A Member of Pat McKeough’s Inner Circle recently asked for his advice on an aluminum packaging company that caters primarily to large multinational firms.
Pat likes the firm’s improved focus on its core business after it sold off its aerospace division. He also likes its strong financial performance and its ability to capitalize on the sustainability trend.
Ball Corp. (Symbol BALL on New York; www.ball.com), makes metal packaging for the beverage, food and consumer-products industries. The company sells its products mainly to large multinational beverage, personal-care and household-products firms.
Ball also had an aerospace business (which it has now sold) that designed and manufactured a variety of products for both government and commercial clients.
Headquartered in Broomfield, Colorado, Ball has manufacturing facilities worldwide. It employs 16,000 people after the sale of its aerospace unit.
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The company has a long history of producing food containers in a variety of styles and materials. Over the years, it has reduced its glass and plastic operations to focus on being the world’s largest manufacturer of aluminum cans and aerosol containers.
Ball sells its products mainly to large multinational beverage, personal-care and household-products companies. They include The Coca-Cola Company, Anheuser-Busch InBev, Molson Coors and Unilever.
In February 2024, the company completed the sale of its aerospace business to BAE Systems (symbol BAE on New York) for $5.5 billion.
The sale of its aerospace unit should be a plus for Ball, as it lets the company focus on being a pure-play packaging business with an emphasis on aluminum packaging. The company also used the proceeds to pay down debt, and will also use the funds to buy back shares and invest in its new aluminum packaging initiatives.
Inner Circle: Recent revenue dip at Ball Corp. should be temporary
In the quarter ended June 30, 2024, revenue decreased 3.5%, to $2.96 billion from $3.07 billion a year earlier. The drop was primarily due to the pass through of lower aluminum costs. Ball contractually passes on volatile raw material price changes to customers, whether higher or lower.
Excluding one-time items, earnings rose 19.6%, to $232 million, or $0.74 per share, from $194 million, or $0.61. Earnings benefited from cost reduction measures, as well as improved operating efficiencies.
As awareness about plastic pollution spreads, demand for metal packaging, as a sustainable alternative, is growing. Aluminum cans are infinitely recyclable, which means that they can be recycled without degradation or loss of material. Many beverage and personal-care brands have already changed to using aluminum cans; this shift will continue as additional beverage categories, including still and sparkling waters, wine, coffee and other beverages, also make the move to aluminum cans.
With a growing number of its customers now switching from glass and plastic to aluminum, Ball remains well positioned to meet this growing demand. The stock yields 1.2%.
Recommendation in Pat’s Inner Circle: Ball Corp. is a hold.
