Ball Corporation

Please continue to stand by. The call will begin momentarily. We thank you for your patience. Greetings, and welcome to the Bull Corporation fourth quarter 2022 earnings call. At the start of the presentation, all lines will be in a listen-only mode. Afterwards, 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 an operator, please press star 0. As a reminder, today's call is being recorded Thursday, February 2, 2023. I would now like to turn the conference over to Dan Fischer, Chief Executive Officer. Please go ahead, sir.

Thank you, Carlos, and good morning, everyone. This is Ball Corporation's conference call regarding the company's fourth quarter and full year 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 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 and the beverage packaging EMEA segment. See note one, business segment information for additional information about the sale agreement and a quarterly breakout of Russia's historical sales and comparable 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 reflect on 2022 briefly, and Scott and I will discuss key drivers and financial metrics for 2023. And then we'll finish up with closing comments, the outlook, and Q&A. Let me begin by thanking our employees and stakeholders for their hard work and support. As I reflect on 2022, I'm struck by the magnitude and pace of change we have navigated. the commitments we are prepared to achieve, and the prompt and decisive actions that were made by our team in a fluid and ever-changing macroeconomic and geopolitical backdrop. Our full year and fourth quarter comparable net earnings reflect our EMEA, aerospace, and aerosol operations coming in as expected. Offset by the impact of our Russian business sale, softer volume in North and South America, planned inventory management impacting fixed cost absorption, and the effect of high-cost inventory and the timing effect of customer sell-through. Global beverage can shipments, including Russia, increased 0.8% in 2022 and decreased 6.1% in the fourth quarter. Excluding Russia, global beverage shipments increased 2.1% in 2022 and decreased 0.9% in the fourth quarter. North America beverage can segment shipments decreased 0.3% in 2022 and decreased 7.1% in the fourth quarter. EMEA beverage can segment shipments, excluding Russia, increased 8.6% in 2022 and increased 11% in the fourth quarter. South America beverage can segment shipments decreased 6.3% in 2022 and decreased 4.2% in the fourth quarter. Other non-reportable beverage can shipments increased 48.2% year to date and 48.5% in the fourth quarter as a result of continuing to provide support to domestic European customers. Our global extruded aluminum bottle and aerosol business continues to benefit from new refillable, reusable bottle offerings and higher recycled content aluminum bottles for personal care products. Shipments in this segment increased 12% year to date and 14.5% in the fourth quarter. And our aerospace team increased their backlog 20% year over year. In response to the previously discussed unfavorable swing in beverage can volumes relative to our early 2022 expectations and as a result of our sale of our Russian businesses, we optimized our global cost structure. deferred certain projects and took actions to right-size our North and South American manufacturing plant systems by consolidating high-cost, less-fit facilities into scalable facilities capable of delivering our customers a portfolio of can sizes, enabling category and pack size innovation to our customers in a more agile way moving forward. In EMEA, newly constructed facilities will ramp up during the first half of 2023 and provide much-needed cans to our customers across the region. It is also important to celebrate the accomplishments achieved by our team during 2022, including shipping nearly 115 billion innovative aluminum cans, bottles, and cups to our customers, delivering numerous environmental space science and defense technologies to study the impact of humans and the environment on our Earth, weather satellites that protect life and property from extreme weather events, on-orbit defense technologies to ensure the safety of our homeland, the warfighter, and our allies, and deep space marvels, like the James Webb Space Telescope, to view previously invisible images via the ball-built mirror assembly and optics. Joining the World Economic Forum's First Movers Coalition to lead collaboration across the aluminum industry to prioritize circularity and decarbonize the industry, Achieving aluminum stewardship initiative ASI certification across our global footprint. Remaining on the 2022 Dow Jones Sustainability Index North America for the ninth year. Receiving an A-minus in the CDP's climate change questionnaire in 2022, which recognizes the company's commitment to maintaining best practices in corporate climate citizenship through its net zero carbon emissions commitment. renewable electricity coverage, and ongoing assessment of climate-related risks and opportunities. Receiving a perfect rating on the Human Rights Campaign's Annual Corporate Equality Index, CEI. Receiving a 2022 ranking of 90 on a 100-point scale on the 2022 Disability Equality Index, DEI. reflecting the meaningful progress the company has made in creating a workplace that enables employees with differing abilities to support its global mission. And being recognized as the 2023 industry leader for the industrial goods sector for the Just Capital and CNBC's Just 100 top performing companies on ESG factors, including ethical leadership, cultivating an inclusive workplace, use of sustainable materials, and carbon reduction. And our global team supported 2,800 nonprofit organizations across 30 countries and contributed 30,000 volunteer hours across our communities. Drive for 10 continues to be our vision. We know who we are, we know what is important, and we know where we're going. Together, Ball will, one, execute our strategy of preserving our planet and delivering value by creating circular aluminum packaging solutions for single use, limited use and refill, and providing exquisite environmental space science and defense technologies. Second, we will provide our employees and communities the resources and opportunities to succeed. Third, we will be our customers' and suppliers' partner of choice to enable organic growth, achieve sustainability goals, drive innovation and technology development. And four, we will be a disciplined capital allocator by unlocking value and efficiencies from existing operations with limited future capital investment, and in doing so, generate free cash flow, grow earnings and EVA dollars, and be good stewards of our cash flow to do leverage and return value to our fellow shareholders. Consistent with our commitment at our investor day and on our third quarter earnings call commentary, in 2023, we can deliver our goal of 10% to 15% diluted earnings per share growth including the Russian business sale headwind. The next quarter will remain choppy as we work through higher cost inventory, complete the optimization of our North and South American manufacturing footprint, ramp up our new Kettering UK and Pilsen Czech Republic plants in EMEA, and lap the previously disclosed 2022 customer contract breach in South America. We will benefit from the previously identified and executed SG&A actions while continuing to receive the PPI cost recovery throughout 2023, which overall will lead to a back half-weighted year. During the Q&A, Scott and I will strive to provide additional clarity on the external environment and cadence for 2023 based on what we know today. We also continue to reiterate our investor field trip long-term goals for global volume growth fueled by sustainability-driven substrate mix shift, product category, and pack size innovation. Our global beverage teams have positioned our businesses to deliver the year and with an eye on the future. In 2023, and excluding Russia, we estimate in the range of 4% global volume growth for Ball with North America flat to slightly down, South America volume up mid to high single digits, EMEA volume up high single digits, and our other non-reportable business volumes up mid to high single digits. As new EMEA capacity ramps up and exiting 2023, exports from Saudi Arabia into EMEA wind down. Our global beverage businesses work will be complemented 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. And with that, I'll turn it over to Scott.

Thanks, Dan. Full year 2022 comparable diluted earnings per share were $2.78 versus $3.49 in 2021. And fourth quarter comparable diluted earnings per share were $0.44 versus $0.97 in 2021. Full year sales were up due to the pass-through of higher aluminum prices and aerospace performance, offset by currency translation and inflation in Europe. And fourth quarter sales were lower largely due to the sale of our Russian businesses. As Dan mentioned, fourth quarter and to a large extent full year diluted earnings per share reflect higher aluminum aerosol results, lower corporate expense, and a lower share count, more than offset by higher interest expense, higher comparable effective tax rate, comparable operating earnings declines in North and South America, and EMEA attributable to the sale of our Russian business, cost inflation, and unfavorable earnings translations. I would like to take the opportunity to proactively address the year over year results in our North and Central America segment. 50% of the North and Central America operating earnings decline in the fourth quarter was driven by unfavorable swing in fourth quarter volumes versus 2021. We were up 5% in fourth quarter of 2021 and down 7% in the fourth quarter of 22. And the other 50% reflects the confluence of unfavorable fixed cost absorption that was planned entering the fourth quarter customer mix, and the timing effect of high-cost inventory out of customer sell-through. This larger-than-expected headwind is the byproduct of volume declines, aluminum price volatility, and our proactive decision to greatly reduce production to meet current market conditions during the quarter. The segment's earnings are anticipated to rebound late in the first half of 2023 as high-cost inventory sells through and volume production stabilizes across the consolidated plant system And after July, segment earnings will accelerate further as we enter the busy summer selling season, and all of the contractual inflation recovery will be effective. As we explained on our third quarter earnings call, 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 largely protected from metal price changes in our P&L, it does impact the cash flow and the amount of metal payables. Earlier this year, or earlier last year, when we saw that 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. And again, typically not a material P&L impact due to our inventory hedging. The net result is less billed in the accounts payable than originally planned. The result was a use of over $900 million in working capital for full year 2022. This will normalize in 2023 as both metal prices and our metal takes should stabilize. As we sit here today, some key metrics to keep in mind. We ended 2022 in a solid liquidity position with over $500 million in cash and $1.5 billion in committed credit availability. 2023 CapEx will be in the range of $1.2 billion driven by cash outflows related to prior year's projects. We will generate free cash flow in the range of $750 million in 2023 and initially focus on deleveraging. Our 2023 full-year effective tax rate on comparable earnings will be in the range of 20%, and full-year 2023 interest expense will be in the range of $415 million. Full-year 2023 corporate undistributed costs recorded in other non-reportable are expected to be around $90 million. Including the $86 million Russian operating earnings headwind, Comparable operating earnings should increase over $200 million in full year 2023. Comparable DNA will likely be in the range of $560 million. Recall that in 2022, we returned over $830 million to shareholders, and as we look forward, year-end 2023 net debt to comparable EBITDA is expected to trend towards 3.5 times, and we may want to drive it lower. Last week, Ball declared his quarterly cash dividend. and in alignment with our investor day commentary, after we navigate the first half of 2023, we'll address the path of resuming share repurchases. Rest assured, as fellow owners, we will manage the business through the lens of EVA and cash stewardship, and we will effectively manage our supply chain and customers in this current economic climate to secure the best cash, earnings, and EVA outcome for our shareholders. We are happy to have 2022 behind us, and I'm excited and optimistic for 2023. And with that, I'll turn it back to you, Dan.