Ball Corporation (BLL) reported second-quarter 2010 income from continuing operations of $1.38 per share, beating the Zacks Consensus Estimate of $1.29 by 9 cents. The results were ahead of $1.14 per share reported in the prior-year quarter. Net income from continuing operations was $128.8 million, compared with $108.6 million in second-quarter 2009.
Better-than-expected results were largely driven by volume increases across its packaging businesses, a strong Aerospace segment and accretive acquisitions of four U.S. metal beverage packaging plants.
The second-quarter results were affected by certain one-time items. Including discontinued operations of $75.6 million or 80 cents per share, business consolidation activities of $1.4 million or 1 cent per share, gains and equity earnings related to acquisitions of $22.1 million or 24 cents per share, and debt refinancing costs of $4.9 million or 5 cents per share, Ball Corporation reported net income of $69.0 million or 74 cents per share. Results lagged net income of $133.3 million or $1.40 per share in the prior-year quarter.
The prior-year quarter included discontinued operations of $1.6 million or 2 cents per share, business consolidation activities of $4.4 million or 5 cents per share and gain on disposal of assets of $30.7 million or 32 cents per share.
Net sales of Ball Corporation in second-quarter 2010 was $2 billion, up 15% from $1.7 billion in second-quarter 2009. The increase was primarily driven by strong performance at Metal Beverage Packaging, Americas & Asia segment. Net sales of the company were almost in line with the Zacks Consensus estimate.
Cost of sales of Ball Corporation increased 14% year over year to $1.6 billion, while selling, general and administrative expenses increased 6.5% year over year to $77.6 million in the quarter under review.
Earnings before interest and taxes of Ball Corporation were $222.1 million in the quarter, comparing favorably with $204.6 million in the prior-year quarter.
Interest expense of Ball Corporation totaled $44.7 million, a substantial increase of 81% over the prior-year quarter.
Segment Update
Metal Beverage Packaging, Americas & Asia: Sales increased 38.3% year over year to $1.04 billion in the quarter.
Operating income was $114.5 million or 11% of sales, compared with $74.8 million or 10% of sales a year earlier.
The segment’s performance was aided by volume increase due to addition of the four U.S. metal beverage packaging plants, as well as double-digit volume growth in China and Brazil.
Metal Beverage Packaging, Europe: Sales declined 2.3% year over year to $479.3 million in the quarter.
Operating income was $72.5 million or 15% of sales, compared with $64.8 million or 13% of sales. Volume increases, growth in specialty cans and better operating performance led to the year-over-year growth. However, unfavorable currency exchange rates were a partial offset.
Metal Food & Household Packaging, Americas: Sales declined 3.5% over the prior-year quarter to $312 million.
Operating income was $33.4 million or 11% of sales, compared with $35.1 million or 11% of sales.
Absence of inventory holding gains in the second quarter of 2009 weighed on the benefits from demand increase and a better price/cost mix in the quarter.
Aerospace & Technologies: Sales declined marginally by 0.7% over the prior-year quarter to $180.2 million in the quarter.
Operating income was $18.6 million or 10% of sales compared with $14.8 million or 8% of sales.
Financial Update
Ball Corporation’s cash provided by operating activities was $8.8 million in the quarter, compared with $39.6 million in the prior-year quarter.
Capital expenditures of Ball Corporation in the quarter totaled $69.1 million, lower than $91.7 million in second-quarter 2009.
Cash and cash equivalent balance of Ball Corporation at the end of the quarter was $75.0 million, up from $59.5 million at the end of second quarter 2009.
Long-term debt of Ball Corporation increased to $2.2 billion at quarter end from $2.0 billion at the end of the prior-year quarter.
Full-Year 2010 Guidance
Management expects free cash flows to be $500 million. It also expects to spend more than $400 million to buy back its shares.
Volume increase experienced by Ball Corporation in the quarter is expected to continue in the upcoming quarters as well. Also the acquisition of metal beverage packaging plants will aid volume improvement. Management initiatives to focus on core businesses, strategic acquisition and exiting the plastic packaging business bode well for future operating performance. Also increase in share repurchases will enhance shareholder value.
However, the defense department’s plans of cutting down on the defense budget could affect the performance of the Aerospace and Technologies segment. This, coupled with the competitive environment in which the company operates, keeps us on the sidelines. We maintain our Neutral recommendation on Ball Corporation. The quantitative Zacks #3 Rank (Hold) for the company indicates no clear directional pressure on the shares over the near term.
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