Ball Corporation

Greetings and welcome to the Ball Corporation 1Q 2023 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, May 4, 2023. It is now my pleasure to turn the call over to Dan Fisher, Chairman and CEO. Please go ahead.

Thank you, Tina, and good morning, everyone. This is Ball Corporation's conference call regarding the company's first quarter 2023 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 Russia operations will continue to be reflected in 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. In addition, The release also includes a summary of non-comparable items, 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 introductory remarks. Scott will discuss key financial metrics, and then we will finish up with closing comments. Our outlook for the remainder of 2023 and Q&A. Let me begin by thanking our employees for working safely and efficiently while fulfilling our customers' needs. Collectively, we delivered strong first quarter results amid tough year-over-year comparisons driven largely by business divestments executed in 2022. In the first quarter, every business either achieved or exceeded their operating plan. Our aluminum beverage and aerosol shipments were in line with our regional expectations, and our aerospace technologies continue to be in high demand. Notable inflation recovery, benefits of cost-out actions, improved operational efficiencies and performance in every business offset higher interest expense and taxes. With near-term macroeconomic conditions continuing to pressure consumer demand, Ball's year-to-date global beverage can volumes were down 1.4% in the first quarter, in line with our expectations. Looking ahead, the breadth of retail summer promotional activity across our customer mix in North America, and the continuing successful ramp up of our two new facilities in EMEA will be the key drivers of our ultimate 2023 shipment growth. We started 2023 with a conservative view on annual global beverage shipment trends, and we maintain that conservative second half weighted view. We have a lot of the year ahead of us and we, look forward to serving our customers' needs. As we sit here today in advance of seeing quantifiable promotional activity, we are proactively managing our beverage operations in North and South America for cash and supply-demand balance as we continue to bring down raw coil and finished goods inventories and return to our just-in-time supply chain management versus the just-in-case supply chain requirements during the pandemic and extended period of higher than planned growth for beverage cans. Around the globe, beverage cans continue to win relative to other substrates, and we continue to leverage our customer mix, scale, regional plant networks, innovation and capable teams across the organization to ensure the best near-term, medium-term, and long-term outcomes for all our stakeholders. In our aerospace and aluminum aerosol businesses, operational performance and demand for our innovative products and technologies are accelerating. In aerospace, our technologies are well positioned to deliver unimpeachable data and monitoring capabilities for both environmental and national security needs. And in our global aluminum aerosol business, we continue to serve new categories and offer reuse, refill bottle innovations to a broader set of customers and occasions. As we look ahead, all of our businesses will continue to unlock additional value for Ball stakeholders in 2023 and beyond. Consistent with our prior commentary, in 2023, we remain positioned to deliver our long-term goal of 10% to 15% diluted earnings per share growth, inclusive of the Russian business sale headwind, and we remain well-positioned to generate strong free cash flow to do leverage and return value to our fellow shareholders. As we indicated in our prior call, the second quarter will remain choppy in North and South America metal beverage as we continue to work through higher inventory and manage regional production with an eye on cash. In addition, the positive momentum in our EMEA, aerospace, and aluminum aerosol businesses will continue. 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. Our global beverage teams continue to position our business to deliver the year and have an eye on the future. For the full year and incorporating year-to-date trends, our customer mix and excluding Russia, we now estimate low single-digit global volume growth for Ball, with North America being slightly down, South America volume up mid-single digits, EMEA volume up mid-single digits plus, and our other non-reportable beverage business volumes up mid to high single digits. 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. I'd like to congratulate Dan on his election to chairman of the board and thank John for his service as chairman. Dan was battle tested on many fronts in 2022, and he has the skill set and drive to take the company to new heights. first quarter 2023 comparable diluted earnings per share were 69 cents versus 77 cents in the first quarter of 2022. And excluding the notable Russian aluminum packaging business sale headwind, first quarter comparable diluted earnings per share were flat versus the prior year. First quarter sales decreased compared to the same period in 2022, primarily due to the sale of our Russian business in the third quarter of 2022, currency translation, lower volumes, and the pass-through of lower aluminum prices partially offset by the pass-through of inflationary costs. In the first quarter, net comparable earnings decreased compared to the same period in 2022, primarily due to the sale of our Russian business in the third quarter of 2022, lower volumes in North and South America, and increased interest expense partially offset fixed cost savings, lower depreciation expense, and SG&A cost-out initiatives as well as the contractual pass-through of inflationary costs. To reiterate our prior earnings call commentary and to help frame some of Dan's earlier comments about choppier second quarter performance in North America and South America's segment earnings, we have been and will continue to proactively manage regional supply-demand balance across our system of plants in the near term. After July, segment earnings will re-accelerate when the majority of the contractual inflation recovery begins and a larger portion of summer selling volume flows through segment results. Also remember, the virtual power purchase agreement settlement recorded in North America's first quarter results will not replicate in the second quarter. However, we estimate that North America's second quarter segment results will be relatively in line with the 183 million first quarter segment results reported today. In South America, customer and product mix is unfavorably influencing the seasonally slower second quarter, and consistent with our prior commentary, we anticipate a more robust second half in Brazil as customer hedges roll off and the fourth quarter summer selling season kicks in. As we sit here today, some very consistent commentary and key metrics. Ended the first quarter in a solid liquidity position with an excess of $1.5 billion in cash and available credit facilities. 2023 CapEx will be in the range of $1.2 billion driven by cash outflows related to prior year's projects. 2024 CapEx is targeted to be in the range of GAAP DNA levels. We are targeting free cash flow in the range of $750 million in 2023 and focusing on deleveraging. Our 2023 full-year effective tax rate on comparable earnings is expected to be in the range of 20%. Full-year 2023 interest expense is expected to be in the range of $425 million. While the first quarter corporate costs appear lower than the expected runway, we continue to anticipate full-year 2023 corporate undistributed costs recorded in other non-reportable to be in the range of $90 million, with the second quarter costs being higher year over year driven by announced key employee retirement costs. Including the $86 million Russia business sale, operating earnings headwind, comparable operating earnings should increase nearly $200 million, and full-year 2023 comparable DNA will likely be in the range of $550 million. As we look forward and incorporating near-term demand trends, year-end 2023 net debt to comparable EBITDA is expected to trend in the range of 3.7 times And in future years, we'll drive that lower. Last week, Ball declared its quarterly cash dividend. And as Dan mentioned, reducing leverage is our key focus prior to resuming share repurchases in 2024. 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. With that, I'll turn it back to you, Dan.