Ball Corporation

Moat: 2/5

Understandability: 2/5

Balance Sheet Health: 3/5

Ball Corporation is a global supplier of aluminum packaging for the beverage, personal care, and household products industries, offering a wide range of metal packaging solutions with a focus on sustainability.

Investor Relations Previous Earnings Calls

The moat, understandability, and balance sheet health scores reflect a conservative evaluation to ensure a margin of safety in any assessment.

Ball Corporation is one of the world’s leading suppliers of sustainable aluminum packaging, with a global presence in beverage, personal care and household industries.

Business Overview and Moat Assessment

Ball Corporation operates through two segments: Beverage Packaging, North and Central America (NA and CA) and Beverage Packaging, Europe, Middle East, Africa, Asia, and South America (EMEA and SA). The company is a leading producer of aluminum beverage containers, a commodity product, serving many large multinational companies like Coca-Cola, PepsiCo, and AB InBev.

  • Revenues Distribution: The beverage packaging segment accounts for the vast majority of Ball’s revenues, with a global scale, catering mainly to North and Central America, Europe, Middle East, Africa, Asia, and South America. In 2023, the company’s Net Sales were primarily attributable to EMEA (44%), followed by North and Central America (38%), and South America (18%).
  • Industry Trends: * Sustainability: The industry is heavily influenced by sustainability, as consumers and beverage companies actively seek eco-friendly packaging options. This trend favors aluminum due to its recyclability and low-carbon footprint, leading to increase demand. * Global expansion: Emerging markets in Asia and South America are experiencing significant growth in demand for packaged beverages, opening new opportunities for suppliers such as Ball. * Increased competition: The aluminum can packaging market is intensely competitive, with global consolidation and new entrants in lower cost markets making inroads.
  • Margins: Ball’s operating margins vary by region. For example in 2023: EMEA had an operating profit margin of 10.5%, while NA and CA had operating profit margins of 9.9% and South America had an operating profit margin of 10.9%. Overall, the operating profit margins average in the 10% range. As of the most recent quarter they are seeing volume declines in Europe and more competition in North America.
  • Competitive Landscape: The aluminum can packaging industry is oligopolistic, with a few major players, including Ball, Crown Holdings and Can Pack. This landscape is marked by intense competition on price and a focus on cost efficiency. * Differentiator: Ball’s core strength is its global scale and manufacturing footprint, enabling it to reliably produce and deliver large quantities of packaging to beverage companies worldwide. Their stated focus on sustainability and innovation are also differentiators.
    • Moat Rating: While Ball benefits from its scale and global presence, which provides cost advantage, it does not possess a wide moat. The aluminum packaging industry is intensely competitive and the main customers are very large, giving them substantial negotiating power. Although aluminum packaging is recyclable and better than single use plastic, the switching costs are still low. Their ability to command price premiums is limited because of the commodity nature of their products. The moat is a narrow moat with a rating of 2 / 5.

Although recycling is a growing trend, there is potential risk with the move towards other types of packaging, like paper or alternative packaging solutions.

Legitimate Moat Risks and Business Resilience

While the company has strengths, there are several risks.

  • Industry Rivalry: The aluminum packaging industry is highly competitive, with low pricing power and a risk of declining profitability from intense competition. New entrants in emerging markets could put downward pressure on prices, and competitors could start to gain market share through aggressive pricing.
  • Concentrated Customer Base: The company relies heavily on a few large multinational beverage companies, meaning that the loss of a major client or a decrease in their orders can be detrimental to Ball’s financial health.
  • Commodity Price Risk: As a commodity producer, Ball is susceptible to fluctuations in aluminum prices, as well as the cost of other raw materials and energy. This risk is mitigated to some degree via long term contracts with their customers and cost pass through but they still face risk as cost-inflations might not get fully passed on.
  • Currency Volatility: A significant portion of the company’s revenues are derived from foreign countries, making it vulnerable to fluctuations in currency exchange rates, particularly in volatile markets.
  • Technological disruptions: The company will have to adapt to new materials and processes in the packaging industry, if another material becomes more popular due to costs or environmental concerns.
  • Sustainability Regulations: Changes in government regulations can have a substantial impact on their business.
    • Business Resilience: The company’s global scale, coupled with its focus on sustainability and a reasonably strong balance sheet will allow it to partially withstand some of these challenges, with strong relationships with their key clients

Ball has good customer relationships, but it has to compete in pricing of aluminum cans. They are reliant on larger companies and could lose market share by not being able to adapt and diversify.

Financial Deep Dive

  • Income Statement Analysis: The company’s sales have been stable in the past few years, with an increase in revenues from 13,798 million USD in 2021 to 14,924 million USD in 2023. Inflation has helped in improving their revenue numbers but they have had difficulty passing on all costs to their customers, meaning that margins have been under pressure and have fluctuated quite widely in recent years. The company’s operating profit was 1,117 million USD in 2023. Net income for 2023 stood at 555 million USD, with EPS at 1.72. The company has seen pressure on both top-line and bottom line growth in the past few years as inflation and increased competition squeezed margins and slowed down growth. * Key Financial Ratios:
    • Gross Profit Margin: Averaging in the 15% range, the main part of its costs come from raw materials and other manufacturing costs.
    • Operating Profit Margin: 2023 Operating profit margin was at 10.5%.
    • Net Profit Margin: In 2023 Ball had a net profit margin of 3.7%.
  • Balance Sheet Analysis: The company has high liabilities compared to its assets, with total liabilities of 19.8 billion USD compared to 15.9 billion USD in total assets in 2023, giving it a high debt-to-equity ratio. The debt is mainly used to reinvest in plants and the business overall, to gain an even better market share. Debt is mainly structured as secured revolving credit, which was at 6.8% as of January 2024. * Capital structure: As of December 2023, they had 2.7 billion USD in short-term debt (maturing in 1 year) and 7.1 billion in long term debt. The company is highly leveraged and they need to have continuous earnings to keep servicing their debt. * Cash flow statement: Cash flow from operations has fallen quite significantly over the years, from 1.8 Billion USD to 1.2 billion USD in 2023. As a consequence of reduced operating cash flow, free cash flow is minimal.
  • Recent Concerns: In the latest reports, executives noted a lower production volume, with decreased revenue growth due to increased competition in North America, and slow growth in Europe. They also cited lower market demand in Brazil, as well as volatility in the European market as reasons for negative trends in revenues. * Management Outlook: Management is attempting to improve efficiency, lower costs, and diversify into new product categories. They expect to be able to improve margins in the near future with their latest initiatives.

While Ball’s debt is manageable now, a prolonged period of low revenue growth could threaten debt payments.

Understandability

Ball’s business model is relatively straightforward—manufacturing and supplying aluminum packaging to other companies, however there is a complexity of global operations, material prices, hedging and financial aspects, making the business harder to understand in-depth. Therefore a rating of 2 / 5 seems appropriate for the ease of understanding the business.

Balance Sheet Health

The company has a high amount of debt in comparison to its assets, and has a low cash balance, making the balance sheet health a 3 / 5. The leverage creates value if managed correctly, but high debts have the potential to ruin the company.