Ball Corporation

Greetings and welcome to the Ball Corporation 3Q 2022 Earnings Conference Call. During the presentation, all participants will be in a listen-only mode. Later, we will 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 the operator, please press star 0. As a reminder, this conference is being recorded. Thursday, November 3rd, 2022. It is now my pleasure to turn the conference over to Dan Fisher, Chief Executive Officer. Please go ahead.

Thank you. Good morning, everyone. This is Ball Corporation's conference call regarding the company's third 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 ball.com. Information regarding the use of non-GAAP financial measures may also be found in the notes section of today's earnings release. Historical financial results for the divested Russian Operations will continue to be reflected in the beverage packaging EMEA segment. See Note 1, Business Segment Information, for additional information about the sale agreement and a quarterly breakout of Russia's historical sales and operating earnings. 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 brief business performance commentary. Scott will discuss key financial metrics. And then we will finish up with closing comments and Q&A. Let me begin by thanking those of you who attended our biennial investor field trip in late September. It was great spending time with many of you in person. We sincerely appreciate you taking time to meet our team. to listen to Ball's unwavering strategy for our agile aluminum packaging portfolio and our aerospace technology security, science, and sustainability solutions, to learn from our continued transparency on macroeconomic dynamics impacting our industry, and to engage with us on the actions we have taken to deliver improved results, cash generation, and EVA in 2023 and beyond. For those of you that could not attend, A transcript of the management briefing and slides, as well as contact information for our investor relations team, are available on ball.com backslash investors under the presentations tab. In Q3, we have successfully divested the Russian beverage can business executed on our previously disclosed company-wide cost-out plan. further oriented our business plan to serve our customers' needs from an optimized, lower-cost footprint and reported our third quarter results. Scott and I will strive to provide additional clarity on the 2022 baseline and bridge to 2023 based on what we know today and the fourth quarter and beyond. Our year-to-date and third quarter comparable net earnings reflect resilient global demand for our products, offset by the historic rise in inflation and interest rates, and headwinds associated with the sale of our Russian operations and earnings translation. Relative to resilient demand trends and to be efficient with our business commentary, here is a summary of our year-to-date and third quarter global and regional shipments. Global beverage can shipments, excluding Russia, increased 3.1% year to date and 5.7% in the third quarter. North America beverage can segment shipments increased 1.9% year to date and 2.5% in the third quarter. EMEA beverage can segment shipments, excluding Russia, increased 7.8% year to date and 8.3% in the third quarter. South America beverage can segment shipments decreased 7.2% year-to-date and increased 5.2% in the third quarter. And with the continuing support of EMEA demand, our other non-reportable beverage can shipments increased 48.1% year-to-date and 46.7% in the third quarter. Our global extruded aluminum bottle and aerosol business continues to benefit from new refillable, reusable bottle offerings, including our recent alliance with Boomerang and other water brands and higher recycled content aluminum bottles for personal care products. Shipments in this segment increased 11.2% year to date and 12.2% in the third quarter. Other recent activities include our global beverage business continuing construction on two facilities in EMEA, our North American team successfully completing effects bargaining associated with our August announcement to permanently cease production in our Phoenix, Arizona and St. Paul, Minnesota facilities in fourth quarter 22 and first quarter 2023 respectively. Our aluminum cups team introducing nine ounce and 12 ounce cup sizes at retail and in stadium venues Our aerospace team delivering solid program execution, a robust backlog of 3 billion and one not book backlog of 4.6 billion. And the scheduled mid-November launch of the ball-built ozone mapping profiler sweep instrument aboard the joint NASA and NOAA JPSS-2 Earth observation satellite. And on the sustainability and community front, Favorable substrate mix shift is continuing across Ball's aluminum product businesses. Our aluminum aerosol facilities achieved ASI certification and our Vilim Czech Republic plant received an award from the Red Cross recognizing their response to the Ukraine refugee crisis. Thank you again to our employees across the globe for supporting their communities and each other. In summary, our customers continue to lean on aluminum as their package of choice. We also reiterate our investor day global volume growth opportunity. Near-term volumes may be pressured in certain regions as everyday consumers are feeling the pinch of inflation. Our global beverage teams have positioned their businesses for slower growth in the fourth quarter, inclusive of preparing for temporary actions to achieve year-end inventory goals, keeping supply-demand tight, and preparing for optimal financial improvement in 2023. Our global beverage businesses work will be complimented by our aerospace and aerosol businesses continued success. We appreciate the work being done across the organization and extend our well wishes to our employees, customers, suppliers, stakeholders, and everyone listening today. With that, I'll turn it over to Scott.

Thanks, Dan. Year to date 2022 comparable diluted earnings per share were $2.34 versus $2.52 in 2021. And third quarter comparable diluted earnings per share were $0.75 versus $0.94 in 2021. Year-to-date and third 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 and inflation in Europe. Comparable year-to-date and third quarter diluted earnings per share reflects strong results in North America and aerospace, and a lower share count offset by higher interest expense, higher comparable effective tax rate, comparable operating earnings declines in EMEA attributable to the sale of our Russian business, cost inflation, and unfavorable earnings translation and lower comparable operating earnings in South America continue to be driven by regional customer mix. I'd like to take the opportunity to proactively address working capital and why cash flow will be better next year. During 2021, we ramped up our metal purchases to meet what we expected would be strong 2022 growth in North America. We did this at a time of rising metal prices. And while we are protected from metal price changes in our P&L due to our effective inventory hedging program, it does impact the cash flow and the amount of metal payables. Earlier this year, when we saw the volumes would not materialize as expected in 2022, we began to reduce metal purchases. This also coincided with declining metal prices, which reduced the metal payables even further. Again, no P&L impact due to Ball's effective inventory hedging. The net result is less billed in the accounts payable than originally planned. The end result will be a use of around $800 million in working capital for full year 2022. This will normalize next year as both metal prices and our take should stabilize. We are focusing our attention on generating cash as we move forward. Other reasons why cash flow will be better next year include $500 million less in CapEx, the expectation of meaningfully less pension contributions needed, $90 million less in cash outflow for incentive compensation due to lower incentive payments from 2022, and we'll have much less working capital pressure and also increasing our focus on selling terms. I'll give you more direction during our fourth quarter earnings call once all of our planning is complete. As we sit here today and following the completion of our Russian business sale, some key metrics to keep in mind for 2022. We ended the quarter in a solid liquidity position with $500 million in cash and $1.5 billion in committed credit availability. Our full-year effective tax rate on comparable earnings will be in the range of 20%. Full-year interest expense will be in the range of $315 million. and full-year corporate undistributed costs and other non-reportable are still expected to be slightly above $100 million. CapEx will finish the year in the range of $1.7 billion. Given year-to-date results and the key metrics cited, Q4 shipment trends, estimated inflation, and Euro translation headwinds, and including the sale of our Russian business, we will likely end the year with operating earnings in the range of 8% less than last year's full-year 2021 comparable earnings of $1.585 billion. And full-year 2022 comparable DNA likely would be in the range of $540 million. As a result, year-end net debt to comparable EBITDA is expected to remain at current levels, which is higher than where we would like it to be. And we have prioritized debt reduction in the near term as we move into 2023. Last week, Ball declared its quarterly cash dividend, and in alignment with our Investor Day commentary, after we navigate fourth quarter and early 2023, we'll address the path to resuming share repurchases. Rest assured, as fellow owners, we will manage the business through the lens of EVA and cash stewardship, and we'll effectively manage our supply chain and customers in this current economic climate to secure the best cash, earnings, and EVA outcome for our shareholders. I'm looking forward to exiting 2022, and I'm excited for 2023. With that, I'll turn it back to you, Dan.