In this conference call, Dan Fisher, Chairman and CEO of Ball Corporation, discussed the company's second quarter 2023 results. He mentioned that the results may differ from those expressed or implied, and that investors should refer to the company's 10-K, SEC filings, and news releases for more information. Additionally, the release includes information about the sale of the Russia operations, non-comparable items, and a reconciliation of comparable operating earnings and diluted earnings per share calculations. Lastly, Fisher mentioned that there will be limited commentary on the company's aerospace business.

In Q2, the company experienced tough year-over-year comparisons, including higher interest expenses and a decrease in global beverage volumes due to the Russian sale. Despite this, the team managed costs and working capital levels to deliver the quarter and position the business for a stronger second half. The company will benefit from inflation recovery, cost-out actions, improved operational efficiencies, and improved inventory levels. They are also studying opportunities to accelerate deleveraging and return value to shareholders, while also developing innovative packaging solutions to grow the business.

Ball Corporation is continuing to see increased demand for their products in their aerospace and aluminum aerosol businesses. They anticipate delivering approximately $750 million of free cash flow in 2023, and they are expecting to achieve the low end of their long-term goal of 10-15% comparable diluted earnings for share growth. They are expecting global beverage volume to be flat, with North America being down low single digits, South America being up mid-single digits, and EMEA being up mid-single digits.

Dan expressed his well wishes to the organization's employees, customers, suppliers, stakeholders, and listeners. Scott then reported that second quarter 2023 earnings per share were $0.61, and sales decreased due to the sale of the Russian business, lower volumes, currency translation, and pass-through of lower aluminum prices. Net comparable earnings decreased due to higher interest expense, the sale of the Russian business, and lower volumes, partially offset by the contractual pass-through of inflationary costs, fixed cost savings, lower depreciation expense, and SG&A cost out initiatives. The segment earnings in North America, EMEA, and South America are expected to improve in the second half of the year.

Ball ended the second quarter with a strong liquidity position of $2.65 billion in cash and committed credit facilities. Their 2023 and 2024 CapEx is expected to be in the range of GAAP D&A levels and they are targeting free cash flow of $750 million in 2023. Their 2023 full year effective tax rate is expected to be 19%, and their 2023 full year interest expense is expected to be $450 million. They anticipate their 2023 comparable D&A to be $550 million. Their goal is to reduce leverage and resume share repurchases. They are managing their supply chain and customers to secure the best cash earnings and EVA outcome for their shareholders.

Dan Fisher states that there is a customer with more filled goods than the others, and a little bit of inventory needs to be destocked in the energy space. However, the company is in a good inventory spot and expects to start building inventory in the quarter to execute against the back half of the quarter and peak season.

Dan Fisher states that there is not a significant amount of de-stocking in South America and that inventory is in a good position. George Staphos then asks for an update on volume trends and promotional activity across the regions, to which Fisher replies that promotional activity has increased but consumption has not yet followed. He also comments on the efficiency and yield of promotion in the third quarter.

Dan Fisher is confident in the uptick in beer sales, especially in North America. He believes that the scanner data does not accurately reflect the beer sales due to retailers resetting their stocks. In South America, Brazil is the most promising market due to the recession and inflation relief. Argentina is still a question mark.

In the fourth quarter, customers are likely to be more aggressive in their attempts to drive volume and regain market share from private label. The company is expecting to see slight growth in Europe, excluding Russia, as their plant system ramps up. They do not expect to see a great deal of uplift in Q3 from Q2, with the exception of a continued negative trend in mass beer.

Dan Fisher explains that the aerospace business is now more valuable, profitable, and bigger than it was five years ago, and Ball is conducting a strategic review to explore if the asset is in the right spot for long-term value. He clarifies that the review is not about capital allocation or return thresholds, but rather about the value of the asset. Additionally, Dan mentions that the customer mix developments in U.S. beer have caused retail points and the supply chain to be displaced.

Dan Fisher explains that there has been minimal movement in terms of retail displacement and that the full impact of this will not be seen until the first half of 2024. He also explains that the guidance for the next quarter includes a qualifier that potential results could be at the low end of the 10-15% range due to volume and difficulty of comparison.

Dan Fisher believes that the mass beer channel in North America will experience an inflection in the fourth quarter, and this was already baked into their plans. He also believes that the captive can makers will not benefit from the rebound in the mass beer channel as they prioritize their own assets. He has come to an agreement with one particular marketer that has a stable go forward position.

Dan Fisher explains that Brazil has been experiencing a recession for the past couple of years, leading to a shift towards returnable glass in the five to high single digit range. He states that this shift is due to the economics, as well as the per unit price point of aluminum, and the hedge positions that were constructed by their customers. He predicts that this shift will continue through the fourth quarter of 2021 and into 2024.

Dan Fisher explains that the cost of aluminum, hedge positions, and other economic factors have led to the expectation of can penetration improving in Q3, Q4, and stabilizing in Q1 of 2024. However, he notes that promotional activity has not generated enough volume momentum in the first three quarters of the year, despite increased activity. He believes that volume momentum will come in Q4 when there are more challenging comps.

In the second quarter, the decrease in beverage packaging in North and Central America was mainly due to the decline in mass beer. There was a negative 2.5 point impact in the first quarter and a negative 4.5 point impact in the second quarter. The planned curtailment in South America was implemented in the second quarter, and the company is planning for the back half of the year.

Dan Fisher confirms that the second quarter saw additional curtailment due to the 'mass beer phenomenon' and that there will be more curtailment throughout the third quarter. Despite this, the outlook for the long-term and medium-term in Europe is still positive for the beverage can industry due to the on-prem off-prem shift and the more diversified portfolio the company has. Despite the weaker European consumer, the business is expected to continue to perform well.

Mike Roxland asked Dan Fisher how the company is thinking about their portfolio and end market exposure going forward, particularly if the mass beer market doesn't recover. Fisher noted that domestic beer is down 4.5% in the last 12 weeks, but other categories such as import beer, non-alcoholic beer, cider, S&B, and ready to drink cocktails are all up. He suggested that the company is trying to minimize their exposure to mass beer and align themselves with customers experiencing higher growth.

Dan Fisher explains that the beverage companies have been transitioning over the past 12 weeks and that they are expected to benefit from the changes in the second and third quarters of 2024. He mentions that the Hispanic population is continuing to grow and that they have plans to add more capacity. Fisher also mentions that they restarted production at Avital and Venus recently due to their anticipation of better Brazil demand, potentially due to the winning of new business.

Dan Fisher believes that the capacity that has been put in place over the last two to three years will be enough to achieve low single digit growth in 2024. He also believes that volumes in Q2 and Q3 will be at a trough, but will be enough to push the company into growth territory.

Dan Fisher and Scott Morrison discussed the potential for increased free cash flow due to reduced capital expenditure, with Morrison noting that the company is expected to spend closer to GAAP depreciation next year. Fisher answered a question about potential customer shifts or pressure on contracts in North America, stating that there has been no such pressure at this point. He attributed the 8.5% decline in North American volumes to mass beer declines.

Dan Fisher discusses the short-term decline in beer shipments and the inventory management that was done to work off the excess from last year. He believes the market will be tighter heading into 2024 with growth underpinning every industry participant. Fisher also notes that the company has generated a lot of cash, giving them the flexibility to pay down whatever piece of the debt they want.

In Europe, Dan Fisher reports that the higher single-digit growth they anticipated for the year is now closer to mid single-digit growth, due to the macro environment. This is not a result of bringing on new capacity, but rather due to the capacity that is less utilized in the beer space. In North America, they experienced a 5% decline in the first quarter.

Dan Fisher reported that the overall marketplace in North America was down slightly by 1%, and that the difference between this and their customer mix was the delta. He also reported that the cup business was seeing incremental improvements, but that they would not be seeing a $20 million improvement this year, but rather around a $10 million improvement.

The call has concluded and everyone is asked to disconnect their lines. They are thanked for their participation and wished a good day.

This summary was generated with AI and may contain some inaccuracies.