Ball Corporation reported that global beverage can shipments declined -6.7% in the first quarter of 2023.
The decline includes the impact of Ball’s divestment of its business operations in Russia from Q3 2022. Excluding Russia, global beverage can shipments still declined -1.4%.
Ball, the world’s largest beverage can manufacturer, generated $177 million in net earnings on sales of $3.49 billion in Q1 2023, compared to $446 million in net earnings on sales of $3.72 billion in Q1 2022. Earnings per share of $0.56 for Q1 2023 declined from $1.37 during the same period last year.
In North and Central America, Ball reported that Q1 2023 volumes declined -4.9% due to “customer mix and challenging year-over-year volume comparisons,” compared to last year. Q2 is expected to remain “choppy” in both North and South America as the company works “through higher inventory” and manages “regional production with an eye on cash,” Ball chairman and CEO Daniel Fisher said.
Ball generated Q1 2023 operating earnings of $183 million on sales of $1.5 billion, compared to $174 million in earnings on sales of $1.6 billion during the same quarter in 2022. First quarter 2023 sales “reflect lower shipments and the contractual pass through of lower aluminum costs favorably offset by incremental inflation recovery.”
“Given recent volume trends, inventory levels of coil aluminum and finished cans are expected to normalize as we enter the busy summer selling season,” the company reported. “Fixed cost savings from executed plant closures, SG&A cost-out initiatives and the contractual recovery of prior year inflationary costs are expected to improve year-over-year results, largely in the second half of 2023.”
Ball: Promotions Needed Across Entire Beer Industry
In North America, Ball hasn’t seen much promotional activity among its customers since the start of the year, Fisher said. He expects that to change around May and June due to beer category volumes being down and “more impetus … to push volume,” compared to energy and non-alcoholic beverage companies.
“We’re not seeing much of any right now,” he said. “I think it’s reflected in the performance of our customers in terms of the revenue growth they’re seeing and volume being flattish. And so we’re sort of tied to that volume being flattish component.
“The one thing that is clear in the last 12 to 18 months is the folks that have taken less price versus inflation, or have held pricing, they’re the ones growing share,” he continued. “And as share becomes more important, which we believe as the year moves on, there will be an opportunity for folks. If they’re more focused on share gain, then you will see more activity.”
Asked about Ball’s “share of beer relative” to its customer mix, Fisher noted Ball is “overweight in beer.”
“How you should look at Ball’s portfolio as it relates to beer is, we win when people drink beer,” he added. “If there’s a mix impact, we may have one customer that in a short period of time, there may be a share shift, we pick up both sides of that equation, generally. What we are more interested in is the health of the entire category, and we believe that beer is going to need to galvanize itself and push in the second half of the year. They’re gonna have to promote across the entirety of the industry.”
Fisher reiterated that companies that are not passing on aggressive price increases have performed better on share gain in the last 12 to 18 months.
“If they’ve taken a posture where they’re going to pass through a portion but not pass through what everybody else in the category is doing, they’re the ones that are winning share,” he said.
Ball EVP and CFO Scott Morrison added that aluminum cans are the winning packaging format and newly launched beverages are “heavily weighted to cans.”
In North and South America, Ball is working to reduce existing volumes, Morrison added.
Ball’s North America plants “performed extraordinarily well in Q1” and “volumes were a little down versus expectations,” so the company is carrying “a little bit more inventory” into Q2, Fisher said. Nevertheless, the company is positioned to shift to the can sizes that are in demand.
Wallkill Plant Expected to Close
In March, Ball announced talks to potentially close its production facility in Wallkill, New York. The company is “committed to closing that facility now,” Fisher said, adding there aren’t a lot of additional details as the company is “entering into effects bargaining now.”
Expectations For FY 2023
For the full year, Ball is estimating that its global volume growth will be in the “low-single digits,” with volume in North America “slightly down,” South America “up mid-single digits,” Europe, the Middle East and Africa up “mid-single digits” and non-reportable beverage business volumes up “mid- to high-single digits,” Fisher said.
Ball is positioned to generate around $750 million in free cash flow, reduce its leverage and “return value to shareholders in 2023,” the company said. Ball has the “ability to achieve $200 million of net inflation recovery and at least $150 million of cost savings” this year.
Ball anticipates achieving its long-term diluted earnings per share growth goal in the 10% to 15% range, which includes the divestment of its Russian business.