BLL
#Thanks, <UNK>
As <UNK> said, we're pleased with our first quarter results
Ball's comparable diluted earnings per share for the first quarter of 2017 were $0.76 versus last year's $0.59, a 29% improvement
First quarter comparable diluted earnings per share reflect the benefit of last year's beverage can acquisition, solid operational performance in all of our businesses, increased global demand for both beverage and aerosol containers and the lower tax rate
These benefits were partially offset by higher compensation and project costs, as well as higher interest expense and a higher share count
Details are provided in note 2 of today's earnings release and additional information will be provided in our 10-Q
Our Beverage Packaging North & Central America segment comparable operating earnings for the first quarter 2017 were up year-over-year due to the contribution of the recently acquired plants in the U.S
and Mexico, plant efficiencies and continued specialty can growth
Industry demand in the U.S
and Canada as measured by the Can Manufacturers Institute dipped just slightly in the first quarter likely due to Easter slipping into the second quarter of this year and no leap year, while volumes in Mexico continued to grow in the beer sector
Overall volumes in our North and Central America segment were up 5% on a pro forma basis
Drivers for Ball's growth were craft beer, super premium beer and imported Mexican beer brands, coupled with robust demand for certain specialty cans in the CSD category
As a reminder, the acquired JVs in Guatemala, Panama and South Korea, as well as our legacy Rocky Mountain Metal Container JV are not consolidated and are reflected in equity earnings of affiliates along with our other equity investment in Vietnam
As you can see, these operations performed well in the quarter, largely due to strong can demand in these regions
Our Beverage Packaging South America segment saw improving volumes as we went through the quarter after a lower-than-expected January and February from a volume perspective, the industry saw strong March volumes and overall demand was up nearly 4% in the quarter and we were up roughly in line with the industry
For the full year, the South American team feels much more constructive about the market and economy
Our customers are using specialty cans to grow their business and deliver what the consumer is looking for
It may be too early to call, but the Brazilian government appears to be taking action to stimulate their economy, and while there are many challenges for the economy to overcome, it appears that the economic situation in Brazil is starting to improve
Results for the Beverage Packaging Europe segment reflect the typical seasonality and performed in line with our expectations
As we mentioned in January, our European beverage segment has work to do on its margins and certain initiatives to support multi-year plans have been initiated to improve revenue and cost management via repositioning into sleek, slim cans, as well as previously announced intention to close the Recklinghausen, Germany facilities
In the near-term, cost savings benefits in the region, including better operational performance will bolster second half performance
Industry supply demand is healthy, specialty demand remains favorable and construction of our new Spain plant is progressing as planned
Our other includes Ball's legacy Asia-Pacific business, the acquired EMEA business and corporate undistributed cost
Note 2 of the press release references approximately $45 million of corporate undistributed costs in the quarter, which is higher than the fourth quarter run rate, largely due to three equal items including the relocation of certain pension costs that formerly resided in the legacy Europe segment, higher stock based compensation in the quarter and incremental project costs that will benefit the corporation in the long-term
After netting off the corporate costs, you could see that the operations in Asia and the Middle East performed well
Moving to food and aerosol, comparable segment earnings were up year-over-year due to continued growth in global aerosol up 6% in the quarter, largely due to strong aluminum aerosol growth offset by U.S
food can demand declining 6% in the quarter
Starting in the second quarter, the segment will benefit from this cost savings associated with the West Virginia metal service center closure and anticipated growth for aluminum aerosol products
In summary, our global packaging businesses posted strong results and everyone is extremely focused on keeping this momentum going, meeting demand and effectively managing their invested capital base to drive EVA dollars from the combined business
Thank you again to all our operations teams around the globe
You will notice that our first quarter net debt came in around $7.5 billion
This is right on top of our plan and the debt will begin to come down as we move to the back half of the year
As we think about 2017, our previously communicated goals remain intact
We expect full year 2017 comparable operating earnings in the range of $1.3 billion to $1.4 billion, excluding the amortization associated with acquired customer intangibles
After spending in the range of $500 million of CapEx, 2017 free cash flow is expected to be in the range of $750 million to $850 million
The full year weighted average diluted shares outstanding for 2017 will be closer to a 179 million shares, given the dilutive effects of recently adopted accounting guidance for stock-based compensation plans and the absent – and absent the impact of timing of share repurchases
Full year 2017 interest expense will be in the range of $280 million
The full year effective tax rate for 2017 on comparable earnings is now expected to be in the range of 26% due to a more favorable foreign rate differential
Corporate undistributed will now run about a $140 million for the full year 2017. The difference from our previous estimate of $115 million is divided pretty equally across three buckets
The first bucket is the inclusion of both the one-time true-up and stock-based compensation as well as accruing for higher incentive compensation this year
The second bucket has to do with some project costs related to more transformational projects now underway since the first stage of integration is behind us, and the third bucket is the inclusion of inactive retiree pension expenses moving to corporate from the legacy European beverage can business no longer owned by Ball
With that said, the operational performance is certainly enough to offset this full year increase
At current FX rates, we continue to expect year-end net debt to be in the range of $6.2 billion to $6.3 billion
As you begin to think about the progression from the first quarter to the second quarter, there will be a nice step-up in profitability due to the normal seasonal ramp-up and moving in the third quarter, we need to phase in the closure of Reidsville as well as the phase-in of synergies
With that, I'll turn it back to you, <UNK>
Yes
And even the aerospace backlog, I mean it continues to be incredibly strong, and we chase more work
I think on the some of the projects that we're going after as it relates to corporate costs, I think we're finding a lot of opportunities to streamline, centralize, standardize things
And those types of things will take a little bit more time to have a benefit, but we're feeling really good about those opportunities
And on the working capital front, our sourcing teams, treasury, the operations, I think we're finding a lot of opportunities, to get after it, it's just a question of when those things will show up, will we get benefit in 2017, or how much benefit will we get in 2017, and how much will we get beyond
And you are comparing – it's not helpful to compare Europe year-over-year because we have two different businesses
There was just a – there's a difference in interest rate assumptions that will impact 2017 going forward
Our pension cost in total, if you think about the company in total, it's not at all different than what we thought, it's just in different buckets
Yes
The number I gave was a full quarter number, it was actually down in January, February and then it bounced back in March
So, it actually – coming out the of quarter was at a much higher run rate than that
The tax rate – yes, maybe, if you think about it, I gave a little bit lower tax rate by a couple of 100 basis points versus the original tax base or the tax rate would offset it
(26:35) too
Yes
I think they were higher in the first quarter
They'll come down as we move through the back half of the year
It's not going to run at the same pace as the first quarter
And despite softer volumes, the financial performance was right in line with what we expected there
Both those regions are going to do a good job of cost out
So the financial performance will be fine
Thanks
Thank you
We'll get more on the back-half than they will in the front-half
We're going to get – the 150 run rate is still going to – is still good
We haven't seen much of that other than the closure of Millbank in the first part of the year and then a lot of the other things that we've been working on start to run through our P&L in the second quarter, but you're not going to see the benefit of those things until we get to the third quarter and fourth quarter
Yeah
First with – we said we were down more than the overall market, but there was no share loss
All of our customers, every customer is a bit different, but it's a very seasonally slow quarter, in some of our quarter our customers just weren't pulling as much as we had expected
So, I wouldn't read into that too much
As for the pack, as we go to summer, it's too early to tell
It's beginning of May and plantings are just starting to go in many of our customers and so, we'll be able to update you as we go through the summer on that
And then your last question about cost savings, remember we had a very big cost saving, a big project about the closure of our Weirton, West Virginia facility and investment on the cutting and coating side in the Canton, Ohio
Weirton, West Virginia didn't officially close until the end of March, but we've gotten no benefits of that
So, as we go forward, that's where we see a lot of the improvement to come from
Yeah
In terms of the ramp up, it's really no different than historically what we've seen
And remember, we really do three businesses in that, we've got a – I'll call it as the traditional satellite business, we've got a components business which is the tactical products, things that go in the Joint Strike Fighter for example and then we have a services businesses
The first two, the satellites and the tactical products is really where we've been winning the preponderance of the work and majority of those types of things, it spread out, but majority of them are cost plus in nature
And so, as you get started on these new programs, the margins that show up are a little bit less because as you de-risk the programs, that's when the margins start to increase
And so, I think our margins in the first quarter were slightly down relative to last year
It was wholly expected because of these new startups and as we go through over the next couple of years, you should see an improvement in those margins as we de-risk these programs that are just starting now
In terms of the opportunity set, we've talked about this in the past, some of our capabilities are exactly what the U.S
government needs right now
A lot of it's in the classified world, so we can't talk about it, but when you think about the needs for intelligence, surveillance and reconnaissance and you also see in terms of the budgets being relatively restricted, they need more for less and the exquisite maybe important, but sometimes we can do something at a cost basis that's a little bit less than what other people can do
And I think the government in this environment is looking for new ways of doing business with them, and that's where it falls into our sweet spot
Thank you
We're running it out of the system, so I mean, the obvious would be to look at Brazil where we acquired a much bigger business than what we had before, so the vast majority of that would be what we acquired in Europe, we exchanged a large degree – a new business and sold our old business, so it's an apple and a pear there
And then North America, we're running it from an integrated standpoint, we're now looking at it as these are Rexam earnings and these are Ball earnings, they're all Ball earnings
So, we don't really look at it that way
It was really – we've done this historically a number of times, when we get to this range and splitting the stock without a nice juice of the dividend doesn't really do much
So it was really about confidence in our cash flow going forward and liquidity in the shares
We will continue to be – once we de-lever to the point we've talked about, we will be an aggressive acquirer of our shares
So creating more liquidity in the stock helps, so splitting the stock and bumping the dividend is a sign that we feel pretty good about where we're at and where we're going
I think it will be better than that
I think our teams, treasury, sourcing, the operations are all working great together
And we're an EVA company, we acquired pretty big businesses that didn't focus on EVA, and didn't focus on their capital base
And when you get people focused on working capital and what we can do and people get paid off of EVA, I think we're finding no shortage of opportunities, it's really a question of the execution – the timing of the execution of those opportunities and how much will show up in 2017 and then how much will show up beyond 2017.
There is all kinds of buckets, I mean, every component of working capital we're looking at, so
You know, receivables, payables, inventory, I mean every – I'm not going to get by region, by segment
We run it in total
I think the benefit over the next few years will be well in excess of the $100 million
Yeah
Well, first, we've got a relatively – not relative, we have a large position down in South America, and we do business with every major customer down there
And so, I think it's safe to say as the mark goes, so do we
So I wouldn't really focus on over-weighted one customer relative to the other because we're big with many of the customers down there
With respect to the new competitor coming in, as I said, the overall, the market was down a little bit last year
It's actually come back strongly particularly as we move through the first quarter and it's obviously going into a seasonally slow, but we see some tightness in there and I don't want to comment on what the customer activities, we're focusing on what we can do
The other thing we really haven't talked about is we always focused just on Brazil
We also acquired a business in other regions as well including Argentina and Chile and have the ability to serve multiple of markets in that and the can continues to gain share in those markets as well and so that's one of the areas we're also focused on
Yeah
We'll – again Russia is – the first quarter is seasonally slow, Russia is going okay right now
There is nothing magical about it, it's a slow quarter, but then it was up a little bit in the first quarter
We expect for the full-year it to be up modestly as a lot of the trends we've talked about earlier and our capacity I think it's in reasonably good shape right now
And so as we look to it – it is different than the business in Europe that we used to have, because it is more weighted to the second quarter and third quarters and it was the first quarter and the fourth quarters, and we're just about to enter into the that seasonally strong period, but nothing – no big deviations from expectations
Well, I'm still trying to go through your math, but I got to be honest
I don't think my computer could work that fast
But in all seriousness, what we standby everything we said, which is 20 – what we said, it was $1.3 billion to $1.4 billion, it's too early to say, where we're going to end up in that
We've got our most strongest quarter is coming in front us over the next two quarters
So it's premature to really talk about that
But we laid out what we thought for interest expense, what we laid out for the tax rate, what we laid out for the share count
And when you do all – and then we also talked about 20% to 30%, when you kind of do all that math, I don't disagree with exactly what you said
All right
Thanks, Chip
