Ball Corp. Reports Operating Results (10-Q)
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 $4.59 billion; its shares were traded at around $48.75 with a P/E ratio of 13 and P/S ratio of 0.6. The dividend yield of Ball Corp. stocks is 0.8%. 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:Excluding business consolidation activities discussed below, segment earnings were $102.9 million in the third quarter of 2009 compared to earnings of $77 million in the third quarter of 2008, and $223.9 million in the first nine months of 2009 compared to $228.4 million for the same period of 2008. Earnings in the third quarter and first nine months of 2009 were 34 percent higher and 2 percent lower than in the same respective periods of 2008. The significant increase in the third quarter was largely due to positive impacts from cost reductions, including $12 million from plant closures and other cost reduction efforts coupled with $7 million of lower freight and energy savings, and $5 million of lower benefit costs, partially offset by sales volume declines in the Americas. In Asia, profit margins increased in the quarter as overall cost reductions exceeded the impact of reduced sales due to the lower cost of metal. Year-to-date earnings benefited from the third quarter increase in profits, which helped to make up for the lower comparable earnings in the first two quarters due to sales volumes declines and sales of higher cost inventory.
Actions we took in the second quarter of 2009 to reduce headcount in our metal beverage packaging business resulted in a pretax charge of $3.3 million ($2 million after tax) for severance and other employee benefit costs. Results for the first nine months of 2009 also included a restructuring charge of $5 million ($3.1 million after tax) for accelerated depreciation in connection with the closure of the Kansas City plant, as well as $1 million ($0.6 million after tax) primarily for winding down the Puerto Rico and Kansas City plants.
Segment earnings were $68.8 million in the third quarter of 2009 and $164.5 million in the first nine months of 2009 compared to $76.7 million and $201.9 million for the same periods in 2008, respectively. While this quarter s sales volumes were consistent with those in the prior year comparable period, earnings in the third quarter of 2009 were negatively affected by a $3 million impact of the euro to U.S. dollar exchange rate, higher cost inventory carried into the quarter and a change in sales mix. Year-to-date results trended with those of the third quarter, with the adverse effects of foreign currency translation, both within Europe and on the conversion of the euro to the U.S. dollar, reducing earnings by $14 million compared to results in the nine-month period in 2008. The remaining decrease was due to high inventory costs partially offset by better commercial terms in some of our contracts and a change in sales mix.
Segment earnings were $16.2 million in the third quarter of 2009 compared to $18.4 million in the same period of 2008 and $45.6 million in the first nine months of 2009 compared to $56 million in 2008, excluding a pretax gain of $7.1 million on the sale of a subsidiary in 2008. The drop in earnings from the same period in the prior year and year-to-date was primarily attributable to the winding down of several large programs and overall reduced program activity. Sales to the U.S. government, either directly as a prime contractor or indirectly as a subcontractor, represented 94 percent of segment sales in both the third quarter and first nine months of 2009 compared to 92 percent and 89 percent for the respective periods in 2008. Contracted backlog in the aerospace and technologies segment at September 27, 2009, was $563 million compared to a backlog of $597 million at December 31, 2008.
Selling, general and administrative (SG&A) expenses were $86.8 million in the third quarter of 2009 compared to $67.5 million for the same period in 2008 and $239.9 million in the first nine months of 2009 compared to $227.6 million in the first nine months of 2008. The year-to-date increase in SG&A expenses was primarily due to $21.4 million of higher employee compensation costs, including incentive compensation costs, and higher stock-based compensation costs, including mark-to-market adjustments for the company s deferred compensation stock plans. These were offset by net favorable decreased costs of $9.1 million, including lower receivables securitization fees and lower research and development costs.
Consolidated interest expense was $28.9 million for the third quarter of 2009 compared to $33.1 million in the same period of 2008 and $79.4 million for the first nine months of 2009 compared to $104 million for the first nine months of 2008. The reduced expense for both periods in 2009 compared to those in 2008 was primarily due to lower interest rates on floating rate debt, and a lower euro compared to the U.S. dollar. Interest expense is expected to increase in the fourth quarter as a result of the $700 million of new senior notes issued in August 2009 (as discussed in Note 11 to the unaudited condensed consolidated financial statements within Item 1 of this report).
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