Ball is a manufacturer of metal and plastic packaging primarily for beverages and foods and a supplier of aerospace and other technologies and services to commercial and governmental customers. Ball Corp. has a market cap of $3.61 billion; its shares were traded at around $38.44 with a P/E ratio of 10.8 and P/S ratio of 0.5. The dividend yield of Ball Corp. stocks is 1%. Ball Corp. had an annual average earning growth of 17.1% over the past 10 years. GuruFocus rated Ball Corp. the business predictability rank of 4-star.
Highlight of Business Operations:Segment earnings were $41.2 million in the first quarter of 2009 ($46.2 million excluding business consolidation activities) compared to earnings of $74 million in the first quarter of 2008. Excluding the $5 million in business consolidation activities (see comment below), earnings in 2009 were 38 percent lower than in the first quarter of 2008 primarily due to approximately $9 million related to sales volume declines with the sale of higher cost inventory making up the remainder. Positive impacts from cost optimization measures offset negative foreign currency impacts in China.
Selling, general and administrative (SG&A) expenses were $75.2 million in the first quarter of 2009 compared to $81.6 million for the same period in 2008. This decrease in SG&A expenses was due to lower general and administrative costs in the aerospace and technologies segment of approximately $4 million; favorable mark-to-market adjustments of derivatives of approximately $3.8 million and other miscellaneous net cost reductions. These reductions and favorable adjustments were partially offset by an increase in stock-based compensation, including deferred compensation stock plan costs of approximately $3.5 million.
In our worldwide beverage can business, we use financial derivative contracts, as discussed in “Quantitative and Qualitative Disclosures About Market Risk” within Item 3 of this report, to manage future aluminum price volatility for our customers. As these derivative contracts are largely matched to customer sales contracts, they have very limited economic impact on our earnings. Ball s financial counterparties to these derivative contracts require Ball to post collateral in certain circumstances when the negative mark-to-market value of the contracts exceeds specified levels. Additionally, Ball has similar collateral posting arrangements with certain customers and other financial counterparties on these derivative contracts. At March 29, 2009, Ball had $181.9 million of cash posted as collateral and had received $98.1 million of cash collateral from customers for a net amount of $83.8 million. The cash flows of the collateral postings are shown in the investing section of our consolidated statements of cash flows. We expect to recover all of these net cash deposits in 2009.
At March 29, 2009, approximately $228 million was available under the company s committed multi-currency revolving credit facilities, which are available until October 2011. The company also had $333 million of short-term uncommitted credit facilities available at the end of the first quarter, of which $158.1 million was outstanding. Given our cash flow projections and unused credit facilities that are available until October 2011, the company s liquidity is expected to meet its ongoing operating cash flow and debt service requirements. While the current financial and economic conditions have raised concerns about credit risk with counterparties to derivative
Contributions to the company s defined benefit plans, not including the unfunded German plans, are expected to be in the range of $75 million to $85 million in 2009. This estimate may change based on changes in the Pension Protection Act and actual plan asset performance, among other factors. Payments to participants in the unfunded German plans are expected to be approximately €18 million (approximately $23 million) for the full year.
Considering the company s derivative financial instruments outstanding at March 29, 2009, and the currency exposures, a hypothetical 10 percent reduction (U.S. dollar strengthening) in foreign currency exchange rates compared to the U.S. dollar could result in an estimated $22 million after-tax reduction in net earnings over a one-year period. This amount includes the $9 million currency exposure discussed above in the “Commodity Price Risk” section. This hypothetical adverse change in foreign currency exchange rates would also reduce our forecasted average debt balance by $85 million. Actual changes in market prices or rates may differ from hypothetical changes.
Read the The complete ReportBLL is in the portfolios of Jean-Marie Eveillard of Arnhold & S. Bleichroeder Advisers, LLC.