Ball Earnings: Near-Term Volume Pressure Doesn’t Affect Our Long-Term Outlook

Narrow-moat-rated Ball BALL reported somewhat lackluster results as most of its end markets continued to experience moderating demand. Net sales fell almost 10% year over year, largely driven by weakness in North and Central America and EMEA. Inventory destocking continues to plague Ball’s beverage businesses as customers work down built-up inventories and enact stricter inventory management. While we maintain our view that Ball will benefit from a long-term shift to eco-friendly packaging, we expect near-term headwinds to persist into the first half of 2024. As such, we have maintained our $58 fair value estimate.

Ball’s North and Central America beverage packaging business reported mixed results in the quarter. Net sales fell 14.4% year over year as volumes fell almost 10% amid inventory destocking and declining beer sales for Anheuser-Busch, which continue to weigh on Ball’s North American volumes. To balance supply in the region, Ball announced it would cease operation in its Kent, Washington, plant, delay its beverage can plant project in North Carolina until 2028, and end its plans to build a plant in North Las Vegas. We see this as aggressive but necessary actions given the current market conditions for Ball. Following pandemic-era demand spikes and supply chain disruptions, aluminum cans are no longer a scarce commodity and retailers have made it clear they intend to work down elevated inventories.

The EMEA beverage packaging segment fared better in the quarter as net sales declined 12.5% year over year, largely driven by sale of Ball’s Russia operations last year. When excluding the sale of the Russia business, volumes fell only 2% year over year as demand in the region remained more resilient. Segment operating margins also improved 240 basis points to 11.5% as Ball made additional inflationary cost recoveries. We remain confident in Ball’s EMEA operations where consumers favor eco-friendly packaging but expect some demand headwinds to persist into next year.