Great! So look, we'll go ahead and get started. Appreciate having Ball Corporation here with us today. For those of you who I haven't met before, my name is Mike Leithead, head up the chemicals and packaging efforts here at Barclays. Happy to have Dan Fisher, CEO, at Ball, and Howard Yu, who heads up CFO. Been here for how many months now, Howard?
Five months.
Five months. So, new face, but obviously a great addition. So before we go ahead and get started, we'll just run through some of the ARS questions fairly briefly. So if we could fire up the first one. So do you currently own the stock? One, overweight; two, market weight; three, underweight; four, no. Okay, a lot of opportunity here for new investors. Next question: What is your general bias towards the stock right now? Positive, negative, or neutral? Okay, well, mixed there. Next question: In your opinion, through cycle, EPS growth for Ball will be above peers, in line, or below? Okay, mostly above. Next question: In your opinion, what should Ball do with excess cash? And this is probably a good question for Howard right now, considering we have a nice check that just came in the door last week.
Focus on M&A, larger M&A, repurchase with divvies that pay down our internal investment. Okay, share repurchases and debt paydown win there. Next question: In your opinion, on what multiple of 2024 earnings should Ball trade at? You have a wide range there from less than 10 to higher than 21. Unfortunately, you two don't get to hammer the six button here. Okay, most people think 16x-1 8x . And then last question, or is this the last question? What do you see as the most significant share price headwind facing Ball Corp? Core growth, margin, capital deployment, or execution strategy? Core growth. Okay, well, we'll dive into that. I believe that's the last question, unless I'm mistaken. So great, we'll go ahead and get started with all the fun questions. Again, happy to have you guys here.
I think the group really struggled the first three or four, but they got it right. That's about half.
Building some momentum there.
There you go. Incongruent.
Exactly. Well, look, Dan, Howard, appreciate having you guys.
Thank you.
I guess a lot's changed, maybe it hasn't, in some ways since last February. To start off, maybe just can you level set where Ball is today, why you feel like you're pretty well positioned to deliver strong earnings growth and cash flow in 2024?
Yeah, I do think a lot has changed in the last year. Number one, we jettisoned our oldest business here, and you referenced that. We sold a really terrific business for a great price, and that all came to conclusion last Friday. So we said goodbye for now for a lot of wonderful long-standing employees, about 5,000 folks. We sold 15%-17% of our business for nearly 40% of our market share. And I think with that cash infusion, which is Howard, $4.5 billion basically after tax, we're already in the market tendering for retirement of debt, get our balance sheet in a really terrific spot. And as early as Friday, we were in the market buying back shares.
So, we agree wholeheartedly with the sentiment to buying back shares and retiring debt and, getting a nimble, flexible balance sheet for the future. So all of that's in process, and it's consistent with what we said we would do, back, I guess, May time, pretty much when we made the announcement, of the agreement in principle. And then I think the other major difference for us is we've shed a lot of high cost, less agile, fixed cost structure plant. We've got, and we've made investments clearly over the last handful of years that we put world-class assets in place, and then all of that is gonna give us a really nice footing for when the core growth comes back, and all signs point to a different behavioral pattern with our customers.
They're all going to need to do something other than pulling on the price lever, given that the end consumer is weaker. You're hearing it in retail, you're hearing it in QSR channels, on and on and on. But that typically is a good signal for us and a lot of communication we're seeing, and the early indications in terms of volumes and year-over-year growth is manifesting at small levels, but it's really the first time in the last couple of years that we've seen that. So things are being put in place. We're an aluminum packaging business. We believe in the circularity and the sustainability attributes, the carbon journey that we're on. There's been a lot of investment in things like a zero carbon smelting operation technology is now-...
In operation in parts of the world. And so, we're really excited about the trajectory of the sustainability attributes that aluminum has, our ability to sell that at scale, which I think is a differentiator. And then the need for folks to grow generally comes with a need to innovate. And we are also head and shoulders above kind of the competitive landscape in terms of innovation and selling that innovation at scale. So we're in a good spot. I think you'll hear more from Howard, and we're doing what we said we would do. We've got more upside than probably we do downside, and there's a far more predictable backdrop in terms of our volume. And we're all in on aluminum. So that's what Ball is today and will be in the future.
Great. Well, look, a lot to dig into there. Maybe let's start with the organic growth, 'cause that's obviously the key focus for a lot of people here. If we start with North America, can you just talk about what you're seeing boots on the ground in the industry right now? Any pickup in promotional activity? And then maybe just help remind us, obviously, last year there was a beer brand disruption of sorts, just how we should think about anniversarying that and-
Yeah, I haven't heard anything about this beer brand disruption.
Get to a more normalized rate.
Right. Right, right. So the beer brand disruption for us, for everybody that knows, the big beer brand disruption happened like end of April. We have a significant share of that particular brewer's business, in terms of merchant supply, nearly all of it, with the exception a nd they have 50% of their volume is vertically integrated. So, we, we've seen a lot of branding activity, we've seen a lot of marketing activity. It's all gearing up for the summer. So what happens this summer, I think, will drive the balance of, that brand and their ability to rebound.
So I think there's a bit more of a wait and see on that, but usually that's when folks have barbecues and concerts and college football, and all of that is gonna be meaningful for that brand in its recovery. I would say in terms of promotional activity, there's more, but more importantly, you know, promoting from $9 to $8.50, that was happening. $9 to $8.50 a 12-pack, sorry, those describing the domestic market. It's deeper now. You're seeing a return to prior to COVID in terms of some of those behaviors. The buy one, get one frees, the pantry stuffing events, that'll be more, it'll be similar to what we've seen prior to COVID.
Again, it's not gonna be meaningful until you get to peak season, which is April-May timeframe through Labor Day. But you're seeing early signs that, more importantly, you're hearing it from all of our customers, that they're going to need market share, they're going to need revenue, they're going to need volume in order to generate the return profile that they've signed up for. So that's always a good sign for us. We're seeing early indications. January is one of the more quiet, if not the most quiet, months of the year, but we did see a positive inflection in terms of growth for the first time in a couple of years, both in the four-week and the twelve-week, excuse me, four-week and the one week. And so we're continuing to see that post Super Bowl.
So all of that's, all of that's moving in a positive direction. The wild card, obviously, for everybody here, it's like, how weak is the end consumer? You know, how aggressive do they have to be in terms of their promotional activity? That'll play out here, I think in the third quarter for us, which is the most important in the Northern Hemisphere.
Yeah. Okay, that makes sense. And maybe if we then just kinda shift around the globe a little bit. South America, been a bit choppy, although maybe Brazil is improving a bit. AMEA has been actually surprisingly resilient until recently, maybe a little choppiness. So can you just talk about kind of the lay of the land in those two regions today?
Yeah. So what we, what we've seen exiting 2023 and into 2024, take Argentina out of the equation, which you can't for us, because we're the only ones that actually manufacture and sell cans in that marketplace. But, we've seen a really nice uptick with our major customer in that market winning share. They won share at the end of the year. They're continuing to perform well here, early stages of this year. We just got through Carnival in Brazil. So really good consumption patterns for beer down there. So we're, we're off to a good start, and you really need the first quarter and the fourth quarter to perform well in Brazil in order for you to have a meaningful year or a chance to execute against your expectations for the year down there.
Argentina, we didn't expect a whole lot, but so far it's moving in a fairly positive manner. I think a lot of the actions that the new president has taken, I think everyone was waiting to see what was happening down there, but it's been fairly resilient, and we've seen e ven year- over- year, I think we're off to a good start compared to prior year there. Chile is still a bit stagnant in the economy, but we didn't expect a whole lot there. So I'd say overall, I think South America's off to a decent start. So we're bullish about that.
I think one of the things that's important to recognize, and probably many in the audience know, it's Brazil was a country that didn't actually stimulate their economy much during the pandemic, and that's given them an opportunity, and they've had a couple of wonderful crop years here in the past two years, and I think all of that has benefited them, and their GDP growth is better than expected. I think they've lowered interest rates faster than we expected. So that economy is moving in the right direction, and you need that for our software business. In Europe, it's still in a bit of a malaise. I would say the end consumer is not strong there. I think the inflationary pressures continue.
That is all built into our expectations, that I know that the regasification projects start to come online second quarter, so hopefully we will see some of that, 'cause it's the inflationary pressures on the energy sector that is really causing the end consumer some angst in terms of their ability to purchase volume at similar levels to you know prior to the Ukraine event. But, we're bullish on medium term, long term for Europe is still a wonderful market for us. It's the least penetrated by cans. I think glass has challenges in terms of their carbon footprint, so we should be able to incrementally take share here over the next handful of years.
And so I'm really excited about that market, medium and long term, but we're certainly in a t he end consumer is in a difficult spot right now in Europe. So we expect to see growth this year.
Mm-hmm.
But, it'll be second half-weighted.
And you touched on it a little bit in your opening comments around just the cost actions you guys have taken. I think if you look back and kind of what your volumes have been in the past year or two in the market-
Mm.
I would argue EBIT or operating profits probably hung in better than most people would have thought. How do we think about then, the eventual volume recovery? Like you said, you've taken out some of the inefficient plants, you've kind of upgraded. What's sort of the, the operating leverage, or just how should we think about when volumes do recover, kind of what that means for the PNL at the end of the day?
You want to take that?
Yeah, sure. So I think as we've documented, you know, we did do some plant takeouts. I think there's four of them in North America and one in South America. In 2023, you saw the impact associated with that. I think we quantified it as roughly around $75 million. One of the facilities we're shuttering here in the first quarter here, Kent. And so we talked about the tailwind that we'll get associated with the fixed cost savings there as well. I think we quantified that and said roughly around $30 million. And so and as Dan has pointed out, we're taking out the least efficient, you know, manufacturing facilities in that regard as well.
Not only are we taking out those fixed costs, but we're gonna get that productivity gain as it relates to our overall supply chain and our manufacturing facilities. You know, we talk about it in the context of, for every percent of growth, we get 2% of earnings. I mean, we think that certainly in the short term, that leverage might even be better.
I think if you pull back another layer and you look at safety, safety performance will be better, quality will be better, our delivery performance will be better, our inventory positions will be better, our productivity will be better. And then I think all of that should lend itself to our ability to win business, 'cause there's no reason for folks to go anywhere else. And the M&R spend associated with aging plants, I think folks understand that as well. It's a lot more to maintain efficiency levels in a 50-year-old plant than it is in a six-year-old plant or a six-month-old plant. So all of those are gonna contribute at various aspects of our cash generation and our ability to lever potentially at a better rate moving forward.
Howard, maybe I'll stick with questions to you for a little bit. You obviously got a very nice check in the door on the aerospace sale fairly recently. I guess the main question I get from investors is how fast or how quickly are they going to deploy that capital? It sounds like, if I heard Dan correctly, you're already in the debt market, you're already in the equity market. I mean, just how should we think about the pacing of putting that cash to use?
Yeah. So, we've spent a substantial amount of it already. I mean, this is what we said we were gonna do, you know, with that $5.5 billion of proceeds. You know, we tendered for the 2025 and 2026 debt. And so, we'll retire much of that. The term loan there is also an opportunity for us to address some of that, and that would come up in 2027. And what we said was we'd spend about $2 billion in debt retirement and buying back that, and then deploying a, you know, significant amount of cash as it relates to stock repurchases. And we started that, and we're in the markets starting last Friday as well.
And so we've talked about a $2 billion number there over the next, let's call it two years or so. We'll be fairly aggressive and prudent about how we buy back those shares as well.
Would an accelerated share repurchase be on the table or not, kind of how you're thinking about things?
Well, we have a 10b-18, 10b5-1 in place now, and, you know, as we go into a blackout, we'll have to assess whether an ASR is identifiable for us. Obviously, it's dependent on the volatility and the economics, so we'll be, again, thoughtful about whether or not we deploy that. I don't know that we would anticipate a significant amount of an ASR if we did deploy one.
Yeah. Okay. And then maybe last one to Howard on the financials before I'll come back to Dan. Part of the capital deployment is on the factoring side of things and unwinding some of that. I think there might have been some confusion from investors, just how that flows into the operating cash flow and the free cash flow line. Again, I'd like to think of factoring unwind as almost a financing activity, although that's not what US GAAP says. So maybe you can kind of help elaborate a little bit just so people better-
Sure
... understand the free cash flow guidance.
Sure. So Mike, I think, and I think you understand it well, for those, you know, maybe not as familiar with the factoring and, and the like. Yeah, so what we said is our normalized free cash flow for 2024 will be in the range of $900 million-$1 billion. So that's the way to think of it. We've also talked about unwinding some of this factoring. We've talked about it in the context of about $500 million or so, and so that leads to the $500 million of free cash flow kind of guide that we provided in the earnings. So you're right. I mean, in many regards, unwinding factoring is more of a discretionary finance decision, but the way that we report those things and because it's part of working capital, we have to capture it as part of the operating plan. Yep.
Okay, that makes sense. And then hopping back, Dan, you recently announced, I think you guys are having your biennial Investor Day, June eighteenth? Ann's shaking her head yes, so I didn't screw up the date. In New York City. What do you hope to lay out for investors? Again, like you said, you have some portfolio changes. I mean, just what do you hope to showcase at Ball that you hope investors can walk away with a better appreciation of, moving forward?
Yeah, I think I've made a few comments at the outset, but I think we've got a really good company, a very good company. I don't think we've taken advantage of our scale in the marketplace. I think we can be a great company. We have all of the recipes to be a great company. We're the most innovative. We can sell sustainability at scale, and you're gonna - we're implementing the Toyota Production System. We're getting very focused in our commercial structure. We're changing our operating model. You'll hear a lot about the details behind that. But fundamentally, by jettisoning the aerospace business, we're a higher margin business, and our free cash flow is gonna look a hell of a lot closer to our net income levels moving forward.
We're gonna be able to, with a lower gearing level, we're gonna be able to manage our free cash flow at a rate that in a more consistent manner and at a higher rate of return for our shareholders than I think we've been able to do for quite some time. We need to be very disciplined, because this world will not look like it was between 2010 and 2018. In order to be a high-performing company with higher interest rates and higher tax rates, it's like you have to run your business better than anyone else. I think we can absolutely step into being a great company with a focus on the most circular substrate.
And so that's really what you're gonna hear in more detail, and you're gonna hear it from a leadership team that I think is the best in the world, any company, regardless.
Now, if I just think about the portfolio post aerospace, obviously, Ball, long history of entering, exiting a ton of different businesses.
Mm-hmm.
Is this portfolio the right one for the future, or is there any other changes that you think makes sense over the next, I don't know, two or three years?
It is, it is for now. And I say that there are a number of things, whether it's single use or multi-use or reuse, aluminum is the most circular package, and I think we've got runway to get to a product that can get darn near close to carbon neutral by 2030, in some aspects, in some of our product offerings. And if we do that, then it's gonna be the unlock of the ecosystem and making sure that we have partners that can help us with the growth of the entirety of the supply chain. We're not gonna make investments, significant investments. That's not what I'm saying, but I think we do need to create the catalyst and environment to that enables aluminum to grow.
And that's where our focus is here in the short to medium term, and buying back a lot of our company.
Yep. And then last one before I turn it open to Q&A. You mentioned kind of the most circular substrate, and that's obviously a key focus for you guys. A heck of a lot's changed in consumer demand over the past few years that can maybe mask some of the end demand trends and whatnot. But when you talk to your customers, what is the engagement around the sustainability substrate shift? I mean, has that changed at all through all this, or just maybe kind of talk about how those conversations have evolved.
Yeah, I think everything slowed down for the last couple of years. Fundamentally, it's like, if I don't have to do much, I can put up my price and people are leaving us alone. They're like, "Just give me recycled content." But the reality is, both in Europe—Europe is where they are sprinting down the path of the reporting initiatives that are gonna start in 2026, but in 2025 will be the baseline. So the conversations with the customers in Europe are intensified. They have intensified in a manner in which everything is on the table. We're talking about everything, and they need a carbon trajectory that's not gonna go backwards at any point in time over the next decade. They're fearful of greenwashing claims and lawsuits and on and on and on.
Aluminum gives them a very safe backdrop to move into to enable progress and movement in a number of their claims, especially on the carbon footprint. 2027 is theoretically when the SEC starts to do things like that. So I think this reporting cadence has got all the customers moving in a far more aggressive manner toward doing different things within their portfolio. We're having a lot of those now.
Okay. I'll pause here if there's any questions from the audience. Again, I can talk to you and Howard for another two hours if they didn't cut me off.
Please don't.
But, feel free.
Just to clarify the comments made on, like, the one week January. That's positive volumes?
Yes.
For total, even comping the beer retail from last year, or that's ex the beer issue?
That's the industry.
Okay.
Yep, Great question. I would expect in what we've laid out to get to our flat, sorry. To get to our flat, it's gonna be negative volume comps first quarter, starting to transition to flattish in the second and third quarter, and maybe a slight bit of growth in the fourth quarter as we exit. Right now, we're a little bit ahead of that. Some of it has to do with, I think you understand, what's happening relative to potential spikes with that particular customer. So there's some safety stock movement that is a bit noisy right now. That's helpful for us, but I don't necessarily know that that plays itself out over a longer period of time. That all neutralizes back to what we guided at the beginning of the year.
But fingers crossed, we'll. We've seen positive inflection here in the industry. We hadn't seen that for two years. That's off to a better start than I think even our competitors would tell you in some of their comments. So I think we're moving in the right direction. Our customers are behaving that way. They're signaling some of that commentary as well, as recently as this week, that they need to grow volume. And so, we're gonna benefit from that across all the product portfolio and all the customer mix.
Any other questions? I'll keep asking in case there's any others. Rounding out the aluminum portfolio, I didn't touch on the cups, the aerosol. So maybe you can give your latest kind of update there, just how those businesses are trending as we start the year.
Yes, so the aerosol business over the last couple of years has been w e've made some significant op model changes. Leadership changed a couple of years ago. That business is twice as profitable as it was a couple of years ago. And a number of things have happened there. It's like we have dramatically increased the recycle content in that package versus the competitive landscape that's giving us a nice advantage relative to a lot of the sustainability claims that those customers need to make as well on the personal care space. We're running our facilities better. We've made some nice incremental capital investments that's benefited us as well. So that that's on a lovely trajectory.
And in Europe, a lot of the conversations now are reuse, single-use, and for us, that's really our reuse opportunity, both on the personal care space and on the beverage space. There's a lot of white space relative to that product offering that we can continue to step into. And then you've also got the steel tinplate aerosol transition into aluminum. So all of that has helped us grow kind of mid-single digits consistently. But what's more important is we're seeing the follow-through on the leverage in excess of this 2-to-1 ratio that we talked about. We're encouraged there. Then on the cup side, food service is the big opportunity, and we had sort of flattish volume growth year-over-year, but it's what's masked behind there is retail quite a bit.
Food service is on the uptick, and the big opportunities on volume are there. We are still losing money in that business. We're very close to breaking even on cash, but we're losing money in that business from a fixed cost standpoint. It's still gonna be this year is gonna be pivotal to see what we do medium term and longer term with that portfolio. We're still encouraged by all the market response, but this is not a the end consumer is pretty weak, and this is certainly a more expensive product than the competitive alternatives there.
So, the retail side has softened, but the food service is picking up steam, and we just need one or two big, big customers to make this a break-even business and even a profitable business.
You need the Nuggets to keep going deep in the playoffs, so you can keep selling those types of beer.
There's no question they'll do that. I mean, they have the best player in the world, and...
Any final questions?