Ball Corporation

Greetings. Welcome to the Ball Corporation first quarter earnings conference call. During the presentation, participants are in a listen-only mode, and afterwards we will conduct a question-and-answer session. At that time, if you have a question, press the 1 followed by the 4 on your telephone. If at any time during this conference you need to reach an operator, press star 0. As a reminder, this conference is recorded on Thursday, May 2, 2019. It's my pleasure to turn the conference over to John Hayes, CEO. Please go ahead, sir.

Great. Thank you, Pema, and good morning, everyone. This is Ball Corporation's conference call regarding the company's first quarter 2019 results. The information provided during this call will contain forward-looking statements. Actual results or outcomes may differ materially from those that may be expressed or implied. Some factors that could cause the results or outcomes to differ are in the company's latest 10K and in other company SEC filings as well as company news releases. If you don't already have our first 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. Joining me on the call today are Scott Morrison, Senior Vice President and CFO, and Dan Fisher, Senior Vice President and COO of 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 comments on our aerosol and aerospace businesses, as well as our outlook for the company. Overall, we were pleased but not satisfied with our quarterly results. with overall global beverage can demand up over 8%, which is the highest it's been in a very long time, and our aerospace business continues to deliver on its growth ambitions. Offsetting this growth were the previously mentioned conclusion of the end sales agreement as part of the REXIM acquisition in South America and some short-term incremental costs that weighed on results in North America. Dan will address these transitory costs related to efficiency headwinds for two of our new lines in our Goodyear, Arizona facility and the impact of aluminum scrap costs in his comments later. We expect volume growth to continue while the costs become more in line as we move through the year. Now, key highlights for the quarter include, as mentioned previously, overall global beverage can growth of approximately 8% with specialty can growth of approximately 20% and standard cans flat, further highlighting that our focus on specialty cans is paying off. In fact, specialty cans now represent over 43% of our mix on a global basis, which is up from 30% in 2016. The growth was across the board with North and Central America up approximately 6% year over year, South America up a bit more than that, and Europe and EMEA up in the low to upper teens respectively. Our customer discussions about shifting products into cans from glass, plastic, and multi-layer paper-based containers have only accelerated. and Dan will go into more detail about what we see going forward. In addition, we received antitrust approval of the sale of our China beverage can business, and we are on track for a second half 2019 closing. Aerospace revenues were up over 20%, and while we don't expect this level of growth to continue, we do expect revenues to be up over 15% for the full year. Finally, aluminum aerosol was up low to mid-single digits as the sustainability discussions migrate to this segment as well. Now, speaking of sustainability, Ball has focused on a variety of efforts over the past number of months to raise awareness on sustainability, educate consumers on the benefits of aluminum packaging, aid customer shift to cans, and proactively improve our own environmental footprint. Key initiatives that we have focused on year to date include engaging with customers, governments, NGOs, and others on the sustainability advantages of aluminum packaging, including presenting at the World Ocean Summit in Abu Dhabi, Supporting employee-led recycling and community cleanup events around the world, and launched new events in Argentina and the Persian Gulf, just to name a few. Launching a campaign to educate youth about recycling. If you can, choose a can. Facilitating various sports and cultural venues to ship to aluminum packaging, including utilizing balls-reclosable aluminum bottles for still water. Developing new infinitely recyclable brandable aluminum cups for use in stadiums, venues, colleges, and other channels where plastic cups are used. And to make Ball and our products even more sustainable, announcing agreements to transition 100% of our North American energy usage to renewable sources by the end of 2021, making Ball one of the largest corporate buyers of renewable energy in the U.S. As we go forward, we see the momentum growing in each of our businesses throughout this year. will continue to execute our long-term strategy of growing EVA dollars and earnings over time through increasing revenues above our cost growth by focusing on our value over volume strategy, driving more mix shift to specialty containers, further developing innovative aluminum packaging products, and expanding aerospace, all with the return of value to our shareholders' mindset. And with that, I'll turn it over to Dan.

Thanks, John. And as John's already highlighted, we had some pluses and minuses to start the year. On the plus side, and without a doubt, sustainability is having a favorable impact on customer demand. And given customer conversations, it will in the future as well. On the minus side, certain inflationary costs to respond to this surging volume growth cannot be fully offset in the U.S. given the aluminum scrap market spreads and a couple of new lines not quite hitting their targets. Turning to growth, our first quarter global beverage can volumes were up 8%, though comparable operating earnings were down 6.5% year-over-year due to the $33 million impact of the previously disclosed completion of the South America End Manufacturing Agreement, which will anniversary in mid-2019, and the late year 2018 US line inefficiencies continuing in the first quarter. We can and will do better going forward. Across the globe, our teams kept pace with tremendous growth in Europe, Brazil, and North America, which in some regions created some operational logistical inefficiencies given a tight U.S. industry and higher-than-anticipated growth in Brazil. The impact of widening aluminum scrap spreads in the U.S. has highlighted an area of exposure in certain customer contracts, which will be or has already been addressed for agreements renewing in 2020. Moving to the individual segments, Ball's North America segment volumes were up 6% in the quarter. New categories led the way with wine, spiked seltzers, energy, craft, and water experiencing double digit growth, and lower calorie light beer being stronger than year over year. Given the strong growth, we experienced higher than anticipated wine conversions in our new Goodyear, Arizona facility, which in a startup environment created higher costs than anticipated. This, combined with the aluminum scrap issues described earlier, dampened our results, and while headwinds related to scrap will continue until we can fully pass these on, we expect our operating performance to improve as the year goes on. Turning to our South American segment, volumes were up 11% in the first quarter, led by incredible strength in Brazil. As mentioned earlier, the completion of the ENDS manufacturing contract required as part of the Rexham transaction led to lower first quarter earnings and higher than anticipated Brazilian volume growth led to pockets of suboptimal logistics patterns to honor customer demand. Comps will improve as we move forward with second quarter segment earnings down just slightly to reflect the mid-year anniversary of the agreement completion. Our expansion in Paraguay is on track for late 2019 startup and the 2018 expansions of Argentina and Chile are contributing to results. Overall, the South American industry trends remain strong, with cans being the favorite package in the beer, tea, energy, and hard alcohol categories. Looking forward, we see additional customer conversions from returnable glass to cans, aiding growth in 2020 and beyond. European beverage earnings were up nearly 7% in the first quarter on difficult year-over-year comps given the timing and location of the 2018 World Cup. a $5 million unfavorable operating earnings translation impact, and startup costs associated with two new lines and multiple specialty line conversions in the quarter. Volumes increased 10% in the first quarter, continuing the momentum from 2018. Cans are winning as customers shift their package mix into cans. As a result of new can filling lines being installed across our customers' operations, we look forward to continued good market growth. For 2019, contributions from our new lines, the year-over-year impact of our 2018 G&A improvement, and plant cost initiatives will provide further year-over-year earnings growth and margin expansion as we progress through 2019. Turning to EMEA and Asia, the demand environments in Turkey and India improved, and operating performance in our Saudi joint venture stabilized. And in China, Ball has secured antitrust approval for the Chinese manufacturing plant's sale to ORG. In summary, global beverage can demand remains robust in our three key regions of North and Central America, Brazil, and Europe. Supply demand globally for cans 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.