Ball Corp., the largest manufacturer of aluminum cans in the world, reported full-year and fourth quarter global shipments up +0.8% and down -6.1%, respectively, including the company’s now-divested Russia business.
“The company’s 2022 results were driven by macroeconomic and geopolitical conditions leading to lower volume across the Americas, higher costs to manage inventory levels and decisive actions to align supply/demand and sell our Russian operations in response to the war in Ukraine,” president and CEO Dan Fisher said in a press release.
Adjusted to exclude Russian business, Ball’s global can shipments increased +2.1% for the full year and declined -0.9% in Q4.
For the full year, Ball’s overall net earnings were $719 million on sales of $15.35 billion, a decline from $878 million on sales of $13.81 billion in 2021. In Q4, the company’s net earnings were $55 million on sales of $3.55 billion, compared to net earnings of $297 million on sales of $3.67 billion in Q4 2021.
In Ball’s North and Central America beverage packaging division, the company recorded operating earnings of $642 million – down from $681 million in 2021 – on sales of $6.7 billion for the full year, which “reflect the contractual pass through of higher aluminum costs,” according to the release. In 2021, the company’s North and Central American full year sales were nearly $1 billion less ($5.86 billion). In the fourth quarter, operating earnings were $99 million on sales of $1.51 billion, compared to earnings of $162 million on sales of $1.52 billion in Q4 2021.
“Full-year and fourth quarter segment comparable operating earnings decreased year-over-year due to lower than anticipated volume, unfavorable fixed cost absorption and the timing effect of high-cost inventory ahead of customer sell through to align year-end inventory levels and customer mix,” Ball wrote in the release.
Volume in North and Central America declined -7.1% in Q4, but were “flat on a full-year basis due to lower than anticipated customer demand.”
During the company’s Q3 earnings call in November 2022, Fisher pointed to inflationary pressures and beer category price increases as the cause of declining volume for Ball as consumers purchased fewer products. However, one month into 2023, “North America is off to a good start,” Fisher said.
“People pushing price pushed it too far, and there was price sensitivity that kicked in,” he said. “Beer was down the most. And I think what we’re seeing is a return to more promotional activity or right out of the gate in Q1, so I think there’s recognition of what happened there in the last four to six weeks of the year, which is well publicized.
“Since we sell to everyone in every category in every channel, we were impacted by all of that, but I can tell you, there’s a different behavioral pattern setting in, relative to our customers and their promotional activity,” Fisher continued. “So I think this will normalize and we’ll start to move into a more sustainable underpinning for growth moving forward.”
Specifically, Fisher called out “the promotional activity during the peak season that we didn’t see any of last year” as the reason why Ball was only able to eke out “a little bit” of growth in 2022. Compared to the company’s growth in 2018 and 2019, Ball “lost out on” about 1% to 2% of growth during key selling periods in 2022. But those promotions are returning in droves, Fisher said.
“Beer is being more aggressive on the promotional activities because beer had the most precipitous drop off in volume,” he said. “It all correlates in the magnitude of the volume declines in terms of the promotional activity. You’re seeing it across every single category, because every single category was down in the last six weeks of the year. But it’s certainly more pronounced [in beer] and that’s probably a recency bias, so my comments are relative to really a really nice uplift in beer right out of the gate.”
In 2023, innovation is expected to be concentrated in beverage-alcohol and adjacent categories, particularly because larger beverage players have entered the arena, Fisher said.
“As the large CPGs become beverage companies, they’re leaning heavily into alcohol and mixers and those types of cocktails and that’s where innovation is really stemming and you’ll continue to see that for the foreseeable future, and those are most of what we expect to see here in 2023,” he said. “There are other things obviously being worked on all the time, but what I know is planned for retail shelves, it’s going to largely fall into cocktails.”
Even as the traditional beer category’s volume declines (-4.8% in case sales for the full year 2022 compared to 2021 in off-premise channels tracked by market research firm IRI), Ball is expecting its “historical beer customers” to deliver volume growth for Ball via their exploration into fourth category offerings.
“As that beer skews to other drinks, and other alcohol profiles, it’ll be a trade off within their portfolio,” he said. “We’re selling them the cans – the label they want to put on it doesn’t matter to us. We just want to be with the winners on the brand side.”
Last year, “to ensure supply/demand balance and optimize low-cost production during the current macroeconomic environment,” Ball announced the permanent closure of its facilities in Phoenix, Arizona, and St. Paul, Minnesota.
“Customer demand associated with each facility is being absorbed into our capable North American plant system,” the company said in the release, adding it expects the savings from those closures and “the contractual recovery of prior year inflationary costs” to “improve year-over-year results” in the second half of this year.
In the U.S., Ball reported that aluminum beverage cans “continue to outperform other substrates in the current retail pricing environment.”