Morningstar | Ball's Aerospace Revenue Ramp Offsets Pockets of Weakness in Beverage Cans
On balance, Ball's second quarter largely lined up with our outlook for 2018. Declining mainstream beer volumes have remained a drag in North and Central America, while a trucker strike in Brazil weighed on profits in South America. One bright spot was Ball's relatively small aerospace segment, which notched another quarter of greater than 10% revenue growth, with a rising backlog of contracts. We've marginally increased our profit outlook for the segment over the next few years, leading us to lift our fair value estimate to $39 per share from $38. Our narrow moat rating is unchanged.Global beverage can market conditions remained fairly challenging during the second quarter. North and Central America volumes dropped 3% in aggregate, with adjusted operating earnings essentially flat from last year at $157 million. As Ball gets its new Arizona facility running smoothly during the second half of this year and startup costs wane, we expect segment profitability to gradually improve. In South America, volumes rose 4%, but adjusted operating earnings fell 4% to $66 million due to higher costs and negative impacts from a trucking strike. Europe drove adjusted operating earnings up more than 20% versus the prior year thanks to solid product demand and restructuring benefits. Ball will struggle to materially widen margins in the long run without the potential of losing share to glass, but we think profitability will remain consistent going forward despite pockets of global volume weakness.
Ball's aerospace segment boosted revenue by 13% from the prior-year period, though adjusted operating income remained fairly flat. Although we've adjusted our margin expectations to reflect what seems to be a slightly less profitable sales mix, we still think segment earnings and sales growth will be strong over the next five years. Margins should still expand versus 2018, as elevated costs associated with the ongoing business expansion begin to roll off.
Ball supplies metal packaging to the beverage, personal care and household products industries. The company provides aerospace and other technologies and services. The company's main product line is aluminum beverage containers. The company also produces aerosol containers, extruded aluminum aerosol containers and aluminum slugs. The company's segments are: beverage packaging, North and Central America, beverage packaging, South America, and beverage packaging, Europe, all of which are engaged in manufacturing and selling aluminum beverage containers; and aerospace, which manufactures and sells aerospace and other related products and provides services used in the defense, civil space and commercial space industries.
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Morningstar provides data on approximately 530,000 investment offerings, including stocks, mutual funds, and similar vehicles, along with real-time global market data on more than 18 million equities, indexes, futures, options, commodities, and precious metals, in addition to foreign exchange and Treasury markets. Morningstar also offers investment management services through its investment advisory subsidiaries and had approximately $185 billion in assets under advisement and management as of June 30, 2016.
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