Inflationary cost pressures and higher year-over-year retail prices have caught up with consumers in North America, especially in the U.S., and the world’s largest can manufacturer is seeing “lower” than expected demand and “less consumption across the board,” Ball Corp. CEO Dan Fisher told analysts Thursday.
“There is clearly pressure on the end consumer relative to inflation, credit card debt, raising interest rates, there has to be some level of stability in the economy,” Fisher said.
“The end consumer is consuming less,” he continued. “What we need is for the end consumer to start picking up the pace of consumption on the can and for those promos to continue, and then it turns into a positive. We haven’t seen that yet.”
Nevertheless, Fisher said he’s optimistic about Ball’s business heading into 2023 due to the company’s “recession resistant business.” As consumers shift consumption from on-premise bars and restaurants to the off-premise, at-home occasions, Fisher said he expects promotions to benefit cans. However, that hasn’t happened yet.
“We’re kind of on the precipice here,” he said. “We’re not counting on upside. But we’re right on the precipice of seeing a decline and that decline manifesting potentially in a better outlook for cans.”
Additionally, Fisher said “a normalized inflation and interest rate environment provides consumer confidence and then the can wins on the circularity notes.”
Ball CFO Scott Morrison added that “while most input costs for our customers are going up, the reality is the actual aluminum has gone down.”
“[Suppliers] took a lot of price this past year, and that gives them the ability to do a little more price promotion and not give up margin because aluminum has come down so much,” he added. “So I think that’s a positive.”
In 2023, Scott said the company is “planning for flattish to slight growth.”
Fisher added that Ball has the capacity to increase shipments “mid-single digits here for the next couple of years in North America without any additional investments.” In the U.S. alone, 20 to 25 billion additional cans have been added to the market over the last four years, Fisher said.
“That can volume isn’t going backwards,” he said. “We believe because of the circularity story, because this volume has stuck, that we’re poised for a really nice lift, kind of in that medium and long term range, but we just need a modicum of stability in the economy.”
Ball Sells Russian Business, But Has Option to Return
Ball completed the sale of its Russian business operations for $530 million in cash, which the company will allocate toward debt reduction. Morrison noted that the company has a “call option” that would allow the company to buy back its Russian business, starting in Year Three and going through Year 10.
“It was a great business that we didn’t really want to sell,” Morrison said. “And we would love to get back there if Russia ever normalizes their behavior, leadership and activities.”
Morrison added that the sale was “the best outcome” due to “getting “ $530 million in cash off into our bank account then have an option to return if things normalize.”
“Obviously, right now, that’s not terribly likely in the next few years,” he said.
North American Volume +2.5% in Q3
In North and Central America, Ball’s beverage packaging posted operating earnings of $205 million during Q3, with sales of $1.8 billion. That marked an increase from the $186 million in earnings on sales of $1.52 billion during the same period in 2021.
Earnings for the first nine months of the year in the Americas stand at $543 million on sales of $5.18 billion, up from $519 million on sales of $4.34 billion in 2021. Ball noted that year-over-year (YoY) sales “reflect the contractual pass through of higher aluminum costs.”
Ball attributed its improved YoY comparable operating earnings in Q3 to “higher volume offset by the impact of higher manufacturing and inflationary costs and unfavorable customer mix.” Volumes increased +2.5% in Q3, with the company calling aluminum beverage packaging “more resilient than other substrates.”
As previously reported, Ball will close plants in Phoenix, Arizona, in Q4, and St. Paul, Minnesota, in Q1 2023. The company said it will save $65 million in 2023 and beyond by closing both plants.
Q3 global net earnings of $392 million (diluted earnings per share of $1.24), with sales of $3.95 billion. That’s up from $179 million in net earnings ($0.54 per diluted share), on sales of $3.55 billion in Q3 2021.
Ball noted that its Q3 and YTD 2022 comparable diluted earnings per share of $0.75 and $2.34, respectively, were down compared to the same periods in 2021 ($0.94 and $2.52).
Through the first nine months of 2022, Ball’s net earnings stand at $664 million ($2.07 per diluted share), with sales of $11.8 billion. That’s up from net earnings of $581 million ($1.75 per diluted share) and $10.14 billion in sales through the first three quarters of 2021.
Excluding Russia, Ball’s global beverage can shipments increased +5.7% in Q3.
Ball’s diluted earnings per share for the quarter of $0.75 marked a decline compared to $0.94 in 2021. The company said beyond 2022, its business is positioned “to achieve long-term diluted earnings per share growth goal of 10 to 15%.”