On Sep 5, we upgraded our recommendation on
) from Underperform to Neutral. The upgrade is based on expected
benefits from expansion into regions like Brazil, strong backlog
in its aerospace and technologies segment, and cost cutting
However, this manufacturer of metal and plastic packaging,
primarily for beverages and foods, may face headwinds like weak
European economy, pricing pressure in China and the loss of
Ball Corporation's aerospace and technologies segment ended the
second quarter with solid contracted backlog of $966 million,
which is close to the company's record level of $1.1 billion. The
momentum is expected to continue given the variety of
opportunities present both domestically and internationally. This
will contribute to the segment's growth and help mitigate any
effects of sequestration.
Going forward, Ball Corporation will continue to benefit from
expansion in developing regions like Brazil. In Brazil, Ball's
joint venture metal beverage can plant in Alagoinhas, which began
production earlier in 2012, is on track to start a second
beverage can production line by the beginning of the fourth
quarter of 2013. This increased capacity will help the company to
capitalize on the increased demand spurred by the upcoming soccer
World Cup in Brazil.
Ball Corporation has initiated cost cutting measures in Europe,
the benefits of which are expected to be realized in 2014 and
2015. The company expects to bring its margins consistent with
the 2010-2011 period, or in the range of 11% to 12%.
On the flipside, Ball was notified by a customer about its intent
to source 12-ounce beverage cans from an alternative supplier,
effective Jan 1, 2013. Furthermore, in the first quarter of
2013, Ball was notified by a food can customer of their decision
to shift buying from Ball to a new supplier, effective 2015.
This loss of customers will weigh on Ball's results as well as
dampen investor sentiment. Continued macro weakness in Europe and
pricing pressure in China owing to the excess capacity in this
region will also be a drag on Ball Corporation's results.
BALL CORP (BLL): Free Stock Analysis Report
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