Ball Corporation

Ladies and gentlemen, thank you for standing by. Welcome to the Ball Corporation fourth quarter earnings conference call. During 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 Thursday, January 31st, 2019. I would now like to turn the conference over to John Hayes, CEO. Please go ahead.

Great. Thank you, Chris, and good morning, everyone. This is Ball Corporation's conference call regarding the company's full year and fourth quarter 2018 results. The information provided during this call will contain forward-looking statements, including estimates related to the impact of the U.S. Tax Cuts and Jobs Act. Actual results or outcomes may differ materially from those that may be expressed or implied. Some factors that could cause the results or outcomes to differ are in the company's latest 10-K and in other company SEC filings as well as company news releases. If you don't already have our fourth quarter earnings release, it's available on our website at ball.com. Information regarding the use of non-GAAP financial measures may also be found in the notes section of today's earnings release. The release also includes a table summarizing business consolidation and other activities, as well as a reconciliation of comparable operating earnings and diluted earnings per share calculations. Now joining me on the call today are Scott Morrison, Senior Vice President, Chief Financial Officer, and Dan Fisher, Senior Vice President and Chief Operating Officer, Global Beverage. I'll provide some introductory remarks. Dan will discuss the global beverage packaging performance. Scott will discuss key financial metrics. And then we'll finish up with some comments on our aerospace business as well as our outlook for the company. 2018 was a strong year for Ball and its shareholders. Strong global demand for our aluminum beverage and aerosol packaging products, growth in our aerospace business, and a strong long-term focus on earnings and cash flow performance allowed us to return approximately $850 million to our shareholders, which was well above our original expectations dating back to 2016. Our fourth quarter results were slightly below in our own expectations due to some transitory issues in our North and Central America beverage segment that Dan Fisher will comment on. Yet as we look forward, we like the position we're in. We have good momentum in terms of our volume growth. We'll begin to reap in earnest the footprint activities that we have implemented and largely completed. We have a clear line of sight to achieve the $2 billion in EBITDA and $1 billion in free cash flow that we set out as a target in 2016. we just need to execute. And all of our free cash flow will be returned to our shareholders in the form of dividends and share repurchases. During 2018, we continued to actively adjust our overall manufacturing footprint. And since we closed on the Rexham acquisition, we've rationalized eight facilities globally, with four in the US, two in Brazil, and one each in Germany and in Italy. We started up three state-of-the-art beverage can facilities in Arizona, Spain, and our joint venture in Panama to cost-effectively meet growing demand in these regions. We've installed or are installing additional specialty can capacity with new lines in our existing facilities in Argentina, Chile, Switzerland, Serbia, Texas, and Mexico, in addition to a number of other smaller speed-up projects. We've grown our aerospace backlog 26% to over $2.2 billion while also growing headcount by over 35% to approximately 3,700 people, and the company continues to expand our aerospace infrastructure to meet growth of this important segment. We've divested our U.S. steel, food, and aerosol business into a 49% owned joint venture and realized approximately $600 million in cash, and we announced the sale of our Chinese beverage can business. As we look more deeply into 2019, We are on the cusp of achieving better value for our standard beverage can products as a majority of our negotiations for the next 18 months are largely concluded, with much of this value to be received beyond 2019. We are well invested to capture global growth for our specialty product portfolio. We are benefiting from the final phase of initial acquisition related cost out programs. We are embarking on additional efforts to streamline global processes. We are commercializing the sustainability benefits of aluminum packaging to provide our customers solutions versus environmentally challenged substrates. And we are initiating additional products to further expand our aerospace infrastructure and testing capabilities. As we go forward, we will continue to execute our long-term strategy of growing earnings over time through increasing revenues above our cost growth by focusing on our value over volume strategy and standard containers. driving more mix shift to specialty containers, further developing innovative aluminum packaging products, and expanding aerospace, all with an EVA and return of value to shareholders mindset. Fall is uniquely positioned to lead sustainable growth in global aluminum packaging and aerospace, while also continuing to return significant capital to shareholders following the board's recent 50 million share repurchase authorization, as well as achieving the three and a half year plan we laid out in mid-16 of comparable EBITDA and free cash flow of $2 billion and $1 billion, respectively. Thanks to all of our employees who helped our company achieve these results, as well as win numerous customer awards and recognitions, including inclusion on the Dow Jones Sustainability Index and the recent humbling recognition of being ranked number one on Forbes magazine's list of America's best employers for diversity. All of this is possible because of our people and our culture. We're proud of our 139-year history and will continue to do what's best for Ball and shareholders' long-term success. And with that, I'll turn it over to Dan.

Thanks, John. Our global beverage business comparable operating earnings were up 3% year-over-year on full-year global volume growth of 2%, offset somewhat by plant startup costs, higher freight, and the late-year plant inefficiencies. Our global teams kept pace with notable growth in Europe, Russia, and North America, which, at times, also created some operational and logistic inefficiencies, given an oversold US industry and strong demand in the UK, Nordics, and Russia. We left some money on the table in 2018, and with new plants now 80% to 90% up their learning curves, that should flow through in 2019. Moving to the individual segments. Fall's North American segment volumes were up 4% in the quarter. New categories led the way with wine, sparkling water, craft, and spiked seltzers experiencing double-digit growth, and 2018 was truly a tale of two halves. Demand lagged in the U.S. during the first half as mass beer slowed while, in contrast, other customers struggled to properly gauge consumer demand for new product introductions during the busy summer selling season. ultimately leading to tight supply demand for specialty cans in the second half, leaving little room for error. At the same time, we were experiencing such growth, U.S. aluminum suppliers struggled to provide quality metal to us, and this issue wasn't resolved by year-end 2018, leading to plant network inefficiencies late in the year, resulting in our North American business producing lower-than-expected results despite strong volume growth. So far this year, the suppliers delivering metal we can run and our plant efficiencies in the affected plants are improving. In order to ensure that this does not occur again, we have focused our efforts on ensuring that our metal supplier is doing the necessary things to deliver quality metal on time, exploring other metal options despite the aluminum tariff situation, and by working with our customers to lay down safety stocks in the seasonally slower part of the year and ahead of what we anticipate will be a very strong year in North America. Given our customers' current demand profiles, we anticipate selling 2 billion more units in 2019, while also reaping the net 50 million of fixed cost savings following the successful decommissioning of three plants and ramp up of our four-line specialty plant in Goodyear, Arizona. Turning to our South American segment, as expected, our Brazilian volumes were flat versus the industry being up 6% in the fourth quarter. Ball's 2017 decision to forego some canned business in Brazil and the completion of the ends manufacturing contract required as part of the Rexham transaction led to lower fourth quarter and full year earnings. Looking forward, this second half 2018 trend will continue in first half of 2019 until we anniversary these items. Overall, the South American industry trends remain strong, with cans being the favored package in the beer, tea, energy, and hard alcohol categories. Our expansions in Argentina, Paraguay, and Chile are on track, and we are excited about the can continuing to be embraced by customers and consumers across South America. With these expansions benefiting second half 2019, full year 2019 should be roughly in line with full year 2018 performance. European beverage earnings were up 29% year over year in the fourth quarter and 21% for the full year. Volumes increased 10% in the fourth quarter and 8% for the full year. Cans are winning as customers shift their package mix away from plastics and into cans. Tailwinds such as this The new facility in Spain coming online successfully and the closure of our one-line San Martino Italy facility earlier than planned led to a strong finish in 2018. As we look forward, continued good market growth, the addition of two new lines in Switzerland and Serbia, along with several other specialty line conversions scheduled to be brought online in early 2019, the year-over-year impact of our 2018 G&A improvement and plant cost initiatives will provide further earnings growth and margin expansion in 2019. Turning to EMEA and Asia, the demand environments in Turkey, Egypt, and India improved, but were offset by regional volatility and poor operating performance in our Saudi joint venture, which led to meaningfully lower volumes in the region and operating earnings down by more than 20 million year over year. And in China, the business remains cash flow positive and Ball continues to actively manage the business ahead of its sale to ORG, which following regulatory approval should close in the second half of 2019. In summary, global beverage can demand remains robust in our three key regions of North and Central America, Brazil, and Europe. Supply demand for U.S. standard containers in certain specialty sizes is tight. and commercial and sustainability initiatives will benefit Ball going forward. Thank you again to all of our teams around the globe. With that, I'll turn it over to Scott.