Okay, good morning, everybody. Thanks for joining us on day three of our conference. My name is Ganeshan Panjabi. I cover packaging and materials for Baird on the equity research side. The next presenter will be Ball Corporation. From Ball, we have two gentlemen that have had quite a week with a lot of news. It's a pleasure to introduce Ron Lewis, announced CEO earlier this week. Ron's been at the company since 2019, prior at Coca-Cola Pacific in Europe. We also have Dan Rabbitt, who also was announced as CFO earlier this week. He's been at the company since 2004, if I have that correctly.
Correct.
Welcome first off. Congratulations on the announcements this morning.
Thank you.
I want to have you introduce the company, but maybe we'll start with the elephant in the room.
Absolutely.
Are the Broncos for real?
100%.
Okay.
100%. They're going to kill the Chiefs.
Yeah.
I have a Chiefs fan next to me here, so.
We'll start with the question about, certainly from our end, I've covered the stock for 26 years. Ball has had a very special culture over that time. Transitions were well telegraphed and so on and so forth. This week's news was a surprise. I'd love to get your perspective in terms of what happened.
Certainly. It has been definitely a whirlwind week. On Monday, I was sitting at a round table that I am sure you have seen when you visited us and conversing with a few of our former CEOs, Dave Hoover and John Hayes. They were offering congratulations and, of course, advice. This table is the same table that they sat at. It definitely harkens back to our past and our history. I say that because I know that table they sat at because it came from Muncie, Indiana, when we moved, and they came from Muncie. It was in our office there. I appreciate the chance to talk about Ball from my perspective. I joined, as you said, in 2019, but I had been a customer for more than 20 years in the Coca-Cola system. You have been covering it for 26 years.
I've certainly been involved for more than 26 years. It is a bit surreal, and it's a humbling experience because of the people that came before. I am ready for this opportunity. I've been preparing for this for many, many, many years and many, many different roles. All the way back to my childhood, one of the things I love about Ball and our culture is we have 5,000 people that wake up every single morning or every single night and go to work running a shift. I grew up on a farm in Central Montana with my dad, working there shoulder to shoulder with him. I learned the value of hard work. I learned the value of teamwork, working shoulder to shoulder with him.
He taught me integrity, and he taught me to treat everybody with dignity and respect, whether it was the mayor in town or the grain elevator operator, or we took our grain to market. I think Ball is very similar in terms of that culture, respecting the virtue and the value of hard work. We got a lot of people who work hard for us, so I work hard for them. That's sort of the background. I joined in our Europe business. I led our global beverage packaging business about 18 months ago when we created a new operating model. I was asked to lead our supply chain and operations. As I said, prior to that, I spent 20 years in the Coca-Cola system leading supply chains, buying cans from Ball. Prior to that, I worked at Cargill and Mars Incorporated.
I mentioned that I'm humbled and definitely I'm honored, but I'm also ready. I'm ready because this is not a turnaround situation. This is not a house is on fire. We have an excellent strategy that's working. You can see it in our volume growth. The strategy is really it harkens back again to our past. We are excellent allocators of capital. Our EVA mindset is still intact, and it will always remain intact in this company. We're really focused on four things. One is, are we enabling excellent execution every day? Second is, are we ensuring that we're close to our customers, literally, physically, with our footprint, which is unrivaled? Three is, can we continue to drive and ride this wave of packaging substrate shift because the aluminum is the best packaging substrate? Fourth is, the world is very volatile.
How can we act nimbly in this complex world? That is our strategy, and we are executing it very well, and we are winning with it. You can see it in our results, which are at record levels. I am proud of that. We are not a turnaround. We are not a house on fire. We are grounded, and we are anchoring down on that strategy. Now, the platform that we are using, you can see on the slide behind me, is what we call our Ball Business System. It is pretty simple, and it is pretty easy to explain and understand, which I like. First is, are we listening to our customers? Are we their indispensable business partner? Are we the easiest can maker to do business with? Are we the friendliest can maker to do business with? That is showing up.
You can see it in our volume growth this year, more than 4% year on year. Now, the other side of this equation is our operational excellence agenda. Every shift, every day, 66 plants around the world, how are we bringing stability to our business? How are we bringing standardization to our business so that we can all continuously improve? Ultimately, how are we bringing scale to our business? That is what we call our fuel for growth, that we can reinvest back in our business to compete in the marketplace. What we do not talk about as much is the middle of this, which is our people and our culture. I am privileged to have the opportunity to drive and lead this company because of the culture of this company. It is a low ego, high collaboration environment. This is a day in, day out, penny business.
We are focused on creating a team sport that is a full-contact sport. We're not living in silos. That is what is really important to me. The board has given us full support. Our management team gets to lead these 16,000 people. They have given us their full support. We have a deep bench. I hope to think I am an example of that. The gentleman sitting next to my right is the first people decision that I got a chance to make when I was asked by the board, should we remove this interim title from Dan's CFO title? I said 100% yes. I said that knowing I had the full backing of the team that I get the privilege to lead now. Dan, do you want to say a few words?
Yeah. In the name of culture, I would have to say that for me, the people that you mentioned before, the former CEOs, and in my case, my biggest mentors were the CFOs of Ray Seabrook and Scott Morrison, the days gone by. They were really very strong teachers of our culture. That is the things that Ron reinforced there, really about how you treat the people, and in our case, our employee base, the people in the room, our customers and such. Really, keep a balanced life was really reinstilled by those guys in me and really have been great teachers to me to get to this position. I am thankful for that. The other part of culture, though, that I need to reinforce is EVA. EVA has always been really a strong part of our culture.
That meant we've always had a pretty good financial acumen at the lowest levels of the company, largely because of the EVA culture that we have ingrained in the company. I think what we tried to do recently was break it down a little better for all of the employees to better figure out how they can fit in on the EVA. And that's kind of the financial algorithm that we talked to you all about. We got to grow our sales. We've got targets out there to grow the enterprise at 2%-3%. We've got to grow our operating earnings at twice the rate of our sales. We've got to grow our earnings per share 10%-15% per year. And then we really got to maximize free cash flow, looking at something along the lines of equating to our net income.
That's a core part of our culture, though, is the main thing that I would put in there. Turn it back.
Okay. Yeah, good answer. Thank you. You are on track from an investment community standpoint, you are on track after a volatile path for record earnings this year, right? Using our estimates, which we hope are correct. Your stock price is less than 50% what it was back in 2021, the previous high watermark. Is the message here that we are going back to the basics in terms of culture? What is driving these changes? Over the last seven months, you have seen a CFO change. You have seen a CEO change in context of what I just said in terms of earnings.
Let me start, and if you could add something, Dan, please. I would say the board of directors of our company definitely want to see a return to the way Ball was. That is a message that is very clear to us. That means being an excellent allocator of capital. It means delivering EVA dollars. It means treating people with dignity and respect. It means this high-touch collaboration environment. Those are all the things that I believe in that I have lived my entire life by. Yes, I think so. We can control what we can control. Our job is to meet or beat the market and to be sure that we are delivering operating leverage in our business. Dan, what would you add?
What I would add is there's this old adage of bleeds Ball blue. That really was meant to say we have a strong culture and the color is blue. It's the color you see up on the screen right now. I would add that with the Chairman, Stuart Taylor, this is a guy that's been around our company probably since the mid-1990s and on our board since 1999. He was put in this Chairman role because this is a guy that really is a great example of our culture. He is playing a more prevalent role also to reinforce the need to really bring our culture back to the forefront of how we do things.
We have that in common, Baird Blue as well.
Absolutely. We'll have to check the Pantone to make sure they match.
Same. Last year, you had an annual stay in New York, 2024. You outlined 2030 targets. You're four days into the job, right?
Yes.
How would you have a feeling about those?
Season.
Yes, absolutely.
I would say we are, I'll let you do the numbers detail, but we are on track for sure this year, maybe even a little ahead this year. Our long-term algorithm is fully in shape about volume growth and delivering operating leverage, returning cash to shareholders, and allocating our capital wisely. I feel very strongly about that. I feel very good about that. We see a very stable outlook in my mind and a strong, good, solid growth outlook for the future. Dan, what do you want to add?
Just what I would overlay is the financial algorithm that we just walked through a few minutes ago really was compounded out to the year 2030. I think it had things like EPS of $5.80 a share, if I remember right, by 2030, and over $1 billion, maybe $1.3 billion of free cash flow. All that still looks very possible. We believe that we are on a good trajectory to get to those numbers and stuff. Very much what we said a year ago, we think, is still really achievable at this point in time.
Ron, you were a big part of that presentation in terms of the operational component, right? I think it was $500 million of gross savings by, was it 2027?
End of 2027.
End of 2027? How's that going?
How are we doing? Yeah. So that's the right-hand side of this slide as you look at it, the operational excellence. We committed to a $500 million productivity target over a four-year period, 2024, 2025, 2026, and 2027. The good news is we will deliver that a year early by the end of 2026. We're well ahead of that. We continue to fill this pipeline of value, what we call our fuel for growth. And that's the scale we need to be back to our business to compete in the marketplace because there are plenty of headwinds. There are headwinds all around. We see them, but that's how we're bringing resilience and that grit and determination to our business. How can we deliver productivity? So good news, we're ahead by a year. And it's things like every single plant everywhere around the world at 5:30 A.M.
At 5:30 P.M., there's a shift handover where the person that's running the body maker or the copper or the decorator meets with the person that's going to be doing that job for the next 12 hours. At 6:00 A.M., the supervisors meet, and then there are lead team meetings. At 8:00 A.M., we have an operational handover meeting. Dan and I had a chance to participate in one of those meetings recently in one of our plants. This is where we create value for our customers. That is about a rising tide lifts all boats. There are other bigger transformational things that we can do in our business to deliver productivity. There are still plenty of opportunities for us, which I'm excited about. We are hunting for those opportunities so that we can compete in the marketplace.
The only thing I would overlay is I don't think I've in my 21 years at Ball, I've seen us execute across the board as well as we are right now. The way we're going to market and selling the product, the way we're making the product, the way we're managing the entire cost structure and the corporate office all the way down to the plant floor, it's the best it's ever been. It's great to have this behind us in this up here. We're up here with strength because of the people in the company right now and how they're performing.
Should we get to some harder questions?
Please.
In terms of operating leverage this year, that was an issue on 2Q. Less of an issue in 3Q, but this is the best year for the beverage can industry in North America since COVID after declines in between and so on. In context of what you just said in terms of the operational excellence, why haven't we seen the operating leverage the way we should have?
Do you want to tackle that one first?
Sure. I think the operating leverage is the metric of 2X the volume growth. I would say a couple of things. For one, getting two times operating leverage every quarter, every business unit is not a realistic expectation. It is going to ebb and flow. We are seeing a couple of our business units clearly doing that this year. I think the one you are referencing really is the North American beverage can business. It is a little under. I would say specific to that, the amount of growth that we are having this year was unexpected and somewhat unheard of. To be growing a North American beverage can business close to 5% of the top line through these first nine months is really one of the best performances I have ever seen there. We are overwhelmed by that growth. It is coming in all at one time.
We have a great opportunity to rationalize that and harvest profit, especially as we put next year's budget together and the year thereafter's financial plan. A lot of times the volume comes in first, especially at that level, and you are able to get the profit to come in later is one way to look at it.
One of the questions we get from investors is the sustainability of the growth. You guys have been outperforming. The industry is up a little bit this year, not tremendously, but up a little bit. The consumer is going through its affordability issues and sequentially getting worse and so on and so forth. What's your view in terms of the growth rates for the industry in North America that will go to the other regions?
Okay. Let me try to tackle that one and you can add. Firstly, what we can control is making sure that the customers that we desperately would like to serve come to us first. We have, in my mind, an unrivaled customer portfolio. The second thing is we have the best contractual commitments from those customers and others as I have ever seen. We are fully contracted to the extent we need to be across all of our regions, certainly for next year and then beyond. We are in really good shape from that perspective. The other thing I think, as Dan mentioned, we need to do is be sure that we are, again, I mentioned it is agile and nimble enough to meet the needs of the market.
We are adding capacity, specifically in North America, with a new plant that we will have up and running middle of next year. As we do that, we will be able to repatriate volume to that plant where we are shipping in from outside of the natural orbit of where we would ship from. That will help our operating earnings as well. As we bring capacity on, we are able to grow into the volume that we have got. As we said, 4%-5% volume growth in North America is not normal. It is not what we would normally expect. How will the market grow next year, specifically in North America? What I can say is our customers are very committed to growth, obviously, and they will do whatever they can to support that.
I don't know how this will manifest, but I was really excited to hear in the soft drink category, for example, one of the major players has decided to launch the 7.5-ounce mini can in convenience retail. They are doing that because of a consumer needs state where they want to have an offering when somebody comes to get their gas, they can walk in the store and buy something for significantly less than that 20-ounce plastic bottle. I think they are going to price it around $1.39 or something like this. Let's see how that goes, but we are very much a part and parcel of helping them to deliver that offering in a specific channel at a different price point that they believe will not cannibalize the rest of their business.
If I could overlay the specifics just to summarize this, though, the way we're looking at next year is the same way we've been talking to the investor community about how to look at the regions. 1%-3% growth in North America, we think that's a good look at the market, and that's consistent with how we've always forecasted that market. 3%-5% in Europe, that's how we've been forecasting that. We think that's very achievable. When you look at the 4%-6% in South America, obviously there's more volatility in that region than anywhere we operate, but we still think that's the right way to look at that market as well. I think the way we've been guiding people is the right way to think about next year.
By the way, it's session1@rwbeer.com, or you could just raise your hand if you have any questions. Maybe we can switch to Europe in terms of that region has been growing for probably 24 out of the 26 years I've covered the company, and it's been fantastic. What are the drivers more recently there?
For me, first of all, Europe is an incredibly exciting place. I call it the land of opportunity. I've been using that since I joined Ball because can penetration is so low in certain categories as opposed to North America. We are benefiting from a continued shift out of other substrates into cans, specifically in the beer category, and to some extent in the soft drink category as a shift out of plastic and into cans. I think just like in the U.S. with the price of a cup of coffee, these products, energy drinks, are taking some of that share. We are, again, have an unrivaled customer portfolio that allows us to win in the energy category as it grows. We've added capacity there. We talked about how we're not achieving the operating leverage in North America. It's because we don't have the capacity in the right place.
We added capacity in Europe, and that is what we are growing into now. You can see that in our operating leverage. I think we are a little ahead in Europe versus what the long-term growth algorithm is. I think we see continued strength there. Dan, what would you add about Europe?
I mean, Europe really is a bright spot. The can is winning in all of our markets, first of all, but in Europe, the growth is accelerating because of the pack mix of plastic and glass more rapidly converting into cans, which is great. I think we're optimistic that will remain intact for several years to come anyways.
In terms of sustainability, the overlay between North America and Europe, have there been any changes as it relates to that dynamic?
I would say there's certainly in Europe, the emphasis on achieving sustainability is a little higher than in North America. You can just open up a newspaper or click on a news link on your phone. We continue to see that as a real tailwind for us in Europe. Of course, we have to be competitive. This package has to compete versus other packages. There's a number of things from not only a carbon footprint, wanting to achieve a net zero carbon footprint. I would say the emphasis is stronger in Europe, and we like that. We lean into that because we have a great story to tell there. It isn't that it isn't important in the U.S. It's just with the consumer as stretched as they are here, for sure, everyone is looking for value.
The other overlay, really, to bring it back to this country, though, is that there's no country innovating beverage more than we are. The new products that come out in this country every year is just amazing. More often than not, they're coming out in the can. I think there's a component of they don't want to take a chance on the package from the recyclability of our can and how much recycled content and what that does to lowering your carbon footprint. It's not at the front of the discussion right now, but I still think it's behind the scenes here driving a lot of the choices. New products are coming in cans now.
Switch to Latin America. Some of the dynamics there you'd like to highlight?
I am really pleased with our performance in Latin America. Again, it is because of our unrivaled customer portfolio. We are winning with the winners, and we are going to work hard to keep doing that with them. We also have a better footprint in Latin America and South America than anywhere else, any of our competitors. We are the only can maker in Argentina. We are the only can maker in Chile. We are the only can maker in Paraguay, backed up with an amazing footprint in Brazil. It is volatile, and we like to deal with that volatility. We have managed through it quite well. I continue to see the weather has not been great the last few months there. We will see how the summer goes, but we are prepared for a really great summer. We are excited about our offering there. We are delivering, again, back to this record earnings.
We're going to grow right in with our growth algorithm this year, and we plan to do the same next year. What would you add, Dan?
Not a whole lot. I think it is just worth maybe bragging a little bit on our success down there in that we had 3.5% growth in the last quarter, and the industry was down 14%. Largely, it's differentiated by the fact of the portfolio you just said, having that footprint that really gives us a more diversified portfolio to work from down there.
If we switch back to North America, one of the dynamics that I think you've been impacted with, both positively and negatively, has been share shifts in the industry over the last few years. What drove that and just comment on your share position on a go-forward basis?
What I can say is going forward with our customer footprint and portfolio, as well as the capacity that we're bringing online, that puts us with a right to win with certain customers in certain geographies. Again, we're very confident in the growth that we're going to achieve in North America, and that's because of the customers we have. I think that's about all I want to say there. I don't know, Dan, what would you add?
I do not think there is much more to say. We have got a handful of customers that we are their go-to growth partners, and it is quite an honor to have that. It is a big responsibility that we take seriously.
Okay. In the last four minutes or so we have, maybe we could focus on capital allocation. I think there's a lot of fatigue at the investment community level about CapEx, and there's a lot of cringey moments when a company in the can industry has announced capacity more recently. You guys have announced some capacity increases, I think, in Oregon and the Carolinas, right? What's different in terms of capital allocation specific to growth capital versus perhaps the heyday of 2020 and 2021?
Can I say a few words?
Clearly.
This is more his space, but I would say we don't put capital in the ground unless we have a long-term offtake agreement. Any money we spend for growth CapEx is backed by solid volume and contracts with really premium customers. That's the first thing. We build that capacity and grow into it when it's right, when the timing is right. We announce things that then come online quite a bit later. We are focused on our capital spending to be right in line with our depreciation and amortization. Again, the heydays, we're going to be very disciplined about allocating that capital. We're usually two-thirds, one-third growth versus maintenance CapEx, and we're going to maintain that. Our DNA is around $600 million, so we're not going to spend more than that. We've indicated that last year.
We are not going to spend more than that this year. In fact, we're underspent a bit both of those years, realizing that we do need to have some lumpiness when we add this capital because building a can plant is quite expensive. So what would you add?
Yeah, what to add is that that $600 million number that Ron references is where I think the accountants got it right. That's what you need to invest in the company and kind of keep it going and growing. If you underinvest, then you're going to have years you're going to overinvest, but we should be averaging out to that number if you kind of average it over like a four-year period or something like that. With two years of underinvestment, we'll probably see something more akin to depreciation levels or maybe a nominal ahead as we look at some of those growth opportunities you said. Millersburg is coming online next year. A lot of that capital is being incurred real-time. That's a good thing. We need that capacity to come online.
The North Carolina one is really taking care of our biggest energy drink partner who's building out a big compound on the East Coast. It is our responsibility to be there once they're up and running and stuff like that. The exact date on that kind of moves around a little bit. That has been pushed out a little bit.
You've been in the role almost seven months or your version of the role in terms permanent. What changes, if any, on the finance side have you made?
Yeah. The biggest changes to point out is I knew where our real good expertise was being underutilized, and I brought that back to the forefront of my leadership team, bringing some guys that have been around the company for 25 years plus, even greater than my 21 years, would be the biggest things. We have a great finance team of professionals that really are as good as you're going to find in the pedigrees, and really letting them do good things is what we're trying to do by getting them organized.
It's closing the books faster, too, which is helpful.
In the last minute, in terms of free cash flow and allocation, how should we think about that with excess cash for Ball?
Yeah, the free cash flow, again, think of the net income being the proxy for where we should be around. I do not think you can think of it as a precise outcome, but we will be pretty close to that as a proxy. Then really with that free cash flow, really we are now talking about really trying to be a catalyst for that growth algorithm, the 10%-15% EPS that we have laid out there. That means we will continue to buy back some shares, not at the clip we have been because we had a bunch of cash from the aerospace sales, but more in line with what we have been guiding people to. Then, as we said, think about depreciation kind of long-term as a capital expenditure, what we do with that.
Yeah. Gentlemen, we're almost at time. This was very brave of you to come up here four days into your role. Appreciate that.
Thank you.
Best wishes for the future. Audience, thanks for joining. The next presenter in here will be RTX, and that closes out Ball.
Thank you.
Thank you.