Ball Corporation (BALL) Earnings Call Transcript & Summary

Welcome to the Global Ag and Materials Conference. Back again thrilled, truly thrilled, first of all, for you all to be here, for all the corporates and our contacts to be here and to kick off with Ball Corporation, Dan Fisher and Howard Yu, respectively, Chief Executive Officer and Chief Financial Officer of the company. Howard, as you know, joined the company in September of 2023.

That's right.

And Dan has been with Ball in a number of senior leadership capacities, going back, Dan, went to 2010.

Yes.

So Ball is always at the forefront of trends, always at the forefront of our minds in terms of what's going on. And without further ado, we'll get into it.

Dan, I guess, we had an update earlier in the year, a couple of weeks ago. Tell us to the extent that you can, how things are progressing so far, early in the quarter to the extent possible?

Yes. I think if you take a quick trip around the world, I'm really pleased with -- I think we're a little ahead really in all 3 regions, believe it or not. I think expectations for Europe were high, and they're being exceeded at this point. South America for us was largely about recovery, outside of Brazil. We have a much bigger presence than most of our competitors there. And so the continued recovery in Argentina, continued recovery in Chile off of some challenging inflationary pressures that they experienced coming out of COVID. Paraguay is doing well. Other countries, Uruguay, Peru, although they're small in the scheme of things, they don't talk about much, those are all heading in the right direction. Carnival, I think as most people know, is a little later. So we haven't seen that lift in Brazil. But we headed into the year, thinking Brazil would be a little muted in growth versus the last couple of years kind of in that 2% to 3% range versus kind of mid-single digits. But -- so for us, we think the high end of our long-term growth aspirations in South America is on track, very well achievable. And again, a lot of this is coming off of fairly easy comps with some kind of distressed countries recovering. In Europe, it's a bit of strength to strength. We are off to a really good start there and continuing to see -- the longer-term trends are showing up in kind of shorter-term benefits on volume and that's -- it's just a market that's -- the can is the least penetrated of all the major markets, 29% penetration rate versus if you look at South America and North America, it's 50% or 50-plus percent. So I think the transition largely from glass into cans is a foot. Obviously, Europe is not homogenous. You'll see some plastic transition in places like the U.K. But what you're really seeing right now is heavy glass market. We have a very strong carbon story there. All the pressure that's coming into additional reporting in Europe playing a role. Our customers are investing in additional filling there, and we're seeing just slow, but sure growth and increment there. So I think in North America, CSD is off to a decent start. Energy, specifically some of the energy customers that we have are off to a nice start, a little bit more aggressive coming out of the gates on how they're handling pricing in the marketplace. And then beer continues to be a kind of a mixed bag. I think it's largely centered around. There's a handful of things that are growing, and we participate heavily in those, 5 or 6 brands that people are pretty familiar with. And then it's that continues to be sort of that premium light beer space that has been created over decades and decades and decades. It just candidly isn't priced appropriately for where the end consumer is at in terms of the affordability lens. So let's see what happens in peak season. There's really no reason to be promoting in February. I mean it was 7 degrees last week in Denver. But it'll be interesting question mark there. I'm anticipating some more aggressive behavior in the summer for those brands, in particular. And so as those go, so does volume for beer really in the U.S.

Dan, one thing I wanted to sort of hit on that you mentioned. Can you talk a little bit, recognizing you have some very large market shares and large customers, and there are some things you can and can't talk about. What's going on in energy in terms of how the customers are sort of recovering, if that's the right term, maybe you disagree with that, but from last year's slowdown and what they're doing differently this year on that front?

In a number of instances, I think if you look at some of the big players, so you saw KDP make an acquisition. They've had a lot of success with one energy brand. I think Monster's doing some things with some other brands that they've acquired either through some litigation proceedings. But I think -- and then you saw the aligning news Celsius transaction this week. I think what you're starting to see is a composite offering that's going to be -- that will cascade at 2 different price points. So you'll start to see energy players recognize like I need a value play, I need a premium play, I need something in the middle for different channels. And you're starting to see those builds. And with that, I think the Monsters of the world, the Celsius of the world, the KDPs of the world that have a different energy platform and different price points will be able to play what they need to in the marketplace to drive volume. So that's unique. And then folks, Red Bull that really just have the premium offering, I think they're recognizing they're going to have to price differently, and they're starting to see some nice scanner data at the beginning of the year. So there's a little bit of kind of back to understanding price elasticity, pricing for that. And the folks that are pricing through a lens of affordability for the customer, they're the ones that are growing, right? I mean it's -- in the U.S., it's -- this is not rocket science in the U.S. It's like what can people afford and make sure you match that with the appropriate offering. And I think people are starting to figure that this inflation, interest rate environment will be here for a little bit longer than all of us were hoping for. You got to -- and then everyone is figuring out how to manage that right now.

Again, if there are any questions from the audience, we'll be happy to take them. We want this to be interactive. Dan, one thing we were chatting about recently, and really it was kind of an eye-opener when we thought about it is that last year, you put up, actually from an earnings per share standpoint, great earnings. I guess, record earnings.

It will be record earnings, high watermark this year. $130 million more '24 versus '23.

And yet you haven't been doing it necessarily with all the wind at your back. So if you can remind us how much earnings, to the extent possible, has left the portfolio, yet you're going to -- hopefully, if you hit your numbers, be at a record level this year. Just remind us on kind of what the travails have been, which supports how well the company has been performing overall through all this.

Yes. And I think, George, you've probably been the victim of some of these experiences. I think you gave us a buy rating the day before. Thanks for rolled into the Ukraine.

Thanks from my end as well for that.

I'm not entirely sure anybody saw that one. But I mean, it's -- yes, the beautiful thing about being in a global business is it gives you diversity unless you get a cavalcade of interesting challenges. So for us, our fastest-growing business back at '21, I guess, beginning of '22 was our Russia business. And so that was about $150 million worth of EBITDA that we had to walk away from. That's subsequently 40% bigger today than it was when we sold it. So that's equally salt in the wounds. But if you start going through the things that we've had to overcome with Bud Light and Argentina and then the choice to divest our aerospace business, that's approaching $800 million of the EBITDA that we've filled that hole. And in 2025, we will see kind of high watermark for EPS, and we'll hopefully be building off a more stable base as some of these markets like Argentina, et cetera, come back. So we're really proud of that effort. We've got a great management team. We've had to do some difficult things. But I think we've managed the infrastructure and started to return value back to shareholders in a meaningful way. All of that has contributed to kind of a choppy couple of years, but a more balanced, concentrated view toward a constructive future here in the next 2 to 3 years given everything that's going on. Thanks for that.

No, I appreciate that, Dan. And that's maybe a good jumping off point for Howard to the extent you can talk about capital allocation and how share repurchase has always been a big part of the Ball story. If you can update us on the thoughts of the company and how is helping to keep earnings growing despite all of those, if you will, earnings streams departing from the company?

Sure, George. So we've leaned into the share buyback. We've talked about it, particularly as the pricing has given us an opportunity to do that. So late last year, we leaned into it and increased our estimates as it relates to what we'd buy back. We returned nearly $2 billion back to the shareholders last year in the form of dividends and share buyback. What we said for this year in 2025 is that we do at least $1.3 billion worth of share buyback as well. And we're well on our way, given the stock price and the opportunity that we have here in the first quarter. From a CapEx standpoint, we've talked a little bit about that as well. And we said that we're going to be slightly below our GAAP G&A levels. And so that's to the tune of about $600 million, maybe a little less than that. And so we're going to be very purposeful about capital allocation, for sure.

Any questions from the audience? All right. We'll keep forging ahead. So look, the question that keeps coming up is on tariffs, aluminum supply chain. What does it mean for life at Ball, life for your investors? If you can update us on how you see it recognizing? It's very fluid. What should we -- no pun intended, by the way. What we should be taking away in terms of the outlook for Ball?

So what I know is kind of largely related to, I guess, the March 12 event. The tweet yesterday was a little different. So I haven't investigated that. And I think everybody can appreciate I'm at the -- we have folks that are on the Board at NAM, and I participate in BRT. And we've got a lot of folks that are dialed into Washington. You're like, can you give me the details? There are no details. So there's a lot of phone calls that are happening. There's probably a conference call happening right now back in Broomfield, and we're all trying to figure out what this means. But I think we've got pretty good line of sight into the initial salvo of tariffs. And in that, cans coming across the border, ends, can bodies going across the border, those aren't -- those are excluded from the tariffs. But what is -- what the tariffs are applying to, and you're seeing it play out already for those of you that are following the Midwest transaction premium, is ingot that's essentially coming from Canada. That cost element, which is 100% transferable to our customers has gone from about $0.20 a couple of weeks ago to low $0.40. So if you follow the math, it should kind of tap out at $0.50 on that 25% tariff on the ingot. And that's where it will sit in the Midwest transaction premium. so what that means is roughly, if you think about a per can cost, it would be an $0.01. So if you've got like a 12 pack of your favorite soft drink at $7, it would be $7.12 would be the result of that increase, which doesn't seem like a lot, but it's 1%. So it's a 1% increase. And you can -- everybody has probably got a price elasticity model in here. So the challenge isn't -- are we going to be a pass it through? It's going to be how is it treated by our customers in terms of pricing, what does that mean to the end consumer? What does that mean to the volume equation? That's the question mark right now. You'll start to see that, that won't have impacted, obviously, the first 2 months and even the third month. It will be closer to kind of April, May is when you'll start to see that lift impact. And then it also depends on whether or not our customers, their hedge positions because they can hedge that portion. So have they -- the more sophisticated bigger customers, have they hedged that out 6, 9 months. So roughly 150 billion cans or 140 billion cans in the U.S. market, exclude 1 quarter's worth of that and then put a cent on that, you're at $1.1 billion, $1.2 billion of additional cost. And so you can start to figure out the bigger customers and their percentage of that. So it's meaningful to them when you look at it that way. It's not necessarily all that meaningful to the end consumer, depending on how the price is handled. Then the next tariff that was proposed yesterday would be -- that would be more concerning. But I think that would go far outside of aluminum cans. I mean if you're starting to put 25% tariffs on everything going across the borders, that would be pretty bad for the end consumer just writ large. I think that would be not just a ball trade, I would imagine that would be a market trade.

If we then consider the first tariff, the question that we frequently get is, well, what's that going to mean for pack mix, right? So if aluminum is going to go up, even if it's a 1% net impact to the consumer, does that mean we're going to see a move to plastics or glass? Some of the customers have said recently, though, I think it's been a game of telephone in terms of what they're actually saying and what now the investment community thinks they said, said they're going to basically evaluate the situation and see what the consumer wants. Does your customer drive it? Or they're basically seeing the feedback from the consumer in terms of where they direct? And if it's the latter, how do they know how to promote and price if they're not getting the feedback from the consumer first?

Yes. Yes. I would say the most transparent way to look at the North American marketplace, there's not a lot of levers to pull on like substrate shift. Like where is there additional filling capacity, I think you'd have to start there. But where the can would see a substrate shift or competition would be on a 2-liter plastic bottle. That's where the economic play would be. And why is that? It's like when you look at a 20-ounce PET of soft drink, nobody is going to trade out of a $0.65 can to a $0.66 can to a $2.20 plastic, I mean, that's not the economic trade. The economic trade would be in more distressed economic urban areas or rural areas, and it would be in a 2-liter plastic bottle is how the CSD market would play it. Beer -- the better economics are in cans overwhelmingly. So it's not really a beer play. It would be on that particular pack mix. And it's just not a lot. There's not a lot of room to participate or shift. You will see an inflationary and price pressure environments. The one area in the world where you'd see more substrate shift is in South America in returnable glass. So that is a very real and you saw it play out in '22 when there was inflation that ramped. In places like Brazil, you saw probably a 4%, 5% substrate shift out of cans into returnable glass bottles because the economics were better on that float of bottles. It's not all that concerning. In North America, it's just the health of the end consumer is the issue right now. I mean something has got to break on that.

Any questions from the audience? All right. We'll keep forging ahead. I guess then from a planning standpoint, obviously, Howard, you and the whole team put a lot of time into the outlook. How do you project given those variables, right? And what outcomes, realizing this is a little bit of an unfair question, would make you a little bit less comfortable with the 11% to 14%, the 2% to 3% volume, so 11% to 14% earnings and 2% to 3% growth outlook for the year on the top line?

Yes. I mean what I would say is, George, the 11% to 14%, we talked a little bit about it earlier. I mean a lot of that's going to be delivered based on our share buybacks. We bought back -- I think we targeted somewhere between 4% and 6%. We bought back over 8% last year. Much of that coming in the tail end of the year. We're off to a really healthy start here as it relates to buybacks as well. I would say related to the 2% to 3% growth, I mean, as Dan outlined, I mean, the markets continue to do well in Europe. And as Dan said, we're ahead of the game as it relates to our forecast beginning of this year. And likewise, in South America, I think we're basically a little bit ahead as well as some of these markets recover in places like Argentina. And so -- and we do a lot of scenario planning. And so we'll look and see where we can maximize growth and where we might be a little bit challenged. I mean, certainly, these tariff things are not going to be easy by no means for us, for our customers, for the end consumers. But we're thoughtful about how we can go ahead and countermeasure some of those things as well.

Thanks. Yes, I would just -- I would build on -- I think the obvious is we feel really good about -- so our portfolio is continuing to grow to be bigger outside of the U.S. than in the U.S. And if you include our personal home care business, that will be approaching $100 million of operating earnings this year. And on the beverage side, you'll be approaching 55%. Almost 60% of earnings coming from South America and Europe. So that feels good. What doesn't feel good would be -- let's see how these tariffs -- if there's a shock to the end consumer that's broader than just us, I think we would struggle to kind of keep to flat earnings in North America. If we saw 2% to 3% negative, we will have to do some pretty heavy lifting. We've done the things that are most obvious in our network. So then you would be curtailing lines and taking out labor and doing some other restructuring to kind of hold the line, but I think a weakened consumer in North America that sees yet another shock, that would be something where -- I think we'd still make more money year-over-year. We'd be at the low end of that EPS. There would probably be an impact to our stock. We'd go in. We'd buy back shares incrementally kind of pull back on capital. All of the things that you would expect us to do, we would do those things. But that would -- I mean, as we sit here today and we're evaluating tweet after tweet and what could be next, it's like that. I think that's kind of the hang on everybody in the economy.

Thanks, Dan. Thanks, Howard. You mentioned Europe. Europe continues to do really, really well. What -- I mean you mentioned of a substrate shift. Yes, I mean -- and it's -- in theory, right, the urban legend is the European consumers in worse off shape than the U.S. consumer. Maybe that's not true or maybe not true relative to beverage can market. So why should I not be concerned that off a really tough comp? You're saying that is doing better than expected and is one of the reasons you're optimistic about the year.

Yes. I would say -- yes, I think there is some myth-busting, if you will, on that the end consumer in Europe is worse off. They are not worse off in the grocery channel. They're significantly better in the grocery channel. Food is cheaper in Europe, relatively speaking, than it is in the U.S. They're not having $18 a dozen egg or can't find egg issues. So where our products sit and the discretionary income associated with food and beverage is a much better situation for us in Europe than it is in the U.S., I mean, collectively. They have had an energy surge and an energy spike for sure. But relatively speaking, versus a couple of years ago, if you look at what Europeans could purchase versus what Americans could purchase and then you fast forward that, there's more discretionary income going into the places where our products are in Europe than they are in the U.S. And you build on the fact that not only is that a positive for us, the other positive is ESG is still a thing in Europe. And so circularity does matter and CSRD does matter and the carbon footprint of glass isn't getting any better. And so all of those things are factoring into the decisions by our customers, which are taking a medium- to longer-term view on their filling, on their packaging. And just to maybe level set that comment for everybody here, it's like 44% of the carbon usage of our customers is in packaging. So they have a clear advantage by shifting and that framework to a different pack mix if they're investing behind that. And so we're seeing those benefits in the heavy glass markets, in particular, throughout Europe. We're seeing a nice, steady build, and that should go on for some time.

Fascinating. Any questions from the audience? [ Arkin ], if you can just wait for the microphone?

Or shout.

Thanks, Dan. Could you please walk through the calculation on sort of how you go from 2% to 3% volume growth to 4% to 6% EBITDA growth? And how confident do you feel in that sort of drop through in the medium- to long-term zone?

Like the 2% to 3% growth, I think we've outlined what 1% to 3% in the U.S., 3% to 5% in Europe, 3% to 5%, 4% to 6%, somewhere in South America. And so this year, I would say you'd be at the low end of North America. And you'd be in excess of the high end in the other 2 regions. In South America, I think I've gone through this, but you're coming off of easier comps. So Brazil will be kind of at the lower end of the long-term range this year. But for us, the recovery of Argentina, Chile, Paraguay, those places will help us to exceed the 4% to 6% on the higher end. And you'll see that tracking throughout the second, third and the fourth quarter as those markets continue to improve. So we would continue to see nice lift. Europe will be pulling us up to the 2% to 3%, I think, recovery in the U.S., at some point will come. And then there will always be some level of volatility in South America, but we've been able to consistently show up in that range. So -- and then volumetrically, this is something that's been kind of part and parcel to us for a long period of time. But if you get 1% of volume growth, you should get 2% of operating earnings growth. And so that kind of 2% to 3%, 4% to 6% there and then a steady diet of capital allocation back to our shareholders in the form of share repurchasing until our stock gets to where it should be appropriately valued.

And that was $200 a share or something? I think I heard, Dan. Just kidding.

I didn't mention our PH&C business, smaller business, but that's going to grow kind of in that mid-single digit, mid-single digit plus for the foreseeable future.

Maybe a couple of questions from me to wrap up here. In no particular order of connection, just kind of a quick yes, no, remind us, let's wave a wand and things are better in Europe over time, peace breaks out. You still have an option on Russia, correct? Not saying what you're going to do, but you still have that. So that's one thing to...

Yes. So it's -- we have a 10-year option and agreed upon multiple plus a certain return profile on that, and that will be available to us in 2027. That's when that 10-year window opens.

And tell us relative to Oregon, the new facility going in, in Florida can, 2, 3 years from now, 3, 4 years from now, what are we commenting on why those were good moves for you in terms of the fleet of facilities and what it does for you on margin?

Yes. So that -- the asset that we purchased was built for $300 million. It's got 2 lines and an end module. The end module is servicing a bottling operation in the Caribbean. That's who actually built the plant. So we took over for that operator, so they could further invest in the Caribbean. And it's roughly 60 miles from our Tampa facility, which is about 50 years old. So we got a gorgeous new facility. It's incredibly efficient with -- that's about half full. So as that starts to ramp up and we can minimize our recap of the Tampa facility, which is probably those of you that follow the industry, I mean, you're always looking at something in like the $75 million to $100 million to get those lines up to kind of standards today versus the 30-year or 40-year assets that are in those facilities. So we'll run those 2 as a system, and it will give us nice opportunity to step into growth in that part of the country that continue to see population growth and can volume growth.

And Oregon?

Sorry?

The Oregon plant?

Yes. So the Oregon plant is -- so when we pulled out of the Pacific Northwest, we were up in Bellevue, Washington. It was a leased facility that was over 50 years old. And so we're facing a recap decision there. So we went to our biggest customer in the U.S. and said, "Hey, we're probably not going to re-up this." And then one of the large bottlers in that part of the country said that because of the anti-plastic sentiment in the Pacific Northwest, they needed more capacity. And so we jointly entered into discussions about them building and us building alongside them and we went and sat down with the 16 bottlers in that network and then constructed kind of a new deal that will take us out close to 2030, which will help us to pay for that with some incremental volume. Right now, we have those cans and we're basically shipping those cans up from the Southwest. So we still have those cans, but it doesn't make any sense economically until we can get that and then that will free up capacity in the Southwest where we have opportunity to win some business down there. So as that starts to fill out, you'll start to see kind of 27 some improved economics on just even the fleet of cans that we have for that particular customer.

Thanks, Dan. With that, I think we're out of time. Great rundown as always. Howard and Dan, thanks so much.

Thank you, George.

Please join me in thanking Ball Corporation for a great presentation, everybody.

Thank you.

Thank you.