Ball Corp. to Close Canadian Plant - Analyst Blog

Ball Corporation (BLL) announced that owing to sluggish market demand it has decided to close its Richmond, British Columbia plant, effective first quarter of fiscal 2011. As a result of the closure, Ball Corporation will record a total non-cash, after-tax charge of approximately $7 million, of which $3 million will be incurred in the third quarter of 2010. Following the final disposition of the land and building, Ball Corporation estimates the closure will result in a net gain of approximately $8 million.

The Richmond plant manufactures steel cans catering to the Alaskan and Canadian salmon industry. It currently employs 40 people, who will be offered outplacement over the next several months. Other benefits, including severance, will be provided in accordance with the plant's collective bargaining agreement. After ceasing operations, the plant's production equipment will be consolidated into other manufacturing facilities that will also serve the erstwhile customers of the Richmond plant.

The 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 the sole avenues available for improving earnings.

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

Improving market conditions in metal beverage packaging and management focus on core businesses bode well for future operating performance. Ball Corporation capitalizes upon its strong free cash flow for share repurchases and strategic acquisitions. These efforts, along with modest volume growth and earnings contribution from recent acquisitions, will help deliver overall earnings growth.

Ball Corporation has recently hived off its long under-performing Plastic Packaging segment and received $280 million in return, including $15 million of contingent consideration recognized at closing. We appreciate this move given the segment's weak volume outlook, and its meager 9% contribution to Ball Corporation's total revenue. We believe this divestiture will also help boost Ball Corporation's earnings.

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.