Ball Corporation (BLL) reported its reported fourth-quarter 2010 adjusted earnings of 93 cents per share, beating the Zacks Consensus Estimate by a penny. Results comfortably beat year ago earnings of 92 cents. Adjusted earnings were $82.6 million, up 4% from $79.1 million in fourth-quarter 2009.
The improved result was largely driven by strong operating performance, consolidation of the Brazilian joint venture, solid aerospace program performance and growing emerging markets.
Including a tax benefit of 13 cents and loss from discontinued operations of 2 cents, the company reported net income of $1.04 per share in the quarter under review, up 22% year over year. Reported net income was $92.2 million, up 13% from year ago quarter.
For full year 2010, Ball Corporation reported adjusted earnings of $4.59 per share, beating the Zacks Consensus Estimate by 3 cents. Results were also ahead of $3.92 in 2009. Adjusted earnings were $421.2 million, up 13% year over year.
Including a tax benefit of 13 cents and loss from discontinued operations of 82 cents, the company reported net income of $5.10 per share in 2010, up 25% year over year. Reported net income was $456.2 million, up 18% from 2009.
Operational Performance
Net sales of Ball Corporation for the fourth-quarter 2010 were $1.995 billion, an improvement of 15% from $1.727 billion in the year ago quarter. Higher contribution from Metal Beverage Packaging, Americas & Asia, Aerospace and Technologies and Metal Food & Household Products Packaging, Americas, partly offset by a lower contribution from Metal Beverage Packaging, Europe drove the overall improvement. Result also surpassed the Zacks Consensus estimate of $1.8 billion.
Full year 2010 net sales increased 14% year over year to gross $7.63 billion. Result was also ahead of the Zacks consensus estimate of $7.5 billion.
Cost of sales in the quarter increased 14% year over year while the same increased 13% over the prior year in 2010.
Selling, general and administrative expenses increased 27% year over year in fourth quarter and 15% in 2010.
Ball Corporation reported operating income of $176.8 million in fourth quarter 2010, up 26% year over year. Operating income for 2010 totaled $764.6 million, up 17% over the prior year level.
Segmental Performance
Metal Beverage Packaging, Americas & Asia: Sales at the segment in the fourth quarter increased 27% year over year to $1.03 billion. For 2010, sales were $3.8 billion, up 33% from 2009.
Operating income in the quarter increased to $117 million from $72.1 million in the year ago quarter. Solid operating performance aided by successful consolidation of the Brazilian joint venture and high double-digit volume growth in China and Brazil contributed to the increase.
2010 operating income was $418.3 million, up from $296 million in 2009.
Metal Beverage Packaging, Europe: This segment reported a year over year decline of 4% sales to $408 million in the quarter. For 2010, sales declined 2% over the prior year level to gross $1.7 billion.
Operating income declined to $42.3 million from $50.3 million in the year ago quarter. The decline was largely attributable to negative effects of a lower year-over-year Euro exchange rate, unfavorable weather conditions and lower exports. However, single-digit volume growth was a partial offset.
2010 operating income declined to $212.9 million from $214.8 million in 2009.
Metal Food & Household Products Packaging, Americas: Sales in the fourth quarter were $352.6 million, up 8% year over year. 2010 sales were $1.4 billion, a decline of 2% from 2009.
Fourth quarter operating income was $24.6 million, up from $18.3 million in fourth quarter 2009. The increase was driven by better plant performance and the positive impact of the acquisition of Neuman Aluminum in July 2010.
Full year results were $129.1 million, a trifle lower than the year ago results.
Aerospace and Technologies: Sales improved 24% year over year to $200.6 million in the quarter. 2010 sales increased 6% from $689 million in 2009 to $713.7 million.
Operating income was $19.3 million in the quarter, up from $15.8 million in the year ago quarter. Better execution on existing contracts coupled with contracts won in the second half of 2010, aided the improvement.
Full year operating income increased to $69.8 million from $61.4 million in 2009.
The segment had a contracted backlog of $989 million at 2010 end.
Financial Performance
Ball Corporation ended 2010 with cash and cash equivalents of $152 million, substantially lower from $210.6 million at 2009 end.
Long term debt increased to $2.7 billion at 2010 year end, from the prior year level of $2.3 billion.
Operating cash from operations increased 5% year over year to $500.3 million in 2010.
Capital expenditure incurred by the company was $250.2 million, higher than $157.9 million incurred in the prior year.
Dividend, Share repurchase and Stock Split
The Board of Directors of Ball Corporation approved a 40% increase in the company's quarterly cash dividend. The increased dividend of 7 cents will be payable on March 15 to shareholders of record on March 1.
The board also announced a two-for-one split of the company's common stock, effective February 15 to shareholders of record on February 4.
Also, the board authorized the company to buy back up to 20 million of the company's post-split shares.
Insights to 2011
Ball Corporation expects to generate at least $400 million in free cash flow. The guidance adjusts investments in key projects to capitalize on organic and emerging market growth opportunities.
Management also expects to deploy most of the free cash flow to buy back stocks.
Ball Corporation expects earnings to be higher than the 2010 level.
Peer Comparison
Alcoa, Inc. (AA">AA), which competes with Ball Corporation, reported fourth quarter 2010 operating earnings of 21 cents, which soared above last year's penny profit. Result also surpassed the Zacks Consensus Estimate by 2 cents. The improvement was largely driven by higher pricing, continued strengthening in most end markets and improved productivity.
Our Take
We expect realignment initiatives for its manufacturing footprint in North America in order to meet changing customer demand, successful integration of acquisition, continued growth in the emerging markets and focus on enhancing shareholder value through dividend increase as well as share buyback will position Ball Corporation to deliver better numbers going forward.
We maintain our long-term Neutral” recommendation on Ball Corporation. The quantitative Zacks #3 Rank (short-term Neutral rating) for the company indicates no clear directional pressure on the shares over the near term.
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