Ball Corporation

Greetings and welcome to the Ball Corporation 2Q 2023 Earning 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 one followed by the four on your telephone. If at any time during the conference you need to reach an operator, please press star zero. As a reminder, this conference is being recorded Thursday, August 3rd, 2023. I would now like to turn the conference over to Dan Fisher. Chairman and CEO, please go ahead.

Thank you, Malika. Good morning, everyone. This is Ball Corporation's conference call regarding the company's second 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 results or outcomes to differ in the company's latest 10-K. and in other company SC 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 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. Late in the quarter, the company also announced that it is considering options for its aerospace business. There are limitations regarding the depth of commentary we will provide on that topic today. If and or when additional comments are necessary, they will be made via a separate public press release. 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 with the utmost level of agility while fulfilling our customers' needs. On our first quarter call, we said that our second quarter would be choppy, and that was the case. Our team delivered solid second quarter results amid tough year-over-year comparisons, including $47 million of higher interest expense, the $40 million of operating earnings headwind from the Russian sale and global beverage volumes down 11%, driven by the Russian sale impact and a notable domestic beer brand experiencing demand disruption in North America. I'm proud to say that our team did an excellent job of managing both costs and working capital levels to deliver the quarter and position the business for a stronger second half. Looking forward, we will continue to benefit from notable inflation recovery, cost-out actions, and improved operational efficiencies. Our inventory levels are in good shape with plans to improve further. Our North America team is managing in real time the balance of the U.S. mass beer brand boycott and our improved demand forecast of other customers, which should unlock additional opportunities during the second half. Cash flow is kicking in, and we are studying opportunities to accelerate deleveraging and the multi-year return of value to shareholders, while also developing additional innovative packaging solutions to grow the business going forward. Around the globe, beverage cans continue to win relative to other substrates, and we continue to leverage the contributions of our two new facilities in EMEA, our customer mix, scale, plant footprint, innovation, and capable teams across the organization to ensure the best outcomes for all our stakeholders. In our aerospace and aluminum aerosol businesses, operational performance and demand for our products continue to grow in aerospace, Our one notebook backlog increased 1 billion, and the unique technologies we provide to support environmental and national security needs remains in high demand. 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 approximately $750 million of free cash flow to deleverage and return value to shareholders. And in 2023, we anticipate the potential of achieving the low end of our long-term goal of 10% to 15% comparable diluted earnings per share growth, including the Russian business sale headwind and exceeding that long-term comparable diluted EPS growth goal, excluding the Russian sale headwind. During the Q&A, Scott and I will strive to provide additional clarity on the external environment and cadence for the remainder of 2023 based on what we know today. Our global beverage teams continue to position our businesses 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 flat global volume growth for Ball, with North America being down low single digits, South America volume up mid single digits and EMEA volume up mid 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. Second quarter 2023 comparable diluted earnings per share were 61 cents versus 82 cents in the second quarter of 2022. Second 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, lower volumes, currency translation, and the pass-through of lower aluminum prices, partially offset by the pass-through of inflationary costs. In the second quarter, net comparable earnings decreased compared to the same period in 2022, primarily due to higher interest expense, the headwind from the sale of our Russian business in the third quarter of 2022, and lower volumes, as well as higher corporate costs, partially offset by the contractual pass-through of inflationary costs, fixed cost savings, lower depreciation expense, and SG&A cost-out initiatives. To reiterate our prior earnings call commentary, we have been and will continue to proactively manage regional supply-demand balance across our system of plants in the near term. Starting in the third quarter, segment earnings in North America will accelerate through the majority of the anticipated contractual inflation recovery having kicked in July 1st. In EMEA, the business will lap its last Russian earnings headwind in the third quarter and then accelerate to an improved level of earnings in the fourth quarter as they move beyond this multi-quarter headwind and the startup costs for the two new plants. In South America, customer and product mix which has unfavorably influenced the seasonally slower second quarter, will reverse, 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. We ended second quarter in a very solid liquidity position with approximately $2.65 billion in cash and committed credit facilities. 2023 CapEx will be in the range of $1.2 billion, driven by cash outflows related to prior years' projects. 2024 CapEx is targeted to be in the range of GAAP DNA levels. We are targeting free cash flow of approximately $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 19%. Full-year 2023 interest expense is expected to be in the range of $450 million. We anticipate full-year corporate undistributed costs recorded in other, non-reportable, to be in the range of $80 million. Including the $86 million Russian 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 to incorporating near-term demand trends, year-end 2023 net bets to comparable EBITDA is expected to trend in the range of 3.7 times, and in future years, we will 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. As fellow owners, we continue to manage the business through the lens of EVA and cash stewardship, and we will effectively manage our supply chain and customers in this current environment to secure the best cash, earnings, and EVA outcome for our shareholders. With that, I'll turn it back to you, Dan.