Ball Corporation

Greetings, everyone, and welcome to the Ball Corporation fourth quarter earnings call. During the presentation, all participants will be in listen-only mode. Afterwards, we'll have a question and answer session. At that time, if you have a question, please press the 1 followed by the 4 on your telephone. And if at any time you need to reach an operator, please press star 0. As a reminder, this call is being recorded today, Thursday, February 6, 2020. It is now my pleasure to turn the conference over to John Hayes, CEO. Please go ahead.

Thank you, Mladen, and good morning, everyone. This is Ball Corporation's conference call regarding the company's full year and fourth 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 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 and Chief Financial Officer, and Dan Fisher, Senior Vice President, Chief Operating Officer 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 some comments on our aerosol and aerospace business, as well as our outlook for the company. 2019 finished on a strong note, with fourth quarter comparable operating earnings up 14%, diluted earnings per share up 29%, and stronger than expected free cash flow. In contrast, EVA dollars generated on average invested capital were down slightly year over year as the significant growth capital recently deployed has not yet generated expected returns due to its infancy. We fully expect to generate meaningfully higher EVA dollars in 2020 and beyond as multiple growth projects come online and we respond to significant multi-year growth in global beverage cans and as aerospace executes on their sizable backlog. Over the past year, global beverage volumes were up 5%. Our aerospace contracted backlog increased 14%. We completed the sale of two underperforming businesses. We launched our new aluminum cups business. Our full-year comparable diluted earnings per share increased 15%, and we returned over $1.1 billion to shareholders. As we reflect on 2019 and the 42-month integration plan and financial goals laid out following our mid-2016 acquisition of Rexham, I'm proud of our team, their ability to achieve more than $300 million in synergies, and how well they positioned our business to return significant value to all of our stakeholders over the near and long term. Back in 2016, when we completed the transaction, we laid out a 42-month target to achieve $2 billion in comparable EBITDA and $1 billion in free cash flow by year end 2019. After taking into account the sale of our steel food can and steel aerosol businesses and the sale of our China beverage can assets, which combined represented approximately $110 million in anticipated 2019 EBITDA and spending $100 million more in CapEx versus the original plan, Our actual 2019 results were within 50 million of each financial goals. In addition to these strong results, we received 800 million in cash for the underperforming businesses we sold, which was used to further strengthen the balance sheet and return value to shareholders. The 42-month journey didn't happen exactly as envisioned in 2016. Our team learned where we needed to improve operational and organizationally, how to leverage our strengths to ensure aluminum packaging is the most sustainable in the supply chain and create opportunity for us. That return-focused decisions to exit underperforming businesses, though difficult, are always the right thing to do. And most impressively, our team navigated a vast sea of external, global, political, and market changers to deliver for our shareholders. As we embark upon our 140 years in business and celebrate the 10th anniversary of our Drive for 10 vision, where we have already achieved our goals of doubling earnings per share, doubling free cash flow, and doubling EVA dollars over the decade, our company has never been stronger. We know who we are, we know where we're going, and we know what's important. In global aluminum beverage cans, we are leveraging the once-in-a-lifetime opportunity from a sustainability market leadership perspective and remain focused on operational excellence and an improved customer experience. In aerospace, we continue to grow without losing sight of the successful execution of our existing and future contracted backlog. In global aluminum aerosol, we continue to focus on innovation, sustainability, operational excellence, and geographic expansion. And as a corporation, we are excited. We're excited to expand our newly launched aluminum cups business guided by a defined go-to-market strategy as our new commercial production capacity comes on stream. We're excited to maintain our culture, EVA and ownership mindset, and sustainability leadership while fostering an inclusive work environment and developing our next generation of leaders and skilled trade professionals. We're excited to invest in growth opportunities across all of our businesses, more of which you'll hear from today. And we're excited to continue to onboard a cadre of new ball people across our entire organization, ensuring that we preserve the old with the new, the values of our past with the ideas for tomorrow, and the can-do spirit that has elevated Ball over 140 years. The year 2020 is shaping up to be quite strong with each business growing operating earnings. As customers, consumers, retailers, and venues seek out our aluminum beverage packaging portfolio, our focus will be on amplifying our product sustainability benefits, operational excellence, improving customer service, and executing on the various projects and commercial opportunities we have in front of us. Across the globe, we are actively investing in new aluminum packaging production to serve increasing demand for aluminum cans, bottles, and cups. Dan and Scott will discuss these opportunities and the size of capital spending. Now key highlights for the fourth quarter include 9% specialty can growth. Today, specialty cans represent over 43% of our mix on a global basis. As anticipated, our overall global volume growth in the quarter was up low single digits given very tight supply conditions in North America, particularly for specialty cans, and tough year-over-year in comps in Europe, where fourth quarter 2008 volumes were up over 10%. We closed on the remaining parts of the sale of our China beverage can business and received the cash proceeds from the sale. We closed on the sale of our Argentina steel aerosol business. Our new aluminum cup recently appeared in iconic venues such as the NFL Super Bowl as well as the Waste Management Phoenix Open. It will continue to expand into many major league and collegiate sports as well as music venues, followed by online and retail channels in 2021. In summary, while we had some short-term operational challenges and scrap headwinds in our North American business during 2019, We believe the scrap headwinds are behind us and our plant efficiencies are improving every day. Dan will go into that more. We will continue to execute our long-term strategy of increasing EVA dollars in earnings over time through higher revenues above our cost growth, driving more mixed shift to specialty containers, growing new innovative aluminum packaging products like the cup and expanding aerospace, all with the return of value to our shareholders' mindsets. Thank you to all the people who work here at Ball for your passion, your grit, dedication, and hard work. And with that, I'll turn it over to Dan.

Thanks, John. Let me start with a few key points to set the stage for 2020 and beyond. Our market thesis of 4% to 6% volume growth over at least the next five years continues to hold true. The still water shift to cans is accelerating as conversations intensify in each of our major regions. and will push demand growth to the higher end of the range if the overall supply chain can move at the rate the end consumer is demanding. In North America, the new customer contracts took effect on January 1, and additional contracts will renew in the coming years, and we will focus on getting paid for complexity, while also improving our own operational efficiencies and ability to manage growth. In the first half of 2020, North American volume growth will be muted until new capacity comes online during the second half of the year. Global capacity expansions are on track, and our team is focused on hiring and training to ensure successful ramp-ups. Given the expectation of high multi-year growth, discussions on securing additional aluminum supply are progressing. The Ball Aluminum Cup is generating significant opportunities with the new customer base. And we are investing approximately 20 million in P&L costs in 2020 to enable the go to market strategy. We're looking forward to commercial CUPS coming out of our new Rome, Georgia CUPS facility in the fourth quarter of 2020. We will initiate even more efforts to tell the aluminum sustainability story, not only as it relates to the infinitely recyclable nature of the package, but the superior CO2 footprint as well. This will further position Ball as the partner of choice and inform the regulatory landscape going forward. Across our global operations, our team continues to manage tremendous growth, complexity, and incredibly tight supply-demand conditions. As we prepare for the acceleration of products converting from PET to cans, we are well positioned and agile in our Europe and South American businesses and extremely focused on improving operational efficiencies, customer satisfaction, and managing growth across our North American plant network. As our North American operations gain some breathing room, we'll be able to return to historical operational leverage on incremental sales. Moving to the individual segments, Ball's North American segment volumes were up 2% in the fourth quarter and 4% for the full year. with specialty cans growing 5% in the fourth quarter and 9% for the full year. During 2019, the North American business underperformed relative to our expectations operationally. The underperformance largely emanated from Goodyear and their reliance on the other supply points nearby. The domino effect of operational pressures across our system was compounded by the tremendous demand in the southwest supply orbits. In response to our underperformance in our U.S. operations, we made significant changes to the management team. We have confidence as we transition into 2020 based on the seasoned leaders and growth mindset being brought to our day-to-day focus. When the line additions at existing facilities in Georgia and Texas start up in the second half of 2020, and our Goodyear facility, which is now running at 75% efficiency, gains even more momentum, This will certainly alleviate stress on the rest of the plant network. As previously announced, we will also construct two new specialty beverage can plants in Glendale, Arizona and in the Northeast US, both of which will initially have two can lines. Glendale is anticipated to come online in the first quarter of 2021 and the Northeast facility after that. Combined, the previously mentioned line and plant additions will produce 6 billion incremental units. With the aluminum scrap headwinds behind us, the progress being made at Goodyear and surrounding plants, previously negotiated contracts favorably resetting, I fully expect strong earnings momentum across North America in 2020 and beyond. Turning to our South American segment, our volumes were up 3% in the fourth quarter and 8% for the full year. Year-over-year quarterly earnings were up due to volume growth offset somewhat by customer mix. Our new plant in Paraguay started up on track, and we are poised to add additional capacity in Brazil as growth warrants. Operating earnings are expected to improve year-over-year as Paraguay gains efficiencies. Customers pursue more specialty cans, and more favorable approach to customer mix enhances results. European beverage earnings were up 9% in 2019 due to volume growth and improved operational performance, despite $16 million of unfavorable operating earnings translation impact during the year. Volumes were flat in the fourth quarter, largely due to tough comps and year-end positioning between customers and retailers. For the year, volumes were up 5% in Europe. We are leveraging our continental Europe network to add lines to existing facilities in preparation for our customers' growth, following the installation of additional can filling lines, and to support normal market growth across continental Europe and Russia. More to come as we move through the year. As we mentioned in today's earnings release and following the recent decision to close our Dubai office, the company's existing facilities in Cairo, Egypt, and Manisa, Turkey, will be consolidated into the existing beverage packaging Europe segment starting in first quarter 2020. Given that the vast majority of the legacy EMEA business is associated with these two plants, it should be relatively easy to understand the changes in this segment going forward. As I mentioned last quarter, we will be prioritizing capital and resources for the best long-term outcomes. Following the Dubai office closure and the slowdown of our business in Saudi Arabia, We are shifting the management responsibilities of our Egyptian and Turkish plants to our European team in the UK, and the remaining Indian and Saudi facilities will continue to be reported in other non-reportable going forward, along with cups. In summary, global beverage can demand momentum continues in the regions where we operate. Going forward, I see North and Central America's three- to five-year forward volume growth taker in the range of four to 6%. South America's three to five year forward volume growth figure in the range of five to 8%. And Europe's three to five year forward growth figure in the range of three to 6%. Our teams are actively hiring to support our anticipated growth. Thank you again to all of our teams around the globe. Our time is now. With that, I'll turn it over to Scott.