Ball's Q3 2025 Earnings Call: Contradictions on NCA Volume, Tariffs, Inventory, and Beer Performance

Date of Call: None provided

Financials Results

• EPS: Comparable diluted earnings per share rose 12.1% year-over-year (no absolute EPS disclosed)

Guidance:

• Targeting 12%-15% comparable diluted EPS growth in 2025.
• 2025 global volume expected to finish above the long-term 2%-3% range; North America above 1%-3%; EMEA mid-single-digit; South America 4%-6%.
• Year-end 2025 net debt to comparable EBITDA expected slightly above 2.75x.
• At least $1.3B of share repurchases in 2025 (already $1.2B YTD).
• CapEx expected below depreciation in 2025 and likely around depreciation in 2026 (early view).
• Adjusted free cash flow targeted to approximate comparable net earnings.
• Full-year 2025 interest expense ~ $320M; effective tax rate slightly above 22%.
• Other corporate undistributed costs ~$150M; remaining aerospace-sale tax payment expected in Q4 2025.

Business Commentary:

* Strong Financial Performance: - Ball Corporation reported Third Quarter 2025 financial performance with beverage can volumes growing 4.2%, comparable operating earnings increasing 5.1%, and comparable diluted earnings per share rising 12.1%. - This growth was driven by strong demand for cans in North America, particularly in energy drinks and non-alcoholic beverages, along with effective cost management initiatives.

• Regional Growth and Market Dynamics:
• In North America, segment comparable operating earnings increased 3.5%, driven by stronger-than-expected volume performance despite product mix headwinds.

• Mid-single-digit volume growth was led by energy drinks and non-alcoholic beverages, with the company navigating Section 232 tariff complexities.

• Impact of Tariffs and Geopolitical Uncertainties:

• Global volume growth in 2025 is expected to exceed the long-term 2-3% range, with all reportable segments performing in line with or ahead of long-term targets despite geopolitical challenges and tariff uncertainties.
• Ball Corporation remains vigilant about evolving geopolitical landscape and tariff developments, actively managing these dynamics to protect business and support long-term growth.

* Capital Returns and Financial Strategy: - The company returned $1.35 billion to shareholders through share repurchases and dividends, with a focus on achieving record diluted EPS, EVA, and adjusted free cash flow for the year. - Ball Corporation anticipates year-end 2025 net debt to comparable EBITDA to be slightly above 2.75 times, with plans to repurchase at least $1.3 billion of shares in 2025.

Sentiment Analysis:

Overall Tone: Positive

• Management highlighted operational momentum: beverage can volumes grew 4.2%, comparable operating earnings increased 5.1%, and comparable diluted EPS rose 12.1%. They reiterated confidence in delivering 12%-15% comparable EPS growth, record EVA, adjusted free cash flow aligned with comparable net earnings, and continued share repurchases (>$1.3B target).

Q&A:

• Question from Ghansham Panjabi (Baird): How did the operational inefficiencies from prior quarter play out in 3Q for North America (NCA) and why is operating leverage below historical norms?
  Response: Mix shifted toward lower-margin pack sizes despite mid-single-digit volume growth; operating earnings were up ~4% YOY and Millersburg (online H2 next year) should materially improve efficiency.

• Question from Ghansham Panjabi (Baird): For 2026, would volumes be at least in line with the industry or below given tougher comps?
  Response: Expect to be at least in line with the market in 2026, potentially ahead in 2027–28; management will provide more detail in 4–6 weeks.

• Question from George Staphos (Bank of America): Are tariffs and aluminum strategies affecting volume patterns (e.g., loading into market) and would tariff reversals help or complicate demand?
  Response: Passing through ~25%–30% of cost increases to customers; reversal would lower COGS, but no clear evidence of pre-tariff volume loading—can volumes remain strong.

• Question from George Staphos (Bank of America): Are customers shifting to non-aluminum packaging (e.g., refillable glass in South America) or adopting smaller formats like 7.5oz mini cans?
  Response: Customers indicate cans will continue to grow; no material move to returnable glass seen yet in South America; 7.5oz mini cans could provide incremental lift.

• Question from Stefan Diaz (Morgan Stanley): Do contract movements pose a risk to North America volumes in 2026?
  Response: No significant contract-driven volume loss expected; contractual outlook is very strong and 2026 growth is constrained mainly by Millersburg capacity until it starts up.

• Question from Stefan Diaz (Morgan Stanley): What volume impact and margin lift should we expect from the Oregon (Millersburg) plant when it opens?
  Response: Millersburg expected to enable roughly 1.5 billion cans (~~3% volume) in 2027; expect startup costs in 2026 and margin upside thereafter.

• Question from Phil Ng / Nico Biscayon (Jefferies): What are October/November trends by category and impact of promotional activity on volumes?
  Response: October volumes are in line with expectations; promotions (e.g., buy-2-get-1) offset retail price increases, and management expects to land the year in line with guidance.

• Question from Phil Ng (Jefferies): Has bringing Florida Can production online unlocked additional capacity?
  Response: Yes—Florida Can is performing as expected and will supply increased volume next year to help manage tariff-related supply challenges.

• Question from Anthony Pettinari (Citi): Directional CapEx outlook and update on Oregon and Concord plants?
  Response: Oregon remains on track to start H2; Concord is not yet capital-committed; 2026 CapEx guidance is early but expected around depreciation (or slightly above) as a baseline.

• Question from Anthony Pettinari (Citi): Did the North America operating-cost headwind from prior quarter repeat in 3Q?
  Response: The sudden volume-driven inefficiencies have eased, but tariff-related inefficiencies persist and management is actively managing long-term supply-chain impacts.

• Question from Jeffrey Zekauskas (J.P. Morgan): Inventories are up ~ $500M year-over-year—will inventories continue to rise and why?
  Response: Inventories rose due to stronger-than-expected volumes and mix plus higher aluminum prices—management estimates ~60% of the increase from aluminum price, remainder from added days and volume.

• Question from Jeffrey Zekauskas (J.P. Morgan): What is the $47M investment in ORG Technology?
  Response: A small public equity stake in ORG Technology (largest beverage can producer in China) held to maintain a strategic relationship; it is a minority, strategic investment.

• Question from Chris Parkinson (Wolfe Research): Approximately when will mix normalize so analysts can better project NCA volume vs. operating leverage?
  Response: Clarity on mix/operational leverage should be much improved in 2027 once additional capacity is online.

• Question from Chris Parkinson (Wolfe Research): Latest assessment on Europe—do you need more capacity there for 2027/28?
  Response: Europe offers significant can-growth opportunity but capacity decisions must be selective and methodical due to permitting, labor and environmental constraints.

• Question from Edlain Rodriguez (Mizuho): What worries you most heading into next year and what is out of your control?
  Response: Geopolitical and tariff unpredictability are the main uncontrollable risks, but management is focused on execution and is confident in the team's ability to manage volatility.

• Question from Arun Viswanathan (RBC): Do you expect energy and other categories to sustain growth next year despite tougher comps, and any metal supply issues?
  Response: Energy and non-alc trends remain strong; 2026 upside limited by capacity; metal supply tight for processed can-sheet short-term but medium/long-term outlook improves with new facilities.

• Question from Josh Spector (UBS): Did the Novelis outage affect your 3Q/4Q volumes or costs?
  Response: No impact from the Novelis outage.

• Question from Josh Spector (UBS): Any view on consumer elasticity to higher CSD and beer prices?
  Response: Management is encouraged—consumers prioritize food and beverages, which should support demand and moderate elasticity concerns for cans.

Contradiction Point 1

NCA Segment Volume and Operational Efficiency

It involves expectations for the NCA segment's volume growth and operational efficiency, which are critical for assessing the company's performance and strategic direction.

How did operational inefficiencies in the beverage NCA segment in Q2 affect Q3? - Ghansham Panjabi (Baird)

2025Q3: We grew NCA volume mid-single digits, operating earnings 4% year-over-year. The profit per can has grown 32% since 2019. - Dan Fisher(CEO)

What's driving the outperformance in nonalcohol categories for the North America and Central America beverage segment? Why was the segment's margin down 140 basis points? - Ghansham Panjabi (Baird)

2025Q2: Our operating earnings in beverage NCA were $645 million, reflecting a margin of 21%. - Dan Fisher(CEO)

Contradiction Point 2

Volume Growth in Beverage NCA Segment

It involves differing statements about volume growth in the Beverage NCA segment, which is crucial for understanding the company's operational performance and market positioning.

What is the outlook for 2026 volume growth in the beverage NCA segment? - Ghansham Panjabi (Baird)

2025Q3: We expect to align with or exceed the industry volume growth in 2026, aided by a strong strategic planning process and tight capacity management. - Dan Fisher(CEO)

What are the key initiatives and operating leverage improvements in North America? - Ghansham Panjabi (Baird)

2025Q1: The company is maintaining margins in North America despite challenges. Initiatives like Ball Business Systems improve operational efficiencies. Focus is on consistent performance and efficiency gains to support growth. - Dan Fisher(CEO)

Contradiction Point 3

Impact of Tariffs on Costs

It involves differing views on the impact of tariffs on costs, which is crucial for understanding the financial implications on the company.

How did 2Q beverage NCA operational inefficiencies impact 3Q? - Ghansham Panjabi (Baird)

2025Q3: The profit margin was impacted by lower margin categories, but we are managing the complexities efficiently. - Dan Fisher(CEO)

How will tariffs impact demand in Mexico's beer market? - Stefan Diaz (Morgan Stanley)

2025Q1: We are managing a 25%-30% price increase to customers. A reversal of these tariffs could be positive for customers' COGS. We are winning disproportionately due to our strategic partnerships, despite these challenges. - Dan Fisher(CEO)

Contradiction Point 4

Inventory Levels and Cost Factors

It involves differing explanations for inventory levels and their relation to costs, which is crucial for understanding the company's financial health and strategic positioning.

Why is inventory up $500 million year-over-year? - Jeffrey Zekauskas (J.P. Morgan)

2025Q3: Inventory levels reflect an improved mix in South America and increased aluminum costs, with approximately 60% attributed to higher metal costs. - Dan Fisher(CEO)

What caused the 10% inventory increase from Q4 to Q1? - Jeffrey Zekauskas (J.P. Morgan)

2025Q1: The increase is seasonal and due to inventory rebuilding after the previous soft period. Inventories are in line with expectations and do not suggest unusual demand conditions. - Dan Fisher(CEO)

Contradiction Point 5

Beer Category Performance

It involves the performance of the beer category, which impacts the company's overall revenue and profitability.

How will the energy and beer categories perform in 2026? - Arun Viswanathan (RBC)

2025Q3: Energy continues to grow, and while beer is weak, CSD performance is strong. - Dan Fisher(CEO)

Can you provide the volume growth rates for consumer soft drinks and beer by region and overall? - Jeff Zekauskas (JPMorgan)

2025Q2: Beer growth is stable in Europe, flat in South America. - Daniel William Fisher