Ball Corporation

Greetings and welcome to the Ball Corporation 2Q 2022 earnings call. During the presentation, all participants will be in a listen-only mode. Afterwards, we will conduct a question and answer session. 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, August 4th, 2022. I would now like to turn the conference over to Dan Fisher, CEO. Please go ahead.

Thank you, Chris. And good morning, everyone. This is Ball Corporation's conference call regarding the company's second quarter 2022 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 news releases. If you do not already have our earnings release, it is available on our website at fall.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 is Scott Morrison, our Executive Vice President and CFO. I'll provide some introductory remarks and business performance commentary. Scott will discuss key financial metrics, and then we will finish up with closing comments and Q&A. Ball delivered stable second quarter comparable operating results amid ongoing inflation, earnings translation headwinds, and regional demand volatility, largely driven by North American customers' retail price over volume actions. Global beverage can volumes increased 3.3% in the quarter. Aluminum aerosol volumes increased 11.3%. and we, along with NASA and industry partners, celebrated the successful initial images from the James Webb Space Telescope. We are actively managing the company to meet the world where it is at by re-phasing capital and re-basing costs while also enabling packaging innovation, aluminum supply chains, and sustainability initiatives to support long-term growth and significant returns to shareholders. The Russian invasion of Ukraine has had a significant impact on the global business environment. In March, Ball announced that it has suspended future investments in Russia and is also pursuing the sale of its Russian operations. As we noted in today's earnings release, during the quarter, a non-cash, long-lived asset impairment for the Russian operations was recorded in business consolidation and other activities. Note one in today's earnings release contains additional information about the Russia business. The company continues to support humanitarian aid, and we thank our colleagues near the war zone for housing refugees, as well as supporting each other in volunteer efforts in their local communities. Recent highlights and activities include our global beverage business continuing construction on two new facilities in EMEA, announcing a new facility in Peru and re-phasing previously announced North American capital projects to balance the near-term effects of higher retail prices for canned beverages versus long-term growth for sustainable aluminum packaging. Our North America business pivoting its cost and capital focus to align with the near-term volume deceleration and localized supply demand imbalances in certain North American markets, including today's announcement to cease production in our Phoenix, Arizona, and St. Paul, Minnesota facilities, while also enabling multiple aluminum supply chain projects to domesticate and broaden sustainable aluminum coil supply and recycling capability across the U.S. Our EMEA volume growing 7.7% with operating earnings of 4% year over year, despite $9 million of foreign currency translation headwinds, while navigating an ongoing volatile geopolitical environment across its operating footprint. Our South America business managing through 2.9% volume declines due to unfavorable regional customer product mix, diluting the volume strength that remains across the other South American countries where we are deploying capital to enable growth. Our global aluminum aerosol team introducing next-gen real aluminum bottles for new categories and increasing aerosol personal care shipments. Our aluminum cups team growing our cups presence at stadiums and venues. Our aerospace team completing a critical design review for the NOAA space weather follow on LaGrange 1 spacecraft. And on the sustainability front, Ball joined the World Economic Forum's First Movers Coalition, encouraging value chain collaboration to drive decarbonization in the aluminum sector. Our partnership to introduce electric trucks with Fleet Master Volvo in Fort Worth, Texas. As we indicated on prior calls and looking forward, our global businesses are absorbing non-aluminum inflationary headwinds and experiencing additional price cost squeeze in advance of contractual cost recovery. We also have a responsibility to do the hard things first by controlling what we can control. and all corporate functions are actively addressing their SG&A costs, and the operations are taking the opportunity to become more efficient. In EMEA, our team is working hard to mitigate ongoing inflationary headwinds through commercial cost recovery, hedging, and energy efficiency and renewable energy initiatives. In North America, additional contractual price escalators based on PPI will phase in starting on July 1, and our work to address localized supply-demand imbalances will deliver fixed-cost savings over the near term. It is also important to understand in this environment that cans continue to win in the fastest-growing beverage categories, and underlying demand for aluminum packaging continues to be resilient despite retail shelf price increases by our customers ranging as high as 20%. early indications are that North American customers will continue to emphasize price over volume during the second half of 2022. And in South America, demand trends should strengthen due to the timing of World Cup and a seasonally strong fourth quarter. Incorporating year-to-date shipments, we anticipate global volume growth in the range of 5% for the full year 2022. In summary, Our global beverage team is preparing for additional demand volatility, inflation, and regional customer anomalies given global economic conditions. Our customers are continuing to lean on the can as their package of choice. And over the long term, our sustainability-driven growth thesis and long-term 4% to 6% global growth CAGR for aluminum beverage cans remains intact. Carbonated soft drinks, North American import beer, energy drinks, and new categories like ready-to-drink cocktails also continue to grow in cans. We are controlling the things we can control. In addition, we are focused on executing at a high level, rebasing the cost structure, delivering high-quality cans, and enabling global supply chains through alliances and investments in long-term contracts. We appreciate the work being done across the organization and ask for your support as we navigate necessary actions. With that, I'll turn it over to Scott.

Thanks, Dan. Second quarter 2022 comparable diluted earnings per share were $0.82 versus $0.86 in 2021. Second quarter 2022 included $0.02 impact of unfavorable earnings translations. Second quarter sales were up due to the pass-through of higher aluminum prices, higher volumes with improved price mix, and higher aerospace performance, partially offset by currency translation. Comparable second quarter diluted earnings per share reflects strong results in EMEA, other metal beverage, and aerospace, and a lower share count, offset by comparable operating earnings declines in North America and South America, higher interest expense, higher comparable effective tax rate, and unfavorable earnings translation. In June, the company completed new credit facilities maturing in 2027. Ball's balance sheet remains very healthy with ample liquidity and flexibility. As we sit here today and inclusive of operating Russia for the rest of 2022, some key additional metrics to keep in mind. Our full year effective tax rate on comparable earnings is expected to be in the range of 19%. Full year interest expense will be in the range of $290 million. Year-end net debt to comparable EBITDA is expected to be below current levels, and full-year corporate undistributed costs recorded in other, non-reportable, is expected to be in the range of $110 million. At this time, and given our earlier announcements about exiting Russia and other plant capital decisions, we expect total CapEx to be in the range of $1.7 billion in 2022, and 2023 CapEx to be down meaningfully from 2022 levels. The earnings impact of volume deceleration and a higher use of working capital have led to lower than anticipated operating cash flow. We now anticipate returning approximately a billion dollars to shareholders in the form of share buybacks and dividends in 2022 and accelerating returns to higher levels in 2023. Rest assured, Ball will be good stewards of our cash. As fellow owners and through the lens of EVA discipline, we will manage the business effectively, partner with our supply chain and customers effectively, and when necessary, pull levers available to secure the best outcome for our shareholders. We look forward to addressing our plans to grow the business, enable the supply chain, expand innovation, and increase returns and answer questions why ball now and beyond at our September investor field trip. With that, I'll turn it back to you, Dan.