Perhaps sensing it needed a new avenue for future growth, metal and plastic packaging company Ball Corp. (NYSE: BLL) also operates in a rather unexpected segment: aerospace and technologies. The Ball Aerospace & Technologies Corp. division turned in $400 million in 1999 sales of civil and commercial space systems and other high-tech products.
But the other $3.2 billion of the company's sales for the year still came from old-fashioned products like food and beverage containers of all types, shapes, and sizes. The division appears to have shown solid operating leverage over the last two full years, earnings before interest and taxes (EBIT) as a percentage of sales growing on average about twice as fast as revenues.
Even cost of sales as a proportion of revenues has improved. But for a large, manufacturing-heavy business such as Ball's -- the company has about 50 plants, comprising millions of square feet of workspace -- it's important to squeeze the production penny. Today the company said it will close its aluminum beverage can manufacturing plant in Salisbury, N.C. in the third quarter and begin shuttering some overseas operations as well. A 10% interest in a Russian venture will also be written off. The company said it expects to take an $85 million pretax charge in Q2, but with related tax benefits the actions should actually be cash flow positive.
The closings, according to COO R. David Hoover, are a function of overcapacity and improved efficiencies at other plants. "Though it is difficult because of the employees involved," he said of the Tarheel State decision, "the prudent and responsible action is to close a plant, rather than attempt to continue to operate it at an inefficient level. We have chosen to eliminate certain high-cost capacity, but will not eliminate low-cost facilities which serve our long-term interests." Plant consolidation is business as usual at Ball as part of an ongoing review.
Impressing investors can be a difficult task in the decidedly "old economy," rigid packaging business, as evidenced by this chart detailing the 12-month share price performance of not only Ball but of U.S. Can Corp. (NYSE: USC) , Crown Cork & Seal (NYSE: CCK) , and Silgan Holdings (Nasdaq: SLGN) .
U.S. Can last night said it agreed to be bought by a group led by Chairman and CEO Paul Jones for $20 per share, but only after the offer was trimmed by a buck per share in response to "adverse developments in the U.S. high yield debt market and weaker-than-expected results for the rigid packaging industry." It's likely that this offer has helped keep the shares from falling in stricter sympathy with its brethren.
It's an interesting trend noted in March by the New York Times: "old economy" companies being taken private by executives or investment groups that believe they'll be in a better position to create shareholder value away from many of the perhaps unreasonable expectations and unsustainable valuations de rigeur in the current market environment. With that in mind, a study indicated, buyout premiums for many such companies have trended upward.
So that's one option. Another one, apparently, is to go into aerospace products.
Related Links:
Ball Corp. website
Ball Corp. discussion board
U.S. Can discussion board
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