Q3 2021 Ball Corp Earnings Call
Greetings and welcome to the Ball Corporation third quarter 2021 earnings conference call. During the presentation, all participants will be in a listen only mode. Afterwards, we'll conduct a question and answer session at that time. If you have a question. Please press the one followed by the four on your telephone if at any time.
During the conference you need to reach an operator, please press star zero.
As a reminder, this conference is being recorded Thursday November 4th 2021, I would now like to turn the conference over to John Hayes. Please go ahead.
Great. Thank you Tina and good morning, everyone. This is ball Corporation's conference call regarding the company's third quarter 2021 results. The information 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 the results or outcomes to differ are.
In the company's latest 10-K and in other company SEC filings as well as company news releases if.
If you don't already have our earnings release, it's available on our website at ball Dot Com information regarding the use of non-GAAP financial measures 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 calculations join.
Joining me on the call today are Dan Fisher, our President and Scott Morrison, Our executive Vice President and Chief Financial Officer, I'll provide some introductory remarks, Dan will discuss packaging and aerospace performance and trends Scott will discuss key financial metrics and then I'll finish up with comments on our outlook for the company.
Ball Corporation finished the quarter in a strong position despite challenging year over year comparable results from the economic recovery of this time last year continued supply chain disruptions and inflationary pressures that are being experienced in the rest of the manufacturing world for the quarter, we generated comparable operating earnings of 400.
$17 million, which is flat against prior year and up 13% from 2019, while generating comparable diluted earnings per share of <unk> 94 up 6% versus the prior year and 34% over 2019.
Underlying demand for our products remains strong ship volumes in the quarter were up 1% North and Central America, where we dealt with freight and supply disruptions, while simultaneously deliberately building back our inventories and EMEA volumes were up 4% driven by continued package mix shifts and in South America volumes were down mid.
Teens percent largely due to a difficult year over year comparable is South America ramped up significantly in the third quarter of 2020 after being largely shut down during the second quarter of 2020 as.
As we look forward, we expect year over year growth to accelerate further with strong expectations in the fourth or in going forward, Dan will elaborate more in his comments and we will also focus on providing more detail by segment.
During the third quarter, we began absorbing the impact of go global supply chain hardship clauses being triggered by some of our suppliers for the first time in decades, while also weathering the impact of indirect supply chain disruptions with certain materials dunnage freight and transportation at our customers' locations.
Though we have existing mechanisms in our contracts to recoup certain costs and are confident in our ability to recoup such costs over time at the moment. These mechanisms are not sufficient in the current environment and as a result, we are implementing a comprehensive commercial cost recovery plan to cover unprecedented access of costs outside of our.
Normal customer engagements, our commercial teams have begun discussions with our customers on a case by case basis, the need for such cost recovery efforts. If we are to continue to invest alongside the growth of our customers and partners in conjunction with our commercial cost recovery plan. We will also leverage existing contractual terms and conditions to reach.
<unk> higher input costs in future periods in both our packaging and aerospace businesses. Despite this our five year growth and profitability outlook that we discussed a year ago at our Investor day remains intact and we are very excited about our trajectory going into 2020 demand for our products and technologies continues to outstrip supply.
<unk> and our new facility start ups are all on track or better relative to our plans, which will both lead to significant growth in long term diluted earnings per share.
Eva dollars cash from operations and return of value to our shareholders over the foreseeable future.
The third quarter 2021 highlights include our global beverage can business completing the startup of six lines, including Ford in North America, one in EMEA and one in South America, and announcing two additional greenfields in Nevada, and North Carolina.
Our global aerosol aluminum aerosol volumes up 15%.
Our cups teams, signing new contracts with the world's largest retailer and a major foodservice distribution in hospitality partner.
Our aerospace team opening its state of the art payload development facility in Broomfield, Colorado, expanding our aerospace manufacturing center in Westminster, Colorado as well as successfully launching the ball built oli land imaging instrument on Nasa's Landsat non satellite.
Our North America, and South America aluminum packaging businesses, continuing progress on their respective aluminum stewardship initiative certifications following EMEA as ASI certification last year.
Our business has hired over 2000 people net year to date to support our long term growth.
We successfully raised $850 million and a 10 year bond offering at three 8% or.
Our board declared a quarterly dividend of <unk> 20, and electing Dr. <unk> to our board, who will bring a wealth of experience and knowledge as we proactively position our products to be the most sustainable and their respective categories and in 2021, continuing to be on track to return $1 billion to shareholders, while deploying in excess of one.
One 5 billion and EBITDA accretive growth capital investments, while generating earnings per share growth over time of at least 10% to 15%.
In summary, despite near term headwinds while continues to operate from a position of strength. Our team is executing at a high level and ready to take our performance to the next level.
So all of our global employees customers and suppliers. Thank you for your hard work for staying safe and for navigating unprecedented supply chain disruptions collectively we are working to regain efficiencies recover costs and deliver long term value to shake stakeholders and with that I'll turn it over to our President Dan Fisher Dan.
Thanks, John I Echo your thanks to our employees customers and suppliers, we strive to keep our teams safe and to everyone listening, we strongly encourage vaccination and boosters.
As John mentioned, the global operations commercial and procurement teams are manager managing accelerated growth large scale capacity additions, while navigating unprecedented supply chain disruptions.
These impacts are largely outside of ball's control and includes steep supplier cost pass throughs beyond normal levels.
Ultimately the compounding effect of labor and trucking shortages outside of ball has impacted our operational efficiencies customers' production and filling operations as well as retailers efficiencies stocking store shelves the degree of which varies greatly by region.
Given the scale of cost being passed on to us and as John mentioned earlier, we are beginning conversations towards implementing the additional commercial cost recovery program.
Our aerospace and aluminum packaging businesses delivered a tremendous amount of value amid current conditions.
Third quarter single digit volume growth in North America, and EMEA aluminum beverage packaging was offset by double digit volume declines in South America due to tough year over year comps of 30% growth in third quarter 2020, largely due to the timing effects of Covid in South America versus third quarter 2019.
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Our retail marketing investments in Cups continues and supports additional foodservice launches at stadiums and venues continues across the U S.
The ball aluminum Cup will begin initial rollout at a major retailer during the fourth quarter and a new contract with a leading global food service and hospitality company that will further broaden the cubs presence at stadiums and venues.
Our aerospace team brought online new infrastructure investments on time and on budget and supported the successful launch of Oli aboard the lands that nine spacecraft.
Complementing our legacy of value added Earth imaging science.
Demand for aluminum beverage cans continues to outstrip supply around the globe. We remain on track to exit 2021, with an additional 12 billion units of new installed capacity.
We also recently announced additional domestic projects all of which underscore our investor day commentary.
To all the teams listening I know, it's been challenged to keep up with the growth keep your heads held high and focus on basic blocking and tackling we have the contracts we have the raw materials, we have the equipment and we have each other.
We also continue to make significant progress and operationalized and commercializing sustainability and driving our DNI goals.
Our operations in South America, and North America are on track to achieve ASI certification by year end 2021, we launched Brazil's first circular economy lab in October and we continue to finalize our steps to achieve to become carbon neutral prior to 2050 after publicly stating our intent to achieve such goal.
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As we discussed throughout 2021 growth isn't always linear given our year to date global beverage shipment growth of 7% and recent supply chain dynamics. We are on course to achieve high single digit global volume growth and global specialty mix in excess of 50% for full year 2021.
We continue to see annual growth rates in excess of 6% for the foreseeable future.
Ball is well positioned to capture growth given our timely execution on new capacity additions in our established scale in innovation and the world's largest can regions.
Now a few brief comments on each region.
In North America beverage third quarter ship volumes were up 1% versus 2020 and up seven 4% versus 2019.
During the quarter earnings were down as volume growth was offset by the combined effect of inflationary cost increases from suppliers above.
Above current cost recovery provisions project startup costs and operational inefficiencies and legacy plants brought about by unsustainably low inventory and indirect supply chain disruptions.
Glendale in pits and successfully started up additional lines during the quarter. Both plants will exit 2021, with four <unk> and manufacturing lines installed at our bowling Green ends manufacturing plant started up successfully in early October.
In the near term the work to build adequate inventory levels is ongoing.
These actions and cost recovery will further position the business for success in 2022.
Following the successful on time startups of Glendale, Pitzen and bowling Green ball has announced two new Greenfield plants in Nevada, and North Carolina. Both are supported by long duration contracts with strategic global customers. We are excited to invest alongside our customers and anticipate these facilities coming online in late 2020.
Two and 24, respectively.
Lastly, I would be remiss not to acknowledge and thank Colin Gillis, who is retiring from ball for US 48 years of dedication of the company and our industry, we wish them well.
Celine Pietri, who many of you know was our chief commercial and sustainability officer in our global beverage business will do a great job in leading this business in the future.
In EMEA segment shipped volume for the third quarter was up 4% versus 2020 on tougher comps given prior year's volume increases due to COVID-19 reopening timing and were also up due to customers, adding new can filling investments.
Versus third quarter 2019 volumes were up 10, 7%.
Across balls EMEA business demand trends and positive momentum continues.
Year to date are key in volumes in EMEA are up 9%.
Ongoing high single digit growth will be driven by new and existing categories. You'd lies in cans and our new greenfield plants in the UK, Russia, and Czech Republic, which are supported by long duration contracts for committed volumes with global and regional key partners.
Our EMEA team is executing very well in managing complex country by country supply chain issues.
In South America third quarter volumes were down upper teens percent versus 2020 and up high single digits percent versus 2019.
2020 volumes were up 30% versus third quarter 2019, due to timing effects related to COVID-19.
Cooler than normal seasonal temperatures in the first two months of the third quarter. This year and weather damage sustained two are extreme a facility contributed to lower year over year volumes with.
With unseasonably cold temperatures and the facility disruption largely behind us.
October volumes recovered and were up 5%.
We continue to see more earnings upside in South America in 2022 and beyond the fruit all Brazil plant started up its first line earlier this month and anticipate starting up its second line in early 2022.
Additional investments throughout the region are also on schedule.
As we entered the busy summer selling season and given the nice volume bounce back in October we anticipate double digit can growth for the full year and additional growth will be possible. Once we have more capacity online.
In summary, our global beverage team is preparing for long term durable growth, while managing volatility and costs across our supply chain.
No doubt money was left on the table.
We are laser focused on operating safely controlling the things, we can control recovering cost and delivering high quality can store, our customers from new and existing facilities supported by equitable contracts.
Our aluminum aerosol team did a good job supplying growth across EMEA, and Mexico, and Brazil, resulting in 15% higher volumes in the third quarter globally versus 2020, and 5% higher volume versus 2019 for the same period.
The team continues to manage varying degrees of reopening status in Brazil in India and.
In addition, the business continues to expand the rollout of refillable, reclosable aluminum personal care and bottle packaging across multiple categories to.
To support the new Cups contracts I mentioned earlier, we have increased marketing investments and are adding another cup manufacturing line in our Rome, Georgia Cups plant.
Following this investment both lines will be capable of making multiple cup sizes, turning to profitability. We anticipate 2021 total investment cost in the cup business will be in the range of $45 million and we expect.
The business turning to profit in 2022.
Turning to aerospace the team continued to win contracts and maintain record.