okay, Alright, and then just one other one on the new capacity just the challenges for her either the equipment suppliers or ball issue you should think about adding all this capacity in a fairly short period of time.
Yeah, if you if you remember.
Biggest concern it's it hasn't been the supply chain because we've been.
We've been big believers of the growth and the sustainability message for several years now.
So we ensure that we got out ahead of a number of those from a supply chain standpoint metal coatings all of the all of the things that you can control it and your supply bass.
The biggest challenge in the biggest question Mark we had and I know John and Scott Iveco. These as well as can we hire the people with the appropriate skills mix at the right time get them trained and startup in line with our expectations and our customers and I have really been blown away by all of our cross functional teams that have figured out a way.
Two.
Higher over 250 people.
Part of this year.
So that has been that it's been a terrific wind for us and that is largely derisked a lot of are a lot of our projects at this point so.
So you're not running into anything just with the equipment suppliers themselves being kind of overloaded or backlog.
No we're keeping our eye on it there are certain pieces of equipment that.
Yes, there is potential.
Four things to move out and I give our engineering in our procurement organization a lot of credit we have been managing that managing the supply chain doing what we need to make sure that we're candidly maybe a little further ahead on the prioritization list.
So not not right now but.
At the at the rate we continue to skew things grow we're all going to have to be investing at a similar pace. Okay sounds good that's it for me.
Okay, Demitra well I want to thank you all for your participation is always if you have any follow up questions feel free to reach out and Scotland should be happy to.
To address them as appropriate everyone have a good and safe holiday season, and we look forward to talking to you early next year. Thank you.
Thank you that does conclude the conference call for today, we thank you all for your participation and ask that you. Please disconnect your lines.
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