Q4 2021 Ball Corp Earnings Call
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Sure.
Greetings and welcome to the Ball Corporation fourth Q2 thousand 21 earnings 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.
Any time during the conference you need to reach an operator. Please press star Zero as a reminder, this conference is being recorded Thursday January 27, 2022, I would now like to turn the conference over to John Hayes. Please go ahead great.
Thank you Malika and good morning, everyone. This is ball Corporation's conference call regarding the Companys fourth quarter and full year 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.
Or in the company's latest 10-K, and another company SEC filings as well as company's news releases. If you don't already have our earnings release, it's available on our website at <unk> Dot com information regarding the use of non-GAAP financial measures may also be found it in the notes section of today's earnings release. The release also includes a table some.
Rising business consolidation and other activities as well as a reconciliation of comparable operating earnings and diluted earnings per share calculations.
Joining me on the call today are Dan Fisher, our president and CEO elect and Scott Morrison, our executive Vice President and CFO I'll provide some introductory remarks, Dan will discuss our company's performance and trends Scott will discuss key financial metrics and then we'll finish up with closing comments two.
<unk> 2021 was a strong year for ball, we exited the year with momentum and expect another strong year in 2020, our global beverage can volumes were up 7% aerospace revenues were up 10% comparable operating earnings increased 12% and comparable diluted earnings per share increased 18% despite ongoing challenges.
<unk> to the pandemic adverse weather events global supply chain disruptions and higher costs. We also increased CVA dollars over 7% returned approximately $950 million to shareholders. After investing over $1 7 billion in capital expenditures in 2021.
For the fourth quarter global beverage can volumes increased 7% comparable operating earnings increased 17% and comparable diluted earnings per share were up 20% versus 2020.
Despite persistent done at shortages and cool rainy conditions during Brazil, seasonal summer, which muted overall shipment growth in the fourth quarter and the full year.
As we look forward, we expect growth to accelerate further supported by strong demand for sustainable aluminum packaging aerospace executing on significant contracted backlog reaping returns on capital deployed and maintaining pricing leverage across our innovative and sustainable product portfolio.
Yesterday in addition to declaring our quarterly dividend and following a review of the company's governance profile. Our board of directors amended the company's bylaws to accomplish three things one to opt out of the classified board structure required by Indiana Business Corporation law in order to begin to de stagger our board two to permit.
<unk> to amend the bylaws and three to increase the board retirement age of 75 years from 72 years as per the press release, we issued yesterday the board intends to recommend shareholders approved the amendment amendments at our 2022 shareholders meeting and more information will be found in the forthcoming proxy statement.
In addition, and as part of a multiyear succession planning process that began before the onset of the Covid pandemic, we announced that Dan Fisher will be assuming the role of CEO and then I will remain chairman.
Dan is ready and all of US on the board have a high degree of confidence in his ability to lead our great company, Dan will be the 12 person in our 142 year history to have the privilege to serve as <unk> CEO .
Going forward I'm handing over the reins to Dan to lead the company. After 70 earnings at M&A calls with the investment community over my 20, plus years with ball today will be my last one you are in great hands going forward and I can also say with confidence that while I will Miss you all I will not Miss These calls my time going forward will be spent sure.
The board and its related responsibilities.
Helping Dan and our sustainability advocacy work with various stakeholders burrowing in on the philanthropic work that my wife, Susan and I have established spending more time with family and friends and perhaps most importantly, being the biggest cheerleader at this great institution.
Thanks to each of you for your support over these years. This is an amazing company and an amazing industry working with and in conjunction with Amazing people. If you were to give me a clean sheet of paper to design. The most ideal job in the world. It would be this and I am the luckiest person in the world for that.
And it is time.
Dan has proven that he is ready and has an excellent management team to continue and accelerate the strong financial operational and cultural performance, we have experienced not only since 2010, but indeed since 1999, when I joined the company when I reflect on becoming CEO . The bar was set very high then and to me.
Our drive for 10 vision was intended to replicate or exceed the prior decades performance and returns over the following decade and you know what we did just that.
And at the same time as we sit here today, we have more opportunities to continue this growth than we did in 2010, and there's never been a better opportunity set than the company has in front of itself. However, what will be required to capitalize on those opportunities going forward will no doubt be different than what was required in the past there will of course.
<unk> challenges, Dan and the team will face, but the leadership the culture. The people our Eva an ownership mindset and our drive for 10 vision will be there to support and guide Dan and team just to say that we're there for me and team.
Now I also think about the more than 24000 employees around the world. The power of we not me at ball is alive and real and it has been an honor to serve our company alongside them. They really are what makes the company better each and every day those aren't just words, it's the truth. So it is with great pride and optimism.
That I would turn the call over to Dan and Scott to speak to our performance and the outlook for 2022 and beyond Thank you, everyone and with that our new incoming CEO Dan Fisher Dan.
Thanks, John .
I would be remiss, if I didn't properly and publicly thank John Hayes for his 22 years of service to Ball Corporation.
And for his personal support and Mentorship of me as a leader at ball.
Some of you may have listened to nearly all of the 70 earnings and deal related Investor calls John has participated on during his tenure as you know John dedicated his time to ensuring the company remains committed to its long standing culture, Eva an ownership mindset and high ethics, while also being innovative inclusive.
Ability driven and positioning our business for global growth.
While also supporting our communities, where we live and operate and generating great returns for fellow shareholders.
We as owners and students of ball and our industries are better off because his leadership and dedication.
We will forever be indebted to you John the.
The performance and stock price development under your leadership speak for themselves and while it is indeed, a team sport here at ball John was the team captain for the past decade.
John Thank you for setting a high bar for us.
I can assure you that speaking on behalf of all ball employees. We are focused on replicating <unk> exceeding the company's performance under your leadership.
Another decade, with nearly 500% return sounds pretty good.
Our team is up to the task.
I am humbled and honored to assume the role of CEO and Carrie on the ball culture drive for 10 vision, Eva discipline and ownership mindset.
And as the saying goes if it Ain't broke don't fix it.
We know who we are we know where we're going and we know what is important.
Now on to reviewing our performance and outlook.
We continue to strive to keep our teams safe and educated about vaccinations and boosters and focused on their mental health, we're not immune to the external forces impacting the global operating environment. However, our teams are doing a heck of a job navigating those external forces and filling in for one another when needed.
We extend our well wishes to our employees customers suppliers stakeholders and everyone listening today.
2021 was another year, where our ball team and business has faced challenges and through it all rose to the occasion to care for one another and deliver value to our stakeholders.
In 2021, our business highlights included.
Our global beverage business completing the start up of four new multiline facilities three in North America, one in South America, and the expansion of existing facilities across all regions.
The company also announced five additional greenfield facilities, two in North America and three in EMEA.
It will come online in 2022 and beyond.
Our global aluminum aerosol team, introducing new reclosable aluminum bottles for personal care and other categories.
Our aluminum cups team signed contracts with the world's largest retailer and continue to have our cup featured at key sporting events and venues.
Our aerospace team expanding its infrastructure 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.
The XP astrophysics mission spacecraft, and the optics and mirror systems aboard the James Webb space telescope.
Our North America aluminum packaging business continued continuing progress toward aluminum stewardship initiative certification following south America's ASI certification in the fourth quarter of 2021, and EMEA as ASI certification in 2020.
The company also announced ambitious 2030 sustainability goals, including inclusion and diversity goals recycling goals and our aspiration to achieve net zero before 2050.
Our business has hired over 2600 people in 2021 to support our long term growth and attrition largely due to retirements.
And returning approximately $950 million to shareholders after investing $1 $7 billion in capital expenditures to generate additional profitable growth for decades to come.
In 2021, our global packaging businesses absorbed $120 million of non aluminum inflationary headwinds and additional cost to startup for new facilities.
Also in North America, EMEA, and South America operational efficiencies price cost squeeze in advance of contractual cost recovery and geopolitical volatility respectively resulted in loss production and money was left on the table in 2021.
As we embark on 2022 contractual price escalators based on PPI and other indices, which phase in throughout the year normal cost pass throughs and our additional commercial cost recovery program benefits will generate significant incremental value and support higher levels of growth capital in 2022.
Which Scott will discuss later.
Demand for aluminum beverage cans continues to outstrip supply around the world, we shipped $112 5 billion cans in 2021, 50%, where specialty cans and we exited 2021 with 12 billion units of new installed capacity.
We also have plans in place to exit 2022, with another 12 billion units of new installed capacity.
Capacity available to sell through in 2023 and beyond announced projects in line additions.
And existing facilities all underscore our late 2020, Investor day commentary and additional long term EBITDA generating contracts for committed volume are now in place the domestically supply our customers in the regions, where we operate in 2022 and beyond.
In addition to global beverage, our aerospace aluminum aerosol and cups teams continue to win new work and position and train talent to support multi year growth and offset attrition largely due to retirements.
To all the teams listening.
Thank you for finishing the year strong and leaning into another year of growth. We also appreciate your efforts to operationalize and commercialize sustainability.
Five our DNI goals and lived the ball culture.
As we discussed throughout 2021 growth isn't always linear.
We continue to rely on our supply chain raw material inputs and look forward to additional investments being announced in 2022 to enable more growth for aluminum packaging.
Given our established global scale significant increase in installed capacity exiting 2021 are capable asset base and innovative product portfolio. We are on course to achieve double digit global volume growth in global specialty mix in excess of 50% for full year 2022, and sold out market conditions continuing beyond <unk>.
'twenty two.
Now a few brief comments on each region.
In North America beverage fourth quarter ship volumes were up 5%.
Versus 2020.
Yeah.
Fourth quarter excuse me fourth quarter 2019 volumes were up 16%.
During the fourth quarter earnings were up nearly 17% as volume growth specialty mix and the operational benefit of better finished good inventory levels more than offset higher cost and operational efficiencies and legacy plants brought about by dunnage tightness and indirect supply chain disruptions.
Glendale, and Pitzen exited 2021.
With four can manufacturing lines installed and each have room for additional lines are bowling green ins manufacturing plants started up successfully early in the quarter and kindred continues to operate after incurring some roof damage during the December southeastern U S. Tornado outbreak, we are thankful, our bowling green team and their families are safe.
The plant's team's leadership safety actions and post event resiliency were outstanding.
The business continues.
Work to build adequate inventory levels is ongoing.
These actions formulated contractual price increases higher levels of domestically produced cans and cost recovery will further position the plants and our business for strong double digit growth in 2022 balls.
<unk> previously announced multiline Greenfield plants in Nevada, and North Carolina are supported by long duration contracts with strategic global customers and are on track to come online in late 2022 in early 2024, respectively.
In EMEA shipment volume for the fourth quarter was up 6% versus 2020 on tougher comps given prior years, 20% volume increases due to COVID-19 reopening timing and were also up due to customers, adding new can filling investments.
And cross balls, EMEA business demand trends and positive momentum continues near.
Near double digit growth in 2022 will be driven by new and existing categories utilizing cans and available cans from our 2021 line additions and speed ups across the region and.
In 2023 and beyond 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 will extend our ability to serve growing customers in categories.
Our EMEA team is executing very well in managing complex country by country supply chain issues.
Key inputs are in tight supply and though we have contracts and mechanisms to control cost, we're keeping a watchful eye on driver availability and pandemic related labor shortages impacting timely stocking of store shelves.
In South America fourth quarter volumes were up 3% versus 2020.
And up 16% versus 2019.
2020 volumes were up 12% versus fourth quarter 2019, due to timing effects related to COVID-19 rebound and warmer temperatures during the seasonal summer fourth quarter.
Cooler than normal seasonal temperatures and excessive rain in Brazil contributed to softer than anticipated volumes during the fourth quarter of 2021, we continue to see more earnings upside in South America in 2022 and beyond the fruit all Brazil plant startup.
It's second line during the first quarter of 2022 additional investments throughout the region continue to be on schedule.
In summary, our global beverage team is preparing ourselves and our supply chains for long term durable growth while managing notable volatility our customers are continuing to lean on the can as their package of choice as brand proliferation, and the blurring of the category lines accelerates.
We are operating safely controlling the things we can control recovering costs delivering high quality cans to our customers from even more new facilities supported by equitable contracts and closely monitoring global supply chain.
Our aluminum aerosol team did a good job as planned growth across North America. The team continues to manage varying degrees of consumer demand volatility in Brazil and India.
The business continues to make progress on the rollout of refillable, reclosable aluminum personal care and bottle packaging across multiple categories.
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.
We anticipate profit starting in late 2022.
And turning to aerospace the team continues to win contracts and maintain record backlog.
Segment operating earnings were up 38% in the fourth quarter versus 2020 supported by improved program execution.
Carrying and the momentum from the fourth quarter. The business continues to be positioned for sales and earnings growth in 2022.
And margin improvement in 2022, given the contract mix.
Across all our operations, we are increasing year over year capital and training investments to deliver on strong contracted demand and position our plant operations for success.
We appreciate all of the amazing work being done across the organization and with that I'll turn it over to Scott, Thanks, Dan Dan and John I Couldnt be happier for both of you.
Congratulations John Thank you first and foremost for your friendship and for everything you've done for ball, it's been a hell of a lot of fun and thank you for your continued thought leadership on sustainability going forward.
Dan I'm very happy for you your family and for ball. This is a great day.
Right leader and ready for this role I look forward to us continuing to work together.
One word of advice for job work on your Pud.
When you don't have the CEO CEO title, you're much less likely to be given those three foot pups and now to the numbers fourth quarter 2021 comparable diluted earnings per share were <unk> 97 versus <unk> 81 in 2020, an increase of 20% and comparable full year of 2021 diluted earnings per share up <unk> 18 per.
<unk>.
Fourth quarter and full year sales were up due to pass through of higher aluminum prices higher sales volumes and improved mix comparable fourth quarter diluted earnings per share reflects strong results in North America.
Aerospace and other non reportable and lower year over year corporate costs during the quarter offset by unfavorable Euro earnings translation and.
In addition, the ball and platinum equity announced sale of the metal pack ball metal pack investment closed yesterday as a minority partner balls net proceeds from yesterday's transactions were approximately $300 million.
The sale represents the final step in ball's two step exit from the tin plate steel food and aerosol businesses.
Called the ball received approximately $600 million in cash proceeds in 2018, when our legacy steel food and aerosol assets were sold the minority owned JV with platinum.
Ball's balance sheet is very healthy with ample liquidity and flexibility.
Year end net debt to comparable EBITDA was three four times and within our optimal leverage range.
As we sit here today, some additional key metrics to keep in mind for 2022, our full year effective tax rate on comparable earnings is expected to be in the range of 19% full year interest expense will be in the range of $270 million and full year corporate undistributed costs recorded in other non reportable is expected to be.
In the range of $120 million to reflect higher year over year incentives based on anticipated higher performance and investments to our systems infrastructure to support our robust growth.
At this time and given additional growth projects in all of our businesses to support ebay enhancing contracted volumes. We expect 2022 total capex to be at least $2 billion and to return in the range of $1 75 billion to shareholders in the form of share buybacks and dividends in 2022.
We continue to see a path to doubling our cash from operations by 2025 and look forward to even more opportunities to invest in our businesses for profitable returns rest assure well continues to be good stewards of our cash.
As fellow owners and through the lens of UBS discipline, we will prudently balance growth opportunities with consistent return of value to our shareholders via dividends and share repurchases. We look forward to consistently investing in our businesses and returning even more value to shareholders in the coming year with that I'll turn it back to you Dan Thanks, again, Scott and some.
Our drive for 10 vision continues to serve as our guide we know who we are we know where we're going and we know what is important.
We are positioned to exceed both our comparable diluted earnings per share of long term goal of 10% to 15%.
As well as our Eva dollar growth goals of 4% to 8% per year in 2022 and beyond.
While we are not immune.
And facing inflation volatility and supply chain headwinds in the near term. We are confident that we will get through it successfully and maintain our pricing leverage over our 142 year history. It has been done before and it will be done again.
The decadal shift that will favor our packages is happening.
We look forward to continuing our journey and being close to our customers.
Focusing on attention to detail acting like true owners of the business being good corporate citizens to our people and our planet and returning value to our shareholders.
And with that Malika, we're ready for questions.
Thank you, ladies and gentlemen on the phone lines as you would like to register for a question. Please press. The one followed by the four on your telephone you will hear escalate on pump technology request.
Question has been answered and I would like to withdraw your registration please follow up with the three months.
Once again, ladies and gentlemen, it is one four if you have a question.
Our first phone question is from the line of Christopher Parkinson with Mizuho. Please go ahead. Your line is open.
Good morning, and congratulations on an incredible career, John and good luck in all your future endeavors and also to you Dan Congratulations.
On your new role as CEO .
Thank you.
I just.
I was just wondering if you could just parse out a little bit more of the volume trends by region and specifically you discussed some headwinds at South Americans and by the way has an impact on the fourth quarter I think in North America on.
On overall earnings when we think about 'twenty, two and some of those headwinds maybe nonrecurring how should we think about that demand progressing throughout the year.
Yes, great maybe I'll, maybe I'll start with.
Kind of how we're seeing 2022 and the growth by the three large regions commented in my prepared remarks.
And as you know we've installed quite a bit of the 12 billion capacity Thats exiting 'twenty. One is in North America. So you would expect and Thats, what we anticipate.
Double digit growth in that region.
In Europe , we've made a lot of incremental investments.
And so we think that that team will be able to deliver near double digit growth.
And in South America.
We anticipate.
We've commented on the 4% to 6% long term growth trajectory, we anticipate being north of the or in the higher range of that.
And in all total I mean, we've got a really strong chance to get to double digits in the global beverage business with the with the capacity we've installed in the demand profile in the execution.
A little bit more commentary in and around South America.
We were just talking to that team. The other day I mean keep in mind in the fourth quarter I think in Brazil. In particular, that's really where we had some demand destruction versus sort of what we anticipated heading in the quarter I think the rain in Brazil was up something like 300% versus a normal.
<unk>.
Rainfall estimate.
And then there were a lot that's their peak season.
As Covid started to show up in November and December and they shut down a lot of opportunities for folks to congregate and get together and consumed can beverages. So those were the two fundamental issues that.
Precipitated in Brazil, the good news and why we were able to deliver growth as well.
<unk>.
We play in.
Lot more areas and countries in that region than in Brazil.
So that's that's what trended us towards toward growth as we had a really nice performance in a number of the other countries that we participate in as.
As we sit here today.
Covid is still persists.
And so.
We're obviously monitoring it is peak season. The rain has stopped the weather has improved those things are moving in our direction for South America, but.
We need to get beyond.
What the entire world's dealing with relative to omicron to see us return to kind of what we should anticipate normally in the first quarter in South America.
No that's extremely helpful.
And then just a really quick one obviously, whether it's been supply chain logistics raw materials, a lot of people have been dealing with higher costs and I think you mentioned you initiate additional constant covering mechanisms throughout the quarter.
Seem to persist a little bit longer into let's say the first half of next year can you just discuss a little bit more what those actions are in terms of your constant cub reactions and any additional levers you can take to help offset this in the near term.
Yes, thanks for that so one thing to keep in mind as we've we didn't make this is as clear we're doing it in all of our businesses.
That's one thing that wasn't.
Maybe as clear when we commented on this.
The plan of attack at the last earnings call. The teams are fundamentally going out and having conversations.
Ball fashion with each one of our major customers.
And so we're sitting at a table as partners and we're having those conversations and I would say.
The feedback at this point overwhelmingly as we've made really good progress.
We will see that improvement in 2022.
One of the things you are pointing out as those conversations start with a point of view on what the world looks like and.
So two months ago, I don't think anybody anticipated what was going on in energy prices for instance, in the Ukraine impacts so we.
We will have to have ongoing conversations as things in the world show up that none of us had anticipated anticipated or modeled but the team's done a really nice job in.
I think we're working toward a really nice plan and we should see that show up in 2022.
Great. Thank you very much and congratulations again.
Thanks, a lot.
Thank you.
And our next question is from Ghansham Panjabi with Bank. Please go ahead. Your line is open.
Okay.
Hi, Good morning, everyone. This is actually Matt Krueger sitting in for Ghansham first off congratulations to John and Dan.
Ounce elections yesterday.
And just diving right into it just diving right into my first question here.
Can you provide us with an update on some of the key growth categories across the beverage can market.
With a particular emphasis on on some of the categories that may have seen some some choppiness over the past year.
So as such as hard Seltzer is in other products. It seems like there is plenty of new introductions and momentum elsewhere, but if we could get some details on that that'd be great.
Sure.
Attempt to parse out some of this.
By region.
I would say globally.
Energy drinks are on fire and we have a we have a very strong position with a number of those folks and so we benefited from that in terms of our growth profile.
Beer continues to grow.
Across the world, but I'd say, we saw an inflection of CSD as well in Europe .
And we have a strong position there.
In South America, all of the growth was fundamentally muted.
Bye bye weather patterns, but again beer is the dominant player there so growth happens.
Growth happens or doesn't happen as a result of the beer in South America, and North America in particular.
Growth in CSD double digit growth in energy sparkling water.
<unk> growth.
Domestic beer was down.
Harte <unk> were down slightly.
In craft beer was down slightly but the.
The largest category CSD and energy kind of for us in our portfolio did well in.
That's what sort of carried the day for us in North America.
Great that's that's.
Helpful and then.
Can you talk a bit about how free cash flow is expected to evolve in 2020 to maybe bridge 2021 to 2022 and then.
Can you comment on some of the some of the challenges or hurdles that you have to get over in deploying over $2 billion of capital in an environment that is increasingly marred by labor shortages and disruptions in kind of absenteeism.
Some detail there would be great.
Sure.
Free cash flow front, we actually did a little better.
In 'twenty, one than we expected we had some milestone payments that we collected from our aerospace business.
US also when commodity prices rise when aluminum rises.
We get a benefit from a working capital standpoint, because we have longer payable terms that we have receivable terms.
So that helped working capital in 'twenty, one 'twenty, two we're kind of expecting relatively flat commodity prices.
And expecting free cash flow to be.
Our working capital to be relatively neutral.
As it relates to deploying the capital our teams have done a fantastic job of all the Newbuild all the incremental lines that we've put in plants.
On time on schedule.
Ah slip here or there for maybe a week or so but I have to commend our operating folks they have done a spectacular job. Despite all the challenges despite the COVID-19 challenges despite the supply chain challenges they've really done an excellent job.
Not without challenges but.
We have a really good plan as to how we're going to deploy $2 billion of capital.
We expect the.
Strong performance operating performance to continue.
One build on Scott's comments relative to the execution of a deployment.
Remember three four years ago, what we decided to do was create a global engineering organization and so we have the ability to deploy resources.
Not region.
Pendant, but where the work needs to be done and that team has done a remarkable job of organizing itself standardizing install base I think we got out in front of the process equipment by.
I think theres been a lot of things that we've done right over an extended period of time that are now showing up.
And you can't underestimate the fact that we're hiring people well in advance we're training them when they come in they know what to do they feel safe operating in our environments and I think that's enabled us to retain people.
Far in excess of kind of what the industrial manufacturing sector is doing so knock on wood.
We're really encouraged about.
What we've done and it's a really good building block and gives us a great deal of confidence that we're going to be able to continue to do that here over the next 24 months.
Great that's that's.
Well, Congrats again, John Dan Thats. It for me. Thank you.
Thank you. Our next question is from the line of Anthony Pettinari with Citi. Please go ahead. Your line is open.
Good morning, and congratulations to John for everything you've accomplished and to Dan as well.
Dan you talked about adding 12 billion cans this year after adding $12 billion last year.
From a big picture perspective can you walk through your major regions, and maybe just discuss which might require imports. This year and are extremely tight versus maybe regions, where your supply situation might be getting maybe more comfortable or more normal.
The 2021 capacity.
Reflected in my commentary for where we see growth in 'twenty two was overwhelmingly in North America. We did put in a greenfield facility in South America, we will see the benefits of that and we did incremental investments in both.
South America and EMEA.
But transitioning in 2022.
There will be.
More capacity going into South America, and North America, that's where the majority of the $12 billion.
The exit rate of installed capacity will come from.
And then in 2023, you will see in 2024, you'll see a pretty significant step up in EMEA.
Okay. Okay. That's helpful.
And then just on EMEA, you, obviously have a large Russia business.
You anticipate.
Move in the ruble and intentions, there to have any financial or maybe operational impact in the quarter.
Can you help us understand how you might be sort of insulated from geopolitical risk or how youre thinking about that yes.
It's really runs as a dollar based business as most of the Russian economy doses tied to oil so.
Our treasury team does incredibly effective job of insulating us from valuation changes in the currency. So you don't see much of that to be honest.
Okay. That's helpful I'll turn it over.
Thank you.
Thank you. Our next question is from the line of Mike.
With Barclays. Please go ahead.
Great. Thanks for taking my question and I want to Echo my congrats to both John and Dan.
Diverse some beverage packaging.
The America, just as we're bridging to 2022 in the earnings potential for that business can you maybe just help us what.
Onetime occurrences that hit the expense line that should roll off as we get this year and just what type of operating leverage we should expect some volume growth as well.
I'll make a comment and then I'll give it over to Scott for additional detail I'll say, when we talk about and we've talked about time and time again here the prepared remarks.
Net inflation drag.
The majority of that was North America related and it's how we pass through inflation in our PPI mechanism.
So when youre thinking about a year over year bridge, you should see the benefits of that inflation transition show up throughout the year because not every contract renewal happens on January one.
There were as you can imagine countless supply chain challenges et cetera.
I'm cautiously optimistic.
That.
The supply chain in the ecosystem is going to stabilize somewhat I can't guarantee that.
But I do believe you'll see improved performance.
Because we have exited North America, and a much healthier inventory position in 2021 heading into 'twenty two than we had in 'twenty.
It should improve the net inflation pass through.
I'm very encouraged with the execution as we just commented on in terms of the project those will all be there for us to lean into I expect North America to have a really nice year next year.
Yes, I mean, the only thing I'd add is exactly on the PPI adjustments some happened in the first quarter. So I'm happened in the second quarter and some won't happen until the third but by the by the third quarter, we should see all of that but all of that cost recovery coming back to us if you will.
Great. That's Super helpful. And then second just on capital deployment. If we go back to the Investor day shooting about a year or so ago, you talked about roughly a $1 billion of capex per year through 2005, and now it seems like we're going to be running at double that this year and maybe a little bit that's coming out of buybacks versus when you talked about last.
Quarter. So can you just talk about what's driving that change I'm, just assuming the organic growth opportunity is simply got better, but just any color on kind of how youre looking at that and the tradeoffs there.
Yeah, I think it's really the organic growth continues to strengthen we are entering into additional contracts long term contracts with customers.
And so we have a high degree of confidence in deploying this capital.
It really hasnt changed a heck of a lot from our view.
Buster day of 2020, if anything it's just got firmed up more.
And become more real and so we're executing on those plans.
Great. Thank you.
Thank you. Our next question is from the line of Ireland with Swanson with RBC capital markets. Please go ahead.
Sorry about that good morning.
Thanks for taking my question.
Thats on the.
Retirement, John and congrats to you Dan as well.
I guess just wanted to understand we did hear some.
Some some rumblings of some demand pulled back or even maybe some COVID-19 impacts in Q4.
But it doesn't seem like there was any any real impact on your business.
I guess was there any COVID-19 impact and I guess going forward I guess would you expect any impact from absenteeism or or anything else like that that would linger and potentially put some of your projects at risk.
Yes, thank you for that question.
I would say.
Covid didn't impact our demand with the exception of.
Precautions in South America, where it's peak season down there and they didn't allow for the public gatherings to the same extent.
That's the one where it's most acute in we can describe that and understand that.
We are absolutely experiencing.
Some impacts to production here in the first couple of weeks of January .
The wave of OMA Crown has hit.
I think we had nearly double digit.
Dislocation of.
Our manufacturing folks in all three regions here last week.
It peaked I think it's <unk>.
<unk> rose and now with sharply declining so I think we got a chance to deliver a strong first quarter.
But yeah on the demand side Covid with the exception of South America.
Entirely sure we saw much impact.
I think the other question that you had was just relative to demand profile in general.
For us.
We've been very fortunate.
At the partners that we have are winning in the marketplace and so I think in that regard.
Obviously, there is a ton of focus and has been over the last six months the spiked seltzer category, we had minimal exposure to that.
Coupled with the fact that.
A number of our key partners are doing extraordinarily well in the marketplace. So that may be an insulation from maybe other participants in the market but.
I'll leave it there for now.
Thanks for that and then just as a follow up I guess.
Obviously, you had talked about that $25 billion and $45 billion.
Units that you plan to bring on.
That was about a year ago.
There has been some other announcements by yourselves and other competitors subsequent to that.
Do you still think those are kind of the range that we'll expect to see or you.
You see that maybe there's some upside to that.
Even with that demand continues to be robust.
<unk>.
Some of these markets are on fire.
Seen some some really strong numbers in the RTD ready to drink cocktail market as well. So maybe you can just update us on your capacity plans and maybe for the industry as well. Thanks.
Yes versus our Investor Day 2020 late 2020, when we sort of laid out a multiyear growth plan. So as we sit here today. It was referenced in a previous question. We've spent capital in excess of what we had planned at that time up to this period, which is all good we have really solid contracts it back at EBITDA generative.
<unk>.
Opportunities.
So.
Based on what we've seen thus far we're going to take advantage. If those opportunities continue to show up in manifest in the same way, we will lean into them.
A healthy balance sheet as Scott has already indicated.
If there's more opportunity to grow we will take advantage of it.
One thing that.
Okay.
<unk> is a sign towards more growth.
Is if you.
<unk>, and maybe and consume us out as part of our materials, but Ellen Macarthur Foundation produced the top 10, CPG companies and Theyre producer responsibility recycled content targets over the next five years every one of them has a significant.
Improved target position that they've said publicly and they can't get there without aluminum is the bottom line. So we didn't see that type of target and earnestness behind public.
Target from our largest customers they are out in the public domain now and they're going to have to hit those so there's quite a lot of belief at least as we sit here in broomfield, Colorado today that we've got more upside than we do.
Downside in those projections.
Thank you.
Thank you. Our next question is from the line of Andrea <unk> with Morgan Stanley . Please go ahead. Your line is open.
Alright. Thank you for taking my question and congratulations to you both gentlemen.
Just wanted to follow up on the volume number that you noted for the fourth quarter or 7% given what you've kind of outlined for the for the various regions. It seems like there might have been maybe more on the kind of non reportable segment that was strong growth and I assume that's essentially imports to whether it's north America or other regions. So I was just wondering if you could give us a little bit.
More color on kind of.
What the numbers were for the non portable and then for imports as you've seen those into 2022, how should we think about those in terms of absolute numbers versus strong 2021 that we saw.
Yes, thanks for the thanks for the question.
You're exactly right. The other non reportable was up double digits.
And it's from our combination of our joint ventures around the World are majority owned assets, So think Saudi Arabia, South East Asia.
<unk>, we're going into markets that we're oversold from from all of those areas. So that contributed to the uplift.
Hesitant to comment on imports.
I can tell you from.
Our position we are we are oversold in all three markets heading into the year and we will have to continue to ship.
An unnatural patterns from those locations into Europe , and North America in particular in 2022.
I can't comment on the competitors, but we will continue to see import cans for sure from us to the extent that our competitors need them.
I don't know that information.
Got it and in terms of finished goods you noted that inventory as you continue to work towards normalizing that I think in the past you've given kind of a sense for in terms of days, where we are today versus historical and could you just kind of update us on that how much more work left to do to get to a place where you really feel kind of back to normal and have good inventory heading.
Kind.
The summer season.
I think in Europe , we're very close to where we need to be and in North America.
I don't have the specific number I think it was in the range that will be 10, 10 days better than we were a year ago in terms of finished good and that that can be.
Two weeks is.
As a much better buffer then we ended it began the year last year.
Thank you and best of luck.
Thanks.
Thank you next question is from the line of a song with current P&L with Seaport Research Partners. Please go ahead. Your line is open.
Yes, Thank you very much and John congratulations on the great barrier.
More information and then euro.
First of all thank you Oscar.
Hard Seltzer market then.
It seems recently there have been some introductions seen some more mainstream products with glass packaging.
And there seems to be some saturation with all of these brands and having all of these different products.
Really small subcategories of what was the hard seltzer market do.
Do you see any risk there.
Some of your customers in order to try to differentiate themselves may not be building, albeit towards the other packaging substrates.
No I think the can because of the recycled content attributes and because of the commitments from all the major CPG companies. They they just can't get to these commitments by transitioning into these other substrates it'll be dilutive.
I think the can is winning it will continue to win every metric we have suggest.
We're doing we're doing more were do it we're doing more with our major customers and they're telling us they're going to lean into the can more and more.
So from that standpoint, I think we're in a good.
And in a good spot and then I'll.
Just refer you to previous commentary on the Spike Seltzer market.
Our exposure is very limited.
To that.
And.
Yeah, I'll leave it at that.
Okay great.
I know you discussed topics before unless I missed that part, but I'm just wondering why do you think about the high capex.
Capex number this year and especially into next year's guidance.
Luke you know a few months or a year, but how have things changed just because of inflation on that to be a figure.
Inflation is a part of it but a very small part the really driver as opportunities that we have to deploy capital.
It's two bedroom COVID-19 .
We're not doing plant tours and things, but if you if you want the Glendale, Arizona that would be a great example of the investments that we're making that are.
Really just spectacular facilities. So it's.
It's really driven more by opportunities and increasing.
Our capacity versus inflation I mean, there is definitely some inflation in steel and putting up buildings and things like that but that's not what's driving the increase.
Okay, great. Thank you very much.
Yep.
Thank you. Our next question is from the line of Phil Inc. With Jefferies. Please go ahead. Your line is open.
Hey, guys Congrats Dan in her new role and John Thanks for all the help over the years. Thank.
Thank you.
My first question John .
<unk> been pretty explicit saying that 2022 in North America is going to be sold out again, but when we think about supply demand for 2023, how are you thinking about it.
Are you expecting to get more balance at that point or still pretty much on allocation.
Yes, 2022 'twenty three.
It's a great question.
22, what we see in front of US. We're oversold 2023, we will continue to be tight based on every conversation that we're having with our customers.
I just continue to think this is the cadence I don't think this is a 2022 2023 things get right supply demand balances out I think the the.
The sustainability tail winds are so pronounced.
And the commitments are now so public from our customer base that they are going to have to move and to aluminum.
To hit those goals and so that's what we're monitoring right now.
Okay, that's really exciting and then maybe just a question for Scott.
For 2021, you had net inflation drag from some of these non metal impact did you call out what that headwind was in 2021 and for 2022, how should we think about startup costs relative to that 42 million. You saw this year and then we will not have a bigger impact on margins.
South America, just given the amount of capacity that's coming on in that area.
Yes in terms of the equation it was over $120 million of that inflation that we had to take in 'twenty. One the vast majority of that being in North America. The rest most of it being in Europe .
As it relates to startup cost, we had $42 million in the U S, where we had $50 million overall.
We thought we'd be a little higher in the U S more of that a little bit of that shifted into the first quarter.
So we won't see a decline necessarily.
I think I think start up cost will still grow a little bit because we are still looking at expanding.
Facilities here as it relates to South America, though the startup costs really get driven by North America, where labor rates are higher.
So bringing people in six months early to train is more costly than it would be in South America. So while South America will have a tick up in.
And startup costs.
Gigantic.
So Scott or.
Bill.
We'll build on that is.
If we're spending capital at a like rate and we're standing up capacity and greenfields out of like rate Youll start to see us comment less on startup cost because it's a recurring expense.
And so.
The reason we spoke on it from 'twenty to 'twenty to 'twenty one is <unk>.
Significant step up in some very large greenfield facilities.
And it wasn't material. So that's why we commented on it. So I think we will probably dissipate from those comments moving forward, if we continue to spend which for.
For the foreseeable future we are.
Got it that's helpful and then Scott the $120 million of net inflation that is $140 million that you are behind that.
Hopefully recoup this year is that the right way to think about it.
Most of that we had to choke down in 2021, and then we mentioned about our PPI escalators that we have in most of our contracts, we will recover that but we'll recover some of the first quarter. Some in the second quarter and by the third quarter, we should have most of that recovery.
Got it.
Every contract is different and so it's now it's not.
Zero dollar for dollar, but it's pretty close.
And then we've seen magnesium prices tick up a little bit is that something you guys feel good about passing through in a pretty timely and then at least at least getting supply as well, particularly in Europe .
Yes.
It was a pass through so it's just a component of the bundle.
And.
Things are volatile I would say the supply chain is very tight in the metal supply chain is very tight.
I'm more concerned about that dynamic about any particular component, but the metal price.
Okay.
Thanks, a lot guys.
Thank you.
Thank you. Our next question is from the line of Kyle White with Deutsche Bank. Please go ahead. Your line is open.
Hey, good morning, Thanks, taking the question John Congrats on the tremendous career and Dan Congrats on the new role.
Wanted to ask you about inventory levels, but more more at the customer level.
I guess you have a sense in terms of where your customers are at from their inventory standpoint, specifically in North America and how much rebalancing do you think needs to take place any way to potentially quantify it in terms of how many billion units you think they are short on inventory.
Yes, I don't have that detail in front of me I think the team is.
As marshalling through a really thoughtful inventory build plan in North America specifically.
We're in a much healthier position year over year.
<unk>.
I mean keep in mind, we understand are a level <unk>.
Inventory is probably 80% of our.
Our sales volume, we've got annual forecasts that we're operating off of.
A lot of the labels that you would see right now would be Super Bowl related et cetera, So anything that would be a change in graphics I think we've got good line of sight into.
And I think the team is going to execute really well here in the first quarter.
Got it and then I wanted to touch on Cst's, particularly in North America I mean, historically this category was driving declines for the industry, but is now experiencing some growth which is quite meaningful given how large the category is just.
Curious what you're hearing from your key customers on this in terms of what is driving that growth and are they bullish on it such that they are actually investing in incremental filling capacity for it.
They are absolutely investing in filling capacity for demand aluminum. It's a combination of a slight substrate shift are leaning in all the new products that are being launched in North America are being launched in cans.
And it will be interesting to see habits have clearly changed over the last two years, there is more at home consumption and that at home consumption.
Overwhelmingly benefits of aluminum packaging and so I think the combination of all those three were talking to them.
We're planning longer term in terms of a surety of supply.
And I'm kind of bullish on that segment for the foreseeable future.
Now I will turn it over good luck in the year. Thank you.
Thank you. Our next question is from the line of Mike <unk> with choice Securities. Please go ahead. Your line is open.
Thanks, very much good morning, everybody Congrats Dan on the additional role.
Congrats John on all your accomplishments and particularly your retirement from all these earnings calls.
[laughter].
Just first question just following up on what Phil mentioned.
And Dan you responsibly Oversold in 2022, and then you mentioned 2023 will be tight.
The word oversold, so I'm wondering how much of your capacity production is accounted for in 2023 at this point.
I would say, 95% is accounted for there is probably an element of spot volume, but you keep in mind, we've got contracts that rollover at various times and so it's not 100% contracted but it.
It's overwhelmingly contract.
And I wouldn't parse out.
The my comment about not saying, we're oversold I.
I'll give you more detail when we get more into 2022 as it relates to 'twenty three and we have conversations with our customers right now.
Everyone is laser focused on trying to navigate the here and now and getting getting cans on the shelves and so we're talking about 2022, but I think our capacity that we're putting in place as we've said now for several years, it's contracted it's Eva degenerative and it's it's going to we're going to like the returns.
Remember its January of 'twenty two.
We've been surprised by the upside since our Investor day.
We're not making great predictions about 'twenty, three but to Dan's comments everything we're seeing looks pretty darn good.
Got you very clear.
One question following up on inventories.
Turning to apply chain logistics issues.
How should we think about or how do you think about inventory levels coming out the other side of it.
<unk>.
So obviously you had a certain level of level of inventories pre COVID-19 should we expect that inventories will be managing to a higher level of inventory going forward.
To me my sense is that.
Just in time needs to be modified given what everybody has been experiencing in the last call. It 12 to 18 months I'm not sure. What your thoughts are but just wanted to get your thoughts around inventory management on a go forward basis.
Yes, I've been in manufacturing for 30 years and for 29 of those we've been moving jobs overseas and we've been low cost country sourcing and we've gone to adjust in time mentality and I think all of that will change moving forward.
I don't know what that means in terms of working capital.
Use of cash I would imagine there would be a combination of folks who are going to get a hell of a lot smarter and more effective and efficient on the stocking levels. They have to manage that working capital.
But you would think youre going to have to buttress the working capital with trucking continues to be a concern.
A number of things that you're managing but I think this just in time inventory phase.
May.
It may be a thing of the past for the next few years.
Got you good luck in 2022.
Alright, thank you.
[noise] Malika, we're a couple of minutes over so maybe we take one more question.
Certainly the next question is from the line of George Staphos with Bank of America. Please go ahead. Your line is open.
Yeah.
Hi, guys. Thanks for sneaking me in here George.
I know, we got to be a problem.
Oh My gosh.
Well congratulations to both of you in the next chapters and John in particular, it's been great working with you last 22 years and congratulations on all the <unk>.
All the performance I guess I have two questions I guess first of all thinking about Europe , and what's been going on there from a geopolitical standpoint are your customers are you doing anything differently to manage against the risk I don't know that you could but if there is anything that you could share how you're guarding against that would be appreciate it second question bigger.
Picture.
Dan.
Do you see the <unk>.
Company's evolution on a couple of fronts over your tenure relative to John's tenure vis vis what youre going to do to promote sustainability and aluminum took place.
And how the footprint of balls facilities evolve over time, you have all these opportunities coming in.
You are spending more capital than you should be given the returns that you're seeing what's it going to mean in terms of your typical plant in terms of its flexibility sized modularity and so on thanks, guys and good luck in the quarter.
Yeah. So so a lot there I will tell you.
The thing that I'm most proud of.
Two inherent in this role is that and John Stewart US to this point, we are a sustainability company all of our strategies and all of our businesses are tied to circularity.
And even in aerospace, we have a wonderful opportunity to lean into.
Our climate censoring technology, our data analytics.
And so I think that does a couple of things for us.
If you don't have sustainability tailwind, if you've got a headwind and our businesses have tailwind.
The other thing is it's an incredibly powerful attractor of talent not just our incredible culture here at ball, but folks want to make a change they want to make a difference and they can do that at ball and so I'm going to lean heavily into that and I think the leadership team.
At supporting me in supporting our 24000 employees, all believing that and so what that means.
We have to tell our circularity story, we have to own the aluminum story, we have to improve every aspect of that story. The primary goal of that is recycled content.
And I think our supply chain partners know that we know that and we're going to try to influence the hell out of that over the next decade.
One of the things that John commented on in his prepared comments are I asked John specifically to stay enroll and support this business because he has been a foundational element and storyteller of our product and John is going to continue to do that at the highest levels of our government and stakeholders around the.
World and we're going to lean on that and continue to build off that.
Say that that.
Our 24000 folks are going to are going to define our future a hell of a lot more than Dan Fisher is.
But what we have this culture, how we focus on our capital investments and the company being a sustainability company first and foremost is.
It's something that we've got a hell of an opportunity to build on George.
Understood.
And on Europe , and footprint and I'll, let it go.
The risk profile, maybe I'll talk to we do a phenomenal job we have a significant presence in Russia.
We as Scott has indicated it's a dollar based business that's where the.
Most speculation and.
Geopolitical stability instability is right now maybe I can have Scott talk about how we look at hedging how we protect ourselves in contracts and.
Energy contracts et cetera.
It's more about what your customers might be doing or not doing it maybe it's something we can take offline, but it wasn't so much the hedging, but what are you doing to prevent against risk and your customers as well.
Yes.
They're still investing they're investing in filling lines in an accelerated rate versus what we've seen historically, they're still bullish.
We're still bullish on aluminum cans.
And that's why we're continuing to lean in with candidly three new Greenfields in Europe that is a significant.
<unk>.
That's a significant statement by us and our customers that had been contracted for those facilities to continue to grow in those areas.
Okay, Dan why don't we tabled it from here thanks, very much for the time and good luck in the quarter.
Thank you George.
Speaker 1: With that, I'll just thank everyone for their questions and look forward to speaking to everybody at the end of the first quarter. Everybody stay safe.
And mallika with that I'll, just I'll just thank everyone for their questions and look forward to speaking to everybody at the end of the first quarter and everybody stay safe.
Speaker 2: Thank you ladies and gentlemen, that does conclude today's call. We thank you for your participation and ask that you please disconnect your lines. Have a good day.
Thank you, ladies and gentlemen that does conclude today's call. We thank you for your participation and ask that you. Please disconnect your lines have a good day.
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