Ball Q3 2010 Earnings Call Transcript

Ball Q3 2010 Earnings Call Transcript
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Ball (BLL)

Q3 2010 Earnings Call

October 28, 2010 11:00 am ET


Scott Morrison - Chief Financial Officer and Senior Vice President

R. Hoover - Executive Chairman and Chief Executive Officer

John Hayes - President, Chief Operating Officer and Director


Peter Ruschmeier - Barclays Capital

Ghansham Panjabi - Robert W. Baird & Co. Incorporated

Albert Kabili - Macquarie Research

Philip Ng - Jefferies & Company, Inc.

Alton Stump - Longbow Research LLC

Mark Wilde - Deutsche Bank AG

Richard Skidmore - Goldman Sachs Group Inc.

George Staphos

Andrew Feinman - Iridian Asset Management

Christopher Manuel - KeyBanc Capital Markets Inc.

Chip Dillon - Crédit Suisse AG



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Good morning, ladies and gentlemen. Thank you for standing by, and welcome to the Third Quarter 2010 Ball Corporation Earnings Conference Call. [Operator Instructions] As a reminder, this conference is being recorded, Thursday, October 28, 2010. I would now like to turn the conference over to Dave Hoover, CEO. Please go ahead.

R. Hoover

Thanks very much, Jennifer, and good morning, everybody. This is Ball Corporation's Conference Call regarding the company's third quarter 2010 results. The information provided during this call will contain forward-looking statements. Actual results or outcomes may differ materially from those that may be expressed or implied. Some factors that could cause the results or outcomes to differ in the company's latest 10-Q and in other company SEC filings, as well as company news releases. And if you don't already have our earnings release, it's available on our website at Information regarding the use of non-GAAP financial measures may also be found on our website.

Joining me this morning on the call is John Hayes, our Chief Operating Officer and President; and Scott Morrison, Senior Vice President, Chief Financial Officer. And in a moment, Scott's going to talk about our financial results for the quarter and for 2010, and then John will follow with details about the operating performance.

While Ball reported strong third quarter results due largely to excellent operating performance and the impact of strategic actions taken during the last year or so. In addition, to improve results, key achievements in the third quarter included the sale of the Plastics business, the acquisition of Neuman Aluminum and announcement about the consolidation of our salmon can production, the acquisition of an incremental 10.1% of our Brazilian beverage can joint venture and an announcement that we were expanding on production of our commercially successful Alumi-Tek bottle to meet customer demand.

Also and importantly, Ball aerospace won significant new business increasing our backlog to $852 million at the end of the quarter, up from $539 million at the end of the second quarter of 2010. And after that active quarter, we had significant opportunities in front of us to improve performance and carry momentum into 2011 and beyond.

Well I'll turn it over to Scott to talk about the quarter, and then as I said, John will provide color on our operations before I address our outlook. Scott?

Scott Morrison

Thanks, Dave. Ball's comparable diluted earnings per share from continuing operations were at $1.40, well ahead of last year's $1.21.

The following factors contributed to improved results: positive impact from the four acquired beverage can plants, volume improvement that our global Metal Packaging businesses, exceptional operating performance in our various businesses. These positive factors were offset somewhat by a $5 million increase quarter-to-quarter in G&A, primarily due to compensation costs. Purchase accounting and other costs associated with Brazil totaled approximately $5 million, and we had higher interest expense also related to Brazil.

During the quarter, the company realized an $80 million gain on the consolidation of our Brazilian joint venture, which is recorded in equity earnings. A 10% weaker Euro negatively impacted diluted earnings per share by $0.07 in the quarter and $0.13 year-to-date. For a complete summary of third quarter results on a GAAP and non-GAAP basis, please refer to the notes section of today's earnings release.

Turning to some key financial metrics. Interest expense in the quarter was up as expected due to the acquisition financing from last year's purchase of the four metal beverage plants and two months of interest expense from debt consolidated from Brazil. We now anticipate full year interest expense to be in the range of $145 million on a comparable basis and the full year effective tax rate on continuing operations should be in the range of 31%.

At current exchange rates, year end net debt is expected to be approximately $2.5 billion, or roughly $100 million reduction from 2009 taken into account the $250 million outstanding under the company's AR securitization program in 2009.

Given the growth opportunities before the company and the consolidation of Brazil, we see full year CapEx approaching $300 million. However, free cash flow is expected to be at least $500 million, excluding the impact of the AR securitization coming on the balance sheet. We continue to be focused on returning value to shareholders. Our plan is to repurchase more than a net $400 million of our stock for 2010, and that's on track.

With that, I'll turn it over to John to talk more about the operations.

John Hayes

Thanks, Scott. In the third quarter, our businesses performed very well across-the-board with EBIT in every segment up year-over-year on a constant-currency basis.

Comparable results for the quarter in our Metal Beverage Packaging Americas and Asia segment were up nearly 10% with EBIT of $112.8 million versus $102.9 million in the third quarter last year. This increase was driven largely by the impact of the acquired plants, strong volume growth in emerging markets and growth of certain specialty can sizes, offset by previously disclosed unfavorable volume comparisons in our legacy 12-ounce business and the impact of purchase accounting and other costs associated with consolidating Brazil into the segment that Scott referenced earlier.

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