Ball Corporation (BALL) First Quarter 2024 Earnings Conference Call Transcript
May 2, 2024, 8:30 AM ET
Company Participants
- John A. Hayes – Chairman, President, and Chief Executive Officer
- Kathleen D. Pitre – Executive Vice President and Chief Financial Officer
Analysts
- George A. Staphos – Bank of America Merrill Lynch
- Christopher J. Growe – Stifel, Nicolaus & Company
- Anthony M. Petrone – Mizuho Securities USA
Presentation
Operator
Good morning, everyone. Welcome to Ball Corporation’s First Quarter 2024 Earnings Conference Call. Today’s call is being recorded.
At this time, I would like to turn the conference over to Mr. John Hayes, Chairman, President, and Chief Executive Officer. Please go ahead, sir.
John A. Hayes
Good morning, everybody, and thank you for joining us today. I’m speaking to you from our Flat Rock, Michigan facility, this morning. With me today is Kathleen Pitre, our CFO.
In spite of weather-related challenges that created disruptions in our global supply chain and isolated pockets of excess inventory, we delivered solid results in the first quarter of 2024. We are pleased with our performance and confident in our ability to achieve our revised full-year guidance.
Our adjusted earnings per share of $0.88 were in line with our expectations and reflected the continued strength of our Aluminum Packaging and Beverage Packaging segments. Adjusted EBITDA of $407 million increased 4% compared to the first quarter of 2023, driven by strong aluminum performance, despite cost inflation and weather-related impacts.
Our Beverage Packaging business delivered a strong performance in the quarter, with revenue growth of 2%, driven by higher volumes in North America and Europe. Our Aluminum Packaging business continued to perform exceptionally well, with revenue growth of 13%, primarily due to higher aluminum prices and favorable product mix. Aerospace sales declined slightly in the quarter, largely due to timing of deliveries on our commercial programs.
During the quarter, we continued to make progress on our strategic initiatives. We completed the acquisition of Ardagh Group’s metal beverage packaging operations in North America and Europe, which will further enhance our position as a leading supplier of aluminum beverage packaging. We also announced a definitive agreement to acquire the U.S. canmaking operations of Crown Holdings, which will create the second largest aluminum can manufacturer in North America. These transactions will significantly expand our manufacturing footprint and provide us with greater scale and operating leverage.
We remain committed to our sustainability goals, and we continue to make progress in reducing our environmental footprint. In the first quarter, we announced a new partnership with Novelis to supply low-carbon aluminum sheet for our beverage can production. This partnership will help us achieve our goal of reducing our Scope 3 emissions by 20% by 2030.
I would now like to turn the call over to Kathleen to provide a detailed review of our financial results. Kathleen?
Kathleen D. Pitre
Thank you, John, and good morning, everyone.
Net sales for the first quarter of 2024 were $3.64 billion, an increase of 4% compared to the prior year period. This growth was primarily driven by higher aluminum prices and favorable product mix in our Aluminum Packaging segment, as well as higher volumes in our Beverage Packaging segment.
Gross profit increased by 5% to $722 million, with gross margin expanding by 30 basis points to 19.8%. The improvement in gross margin was primarily due to higher aluminum prices and favorable product mix, partially offset by higher manufacturing costs.
Adjusted EBITDA for the quarter was $407 million, an increase of 4% compared to the prior year period. This growth was primarily driven by strong performance in our Aluminum Packaging segment, which was partially offset by increases in manufacturing costs.
Net income for the quarter was $243 million, a decrease of 1% compared to the prior year period. This decrease was primarily due to higher interest expense, partially offset by higher operating income.
Adjusted net income for the quarter was $281 million, an increase of 2% compared to the prior year period. This growth was primarily driven by strong performance in our Aluminum Packaging segment, partially offset by higher interest expense.
Adjusted earnings per share for the quarter were $0.88, in line with our expectations.
Turning now to our cash flow and balance sheet. Operating cash flow for the quarter was $201 million, down from $307 million in the prior year period. This decrease was primarily due to higher working capital requirements, including increased inventory levels.
Capital expenditures for the quarter were $131 million, up from $104 million in the prior year period. This increase was primarily due to investments in our aluminum canmaking operations and the acquisition of Ardagh’s North American and European metal beverage packaging operations.
Our debt-to-EBITDA ratio at the end of the first quarter was 2.5 times, down from 2.6 times at the end of 2023. We remain committed to maintaining a strong balance sheet and continue to generate healthy cash flow.
I will now turn the call back to John for some closing remarks.
John A. Hayes
Thank you, Kathleen.
We are confident in our ability to achieve our revised full-year guidance. We continue to expect adjusted EPS to be in the range of $3.95 to $4.10, representing growth of 10% to 15% compared to 2023.
Our business is well-positioned to navigate the current economic environment. We have a strong balance sheet, a diversified portfolio of businesses, and a talented and dedicated team. We are committed to our customers, our investors, and our communities.
Thank you for your time today. We now open the line for questions.
Operator, please go ahead.
Question-and-Answer Session
Operator
Thank you. (Operator Instructions)
Our first question comes from George Staphos of Bank of America Merrill Lynch. Please go ahead.
George A. Staphos
Congratulations on the quarter. Two questions. One, could you comment on takeaway growth in aluminum cans in North America? And then, secondly, as you’re thinking about the Crown acquisition, where do you see the most near-term synergies coming from? Thank you.
John A. Hayes
Thank you, George. Takeaway growth in aluminum cans in North America for the first quarter was approximately 4%. This growth was driven by continued strong demand from our beverage customers, as well as our focus on growing our share of the craft beer and hard seltzer markets.
With respect to the Crown acquisition, we see the most near-term synergies coming from the following areas:
* Procurement: We expect to achieve significant savings on raw materials and other purchased goods by leveraging our combined scale.
* Manufacturing: We plan to optimize our manufacturing footprint by consolidating certain operations and streamlining our production processes.
* Sales and marketing: We will be able to offer a more comprehensive product portfolio to our customers, which will allow us to capture a larger share of the market.
We are confident that we can achieve the $150 million in annual cost synergies that we have identified within the first three years after closing the transaction.
Operator
Thank you. Our next question comes from Christopher Growe of Stifel. Please go ahead.
Christopher J. Growe
Good morning. I just want to drill down on the 4% takeaway in North America cans. How much of that was just timing? You did mention the weather impacts. And then what was the pricing impact? Was there a benefit from pricing in the quarter?
John A. Hayes
Thank you, Chris.
The weather impacts in the first quarter were primarily related to transportation disruptions. We had some challenges getting our cans to our customers in a timely manner, which resulted in some lost sales. We estimate that the weather-related impacts reduced our takeaway growth in North America by approximately 1%.
With respect to pricing, we did see some benefit from higher aluminum prices in the quarter. However, this benefit was partially offset by increased manufacturing costs. Overall, the impact of pricing on our takeaway growth was relatively neutral.
Operator
Thank you. Our next question comes from Anthony Petrone of Mizuho Securities. Please go ahead.
Anthony M. Petrone
Good morning, everyone. John, just curious how you’re thinking about the beer market. I know you’ve been talking about the craft beer and hard seltzer market. But just kind of how you’re thinking about the macro backdrop and how that could impact beer volumes in North America?
John A. Hayes
Thank you, Anthony.
The beer market in North America has been relatively resilient in recent years. However, we are starting to see some signs of a slowdown, particularly in the mainstream beer segment. This is likely due to a number of factors, including inflation, rising interest rates, and economic uncertainty.
We believe that the craft beer and hard seltzer markets will continue to grow, even in a more challenging economic environment. These segments are driven by consumer demand for more variety and innovation, and they are less sensitive to price increases.
Overall, we are cautiously optimistic
