Ball Corporation

Greetings and welcome to the Ball Corporation 4Q 2021 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, January 27, 2022. I would now like to turn the conference over to John Hayes. Please go ahead.

Great, thank you, Malika, and good morning, everyone. This is Ball Corporation's conference call regarding the company's fourth quarter and full year 2021 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 and in other company SEC filings as well as company's 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. Joining me on the call today are Dan Fisher, our President and CEO-elect, and Scott Morrison, our Executive Vice President and CFO. I'll provide some introductory remarks. Dan will discuss our company's performance and trends. Scott will discuss key financial metrics. And then we'll finish up with closing comments. 2021 was a strong year for Ball. We exited the year with momentum and expect another strong year in 2020. Our global beverage can volumes were up 7%. Aerospace revenues were up 10%. Comparable operating earnings increased 12%. And comparable diluted earnings per share increased 18%. despite ongoing challenges related to the pandemic, adverse weather events, global supply chain disruptions, and higher costs. We also increased EVA dollars over 7%, returned approximately $950 million to shareholders after investing over $1.7 billion in capital expenditures in 2021. For the fourth quarter, global beverage can volumes increased 7%, comparable operating earnings increased 17%, and comparable diluted earnings per share were up 20% versus 2020, despite persistent dunnage shortages and cool, rainy conditions during Brazil's seasonal summer, which muted overall shipment growth in the fourth quarter and the full year. As we look forward, we expect growth to accelerate further, supported by strong demand for sustainable aluminum packaging, aerospace executing on significant contracted backlog, reaping returns on capital deployed, and maintaining pricing leverage across our innovative and sustainable product portfolio. Yesterday, in addition to declaring our quarterly dividend and following our review of the company's governance profile, our board of directors amended the company's bylaws to accomplish three things. One, to opt out of the classified board structure required by Indiana business corporation law in order to begin to de-stagger our board. Two, to prevent shareholders to amend the bylaws. and three, to increase the board retirement age to 75 years from 72 years. As per the press release we issued yesterday, the board intends to recommend shareholders approve the amendments at our 2022 shareholders meeting, and more information will be found in the forthcoming proxy statement. In addition, and as part of a multi-year succession planning process that began before the onset of the COVID pandemic, we announced that Dan Fisher will be assuming the role of CEO and that I'll remain chairman. Dan is ready, and all of us on the board have a high degree of confidence in his ability to lead our great company. Dan will be the 12th person in our 142-year history to have the privilege to serve as Ball's CEO. Going forward, I'm handing over the reins to Dan to lead the company, and after 70 earnings and M&A calls with the investment community over my 20-plus years with Ball, today will be my last one. You're in great hands going forward, and I can also say with confidence that while I will miss you all, I will not miss these calls. My time going forward will be spent chairing the board and its related responsibilities, helping Dan and our sustainability advocacy work with various stakeholders, burrowing in on the philanthropic work that my wife Susie and I have established, spending more time with family and friends, and perhaps most importantly, being the biggest cheerleader of this great institution. Thanks to each of you for your support over these years. This is an amazing company in an amazing industry working with and in conjunction with amazing people. If you were to give me a clean sheet of paper to design the most ideal job in the world, it would be this. And I'm the luckiest person in the world for that. And it is time. Dan has proven that he is ready and has an excellent management team to continue and accelerate The strong financial, operational, and cultural performance we have experienced not only since 2010, but indeed since 1999 when I joined the company. When I reflect on becoming CEO, the bar was set very high then. And to me, our Drive for 10 vision was intended to replicate or exceed the prior decade's performance and returns over the following decade. And you know what? We did just that. And at the same time as we sit here today, we have more opportunities to continue this growth than we did in 2010, and there has never been a better opportunity set than the company has in front of itself. However, what will be required to capitalize on those opportunities going forward will no doubt be different than what was required in the past. There will, of course, be challenges Dan and the team will face, but the leadership, the culture, the people, our EVA and ownership mindset, and our Drive for 10 vision will be there to support and guide Dan and team just as they were there for me and team. Right now, I also think about the more than 24,000 employees around the world. The power of we, not me, at Ball is alive and real, and it has been an honor to serve our company alongside them. They really are what makes the company better each and every day. Those aren't just words. It's the truth. So it's with great pride and optimism that I turn the call over to Dan and Scott to speak to our performance and the outlook for 2022 and beyond. Thank you, everyone. And with that, our new incoming CEO, Dan Fisher.

Dan. Thanks, John. I would be remiss if I didn't properly and publicly thank John Hayes for his 22 years of service to Ball Corporation and for his personal support and mentorship of me as a leader at Ball. Some of you may have listened to nearly all of the 70 earnings and deal-related investor calls John has participated on during his tenure. As you know, John dedicated his time to ensuring the company remained committed to its long-standing culture, EVA and ownership mindset, and high ethics while also being innovative, inclusive, sustainability-driven, and positioning our business for global growth, while also supporting our communities where we live and operate and generating great returns for fellow shareholders. We as owners and students of Ball and our industries are better off because his leadership and dedication. We will forever be indebted to you, John. The performance and stock price development under your leadership speak for themselves. And while it is indeed a team sport here at Ball, John was the team captain for the past decade. John, thank you for setting a high bar for us. I can assure you that speaking on behalf of all Ball employees, We are focused on replicating and or exceeding the company's performance under your leadership. Another decade with nearly 500% return sounds pretty good. Our team is up to the task. I am humbled and honored to assume the role of CEO and carry on the ball culture. Drive for 10 vision, EVA discipline, and ownership mindset. And as the saying goes, if it ain't broke, don't fix it. We know who we are. We know where we're going and we know what is important. Now onto reviewing our performance and outlook. We continue to strive to keep our teams safe and educated about vaccinations and boosters and focused on their mental health. We're not immune to the external forces impacting the global operating environment. However, our teams are doing a heck of a job navigating those external forces and filling in for one another when needed. We extend our well wishes to our employees. customers, suppliers, stakeholders, and everyone listening today. 2021 was another year where our ball team and businesses faced challenges and through it all rose to the occasion to care for one another and deliver value to our stakeholders. In 2021, our business highlights included our global beverage business, completing the startup of four new multi-line facilities, three in North America, One in South America in the expansion of existing facilities across all regions. The company also announced five additional greenfield facilities, two in North America and three in EMEA, which will come online in 2022 and beyond. Our global aluminum aerosol team introducing new reclosable aluminum bottles for personal care and other categories. Our aluminum cups team signed contracts with the world's largest retailer and continue to have our cup featured at key sporting events and venues. Our aerospace team expanding its infrastructure, opening its state-of-the-art payload development facility in Broomfield, Colorado, expanding our aerospace manufacturing center in Westminster, Colorado, as well as successfully launching the Ball-built OLI land imaging instrument on NASA's Landsat 9 satellite. IXPE astrophysics mission spacecraft and the optics and mirror systems aboard the James Webb Space Telescope. Our North America aluminum packaging business continued continuing progress toward aluminum stewardship initiative certification following South America's ASI certification in the fourth quarter of 2021 and EMEA's ASI certification in 2020. The company also announced ambitious 2030 sustainability goals including inclusion and diversity goals, recycling goals, and our aspiration to achieve net zero before 2050. Our business has hired over 2,600 people in 2021 to support our long-term growth and attrition, largely due to retirements, and returning approximately $950 million to shareholders after investing $1.7 billion in capital expenditures to generate additional profitable growth for decades to come. In 2021, our global packaging businesses absorbed $120 million of non-aluminum inflationary headwinds and additional costs to start up four new facilities. Also, in North America, EMEA, and South America, operational efficiencies, price-cost squeeze, and advance of contractual cost recovery and geopolitical volatility, respectively, resulted in loss-rejection and money was left on the table in 2021. As we embark on 2022, contractual price escalators based on PPI and other indices, which phase in throughout the year, normal cost pass-throughs and our additional commercial cost recovery program benefits will generate significant incremental value and support higher levels of growth capital in 2022, which Scott will discuss later. Demand for aluminum beverage cans continues to outstrip supply around the world. We shipped 112.5 billion cans in 2021. 50% were specialty cans, and we exited 2021 with 12 billion units of new installed capacity. We also have plans in place to exit 2022 with another 12 billion units of new installed capacity. Capacity available to sell through in 2023 and beyond announced projects and line additions and existing facilities all underscore our late 2020 Investor Day commentary and additional long-term EVA generating contracts for committed volume are now in place to domestically supply our customers in the regions where we operate in 2022 and beyond. In addition to global beverage, our aerospace aluminum aerosol and CUPS teams continue to win new work and position and train talent to support multi-year growth and offset attrition largely due to retirements. To all the teams listening, thank you for finishing the year strong and leaning into another year of growth. We also appreciate your efforts to operationalize and commercialize sustainability, drive our D&I goals, and live the ball culture. As we discussed throughout 2021, growth isn't always linear. We continue to rely on our supply chain for raw material inputs, and look forward to additional investments being announced in 2022 to enable more growth for aluminum packaging. Given our established global scale, significant increase in installed capacity exiting 2021, our capable asset base and innovative product portfolio, we are on course to achieve double-digit global volume growth and global specialty mix in excess of 50% for full year 2022 and sold-out market conditions continuing beyond 2022. Now, a few brief comments on each region. In North America beverage, fourth quarter ship volumes were up 5% versus 2020 fourth quarter, excuse me, fourth quarter 2019 volumes were up 16%. During the fourth quarter, earnings were up nearly 17% as volume growth, specialty mix, and the operational benefit of better finished good inventory levels more than offset higher costs. and operational efficiencies in legacy plants brought about by dunnage tightness and indirect supply chain disruptions. Glendale and Pitson exited 2021 with four can manufacturing lines installed, and each have room for additional lines. Our Bowling Green Inns manufacturing plant started up successfully early in the quarter and continues to operate after incurring some roof damage during the December southeastern U.S. tornado outbreak. We are thankful our Bowling Green team and their families are safe. The plant's team's leadership, safety actions, and post-event resiliency were outstanding. The business continues work to build adequate inventory levels is ongoing. These actions formulate contractual price increases, higher levels of domestically produced cans, and cost recovery will further position the plants and our business for strong double-digit growth in 2022. Ball's previously announced multi-line greenfield plants in Nevada and North Carolina are supported by long duration contracts with strategic global customers and are on track to come online in late 2022 and early 2024, respectively. In EMEA, shipment volume for the fourth quarter was up 6% versus 2020 on tougher comps given prior year's 20% volume increases due to COVID reopening timing. and we're also up due to customers adding new can filling investments. Across Ball's EMEA business, demand trends and positive momentum continues. Near double-digit growth in 2022 will be driven by new and existing categories utilizing cans and available cans from our 2021 line additions and speed-ups across the region. In 2023 and beyond, our new greenfield plants in the UK, Russia, and Czech Republic which are supported by long duration contracts for committed volumes with global and regional key partners, will extend our ability to serve growing customers and categories. Our EMEA team is executing very well in managing complex country-by-country supply chain issues. Key inputs are in tight supply, and though we have contracts and mechanisms to control costs, We're keeping a watchful eye on driver availability and pandemic related labor shortages impacting timely stocking of store shelves. In South America, fourth quarter volumes were up 3% versus 2020 and up 16% versus 2019. 2020 volumes were up 12% versus fourth quarter 2019. due to timing effects related to COVID rebound and warmer temperatures during the seasonal summer fourth quarter. Cooler-than-normal seasonal temperatures and excessive rain in Brazil contributed to softer-than-anticipated volumes during the fourth quarter of 2021. We continue to see more earnings upside in South America in 2022 and beyond. The Frutal Brazil plant startup, its second line during the first quarter of 2022, additional investments throughout the region continue beyond schedule. In summary, our global beverage team is preparing ourselves and our supply chains for long-term durable growth while managing notable volatility. Our customers are continuing to lean on the can as their package of choice as brand proliferation and the blurring of the category lines accelerates. We are operating safely, controlling the things we can control, recovering costs, delivering high-quality cans to our customers from even more new facilities supported by equitable contracts, and closely monitoring global supply chains. Our aluminum aerosol team did a good job supplying growth across North America. The team continues to manage varying degrees of consumer demand volatility in Brazil and India. The business continues to make progress on the rollout of refillable, reclosable aluminum personal care and bottle packaging across multiple categories. To support the new CUPS contracts I mentioned earlier, We have increased marketing investments and are adding another cup manufacturing line in our Rome, Georgia cups plant. Following this investment, both lines will be capable of making multiple cup sizes. We anticipate profits starting in late 2022 and turning to aerospace. The team continued to win contracts and maintain record backlog. Segment operating earnings were up 38% in the fourth quarter versus 2020 supported by improved program execution. Carrying in the momentum from the fourth quarter, the business continues to be positioned for sales and earnings growth in 2022 and margin improvement in 2022, given the contract mix. Across all our operations, we are increasing year-over-year capital and training investments to deliver on strong contracted demand and position our plant operations for success. We appreciate all of the amazing work being done across the organization. And with that, I'll turn it over to Scott.