Ball Corporation (BLL) reported first quarter EPS of 53 cents, compared with 42 cents in the year-ago quarter.
The result surpassed the Zacks Consensus Estimate of 48 cents.
Excluding an impact of the previously announced closing of a metal beverage can plant in California and other business consolidation costs and discontinued operations, earnings were 58 cents, versus 43 cents in the prior-year quarter.
Net Sales as reported by the company were $2011.2 million versus $1592.3 million in the year-earlier quarter. The reported sales easily outperformed the Zacks Consensus Estimate of $1863 million.
Cost and Margins
Cost of goods sold increased to $1630.7 million from $1318.2 million in the year-ago quarter. Selling, general and administrative expenses also increased to $99.4 million from $79.3 million in the year-earlier quarter.
Operating income amounted to $194 million, versus $132.6 million in the year-ago quarter. Consequently, operating margins also expanded 130 basis points year over year to 9.6% during the quarter.
Segmental Performance
Metal Beverage Packaging, Americas & Asia: Sales for this segment were $1032.3 million, versus $774.4 million in the prior-year quarter. Operating income of the segment also increased to $104.7 million from $74.5 million during the year-earlier quarter. Mid single-digit volume improvement in North America and double-digit improvement in Brazil and China led to the improvement in sales.
During the quarter, the company started operations in the second production line at Tres Rios Brazil and also intends to build a fourth beverage packaging plant in Brazil and a joint venture in metal beverage can plant in Vietnam. Both new plants are expected to start during the first half of 2012.
Metal Beverage Packaging, Europe: Segment sales increased to $443 million from $367.5 million during the year-earlier quarter. Operating income increased to $50.5 million from $35 million during the prior-year quarter. These improved results were helped by single-digit volume growth, smooth integration of an extruded aluminum aerosol business acquired in January, the continued recovery of the beverage can market in Germany and excellent operating performance.
Metal Food & Household Products Packaging, Americas: Sales increased to $344.7 million from $285.4 million in the year-ago quarter. Operating income increased to $39.87 million from $21.7 million in the year-earlier quarter. Factors contributing to the improved results include the favorable impact of inventory holding gains, improved aerosol volumes and product mix and continued excellent operational performance and cost controls, which were partially offset by seasonally weaker food can volumes.
Aerospace and Technologies: Sales amounted to $191.2 million, versus $165 million in the year-earlier quarter. Operating income as reported by the segment totaled $18.7 million, versus $13.5 million during the year-ago quarter.
Financial Position
Cash and cash equivalents were $193.1 million as of April 3, 2011, plunging from $391.4 million as of March 28, 2010. Also during the first quarter, the company repurchased $150 million of its common stock.
Cash outflows were $74.4 million, compared with an outflow of $272 million.
Long-term debt of the company increased to $3,197.3 million as of April 3, 2011 from $2,317.9 million as of March 28, 2010.
Outlook
For fiscal 2011, the company now expects a free cash flow of at least $400 million, assuming approximately $500 million of capital expenditure. Out of this amount, $300 million is kept aside for growth projects while the rest is intended to be returned to shareholders.
The company is optimistic of achieving 10% – 15% of earnings growth every year.
Peer Comparison
Alcoa, Inc. (AA), which competes with Ball Corporation, reported first quarter 2011 operating earnings of 28 cents, which soared above the Zacks Consensus Estimate by a penny. The improvement was largely driven by higher pricing, continued strengthening in most end-markets and double-digit increases in packaging, automotive, commercial transportation and industrial products.
Our Take
We expect realignment initiatives for its manufacturing footprint in North America in order to meet changing customer demand. Successful integration of acquisition, continued growth in the emerging markets and a focus on enhancing shareholder value through dividend increases as well as share buybacks will position Ball Corporation to deliver better results going forward. We currently have a Zacks #2 Rank (short-term ‘Buy’) on the stock.
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