Ball Corp. Realigns Production - Analyst Blog

Ball Corporation (BLL) announced several actions to better realign its manufacturing footprint in North America in order to meet changing customer demand. The company plans to decrease its overall installed beverage can capacity by closing its Torrance, California plant and estimates a related after-tax charge of $12.4 million to be recorded in
2011. Ball Corporation also intends to expand specialty beverage can production in its Fort Worth, Texas plant.

The winding down of the Torrance beverage can plant is scheduled to be completed by the end of the third quarter of 2011. The plant operates three lines – two that produce 12-ounce cans and one producing 16-ounce cans. One of the 12-ounce production lines will however be relocated from Torrance to Ball Corporation's Whitby, Ontario-based beverage can plant and is slated to start production during the second quarter of 2011.

In connection with the plant closure, particularly for employee severance and pensions and facility clean-up costs, Ball Corporation expects to record a total after-tax charge of approximately $12.4 million in 2011. Roughly $6.4 million of the severance expense is expected to be recorded in the first quarter of 2011.

Upon settlement of all closure-related costs and disposition of all assets, the shut down of the Torrance plant is expected to be cash flow positive leading to significant fixed cost savings for the company.
In the meanwhile Ball Corporation also intends to expand its specialty beverage can production at its Fort Worth, Texas, plant. A new line in Fort Worth plant will make 16 and 24-ounce specialty cans and is expected to begin production by the beginning of the third quarter of 2011.

Over the past two years, Ball Corporation has closed facilities to evenly match supply with market demand and effectively cut down costs. It has also taken steps to improve its return on invested capital through the redeployment of assets within its operations.

The current plant closure will not only help Ball Corporation rationalize costs in a competitive market, but further align supply with customer demand. In the rigid packaging industry, reducing costs, increasing prices, developing new products and expanding volumes are all possible avenues available for boosting earnings.

Ball Corporation reported strong third quarter results with EPS of $1.40, up 16% from $1.21 during the prior-year quarter, but below the Zacks Consensus Estimate of $1.43.

Net sales as reported by the company amounted to $2.03 billion, up 12% year over year, driven by the strong performance throughout the company's various packaging operations and the aerospace segment. However, total sales failed to meet the Zacks Consensus Estimate of $2.06 billion.

Earlier in January 2011, Ball Corporation acquired Aerocan. This deal will strengthen Ball Corporation's exposure to the European can market and also boost its international sales. During the third quarter, Ball Corporation sold its long under-performing Plastic Packaging segment.

In the third quarter, the company disclosed its plans to install the second production line in North America to produce Alumi-Tek bottles. The company also announced the consolidation of its salmon can production in the beginning of fiscal 2011, which is expected to bring cash benefits worth $8 million to the company.

The company has also grabbed lucrative contracts during the quarter like the one received from NASA to build the first Joint Polar Satellite System (JPSS-1) and from DigitalGlobe to build a WorldView-3, the next generation commercial remote-sensing satellite.

The company is well positioned to capitalize on these big deals. We wait for these initiatives, as well as the ones recently announced, to bear fruit. The company is currently allotted a Zacks #3 Rank (short-term Hold recommendation) on the stock.

Broomfield, Colorado-based Ball Corporation is a manufacturer of metal and plastic packaging, primarily for beverages and foods. It also supplies aerospace and other technologies and services to government and commercial customers. Ball Corporation competes with Alcoa Inc. (AA) and Rexam plc (REXMY).

 
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