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Ball Corporation (BLL) Q1 Earnings & Sales Miss Estimates

Ball Corporation BLL reported first-quarter 2016 adjusted earnings of 58 cents per share, which fell short of the Zacks Consensus Estimate of 69 cents. Earnings also declined around 16% year over year due to competitive pricing in China, tough year-over-year comparisons in metal food packaging and start-up costs for growth projects.

On a reported basis, the company posted a loss of 90 cents per share, as against earnings of 15 cents per share in the prior-year quarter.

Operational Update

Total revenue declined 8.7% year over year to $1.76 billion in the reported quarter. Revenues also lagged the Zacks Consensus Estimate of $1.90 billion.

Cost of sales decreased 9.3% year over year to $1.42 billion. Gross profit fell 6.1% year over year to $340 million. Gross margin increased 60 basis points (bps) to 19.4%.

Selling, general and administrative expenses dropped 6.9% year over year to $108 million. Adjusted operating income declined 11.8% to $157 million from $178 million in the year-ago quarter. The company reported operating margin of 8.9%, down 40 bps year over year.

Segment Performance

The Metal Beverage Packaging, Americas & Asia segment’s revenues declined 8.4% year over year to $937 million in the reported quarter. Operating earnings of $102 million plunged 18.4% year over year.

Sales at the Metal Beverage Packaging, Europe segment were $356 million in the reported quarter, down 6.1% year over year. Operating earnings surged 34.5% year over year to $39 million, driven by lower year-over-year aluminum premiums and strong manufacturing performance.

The Metal Food & Household Products Packaging segment’s sales were $284 million, down 7.8% year over year. Operating earnings also saw a 33% year-over-year decline to $20 million.

In the Aerospace and Technologies segment, sales fell 16.3% year over year to $180 million. Operating earnings decreased to $18 million from $20 million in the year-ago quarter. The segment reported a backlog of $729 million.

Financial Condition

Ball Corporation had cash and cash equivalents of $205 million at the end of first-quarter 2016 compared with $229 million at first-quarter 2015 end. The company used $386 million of cash in operating activities in the reported quarter compared with cash usage of $181 million in the year-ago quarter. As of quarter end, Ball Corporation’s long-term debt increased to $5.4 billion from $3.1 billion as of Mar 31, 2015.

Outlook

Ball Corporation continues to progress on the proposed offer for Rexam and expects the transaction to close in late June. The company also expects to benefit from increasing EVA dollar generation and multiple growth capital projects ramping up in the remainder of 2016 and beyond.

The company expects its businesses to gain momentum through the balance of this year as cost optimization efforts are further realized and the growth capital deployed in 2015 transitions into full production.

During the first quarter, Ball Corporation began production on one of the new beverage can lines and multiple end lines at its Monterrey, Mexico facility, with a second beverage can line scheduled to start up in mid 2016. Start-up costs related to this major project will moderate in the second half of 2016 as production ramps up to support customers' demand.

The company also remains optimistic about demand for metal aerosol containers and related investments made in late 2015 that will provide momentum through the remainder of 2016. In February, Ball Corporation also announced the closure of its Weirton, WV steel food and household metal service center, which is expected to cease production in early 2017.

During the reported quarter, Ball Corporation’s Aerospace and technologies business acquired Wavefront Technologies, a specialized engineering services firm that provides systems and network engineering, software development and analytical services for cyber and mission-focused programs within the U.S. government.  The company will leverage its existing hardware capabilities to complement this acquisition.

Broomfield, CO-based Ball Corp. is the largest manufacturer of beverage cans in North America. It also supplies aerospace as well as other technologies and services to the government and customers.

Zacks Rank

Currently, Ball Corporation has a Zacks Rank #2 (Buy). Some other favorably ranked stocks in the sector are Crown Holdings Inc. CCK, Avery Dennison Corporation AVY and Altra Industrial Motion Corp. AIMC. Each of these stocks carries a Zacks Rank #2.

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