Q3 2023 Ball Corp Earnings Call
Please continue to stand by your conference will begin momentarily we thank you for your patience.
Okay.
[music].
Greetings and welcome to the Ball Corporation third quarter 2023 earnings call.
The presentation, all participants will be in a listen only mode. Afterwards, we will 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 on Thursday November 2nd 2023, I would now like to turn the conference over to <unk>, Chairman and CEO Mr. Dan Fisher. Please go ahead.
Thanks, Brian.
Morning, everyone. This is ball Corporation's conference call regarding the company's third quarter 2023 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 results or outcomes to differ are in the company's latest 10-K, and another company SEC filings as well as company news releases.
If you do not already have our earnings release. It is available on our website at ball Dot Com <unk>.
Information regarding the use of non-GAAP financial measures May also be found in the notes section of today's earnings release historical financial results for the divested Russian operations are reflected in the beverage packaging EMEA segment.
See note one business segment information for a quarterly breakout of restaurants historical sales and comparable operating earnings. In addition, the release includes a summary of non comparable items as well as a reconciliation of comparable net earnings and diluted earnings per share calculations.
Before we dive into our discussion about ball solid third quarter earnings and cash flow performance I would like to reference some important announcements made recently by the company.
On August 17th the company announced an agreement to sell its aerospace business to be a systems, Inc. For $5 6 billion in cash proceeds achieving a premium multiple for our premium business. The transaction is subject to regulatory approvals and customary closing conditions and adjustments. Therefore.
<unk> estimates for certain financial metrics provided in today's earnings release and conference call commentary exclude any potential impact of the aerospace business sale.
The process to achieve necessary regulatory approvals is underway and when appropriate our progress announcement will be made.
Also in early September the company announced Scott Morris and his well deserved retirement as ball CFO and then Howard you has assumed the role of EVP and CFO.
To ensure a smooth transition and to enable a successful close to the aerospace transaction.
<unk> has agreed to stay on with ball as an adviser until September of 2024.
It is a pleasure to have both Scott and Howard joining me on the call today I'll provide some brief introductory remarks and provide Howard an opportunity to introduce himself Scott will execute his last earnings call for ball and discuss key financial metrics and then we will finish up with closing comments and our outlook for the remainder of 2023 and Q&A.
First let me begin by taking a few minutes. So thanks, Scott for his 23 years of service to ball and his 13 years of serving as ball CFO.
Some of you may not know that Scott has been an integral part of every ball M&A deal since 1998 <unk>.
Free ball he was actually one of our outside bankers arranging the financing for the Reynolds metals acquisition.
In 2000, and Scott joined ball as our treasurer and the rest of this history.
He has executed multiple transformative M&A and record setting bond deals successfully navigated ball through numerous economic cycles always stepped up when called upon and he's completed 55 of these wonderful earnings calls now.
Scott is sailing off into the Sunset literally our company is better because of Scott Morrison and personally I am thankful to have worked with them since 2010 admire.
At my request, Scott agreed to stay on a bit longer as CFO than we originally planned.
And I'm, so grateful that none.
Nothing like a multi year global pandemic land wars, the steepest rise in interest rates and inflation since the seventies and helping onboard a new CEO to finish off youre incredibly successful career.
Thank you for your commitment to ball for being a friend of trusted year for being a candid mentor, a leader who has surrounded himself with a capable team and someone who bled ball blue.
On behalf of the entire team, we wish you a long happy and healthy retirement.
Yeah.
I'm excited to introduce Howard you.
Paul Welcome Howard as our new CFO in late September our joins ball with a wealth of experience as a public company CFO, a CV packed with global experience and fresh eyes to unlock even more value for our stakeholders.
<unk> focus on continuous improvement and passion for operational excellence will help lead ball for the next decade.
Sure I'll turn it over to you to say a few words.
Dan and the entire ball team for your warm welcome Scott Congratulations on your retirement and I really appreciate your insights and introductions. During these first 30 days.
My Onboarding and immersion has been excellent meeting with leaders across three continents participating in the recent board meetings and touring several manufacturing facilities.
I look forward to meeting many of you in person at future investor events and industry conferences, we have a packed investor relations schedule to close out 2023, including our reception at the New York Stock Exchange on November 14th.
<unk> out to and in the Investor Relations team for details about our upcoming outreach schedule with that I'll turn it back over to Dan.
Thanks Howard.
Our team delivered strong third quarter results improved operational efficiencies inflationary cost recovery the benefits of cost out actions and a lower effective tax rate offset the impact of tough year over year volume comparisons.
$43 million of higher interest expense and a $14 million operating earnings headwind.
From the Russian sale.
I am proud to say that our team did an excellent job of managing both costs working capital and isolated volatility across supply chain partners.
And our packaging and aerospace businesses during the quarter.
Our overweight positions to the ongoing mass beer brand demand disruption in the U S and past regional customer mix decisions are evident in ball's volume performance.
Double digit volume growth in Brazil, and better than industry volume performance in EMEA helped to offset some of the north American headwind, resulting in our global shipments being down 3% in the third quarter.
A sequential improvement versus second quarter, 2023, which was down 5%.
Moving forward, our actions to tightened supply demand domestically lower costs improve operational efficiencies.
Leverage the sustainability attributes of our innovative aluminum packaging portfolio and our ability to lean into our well capitalized low cost plant assets will position ball to wind commercially and improve returns on invested capital.
In addition, our actions to unlock value via the announced sale of our aerospace business and utilized net proceeds to rapidly delever leverage.
And the range of three times.
Strengthen the balance sheet and returned substantial value to shareholders by share repurchases and dividends will provide financial flexibility and drive value creation now and in the years to come.
I would also like to extend my gratitude to our employees for working with the utmost level of respect care and concern for one another while adapting to the recent company decision to sell aerospace and further reduce fixed costs across our plant network.
We're beginning to see some sequential improvement in our global beverage shipments, particularly in Brazil, as we head into their busy summer selling season.
Given the current end consumer demand trends in North America, and EMEA, We will continue to run the business for cash and with an eye on reducing fixed costs and being fit for the future in the current macroeconomic environment.
In our aerospace and aluminum aerosol businesses demand for our products and technologies continues to grow and aerospace are backlog and won not booked backlog both increased.
And in our global aluminum aerosol business third quarter shipments increased 10, 4%.
Our growing extruded aluminum business continues to serve new categories and offer reuse refill bottle innovations to a broader set of customers and occasions, emphasizing aluminum over other substrates.
Very late in the quarter and as mentioned in the press release ball experienced a fire at its for Rona, Virginia aluminum slug manufacturing facility, which is part of our extruded aluminum aerosol business.
We are thankful that all plant personnel were evacuated safely during the incident and that no injuries occurred while first responders extinguish the blaze.
Unfortunately, the fire damaged 95% of the plants equipment and the structure is a complete loss. The extruded aluminum team continues to support the wellbeing of our colleagues and it is also working very hard to try to meet our customers demand from our remaining global aluminum slug facilities.
Insurance coverage will handle the majority of the financial impact. However, we have determined that going forward, we will be unable to operate at the current site.
Employees and key stakeholders were notified of this decision yesterday evening.
Consistent with our prior commentary, we remain positioned to deliver on our cash flow deleveraging and return of value to shareholder goals.
Based on our current expectations for end consumer demand trends in EMEA, and North America, and other activities and items referenced on today's call. We anticipate growing comparable diluted EPS low to mid single digits in 2023 and look forward to discussing our growth targets for 2024 on our February earnings.
<unk>.
We appreciate the work being done across the organization and extend our well wishes to our employees customers suppliers stakeholders and everyone listening today with that for the last time I will turn it over to Scott.
Thanks, Dan third quarter 2023 comparable diluted earnings per share were <unk> 83 versus 75% in the third quarter of 2022 third quarter sales decreased compared to the same period in 2022, primarily due to the pass through of lower aluminum prices lower volumes and the sale of our Russian business in the third quarter of 2022 offset.
The pass through of inflationary costs and currency translation.
In the third quarter comparable net earnings increased compared to the same period in 2022, primarily due to the contractual pass through of inflationary costs, a lower tax rate fixed cost savings and benefits of prior year SG&A cost out initiatives offsetting notably higher interest expense the headwind from the sale of our Russian business in the third quarter of 2020.
Two and lower volumes to.
To reiterate our prior earnings call commentary, we have proactively proactively manage supply demand across our system of plants and significantly reduced raw and finished goods inventory.
Including our most recent actions to close cut permanently cease plans to build north Las Vegas, and defer the Concord facility into 2028, North America supply demand has tightened up significantly and we are lowering costs across our well capitalized plant network. As a result, we are positioned to improve returns on invested capital deliver.
Our customers pack size and <unk> ability innovation at scale across our national footprint and in future years, when end customer demand and flex more favorably utilize the operational efficiencies. We are achieving now to serve our customers' future growth without spending significant growth capital.
In EMEA the business has success successfully lapped its last quarter of Russian business sale headwinds and is on track in 2023 to <unk> $86 million of comparable operating earnings hole from the business sale. The team continues to operate at a high level as they navigate very varying consumer and demand conditions, particularly in the.
Okay.
In South America, our volumes increased 14, 1% in the quarter as we teed up on our prior earnings call regional product mix and the volatility in Argentina weighed on segment earnings during the quarter the busy fourth quarter. Some summer selling season is underway and segment earnings are anticipated to inflect very favorably in the fourth quarter as.
As we sit here today, some very consistent commentary in key metrics. We ended the third quarter and a very solid liquidity position with approximately $3 billion in cash and committed credit facilities.
Cash on hand will be used to address the mid November bond maturity.
2023, Capex will be in the range of $1 2 billion driven by cash outflows related to prior year's projects 2020 for Capex is targeted is targeted to be much lower than in the end in the range of GAAP DNA levels, we anticipate generating free cash flow of approximately $750 million in 2023.
And our 2023 full year effective tax rate on comparable earnings is expected to be in the range of 17% to 18%.
For clarity, it's important to note that in R&D tax credit benefited our third quarter ETR. So modeling the fourth quarter each of our ETR in the low 20% range is appropriate.
Full year 2023 interest expense is expected to be a touch higher than what we said last quarter in the range of $460 million.
Full year 2023, corporate undistributed costs recorded in other non reportable.
We will be in the range of $75 million, we had previously said $80.
And taking into account demand trends experienced so far in the fourth quarter fourth quarter comparable operating earnings are on track to be consistent with third quarter results. We continue to expect year end 2023, net debt to comparable EBITDA to trend in the range of three seven times and following the receipt of net proceeds from the aerospace space sale, we intend to drive.
Leverage in the range of three times last week ball declared its quarterly cash dividend and as Dan mentioned, reducing leverage and getting back to share repurchases are top of mind as I wrap up my comments I want to express what a privilege privilege. It has been to be part of ball for so long. Thank you again for all your banter on the 55 earnings calls I've shared with data.
Ray John and Dan over the years.
I'm pretty sure you won't Miss me and it's great to be leaving the company and you within great hands of Dan Howard and the team that I will turn it back to you Dan. Thanks, Scott We continue to believe that the actions we have taken in 2023, and we will continue to execute in 2024 and beyond will improve earnings generate cash flow.
Enable low carbon best value innovative aluminum packaging offerings on a global scale and will expand shareholder value creation for many years to come.
Thank you to everyone listening today and with that Frank we're ready for questions.
Thank you.
If you would like to register a question. Please press the one four on your telephone you.
You will hear at three telecom technology a request.
Your question has been answered and you would like to withdraw your registration. Please press. The one followed by industry. Once again to register a question. Please press the one four on your telephone one moment. Please for the first question.
Our first question comes from George Staphos with Bank of America. Please proceed.
Thanks, Hi, everyone. Good morning, Thanks for the details, Mike Scott and Howard.
Congratulations.
On the next chapters and Scott really.
On behalf of frankly, all the analysts and the investors on these calls over the last number of years just want to thank you for all the support you've given everyone's research and trying to understand the industry and understand ball. So thank you.
Rich.
It's been a pleasure.
I want to get to the capacity closures.
And how.
It might impact your prior comments on the fact that you had a couple of years of capacity, maybe I'm paraphrasing, a little bit there, but I don't think too too much to.
To grow into.
At the time that you made those comments.
No.
In a couple of years, let me say it differently do you still have a couple of years of capacity to grow into even after these closures.
Is the market now tighter and so you have less than a couple of years to grow into.
If it's still the two then have any of your longer term growth rate expectations by region changed at all and if so any color there would be would be helpful.
Yes. Thanks.
We have we have dry powder in North America, probably more so in North America, but it's it's not just the capacity shuttering and the capitalization. It's also the fact in that.
Like I've mentioned this a couple of times publicly George but the.
The number of folks from about 2017 to 2020, we had over 500 retirements within our North America Labor Force, So you're Onboarding, a bunch of new folks plus standing up new facilities. Another seven to 800, new employees and our efficiencies dipped.
345% in some instances in terms of the efficiency curve between 2020 in 2021, So I've got.
The combination of.
Folks getting up to speed performing much better youre seeing it in the results. So we're going to get productivity gains that won't require capital.
And then obviously the new facilities are all ramping up in line with our expectations, maybe a little ahead of that.
The growth trajectory then.
You commented on its obviously slower in 2000.
And it'll be a little slower in 'twenty four than what we anticipated.
Couple of years ago. So I think the combination of those two we feel really confident about.
Not having to spend the capital in order to in order to match the growth here for an extended period of time, maybe three to four years.
To put it in perspective.
So that's how we're thinking about it and that's how we're managing our capital outlays and allocation, so theres always going to be opportunity.
To innovate and do some different things, but that's well within our GAAP DNA.
So we'll be able to grow will be at a margin up on new innovative products.
And we won't have to spend outside of DNA and in some instances in some periods, we might be able to spend below that for the next two to three years.
Dan that's great. Thank you for that.
I had two other questions I'll turn it over one Brazil turned.
Very quickly for you and that's good news can you talk a bit about what was driving that obviously youre laying the tracks in the second quarter and prior but.
Is there anything that you could add in terms of color of how much you can continue that what kind of earning trajectory. You think you will see in the fourth quarter, you talked about and selecting and then the release talks to some lighter weight.
Returnable or reusable packages I believe in the aluminum aerosol side, where you're using the technology. There can you give us a bit more color on that how you might use that within <unk>.
Beverage.
And how it may affect your.
The trajectory down the road, thank you and good luck in the quarter.
Thanks George.
Yes so.
It very much in line with what our previous commentary was in Brazil.
Our major strategic partner certainly had.
Hedge position that was unhelpful.
In terms of the aluminum cost of their products in the marketplace that rolled off and that economy is just getting better.
Interest rates are coming off growth is better as they continue to uptick the GDP projections in that area.
The inflationary pressures that are coming off we also so.
Couple percentage points of substrate shift out of returnable glass into aluminum so all of those things that we forecast.
Have happened I mean, the <unk>.
Good news is it's happening so there is stability in that marketplace.
Which is inconsistent with what's happening for instance, in Argentina, but Brazil is in a good spot.
We're turning on at least one additional wind to try to keep pace with demand and in the fourth quarter and that will extend we believe into the first quarter. So we're feeling we're feeling good about.
Basically every place in South America with the exception of what we.
And what everybody understands what's going on in Argentina, we're feeling.
Much better so I would I would just I would imagine that will continue.
We will see a step up in earnings significant step up in earnings with what we had in Q3, so that'll be an in line again with that second half half hockey stick, which we've we've had a number of questions on that throughout the year and it's playing out with the exception of Argentina right in line with what we thought at the beginning of the year.
And then the reuse refill I think.
The commentary in and around this it's small it's small volumes. These are bottles. They are refillable bottles, so think personal care space and think water.
There is an element here, where we can do some things.
Within the beverage platform to offer reuse refill opportunities.
With our aerosol product line.
And because of the weight and the construction and the rigidity of that package. It's just it plays it plays better in a reuse environment than then.
Then the coil that can.
Design characteristics. So yes, we're bullish about that obviously a lot of reuse conversations happened in Europe, and we want to make sure that we've got product offerings and we're in the conversation because it's all white space for us. So certainly a nice opportunity set but still off a very small base.
Dan Yes, no could it help your single use and water and other beverages down the road. Thank you I'm sorry for the Triple dip there.
Thank you absolutely. So I think once you get that once you get the conversion.
To the smaller sizes and Youre seeing that play out in mountain towns and the anti plastic sentiment on the beaches you can step into the smaller product offerings with the reuse refill you get the end consumer that understands the water tastes really good and the product is really good and it's good for the environment. So I think there is a bridge year.
But as I indicated we're in the emphases of this transition.
Thank you very much Jeff.
Our next question comes from Mike <unk> with Barclays. Please proceed.
Great. Thank you and good morning, Scott morning, when it gets.
Going.
Power and look forward to working with you going forward.
First question I wanted to ask your North American South American volumes are obviously much different than your two public competitors I. Appreciate looking at just one quarter isn't perfect there's differences.
Of customer and product category, but just in both regions can you help us better understand it.
All really attributable to product and customer mix or are there underlying market share shifts with customers going on in each region.
Yes. Thank you for that start with South America, South America is actually a much easier market. There is if youre looking at a quarter to quarter youre going to see swings and it is 100% a result of.
Who who has partnered with <unk>.
Big volumes from very few players and in the case of US our strategic partner one in the marketplace. In Q3, So we have a big big position with them. They want in the market our volumes look better.
In North America.
It's less about share shift.
In terms of contract.
<unk> and its more our exposure to mass beer.
Is it in a nutshell, we had a very strong Q3 last year.
Some of our competitors had a very weak Q3.
Destocking.
Inventory movements started about the third quarter of last year and some of US have had impacts from from that point until now.
When you look at year over year comps.
It can be a bit noisy all of that is I think normalizing. So as you are moving forward in Q4 and beyond.
What youre going to see I think across the industry writ large is.
Customer mix and in line with scanner data I think it'll be a much more transparent way to look at the marketplace and volumes for that matter.
Alright that was Super helpful. And then just on the aerospace. So I know you touched on it briefly but could you just update us where the regulatory approvals currently stand and just maybe what your latest assumption is on whether you think that deal should close.
Yes, I can't give too much detail, but I would I would characterize it as constructive where we're at with our discussions.
And we signaled.
Our first half 'twenty foreclosure.
We still believe that as well.
Well within.
Executing boundaries.
We referenced that number based on the most recent transaction that would took about seven to eight months. So.
We're hopeful that we don't have as much overlap as that deal did in.
It will be a more efficient process, but.
I think the guidance of first half 'twenty four is the appropriate one at this stage.
Great. Thank you.
Thank you.
Our next question comes from Ghansham Panjabi with Baird.
Please proceed.
Hey, guys good morning.
Echo My congrats to you Scott and Howard as well best wishes to you both for the future.
Thank you.
Yes, Thanks Scott.
Again going back to what we witnessed over the last couple of years right. So quite a bit has been done in terms of permanent capacity reduction at your end in North America between last year this year.
And I'm just.
Just trying to reconcile is that a function of just.
A lot has been done capacity has been moderate your footprint has been modernized to some extent.
<unk> has recalled for different reasons, and so on and so forth and are you just anticipating that.
The market sort of resets for a while before we start to re acceleration and to sort of support that we exploration youll be doing a lot in between with productivity to match up against that to support that growth.
Chile is that is that the right way to think about it.
We will absolutely there'll be a more stable operating environment from a volume perspective.
So maybe I'll give you a little bit of color and a little bit more color on how we're thinking about it so and we signaled that this as you know ghansham, we're like listen there's not going to be any different pricing behavior until we get to Q4.
Because theres great tailwind from our from our customers on an inflection on earnings in topline revenue. It gets tougher now in Q4 for everybody and then you also saw.
Private label begin to take share those are the things we needed to see to.
To construct to a different pricing behavior.
And so I think we're going to return to prior to Covid.
In terms of methodical pricing in and around CPI.
For our customers.
In that environment, we're going to make more money and flow more cash. So then the other question is.
Tell me about top line.
So top line for me is 100% about the depth.
Which the promotions are going to happen.
Against a weaker and consumer and so that is something that is.
Is a question Mark in terms of what the actual volume increases are but what's not a question is <unk>.
Exactly to your point, we're going to run our business better.
More productive focus on operational excellence be more agile take the working capital out of flow more cash and buy back shares. That's what we're going to be doing until you see a little bit more of an inflection in top line and then we will be then.
Then we'll be levering up really really nicely off this more efficient cost structure that we've got in place.
Okay. Thanks for that and then for my second question just in terms of Europe. I think this was the first negative.
Volume quarter since the <unk>.
Second quarter of 2020, I looked at the model correctly correct, Yeah, what's happening I think you called out the U K.
Maybe just John just with a different sub regions of Europe.
Yes, we actually we actually won and the market even on those lower volumes can continues to win even on the lower.
Volumes, there was a bit in the in the quarter on.
Cooler Ranier temp.
Ross Central Europe, and the UK in particular, but this is a function of a weak weaker than consumer.
Fundamentally and we'll be we'll be living with that here into the first half of 'twenty four.
We still see growth, but the combination of all those impacts I think were writ large across Europe energy costs are higher.
That's embedded in our P&L and our competitors' P&L so.
Weaker and consumer here for a period of time.
Is the main driver for our volumes coming off a bit.
Okay. Thanks, so much.
Our next question comes from our own was one Hatton with RBC capital markets. Please proceed.
Great. Thanks for taking my question.
I guess my first question is just on the.
The footprint and.
Would you would you think that.
After all of these.
Industry moves, including your own.
I think you've noted that the industry will continue to grow at a low rate.
Would you think that.
Some point just given the low barriers to entry that there could be some new entrants as well.
<unk>.
Potentially some further capacity additions I mean, we are seeing some strength in ready to drink and some other categories.
Or is it.
Still absorbing capacity I guess.
Okay.
Yes, I don't foresee new entrants.
Three or four of them.
Entered are not having any fun right now and I don't know that they will.
<unk> be around much longer.
So it will be a handful of players that absorbed the growth moving forward will be one of them.
The the volume that's reflected currently is not necessarily the volume thats being one and will show up here over the next couple of years. So we feel really good about the footprint we have today.
I will be able to optimize that and how we'll be able to make more money off of that footprint moving forward.
I would question I would also challenge the low barrier of entry.
<unk> cost about $300 million stuff thats been in when interest rates are in the sixes and sevens thats its not a fertile ground for us.
For folks jumping in.
Sure.
Thanks for that and then I guess just I also wanted to just get your thoughts on.
Post the aerospace sale.
I think that the plan was too.
Use of proceeds for deleveraging as well as for buybacks.
Is that still the plan would you be considering.
Metals investments as well to secure more aluminum can sheet or how are you thinking about.
With the proceeds used at this point.
No I think this is Scott I think largely is still in line with will use about half the after tax proceeds to pay down debt and get our leverage back in the range of three times and then the other half to buy back shares and then the cash flow next year a lot of that will be able to go to buy back shares in terms of investment I think the supply chain is making pretty good investments. So.
<unk>.
We always are looking at things Opportunistically, if we can create a competitive advantage, but I don't see a lot of need for big investments from that standpoint.
Great. Thanks, a lot and Scott Thanks for all your help over the years.
Thank you.
Our next question comes from Mike <unk> with <unk> Securities. Please proceed.
Thank you Dan.
Scott and Ann for taking my questions.
Scott Congrats on your well deserved retirement and Howard welcome to the to the whole team.
Thanks, Thank you.
Okay.
Dan You mentioned bull and the broader industry really having excess capacity in North America, and you really highlighted the them Aspira issue.
Currently the company.
Matthew your let's call. It a bud light remained weak can you help us think about how the company will compensate for potential permanent volume loss.
And could some of that be offset by the recent deal that Bud light entered into with UFC.
Oh.
Kevin.
I'm not a big UFC fans. So I don't I don't know if those are huge bud light drinkers or not if that's a white space, but in all seriousness.
Going to take it's going to take a period of time.
Thus the beer on shelf and retailers in C stores, we will it will be there.
And so.
Folks like constellation they continue to grow they continue to add capacity and.
They're a big partner of us.
We're partners with all the major Brewers and so as they step into taking share and taking volume it will be somewhat of a natural offset obviously the fastest return.
For volume for ball is that Bud light Budweiser figures out.
Something to put on the shelves that sells in place of that.
We are.
There is a minor reset.
That happens in the fall with retailers. So we're seeing some uplift in terms of a favorable mix with some of the other brewers, but it's not going to substantiate until the first half of next year when theres bigger resets, so that will be indicative of.
How how folks within the in the industry in this space are going to play that.
I do think the amount of money being spent by Budweiser on Bud light they've said it publicly they are spending a lot more I think 40 X.
Is the number in terms of reestablishing that brand and.
Yet to be determined but over 12 months to 18 months I think the beer space ready to drink cocktails. All of these will start to find their way.
Onto those shelves and will benefit from that will benefit from that disproportionately as we had been adversely Ben.
Impacted by the Bud light. So I think our recovery is going to look good it'll start in the second quarter of next year second third and fourth quarter will become easier comps for us the first quarter will be challenged because of Bud light in particular did well Budweiser did well in the first quarter.
But I don't I don't think we're going to have to make any further.
Network.
Changes I think we're in a really good spot, we're managing that and we've got dry powder for what we believe will be a resurgent topline here over the course of the next two to three years.
So that's that's probably more than you wanted but.
I know, it's a big topic, and it's certainly a big topic for ball.
No that's great color I really appreciate it.
And then just my follow up question can you just remind us of some of the drivers that you have at your disposal to offset the earnings dilution from the aerospace demand when it occurs in the first half next year.
What are the biggest one is gonna be reduction in interest expense.
We should say with the couple of billion dollars plus got reduction will save over $100 billion of interest cost next year buying back shares obviously, if you're going to buyback a couple of billion dollars worth of shares that takes a little bit of time. So you don't get the benefit of that Youll get it over a period of time.
I would say those are the kind of the first things.
That will youll see the difference interest expense and improved operating earnings out of our core business.
We will give it will give you more detail I mean, we're certainly going to be shooting for offsetting that as soon as we can in terms of the run rate. So youll have a far better cash generative business on the sales output will be spending a lot less capital.
So it should and then we'll be buying back a lot of stock.
And so the combination of those should be great return of value to our shareholders moving forward over the last several years. The all of the free cash flow that we generate usually really comes out of the beverage business about the aerospace business. So it doesn't change our cash flow profile very much.
Okay.
Got it thanks.
Thanks, very much and good luck.
Thank you Mike.
Our next question comes from Phil Inc.
With Jefferies. Please proceed.
Hey, guys well Scott wanted to check all the same thoughts on that thanks for all the help over the years and Howard welcome looking forward to working with you.
Thanks, Thank you.
My first question is around the Kent facility, that's coming out how much capacity does that come out and where does that bring you from an operating rate standpoint in North America at this point.
You guys have obviously taken some actions outside of Kent.
<unk> fixed cost side of things any color on how much cost savings, we should expect to see that incremental go into 2024.
Yes, so with the with the Kent facility that was a leased facility maybe I'll give you give you a little bit about that facility. It's a leased facility.
We acquired this as you know as part of the Rexam acquisition.
It was started in $19 71.
We've got 126 folks there.
Two lines 12 ounce standard.
This will cease operation in the first half of 'twenty four.
Typically a facility of this size.
As in the $20 million to $30 million savings range will offset some of that savings with a little bit of additional freight so.
Yes somewhere in that neighborhood of 20 million Bucks next year 2020 to 30.
<unk>.
I guess, how you should be thinking about it for a half year of that I've given you an annualized number.
Yes.
Okay.
And based on some of the cost savings into buybacks reduced interest expense can you guys get back to 10% to 15% EPS growth next year.
That's a great question at the timing of the close will matter and how fast we buy back shares will matter, but I.
As we sit here today that is certainly our goal is not just to get back on that range, but to exceed that.
<unk>.
And just one last one for me cleanup question had the slug facility.
That is down.
How is that going to impact your EBITDA in 2024, I know there are some offsets from an insurance standpoint, do you plan on rebuilding that isolated help us think through some of the moving pieces.
No.
Now we have enough supply to manage so from a from a.
EBITDA standpoint will be we'll be in good shape.
We are thinking about what we do with that footprint.
Because this is this is something Phil where you can send this product over very long distances. So.
Not to not to not to go down a rabbit hole, there, but we're going to evaluate that and the insurance proceeds will be more than enough to potentially.
Recapitalize that facility, we just need to figure out what's the best.
The best place to do that.
Yep.
Yep. Thank you.
You bet.
Our next question comes from Jeff Zekauskas with J P. Morgan. Please proceed.
Thanks very much.
I think you have a $1 billion coming due in the fourth quarter and maybe 790.
Low cost debt in the first quarter of 'twenty four.
Do you plan to approach that.
Yes, we've got $1 billion coming due in a couple of weeks, where we did a bond deal back in May.
Turned out to be a very opportune time, so they have a lot of cash on our balance sheet and we will use the proceeds from that.
Bond offering and cash on the balance sheet to take care of the one in November here in a couple of weeks and then the one in March.
Alright, thats very low cost so we will pay that off on the last day that we possibly can.
From cash that we'll generate here in the fourth quarter.
And then maybe a little bit of a revolver to retire that.
And then once we.
Close on the aerospace transaction, we will pay down.
Got to the 202 billion plus.
We'll determine at the time, which pieces of debt we retired at that point.
I think we're in a really good place from.
From a maturity standpoint, and being able to deal with any upcoming maturities.
And we've got $3 billion of cash and committed credit too.
Thank you for that.
When you sell the aerospace business does it perfectly carve out or are there stranded costs that are left over for opportunities to reduce overhead.
Almost almost perfectly carved out we will we will absolutely take a take a look at.
The ball business structure op model all of those things moving forward and make sure that we're efficient and fit for purpose for the markets, we're going to participate in how we win in the marketplace with our customers. So.
But it's it's.
It's minimal in terms of the overhang it is really a business that.
Whether it's the.
Firewalls, the construction I think we've got overlap of our HR.
<unk> system.
And a little bit on the financial at the corporate level.
So very little overhang.
Slide 10 or $20 million.
I haven't seen the most recent number you are probably not that far off it's insignificant yep.
Okay, great. Thank you.
Our next question comes from Gabe <unk> with Wells Fargo Securities. Please proceed.
Good morning, everyone at the ball bonding and I'll Echo other analysts have said too Scott Howard respectively.
You said a lot Dan in terms of expectations for topline specifically volumes.
There's a lot of things that can impact that we're talking about whether or whether we're talking about promotions and bud light et cetera.
But you made a specific comment that you would expect volumes to kind of track below.
I think what you've communicated in the past or what you would expect specifically North America.
Contracts so call. It I think you guys said, 2% to 4%.
So I'm curious if that's a industry comment or a ball comment and thats sort of based on what meaning.
Contracts and things that you have in your hand.
And then secondarily I guess similar volume question, but in Europe.
Is this based on your customer.
Interactions and obviously kind of maybe expectation for the consumer to continuing pressure that you are a little bit more negative on volumes in the short term here in the next six months.
And then South America again relative to our modeling was a little bit short when I look at profitability versus history.
It's a little bit below.
Don't know if that's a competitive issue I know you called out some regional and customer mix I also know and is there a little bit more profitable down there depending on when they are sold.
I know theres a lot in their impact.
For clarity sort of what ball specifically is expecting in those three arenas.
Okay.
Start with South America, So South America.
We were down slightly versus our expectations because of Argentina. It's.
Argentina.
That's what it is okay.
So I wouldn't read I wouldn't read much much more into it.
The volumes were in line in Brazil, maybe a little better our earnings were in line, maybe a little better in Brazil, but it's just the deterioration of Argentina and some some unique taxes also.
The government put in place so we're going to be dealing with a little bit of volatility there for a period of time.
But like I said, we will have a significant inflection in Q4, South America is in a much better shape, obviously than it was even at the beginning of the year. So we're very constructive on South America with the exception of the carve out of Argentina.
In Europe, the volumes are going to be a little bit of a little bit softer there. So I would say so.
Biggest difference between the <unk>.
What we called out at the end of the second quarter and what we're calling out today is like a weaker Europe and I think youre hearing that from all of our competitors as well, it's a bit softer and consumer I'm not overly concerned it doesn't take much for growth that market has grown for 20 plus years consistently and it will return to growth, but the end consumer.
<unk> is a little weaker right now and I do think that's a periodic shift six months does your characterization I don't think you're far off there.
And then in North America.
I do believe just just to parse out in my comments.
We're not growing at 2% to 4% in the industry, it's zero to 2% in that range right now and it's because obviously the pricing behavior that we experienced the last 18 months and a and a significantly weaker and consumer which everyone is commenting on.
I do believe there is a return to the 2% to 4% growth, but whether it happens in 2024 or the second half of 'twenty four 'twenty five I'm just.
Just being completely honest, it's like what were the end consumer is right now and what the pricing behavior is with our.
<unk>.
We will be the will be.
The instrument, which in flex.
Up or down good news is like I've said, we're running for the lower end of that range, both from an industry and from a ball specific perspective.
It will make more money will flow more cash but until that in consumer.
Our.
Gains a little strength.
Returning to the growth levels that I indicated.
A year 18 months ago.
Don't see that in the near term.
I appreciate.
All the color you Dan.
On the cash flow side, if I did the math right and I think Scott you were talking about I'm going to say directionally.
$300 million working capital inflow this year.
I wanted to confirm that see if anything has changed there and then when we start thinking about next year and you guys have talked a lot about it basically 4 billion of proceeds earmarked.
I think there is directionally $800 million to $1 billion.
Factoring out there.
I don't know if you guys would think about transitioning into more permanent financing or using part of the proceeds to.
To pay that down as well.
Because again, giving yet.
Credit for cash flow next year, I am coming up with a different leverage number than sort of three.
Just curious.
Yes.
Directionally right on the working capital number.
Actually one of the things that Howard and I and our team has talked about is unwinding some of that factoring so.
That could be part of the whole use of proceeds.
End of the day Leverages leverage whether it's balance sheet or off balance sheet. So we may take an opportunity to do some of that.
Yes.
I'll Echo those comments that is one thing that we're rolling around and I do think it's time to start retiring some of these programs.
And we've got a couple that are more expensive than we'd like and I think we've got a targeted list that will go after in the.
The return of proceeds as we indicated back when we made our public comments, there's still $4 $500 million that we said we'd hold onto on the balance sheet and it would be used for things exactly like you've indicated.
Okay. Thank you.
I apologize Sir.
Paul on the George here.
Early Crystal ball never apologize for wanted to ask questions about an exciting can business.
Just real quick the Crystal ball on working capital then for next year is it kind of things play out, but we would expect.
I think it's way too early to talk about that I mean, you can get it is going to look walkie, because we're going to get all of these proceeds from the sale transaction and the tax payments on those proceeds is going to flow through operating cash flow.
So we'll have the breakout and explain exactly what we're doing but at the end of the day I think youll get a clear picture of what our balance sheet is going to look like and what the P&L is going to look like going forward. Once we get to completion of the aerospace transaction and what the business looks like going forward. So the cash flow will look walkie next year because.
For one reason is because of that so there is the cash flow kind of in which I totally agree with Scott and we're getting to our balance.
Balance sheet is going to be in great shape at the end of the year in terms of the working capital. So if youre looking at DSO D. P. O Ico, that's how we run our day to day.
Our average.
Working capital levels will be significantly less next year than our average this year because of all the great work. The teams have done to get our to get our balance sheet in order and Thats how.
That's how I get paid.
So that's how EMEA work so.
Yes, I don't know endpoints that we'll be able to improve much I think the focus will be to it.
As always to get better whether its spare parts inventory of finished good or coil stock are on and on and on but.
The average will be will be better significantly better year over year.
Thank you gentlemen.
Thank you.
Our next question comes from Adam Samuelson with Goldman Sachs. Please proceed.
Yes. Thank you good morning, everyone.
Good morning Bill.
Been a lot of ground covered maybe just as we think about.
North America, and Europe, a lot of discussion on beer is there any.
More distinction by customer category, you would make in terms of actual pockets of strength versus areas, where you've been surprised at where demand has surprised to the downside part from the regional point on Europe, specifically and mass beer, obviously in the U S.
Yes, I think Europe's a little easier. It is just it's just a weaker and consumer right now across the board literally everything's everything is down.
To varying degrees.
Give you a little bit more detail into the U S market.
I commented on this earlier on the call and we anticipated this.
Heading into the third quarter.
So we saw private label actually grow in the CSD category is to the tune of about 3% in the third quarter, it's not a surprise, but it has happened.
That and they have taken share against a couple of the bigger players.
So that was an important distinction I think within the quarter.
To drink cocktails are still growing at nearly 50%. So it's a staggering growth trajectory there hard sell throughs are still declining.
Off of a really good high here a couple of years ago import beer grew which as you can see us filling the hole a bit from him Budd.
Bud light.
Domestic beer down.
And that kind of four 5% 5%.
Which.
Is it largely in line with what we expected.
Q4 is where you would you would hope to see a bit of an inflection in some movement.
And I think that's still that's still a wait and see relative to the really big.
Customer in the North America marketplace, but.
Nothing really surprised us I think the things that have momentum continue to have momentum with the exception of <unk>.
Trade down really that that happened in the CSD area from the premium brands down into private label.
Okay.
It's very helpful and then.
E.
And the other non reportable business you talked about the growth in aerosol. Obviously, there is the main issue with the manufacturing plant in Virginia.
Not sure I heard anything about kind of where things stand with the <unk> business in the March of that business towards profitability and kind of.
How close you are maybe getting some bigger customers that could fill up that capacity.
They are still having conversations.
With regard to cup. So you need the big inflection point to come out of foodservice were.
We're bullish on the conversations.
But a couple of those transactions and wins need to happen for us to really inflect toward breakeven.
We're doing better this year than last we will do better next year.
Need I need for one or two.
Significant wins for us to get back to breakeven but.
It's not it's not that far away, but until you execute that trade.
It's not not in the near term.
Okay Alright.
That's very helpful color I'll pass it on thanks.
Mr. Fisher there are no further questions at this time.
Alright, well thank you Frank.
Look forward to talking to you at year end.
I hope everybody has a healthy and safe holiday season.
We're certainly thankful and appreciative for everything that Scott has done for the company and look forward to introducing more of you to Howard here in the near future. So.
Enjoy the holidays and hopefully we will see most of you here in the next couple of months B well.
That does conclude the conference call for today, we thank you for your participation and ask that you. Please disconnect your line.
Great day, everyone.
Yes.
[music].
Okay.
Uh huh.
So.
Okay.
Sure.
[music].
Okay.
Sure.