Ball Corporation

Greetings and welcome to the Ball Corporation fourth quarter 2020 earnings call. During the presentation, all participants will be in a listen-only mode. Afterwards, we'll conduct a question and answer session. At that time, if you have a question, please press the 1 followed by the 4 on your telephone. If at any time during the conference you need to reach an operator, please press star 0. As a reminder, this conference is being recorded Thursday, February 4, 2021. I would now like to turn the conference over to John Hayes, CEO. Please go ahead.

Great. Thank you, Dimitra, and good morning, everyone. This is Ball Corporation's conference call regarding the company's fourth quarter and full year 2020 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 10-K report, and in other company SEC filings, as well as company news releases. If you don't already have our 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. In addition, the press release financials include description of new segment reporting for our EMEA and other non-reportable segments. Joining me on the call today are Dan Fisher, our new president, and Scott Morrison, executive vice president and chief financial officer. I'll provide some introductory remarks. Dan will discuss packaging and aerospace performance and trends. Scott will discuss key financial metrics. And then I'll finish up with comments on the outlook for the company. First, let me begin by thanking our employees. Together, we were able to adapt, work safely, serve our customers, and hire thousands of new colleagues amidst unprecedented growth and external challenges. Your empathy, flexibility, adaptability, and can-do spirit are remarkable, so thank you. I also want to thank our customers, suppliers, and the communities in which we operate as well. This past year has put profound challenges on all of us, and our ability to work with each of you for the betterment of all is not taken for granted by us. We're truly blessed as an organization and as a family of Ball employees to work with you all, and together we have persevered. 2020 finished strong with full year comparable diluted earnings per share up 17%, full year comparable net earnings up 14%, and EVA dollars up 25%. Momentum continues across our businesses with full year and fourth quarter global beverage volumes up 5% and 12% respectively, and one not book backlog in aerospace is up 30% year over year. The growth trajectory in our packaging and aerospace businesses, our strong balance sheet and financial flexibility, and our execution on growth capital investments give us even greater conviction in our ability to significantly grow diluted earnings per share, EVA dollars, and cash from operations. Together, these elements will enhance a significant return of value to shareholders in 2021 and beyond. Our focus remains on working safely, executing on capital investments, leveraging our product portfolio and technologies, enhancing the customer experience, and investing in talent training processes and systems to deliver long-term value. Before I turn it over to Dan to discuss our business performance, we've had a variety of well-deserved promotions since our last earning call, and I want to congratulate everyone, including but not limited to Dan, Scott Morrison, Lisa Pauley, Ron Lewis, Kerry Causey, Dave Kaufman, Charles Johnson, and Jay Billings on their well-deserved promotions, as well as to Stan Platic on his upcoming retirement and many contributions to Ball. Our longstanding succession planning process is thorough and thoughtful. In 2020, our employee base is up over 3,500 people to serve the sizable amount of growth in front of us. With our once-in-a-lifetime opportunity happening as I speak, this is a perfect time to further engage our rising leaders while leveraging longstanding Ball mentors to support their success to create equal opportunities for each and every one of us at Ball. Other highlights in 2020 include our global beverage business has completed or is completing the start-up and speed-up of numerous lines in the U.S., EMEA, and Brazil, as well as announcing additional projects to install at least 25 billion units of contracted capacity by the end of 2023. Our aluminum aerosol business successfully closed on the aluminum aerosol manufacturing plant acquisition in Brazil. Our CUPS team constructed and started up our first dedicated aluminum CUPS manufacturing facility in preparation for our expanded 2021 retail launch, which we expect shortly. Our businesses have significantly increased employee training and development to ensure smooth startups of our various projects as well as hosted a variety of virtual programs to help our new folks get up to speed on who we are, where we're going, and what's important, whether it be behaving like true owners to our EVA mindset or providing inclusivity programs to help foster immersion into the ball culture. And we further drove our sustainability leadership to ensure that the aluminum packaging continues to be the most sustainable package in the world, whether it be publishing third-party reviewed lifecycle analyses that independently verify the aluminum packaging is the best substrate relative to its carbon footprint, finalized approval of our science-based targets that's in alignment with the 1.5 degrees Celsius targets of the Intergovernmental Panel on Climate Change, implemented several renewable energy programs, achieved system-wide performance and chain of custody ASI certification in our EMEA business, or launched plans to achieve ASI certification in our remaining regions. In summary, Ball continues to operate from a position of strength and our future is getting even brighter. Despite the rise in global COVID-19 cases in the geographies where we operate, nothing is slowing us down in our businesses, and we are excited to bring additional capacity and infrastructure online as quickly and as safely as possible in 2021 and beyond. To everyone listening, best wishes to you and your family for good health and continued safety. And with that, I'll turn it over to Dan.

Dan? Thanks, John. It is certainly humbling to step into my new role as president. This is a company that means a great deal to me and has for the last 11 years. In my estimation, the future of Ball has never been brighter, and I look forward to continuing that trajectory with our over 22,000 team members for years to come. Transitioning to how we ended the year, I echo your thanks to our employees, customers, and suppliers. We all became closer during 2020. A silver lining for sure. Our HR and environmental health and safety professionals in packaging and aerospace continue to keep our team safe and vigilant. And in certain regions outside of the U.S., our teams have facilitated access to additional health care services for our employees and their family members impacted by COVID-19. Thank you again. You are saving lives. First, I'll spend some time discussing global beverage and then move on to our aerospace performance and outlook. In 2020, global beverage volumes were up 5% despite the difficult second quarter in South America and EMEA. Specialty mix increased to 46%, operating earnings were up 8%, and we increased EVA dollars 40%. We also secured new customer and supply chain contracts. refocused on customer experience with the new customer portal, The Source, began manufacturing the aluminum cup at scale, expanded our team to ensure our growth is properly resourced, elevated a diverse group of leaders across management, engineering, commercial, and procurement, and as John mentioned, we made significant progress in commercializing sustainability. The team truly delivered amidst challenging circumstances. As we discussed throughout 2020, growth in our global beverage business is accelerating and every day is leading to even more opportunities as consumers and customers continue to leverage sustainable aluminum packaging with their brands and product extensions. It is vital in 2021 that we effectively manage complexity, support a resilient and agile supply chain, deliver a great customer experience, and through sustainability in our product portfolio, continue to broaden the addressable market for aluminum cans, bottles, and cups. And though it is only February, I'm very positive about our ability to achieve these goals and deliver low double-digit global volume growth and global specialty mix in excess of 50%, an aspiration we first discussed at our 2018 Investor Day. By 2025, we continue to believe that the industry will go by at least 100 billion units and Ball is well positioned to capture at least 45 billion units given our scale and capabilities in the world's largest can markets. By the end of 2023, we will have installed 25 billion units of capacity to support our customers' filling capacity expansions and product portfolio growth. Contractual terms and conditions are favorable. We have primed the supply chain by entering into multi-year contracts for equipment, next-gen coatings and metal supply, and of course adhered to our EVA discipline in every facet of these preparations. Now we execute. At present, and despite 7 billion units plus of annual run rate capacity coming online, demand continues to outstrip supply across North America, South America, and our EMEA business. The timing and size of capacity additions coming online will influence quarterly year-over-year growth rates. So let's not get distracted by any short-term data points. Simply put, this is a significant multi-year growth story from a highly cash generative company that has an established proven growth rate with the wherewithal and flexibility to invest more and return a lot of value to fellow shareholders along the journey. We are thankful to be able to add skilled manufacturing jobs in the US and elsewhere to help the global economy recover. As we look forward to minimize startup costs and provide our customers the best experience with Ball, execution will be key. I'm happy to report that our new lines in Fort Worth and Rome are running at speed, that our new Glendale, Arizona plant started up its initial line recently, And that incremental lines have already been installed in Glendale to support our customers' successful filling operation startup located adjacent to our facility. Also in our new Pitson, Pennsylvania plant, preparations are being made to ramp up much needed capacity in the second half of 2021. In addition, we will be executing additional investments across our North American footprint, including construction of a new end manufacturing facility in Bowling Green, Kentucky. to align can and end availability. We anticipate the end facility coming online in 2022. As we look out across our global plant network outside of the U.S., we announced this month our intention to open a new two-line beverage can plant in the Czech Republic, and our new two-line beverage can plant in Frutal, Brazil, will supply additional cans to the fast-growing Brazilian can market in late 2021. In North America, beverage full year and fourth quarter volumes were up 11% and 6% respectively. Specialty mix improved to 34%. Going forward, we see volume growth greater than 6% over the next three to five years and continued growth in specialty, all supported by longer duration contracts. In the fourth quarter, given the scale of new capacity coming online and labor to support them, Startup costs offset the benefit of improved volume and mix. In 2021, startup costs will continue throughout the year given the continued pace of growth and are expected to be North American-centric and in the range of $50 million. With volume growth supported by new capacity, improved contractual terms and mix will more than be offsetting their impact. We continue to prioritize growth opportunities in North America and look forward to discussing additional plans throughout 2021 and 2022. Despite the industry capacity coming online, we see the demand continuing to outstrip supply well into 2023, and depending on our customers' rate of capacity expansion, possibly beyond. In EMEA, segment volume for the full year and fourth quarter was up 5% and 20%, respectively. and specialty mix increased to 54%. Across falls and MIA business, demand trends improved throughout the year and positive momentum has continued into 2021. Additional capital projects completed across the region provided needed capacity and we foresee European beverage can volumes up mid single digits in 2021 and beyond. Future growth will be supported by new categories utilizing cans, and projects like the new check plant, as well as other regional opportunities. Tight supply-demand continues, and we will assess all future opportunities through the lens of UVA. In South America, full-year and fourth-quarter volumes were up 12% and 11%, respectively, driven by increased package mix for aluminum cans in the beer category, resulting in our specialty mix growing to 62%. Following a difficult second quarter, beverage cans have been very resilient with store owners leveraging recyclable aluminum cans over other substrates and package mix on the shelf remains in the 60% range versus a rate of 50% at the end of first quarter 2020. Similar to our prior commentary, we anticipate can growth in the mid to high teens and can and can mix on the shelf remaining high beyond 2020 and supported by investments like our new Frutal facility. In summary, our global beverage team, now led by Ron Lewis, navigated a dynamic and challenging year through sheer will and controlling the things we can control. We also thank our teams in India, Saudi Arabia, and Global Joint Ventures for supporting our global regions and much needed support during 2020 and beyond. Sticking with global packaging, our aluminum aerosol team did an amazing job during a challenging year. Earnings increased slightly despite a 3% decline in global volumes due to diminished use of deodorants and hair care products during global quarantines. The team pivoted to new categories, managed costs, integrated an acquisition, and positioned our Infinity Refillable Reclosable Sustainability Solution for personal care lotions and shampoos now in plastics. And as John mentioned, our CUPS team continued to execute and prepare for an exciting 2021. Following the company's 20 million plus investment to stand up the business, we expect our CUPS business to turn a profit starting in 2022. Turning to aerospace, full year and fourth quarter operating earnings improved 9% and 5%, respectively. Impressive results given a variety of inefficiencies brought about by operating the business during the current COVID environment, which I'm happy to address during Q&A. Rest assured, there is no change in our ability to grow. Our team persevered and has not lost any momentum winning new work and bringing on new talent to support our growth. We also executed on new infrastructure, won new study contracts, upgraded tools and systems, and increased our unfunded backlog 30% year-over-year. We continue to be very excited about the long-term prospects of this business as well. And on a personal note, I look forward to leveraging Dave Kaufman's extensive industry knowledge as we both assume our new roles. Thank you again to all of our teams around the globe. Your leadership has been nothing short of remarkable. Keep it up and stay safe. It's going to be another amazing year. With that, I'll turn it over to Scott.