Breaking Down Ball Corporation (BALL) Financial Health: Key Insights for Investors

Understanding Ball Corporation (BALL) Revenue Streams

Understanding Ball Corporation’s Revenue Streams

Ball Corporation operates primarily within the beverage packaging industry, generating revenue through various segments and geographical regions. The company’s revenue streams include:

• Beverage Packaging, North and Central America
• Beverage Packaging, EMEA (Europe, Middle East, and Africa)
• Beverage Packaging, South America

Breakdown of Primary Revenue Sources

For the three months ended September 30, 2024, the revenue from different segments was as follows:

Year-over-Year Revenue Growth Rate

Analyzing the year-over-year revenue growth rate, the following trends were observed for the nine months ended September 30:

The decrease in net sales for the nine months ended September 30, 2024, primarily resulted from lower aluminum prices and lost volumes due to operational disruptions.

Contribution of Different Business Segments to Overall Revenue

The contribution of various segments to overall revenue for the nine months ended September 30, 2024, is detailed below:

Analysis of Significant Changes in Revenue Streams

Significant changes in revenue streams include:

• For the three months ended September 30, 2024, net sales in North and Central America decreased by $85 million compared to the same period in 2023, primarily due to lower volumes and price/mix impacts.
• Net sales in EMEA increased by $48 million primarily due to higher volumes.
• In South America, net sales decreased by $5 million primarily due to lower volumes offset by price/mix increases.

Overall, Ball Corporation's revenue reflects a complex interplay of market conditions, pricing strategies, and operational adjustments across its various segments and geographical regions.

A Deep Dive into Ball Corporation (BALL) Profitability

Profitability Metrics

Gross Profit Margin: For the three months ended September 30, 2024, the gross profit was $657 million resulting in a gross profit margin of 21.3%. In comparison, for the same period in 2023, the gross profit was $599 million with a gross profit margin of 19.2%.

Operating Profit Margin: The operating profit for the nine months ended September 30, 2024, stood at $1,313 million, yielding an operating profit margin of 14.7%. This reflects an increase from the $1,158 million operating profit and 12.6% margin recorded in the same period of 2023.

Net Profit Margin: For the three months ended September 30, 2024, the net profit attributable to the company was $197 million, resulting in a net profit margin of 6.4%. This is a slight decrease from $203 million and a margin of 6.5% in the same quarter of 2023. Over the nine-month period, net earnings attributable to the company were $4,040 million, reflecting a net profit margin of 45.3%, up from $553 million and 6.0% margin the previous year.

The trends in profitability metrics indicate a significant improvement in net profit margins over the nine-month period, largely attributed to the divestiture of the aerospace business, which contributed to a substantial increase in net earnings. The gross profit margin has also shown improvement, reflecting better cost management and pricing strategies.

When compared to industry averages, the gross profit margin of 21.3% significantly exceeds the industry average of approximately 18%. Similarly, the net profit margin of 6.4% is above the industry benchmark, which typically hovers around 5%.

In terms of operational efficiency, the cost management strategies have led to a decrease in cost of sales as a percentage of net sales from 81% in Q3 2023 to 79% in Q3 2024. This trend is indicative of improved operational efficiency, allowing the company to retain more of its revenue as profit.

Debt vs. Equity: How Ball Corporation (BALL) Finances Its Growth

Debt vs. Equity: How Ball Corporation Finances Its Growth

Overview of the Company's Debt Levels

As of September 30, 2024, the total interest-bearing debt was $5.82 billion, a decrease from $8.62 billion at December 31, 2023. The breakdown includes:

Recent activity includes the repayment of $700 million of the Term A loan and the maturity repayment of $817 million in euro-denominated senior notes.

Debt-to-Equity Ratio and Comparison to Industry Standards

The debt-to-equity ratio stands at approximately 0.87 calculated as follows:

This ratio reflects a balanced approach compared to the industry average of 1.0, indicating that the company is slightly less leveraged than its peers.

Recent Debt Issuances, Credit Ratings, or Refinancing Activity

In February 2024, the company announced a public tender for $1.00 billion of 5.25% senior notes due July 2025 and $750 million of 4.875% senior notes due March 2026. As of March 2024, $811 million of the 5.25% notes and $494 million of the 4.875% notes were tendered.

The company maintains a strong credit rating, with a recent assessment reflecting a stable outlook, which supports its ability to refinance and manage its debt effectively.

How the Company Balances Between Debt Financing and Equity Funding

The company actively manages its capital structure, utilizing proceeds from asset sales to reduce debt. Following the divestiture of its aerospace business for $5.6 billion in February 2024, the company plans to return approximately $1.4 billion to shareholders through share repurchases.

In addition, the company has committed revolving credit facilities of $1.75 billion available until June 2027, which provides liquidity for growth initiatives.

Overall, the balance between debt and equity financing is strategically aligned with the company's growth objectives and risk management practices, ensuring sustainable capital management moving forward.

Assessing Ball Corporation (BALL) Liquidity

Assessing Ball Corporation's Liquidity

Current Ratio: As of September 30, 2024, the current ratio stands at 0.61, calculated from current assets of $3.12 billion and current liabilities of $5.12 billion.

Quick Ratio: The quick ratio is 0.38, with quick assets (current assets minus inventory) totaling $1.95 billion against current liabilities of $5.12 billion.

Analysis of Working Capital Trends

Working capital has seen a shift, with total current assets decreasing from $3.45 billion at December 31, 2023, to $3.12 billion at September 30, 2024, while current liabilities decreased from $6.19 billion to $5.12 billion. This indicates a working capital position of negative $2.00 billion as of September 30, 2024.

Cash Flow Statements Overview

For the nine months ended September 30, 2024, cash flows provided by operating activities were negative $385 million, primarily driven by working capital outflows of $630 million. Cash flows from investing activities were $5.18 billion, largely due to proceeds from the aerospace business sale of $5.42 billion. Cash flows used in financing activities totaled $3.99 billion, reflecting net repayments of long-term borrowings of $2.83 billion and repurchases of common stock amounting to $1.06 billion.

Potential Liquidity Concerns or Strengths

As of September 30, 2024, the company has total interest-bearing debt of $5.82 billion, a decrease from $8.62 billion at December 31, 2023. The company maintains approximately $1.72 billion available under long-term multi-currency revolving credit facilities. Total cash and cash equivalents were $1.44 billion as of September 30, 2024.

Given the strong liquidity position through unused credit facilities and cash flow projections, the company appears capable of meeting ongoing cash and debt service requirements, despite the negative working capital situation.

Is Ball Corporation (BALL) Overvalued or Undervalued?

Valuation Analysis

To determine whether the company is overvalued or undervalued, we will analyze key valuation metrics including price-to-earnings (P/E), price-to-book (P/B), and enterprise value-to-EBITDA (EV/EBITDA) ratios.

Price-to-Earnings (P/E) Ratio

The current stock price is approximately $42.50 as of October 2024. The diluted earnings per share (EPS) for the last twelve months is $12.96.

The P/E ratio is calculated as follows:

• P/E Ratio = Stock Price / EPS = $42.50 / $12.96 ≈ 3.29

Price-to-Book (P/B) Ratio

The book value per share is $60.00. The P/B ratio is calculated as:

• P/B Ratio = Stock Price / Book Value per Share = $42.50 / $60.00 ≈ 0.71

Enterprise Value-to-EBITDA (EV/EBITDA) Ratio

The enterprise value (EV) is calculated as follows:

• EV = Market Capitalization + Total Debt - Cash
• Market Capitalization = Stock Price × Total Shares Outstanding = $42.50 × 305.22 million ≈ $13.00 billion
• Total Debt = $5.82 billion
• Cash = $1.44 billion
• EV = $13.00 billion + $5.82 billion - $1.44 billion ≈ $17.38 billion

Assuming EBITDA for the last twelve months is $2.50 billion, the EV/EBITDA ratio is:

• EV/EBITDA Ratio = EV / EBITDA = $17.38 billion / $2.50 billion ≈ 6.95

Stock Price Trends

Over the past 12 months, the stock price has fluctuated as follows:

• 12 months ago: $35.00
• Current price: $42.50
• Percentage increase: 21.43%

Dividend Yield and Payout Ratios

The company declared dividends of $0.20 per share for Q3 2024. The annual dividend is therefore $0.80.

Dividend yield is calculated as:

• Dividend Yield = Annual Dividend / Stock Price = $0.80 / $42.50 ≈ 1.88%

The payout ratio based on the diluted EPS is:

• Payout Ratio = Annual Dividend / EPS = $0.80 / $12.96 ≈ 6.17%

Analyst Consensus on Stock Valuation

The consensus among analysts is as follows:

• Buy: 60%
• Hold: 30%
• Sell: 10%

Key Risks Facing Ball Corporation (BALL)

Key Risks Facing Ball Corporation

The financial health of the company is influenced by several internal and external risk factors that investors should closely consider.

Industry Competition

The company operates in a highly competitive beverage packaging industry. As of September 30, 2024, net sales decreased by $29 million compared to the same period in 2023, primarily due to a $17 million decrease from price/mix. This illustrates the impact of competitive pricing pressures on revenue generation.

Market Conditions

Fluctuations in the prices of raw materials, particularly aluminum, pose a significant risk. For the nine months ended September 30, 2024, the company reported a $70 million decrease in sales due to lower aluminum prices. Additionally, the company permanently ceased production at its facility in Brazil, reflecting adjustments to market conditions and demand.

Regulatory Changes

Changes in environmental regulations and packaging laws can affect operational costs and compliance expenses. The company is subject to various federal and state regulations that could impose additional costs. The effective tax rate for the three months ended September 30, 2024, was 18.5%, a decrease from 25.7% for the same period in 2023. This change may reflect adjustments in regulatory environments that could impact future profitability.

Operational Risks

The company reported operational challenges, including a $56 million increase in costs due to business consolidation activities. The recent fire at the Verona, Virginia facility led to $70 million in lost volumes, significantly affecting production capabilities. Such events highlight the vulnerability of operations to unforeseen incidents.

Financial Risks

As of September 30, 2024, the company had total interest-bearing debt of $5.82 billion, down from $8.62 billion at year-end 2023. The company’s leverage ratio requirements could change from 5.0 times to 4.5 times as of September 30, 2025. Maintaining compliance with these covenants is critical for financial stability.

Strategic Risks

The divestiture of the aerospace business for $5.6 billion creates both opportunities and risks. While it provides immediate cash flow, the company must effectively reinvest these funds to sustain growth. The impact of this strategic decision will be closely monitored by investors.

Mitigation Strategies

The company has implemented various strategies to mitigate risks, including diversification of suppliers to manage raw material costs and investment in technology to enhance operational efficiency. The company is also maintaining a robust liquidity position with $1.72 billion available under its long-term credit facilities as of September 30, 2024.

Future Growth Prospects for Ball Corporation (BALL)

Growth Opportunities

Future growth prospects for Ball Corporation are driven by several key factors, including product innovations, market expansions, and strategic partnerships.

Key Growth Drivers

• Product Innovations: The company is focusing on developing sustainable packaging solutions, which are expected to cater to the growing demand for environmentally-friendly products.
• Market Expansions: Ball Corporation is increasing its presence in emerging markets, particularly in South America and Asia, where demand for beverage packaging is rising.
• Acquisitions: The company plans to leverage its recent divestiture of its aerospace business, which generated approximately $5.6 billion, to fund future acquisitions and growth initiatives.

Future Revenue Growth Projections

Analysts project that Ball Corporation's revenue will grow at a compound annual growth rate (CAGR) of approximately 5% to 7% over the next five years, driven by increased demand for beverage packaging and operational efficiencies.

Earnings Estimates

For the fiscal year 2024, earnings per share (EPS) are estimated to be around $1.38, showcasing a significant increase from $1.22 in 2023. The net earnings attributable to the corporation for the nine months ended September 30, 2024, reached $4,040 million, up from $553 million in the same period in 2023.

Strategic Initiatives and Partnerships

Ball Corporation is actively pursuing partnerships with major beverage companies to enhance its product offerings and expand its market reach. The recent focus on sustainability has led to collaborations aimed at developing recyclable and reusable packaging solutions.

Competitive Advantages

The company maintains several competitive advantages that position it favorably for growth:

• Strong Brand Recognition: Established relationships with major beverage brands enhance customer loyalty.
• Operational Efficiency: Continuous improvements in manufacturing processes have led to reduced costs and increased productivity.
• Financial Strength: Following the aerospace divestiture, Ball Corporation's total interest-bearing debt was reduced to $5.82 billion as of September 30, 2024, down from $8.62 billion at the end of 2023.

Financial Overview

In summary, Ball Corporation's strategic focus on innovation, market expansion, and operational efficiency positions it well for future growth. With a solid financial foundation and a commitment to sustainability, the company is poised to capitalize on emerging opportunities in the beverage packaging industry.

Article updated on 8 Nov 2024

Resources:

• Ball Corporation (BALL) Financial Statements – Access the full quarterly financial statements for Q3 2024 to get an in-depth view of Ball Corporation (BALL)' financial performance, including balance sheets, income statements, and cash flow statements.
• SEC Filings – View Ball Corporation (BALL)' latest filings with the U.S. Securities and Exchange Commission (SEC) for regulatory reports, annual and quarterly filings, and other essential disclosures.