Ball Corp (BALL) 2014 Q4 法說會逐字稿

Ladies and gentlemen, thank you for standing by.

Welcome to the Ball Corporation fourth-quarter earnings conference call.

(Operator Instructions) As a reminder, this conference is being recorded Thursday, February 5, 2015.

I would now like to turn the conference over to John Hayes, CEO of Ball Corporation.

Please go ahead, sir.

Good morning, everyone, and thank you, Rebecca.

This is Ball Corporation's conference call regarding the Company's fourth-quarter and full-year 2014 results.

Before I begin, and as you will have seen earlier today, we issued a statement confirming that we are in discussions that may lead to an acquisition of Rexam PLC.

The announcement was made following a statement made by Rexam, consistent with its obligations under the UK Takeover Code which regulates any such transaction.

Consistent with our policy and the requirements of the UK Takeover Code, we will not be making any further comment or responding to any questions on that topic during this call.

I would ask you to please respect the UK Takeover Panel and its rules.

Rest assured: for any investment that Ball contemplates, we will do it through the lens of our disciplined capital allocation process.

Now, the information provided during this call will contain forward-looking statements.

Actual results or outcomes may differ materially from those that may be expressed or implied.

Some factors that could cause results or outcomes to differ are in the Company's latest 10-K and in other Company SEC filings, as well as the Company news releases.

If you don't already have our earnings release, it's available on our website at Ball.com.

Information regarding the use of non-GAAP financial measures may also be found on our website.

Joining me on the call today is Scott Morrison, Senior Vice President and Chief Financial Officer.

I will provide a brief overview of our Company's performance; Scott will discuss financial and global packaging metrics; and then I will finish up with comments on our aerospace business and the outlook for 2015.

2014 as a whole was an outstanding year for Ball.

Together we executed well through some adversity early in the year and have been focused on positioning our Company for success now and in the future as we navigate the dynamic economic and competitive landscape.

During the year, we grew comparable diluted earnings per share by 18%.

We achieved record free cash flow in excess of $620 million, and we increased EVA dollars by 28%.

Operationally and strategically, we are also well positioned.

The cost-out program we initiated 18 months ago in our European beverage can segment has met expectations and positions us well for the future.

Our investments in specialty containers in North America, Brazil, and in Europe have allowed us to participate in a meaningful way in a key growth segment of the beverage can world; and specialty cans now represent over 28% of our mix on a global basis.

Our impact extruded aerosol investments continue to do well and allow us to participate in another growth segment of the metal packaging world.

The aerospace team delivered multiple affordable technology solutions to our customers, generating record results for the segment.

And, as One Ball we achieved recognition for our focus on sustainability and received a supplier and/or customer awards in each of our businesses during 2014.

As we move into 2015 we remain focused on controlling the things we can control and on ramping up numerous capital projects on time and on budget.

We will maximize the value of what we currently do, while making investments in new geographies, new products, new customers, and new segments to help grow our Company.

We have a number of new opportunities that are at various levels of investment, whether it be the next-generation aluminum bottle-shaping technology in North America for a customer under a long-term arrangement that will begin at the end of the first quarter; a new tin-plate aerosol can manufacturing technology that will begin during the second quarter; the new Oss, Netherlands, line that will start up during the second quarter; the construction of a new beverage can plant in Myanmar that is scheduled to begin early 2016; the construction of a new aluminum impact extruded aerosol facility in India; or chasing several billion dollars of outstanding commercial and governmental opportunities in our aerospace business.

We have a good runway as we look out over the next 12 to 24 months.

Now, sometimes you are the victim of your own success, and we have created some challenging comps for ourselves during 2015, particularly in the first half, which Scott will discuss later.

However, we feel confident that despite these headwinds of lower food can volumes, or Asian pricing, or foreign exchange volatility, we are well positioned for the long term.

Life at Ball and our EVA philosophy is about continuous improvement, so we are happy to take on the challenge.

And with that I will turn it over to Scott for a review of our fourth-quarter numbers.

Scott?

Thanks, John.

Ball's comparable diluted earnings per share for 2014 were $3.88 versus last year's $3.28, an 18% increase.

In the fourth quarter, comparable diluted earnings per share were $0.84 versus $0.86, including unfavorable currency translation of $0.02.

For the full year, the following factors contributed to improved results: growth in global specialty cans; record earnings in aerospace; lower interest expense; a lower effective tax rate; and a lower share count.

Turning to cash flow, Ball generated in excess of $1 billion in cash from operations and generated $622 million in free cash flow in 2014.

We also acquired a net $360 million of stock and returned another $73 million to shareholders in the form of dividends.

In total, the cash return to shareholders was below our prior guidance, driven by lower than expected share repurchases in the fourth quarter.

To sum up what will likely be a question during Q&A, sometimes there are limitations as to when you can and cannot buy shares, and the fourth quarter fell into the bucket when we couldn't buy shares.

Rest assured that our philosophy of returning value to shareholders has not changed.

At this time, barring additional opportunities for capital allocation in 2015, our free cash flow is expected to be returned to shareholders via combination of share repurchases and dividends.

For the full year 2015, as we sit here today, here is our initial take on financial metrics.

Free cash flow will be in the range of $600 million.

CapEx should be in the range of $400 million, if project dollars are spent on schedule.

Interest expense will be roughly $145 million.

The effective tax rate is expected to be in the range of 26%.

And 2015 corporate undistributed will be approximately $80 million.

Due to our strong 2014 free cash flow and additional funding at year-end, minimal cash pension contributions are required in 2015 though, as with everyone these days, we will be impacted by roughly $7 million of higher global pension expense in 2015, due to factors including lower discount rates and updated mortality assumptions.

Net balance sheet debt at year-end was approximately $3 billion.

Credit quality and liquidity of the Company remains quite solid, with comparable EBIT to interest coverage at 5.7 times and net debt to comparable EBITDA at 2.5 times.

Our current committed credit and available liquidity at year-end was in excess of $1 billion.

For a complete summary of fourth-quarter and full-year 2014 results on a GAAP and non-GAAP basis and details regarding the fourth-quarter $45 million pretax non-cash charge for settlement of certain pension obligations, please refer to the notes section of today's earnings release.

Now, moving to operations.

Our metal beverage Americas and Asia segment comparable earnings for full-year 2014 were up $22 million on double-digit specialty growth, the first-half benefit of World Cup, and excellent operating performance in the North American beverage container operations.

As we commented in the earnings release, fourth-quarter 2014 was impacted by muted volume trends in China and start-up costs associated with ramping up our next-generation aluminum bottle-shaping project in our Conroe, Texas, facility.

The stark reality in China is that can pricing has suffered yet another blow, and this has created difficult market conditions.

We will focus our energy on leveraging every single cost containment and process improvement we can, to further improve our cost base and get the most out of our existing asset base in the most effective way.

The team there is working very hard and has the full support of the global beverage team to pull it through.

The Americas Asia segment as a whole will be solid in 2015 due to better absorption in our legacy North American and Brazilian facilities and the conclusion of start-up costs related to the aluminum bottle project coming online during the second quarter.

European beverage comparable earnings were down $10 million in the fourth quarter on low-single-digit volume declines, higher year-over-year aluminum premium headwinds, and the impact of unfavorable earnings translation.

Full-year 2014 results improved roughly $40 million, with volumes up almost 3%, cost-containment initiatives taking hold.

Good work by all of the Ball Europe team.

Tough year-over-year comps in the first half of 2015 due to FX translation, aluminum premiums, and the Oss start-up costs should be factored into your full-year 2015 expectations for this division.

On a constant currency basis, we expect European beverage will increase operating earnings in 2015 as the third line in Oss starts up mid-second quarter.

Food and household comparable segment earnings were only off a bit in the quarter as segment volumes were stable and manufacturing inefficiencies in our US metal service center lessened compared to prior quarters, which impacted full-year 2014 by roughly $15 million.

Our global extruded aluminum product line continues to perform at a high level, and volumes in Europe have held up well, given economic conditions.

As the food and household segment enters 2015, steel operations have been rightsized for its current book of business, and we're focused on improving manufacturing performance, ramping up the next-generation steel aerosol can manufacturing technology to be launched commercially mid-2015, and further growing the extruded aluminum businesses in Europe and India.

There will be some quarter-over-quarter noise in this segment related to the customer shift which transitioned on January 1, 2015; but this has been known since late 2013.

In summary, our global beverage packaging operating teams continue to execute projects that will improve our business in North America and Europe second half of 2015, while also identifying additional cost-efficient, high-returning growth opportunities to benefit Ball in 2016 and beyond.

With that, I'll turn it back to you, John.

Great.

Thanks, Scott.

Our aerospace business exceeded expectations, really an amazing accomplishment considering government budgets and the recent election cycle.

During the quarter, solid program execution continued and much work was completed to bid on additional work.

Contracted backlog ended the quarter at $765 million, an anticipated reduction year-over-year as we await word on program bids that are in process.

Our capabilities and products are well positioned as affordable solutions.

We just need some decisions -- and the right decisions at that -- to be made in Washington.

Now looking out across our Company today, we are thankful for the team we have, the incredible results we produced last year, and the progress we are making on new capital being put to work.

2015 presents some known headwinds other companies are dealing with as well: FX, pension expense, and aluminum premiums, to name a couple.

We are excited about the many opportunities in front of us to improve our business.

Our long-term diluted earnings per share growth goal of 10% to 15% is out of reach for 2015 as we sit here today.

We currently expect the earnings run rate to pick up steam in the back half of 2015, as projects ramp up and carry us onto the bridge we're building into 2016.

In the near term, our businesses are generating significant free cash flow for us to put to work.

So let's start the Q&A so Scott and I can get back at it.

With that, Rebecca, we are ready for questions.

(Operator Instructions) George Staphos, Merrill Lynch.

Hi, everyone.

Good morning.

Hope you're having a nice quiet morning today.

Thanks for taking my question and the details.

I guess first question I had for you, can you give us a little bit more detail in terms of what's happening with Asian pricing?

I'm guessing specifically Chinese pricing, what kind of impact it is.

Can you also comment as to what FX headwind from an EBIT standpoint or from an earnings per share standpoint is built into your directional guidance?

And I had a couple of follow-ons.

Sure, George; this is Scott.

On the Asian pricing, it continues to be very challenging.

We thought last year it might have been a new low, but I think it continues to have pressure on it.

I'm not going to quantify it because it's a pretty fluid situation.

Understood.

But it's obviously impactful.

I think the other parts of that segment will do well and make more money.

It's a question of: can they offset what -- the pressure that will have in China?

On the second front, on the FX side, if the euro -- think about it this way.

From an EPS standpoint, roughly a 1 point move in the euro is about $0.01 a share, roughly.

Okay, great.

Thank you for that.

To the extent that you can comment, could you put a range on what you think your EVA per share might grow by this year?

Or, no, maybe not; I shouldn't be too judgmental there.

But what's the direction this year on EVA per share?

Could you put a bracket in terms of the growth rate?

And then I guess I'll turn it over at that point and come back in queue.

George, this is John.

From an EVA perspective, we were up very strong in 2014, up 28%.

It's going to be a bit of a challenge.

We have a lot of investment going in that's not generating any return right now, because it's in the startup mode.

So I would expect our EVA dollars to be roughly flat, maybe down a little bit, depending on how the year goes.

But -- and that's largely due to this capital we are putting at work.

A lot of it doesn't come on until midstream; and when it is coming on we got some start-up costs associated with it.

Okay.

That being said, I would expect EVA dollars, George, they are going to be up in North American beverage; it's going to be up in Brazil; and it's going to be up in Europe.

The other businesses will be flat to slightly down.

Okay.

Well, we appreciate that you even put color on it.

So thanks, guys, and I will come back in queue.

Scott Gaffner, Barclays.

Thanks; good morning.

Just following up on China for a minute, Scott, I think you also mentioned that volumes were actually muted in the fourth quarter.

Can you talk about that?

And then can you also talk about from the pricing front?

I thought some of your business there was on a little bit longer-term contract.

Can you talk about what's more spot versus longer-term contract there?

Yes.

Our volumes grew low-single-digits in the fourth quarter, and I think everything in China seems like it's slowing down a bit.

So I don't think that was uncommon.

We had been at a better growth rate throughout most of the year.

From a pricing perspective, that's why it's kind of a mixed bag.

There are some contracts that have longer-term nature to them; but there is a lot of spot business, and that's what I was referring to.

Yes, I think the main dynamic there, Scott, is we continue to see capital going in and it's just -- the overcapacity remains there.

And I think -- so that means on the spot-pricing perspective, that's where it puts the most pressure on it.

Okay.

Then taking a step back and looking at the broader beverage can business, can you talk about what you're seeing from your customers as far as global pricing initiatives?

If you have seen this in your market, how long you've seen it for, and maybe what impact you think it might have on margins on a go-forward basis.

Well, when you talk about global pricing, you're talking about our product to our customer, I presume.

There's -- we have a mixed bag around the world -- regional, global.

As Scott said, we expect many of our beverage cans segments, with the exception of China, to be up year-over-year.

And so we are -- some of that's a function of volume; some of it's a function of net price; some of it's a function of our mix.

So I think we feel pretty good right now.

The beverage can as an industry is actually doing quite well relative to other substrates.

You've heard me talk in the past about cans as a percent of the package mix in the beer category, and I think in every region we operate it's up.

It's over 60% in the US; it's over -- it's around 45% in Brazil; it's north of 20% in whole in Europe.

Obviously, it's a little bit stronger in the UK, for example, relative to some other places.

And then even in China we've talked about 5%, 6%, 7% as a share of the package mix.

It's up to 10% now.

The fourth quarter was soft.

I think the industry was down.

We were up a little bit.

But putting that aside, as we go into 2014 we continue to believe the beverage can has a bright future.

Great.

Just one last one on working capital and the free cash flow guidance.

It looks like you built or used a significant amount of cash -- or sorry; you had a big source of cash in the fourth quarter and in the full year of 2014.

What should we be thinking about in 2015 around working capital?

We think it's going to be a source again.

We continue to -- our folks both from a treasury perspective and an operations perspective continue to find ways to get more money out of the working capital.

So I think it's going to be another source in 2015 as well.

Thanks.

Ghansham Panjabi, Baird.

Hey, guys.

Good morning.

I guess I'll skip the question on what your acquisition pipeline looks like; but good luck with what you announced this morning with Rexam.

Maybe you can start on the volume outlook by region for your beverage can business for 2015; and maybe you can start off with Brazil, just given the comps that the industry had in the first half of 2015 from the World Cup.

Yes, I think obviously that leads to tougher comps for Brazil, definitely.

We think there will be market growth, but we think it's going to be pretty low.

The economy there has got some struggles and we'll have to wait and see how it plays out.

But we're not expecting -- we expect it to be positive but not in a huge way.

North America, we returned to more normalized trends, I would say, last year; and we expect that to continue.

The soft drink business continues to be under pressure, but beer continues to hold up pretty well; and a lot of new segments continue to hold up well, and specialty's doing well.

So probably summer in 2015 as it was in 2014 for us.

Europe we think the market will grow again low- to mid-single-digits, what it's been growing in the last year or so.

And China -- China has slowed down from where it was before, and I still think it will grow; but the question is how much.

The only thing I would add, Ghansham, is this last summer in particular we had World Cup, we had other things going on.

This summer as we look forward, there is not many of those either European championships or World Cup or Olympics or other things like that.

So it's an off-year relative to those big promotional types of things, so that's factored into what Scott just said.

Last year, for instance, in Europe the comp in the first quarter was up quite a bit.

And we don't expect that again.

Okay.

Then just in terms of what you said in your press release -- and I'm sorry if I missed it -- but the lower exports you cited outside of Europe, can you just expand on that?

Yes, that's really Middle East and Africa.

I think in part because of some of the geopolitical issues going on there, the export market -- for us at least -- was down, particularly in the fourth quarter.

I think our core European volumes are actually up slightly.

It's just the whole segment was down because the export market was down.

Okay, guys.

Thanks so much.

Chip Dillon, Vertical Research Partners.

Yes, hi.

Good morning.

When you look at the free cash flow guidance for 2016 -- which is actually quite impressive, because on my numbers the working capital contributed $171 million last year.

To help us get there, first of all, on the pension, you said no contribution in 2015.

What was it in 2014?

I would just do it this way.

I'll look that up; but from an expense standpoint, the expense will be up about $7 million.

But the funding for 2015 will be less than $30 million.

Okay.

Less than $30 million?

Yes, we funded a lot in 2014.

Okay, how much in 2014 did you fund?

I've got to get that.

While Scott's speaking, I think it's fair to say in the US we don't expect hardly any, if any, funding.

I think a lot of the European, particularly our German pension, is more of a pay-as-you-go.

So that's where that funding will come from.

Got you.

Maybe I missed this, but when you look at 2015 volume in the US, how -- and you say some more -- if you look at it on a more normal basis, does that mean that on a net basis you see maybe a little bit of growth as the standard cans probably overall decline, but most of that's in soft drink with some beer offset; and then specialty also will more than offset the soft drink declines, so that you do see a positive can number including specialties in the US?

Or is that too strong?

Well, let me preface this by saying it's the beginning of February, so tell me what the weather is going to be like, tell me what some other things are going to be.

Even with the price of gasoline coming down, you really haven't seen a pull-through from the average consumer.

They aren't buying more; they're trading up a little bit, but they're not buying more.

But I think what Scott was talking about, when you look at 2014 in the US, the overall beverage can market was down less than 1%; it was down 7/10 of a percent.

Beer was up, and we see those trends continuing, whether it's the craft beer or whether some of these other segments that are growing, it's been beneficial to can as the can continues to take share from other packaging substrates.

And it's really -- the past few years it really has been the softness of the soft drink.

It's not as if the can has been losing market share relative to PET and other substrates; it's just overall soft drink volumes are declining.

And to date our customers haven't been able to arrest those declines.

So as we look into 2015 we don't see those trends changing materially.

Scott did mention that some of these other alternative segments, whether it's energy drinks or sparkling waters or other things like that, there's been some decent growth in that.

And a fair amount of specialty goes into things like that.

So I don't think the core trends we see a fundamental change to as we look forward the next 12 months or so.

Got you.

Chip, back to your pension question, we funded a little over $140 million in 2014 in pensions, globally.

Very helpful, and that definitely helps us.

That $600 million makes a lot more sense now.

Then when you look at the food can business, first of all I think John mentioned some $15 million issue, and maybe just to clarify what that was in 2014.

But if I hear you right, you are saying with the work you've done to mitigate some of the changes plus the growth, you should -- you would expect to see an up second half and maybe a chance at, at least, a flat full year on the EBIT line there.

So if you could address those two points.

Yes, I think a flat EBIT year for the full year is a very tall order.

We had -- the $15 million I referred to was manufacturing inefficiencies, particularly on the service center side.

We've made some decent improvement on that; but that's a longer runway than I think you may be expecting.

And then with just the overall market continuing decline, continued with the loss of the ConAgra business, I think a year ago or so we thought we might have a shot at being flat EBIT in 2015 in that segment.

I think it's a bit challenging.

And that's on the food side.

There is a lot of good things going on, on the impact extruded side as well as this new technology on the tin-plate aerosol side.

So you see a blend of it, but I still think with all those -- because of the start-up costs on the India project, because of the start-up costs related to the G3, I think it's a tall order to think about we'd be flat in that segment.

Got you.

Thank you.

Tyler Langton, JPMorgan.

Yes, good morning.

Thanks.

Just with Europe, the drop in year-over-year profits, could you just provide a little color about, I guess, what came from the lower volumes, premiums, and I guess currency?

And then maybe what, I guess, was offset by cost reductions?

Yes, the cost reduction continues to -- they've really done a nice job of getting the costs out.

It was really premium.

We've got a little bit more headwind -- about $7 million in the fourth quarter of euro headwind with the lower volume and then FX; that's kind of the total difference of why it was down.

We will have a little bit more premium that will come through in the first half of 2015.

And then we will be at more even comps year-over-year.

Got you.

When you think of cost reductions, I guess, for Europe for this year, for 2015, can you match what you did in 2014?

Or is that going to start getting tougher?

No, it's -- I mean the guys did a really good job in 2014.

A lot of costs came out in 2014.

I think they are still -- they have a lot of aggressive plans continuing for 2015, but I wouldn't expect it to be at the same level that it was in 2014.

Okay.

Then just I guess final question for food can, the improvement this quarter.

Just for the service center efficiencies, were those largely done this quarter, or were those still having an impact?

Well, it still has an impact.

As I said, the runway of it's a bit longer.

I recall last summer we talked more specifically about it.

Some of it was self-inflicted: that we weren't running as efficiently as we could or should be.

And some of it was outside of our control in terms of quality issues in some of the tin plate.

I think the quality's gotten better.

I think our manufacturing efficiencies have improved as well.

But again, I think we're going to see a steady improvement throughout the year, and so it's not just a Big Bang Theory, that it happens -- starts and stops in one period.

Got it.

Okay.

Thanks so much.

Philip Ng, Jefferies.

Good morning.

Can you help frame what the headwind will be on a year-over-year basis for metal premiums in 2015?

We will have a little bit more of it, probably in about another $7 million to $10 million in the first half of 2015.

And then we get to the second half and we will get to more even comps.

Okay.

That's helpful.

Just curious; I know a portion of your business resets every year in Europe.

Were you able to pass some of those cost headwinds through via pricing this year?

I think the best way to describe it -- Scott had mentioned on a currency-neutral basis, on a euro basis, our segment we expect to be up year-over-year.

Some of it's cost; some of it -- someone had mentioned earlier about pricing, and it's been a bit difficult.

But on the other hand we've been able to take this time where we're limited to be able to try and recover the premium and other costs as well.

Got you.

There has been a clear bifurcation in how demand is tracking, at least for beer in North America, bev cans versus glass.

How much of that is driven by the push into specialty cans versus the brewers just trying to push volume through the grocery channel?

And do you see that dynamic continuing in 2015?

Yes, I really don't think it's the pushing volume through the grocery channel.

When you look at the beer market, it was relatively flat, for example, in the fourth quarter; and it was relatively flat for the full year.

The only thing that was really growing at any material level was the craft beer industry.

And that was predominantly, as you know, a 100% bottle business.

And now it's over -- I think it's 12%, plus or minus; don't hold me to it, but it's in that range -- as the cans as a share.

So cans are getting an inordinate share of that.

And that's one of the reasons why even though the beer market is relatively flat I think cans are performing quite well.

Got you.

One of your competitors on the food can side in North America announced they are going to be adding a plant in the Midwest.

It doesn't sound like it's going to be incremental from a capacity standpoint.

But just curious.

Do you anticipate any impact from that move?

And can you remind us what percentage of your business in North America food is locked up from a contractual standpoint next few years?

Yes, I don't have that last question, first; but the vast majority of it is.

I know we have a couple of contracts outstanding.

But, no, the answer to your question is, we are aware that they announced on their earnings that they are going to be rationalizing and building at the same time.

And we don't expect any appreciable change to the market.

Okay.

Thanks, guys.

Mark Wilde, BMO Markets.

Yes, good morning, John; good morning, Scott.

I know you don't want to get in front of your customers here, but I wondered if you could give us just any color, incremental color, on that new bottle.

Is it a conversion of an existing line?

Is it a new line?

Any sense of prospective volume there, incremental volume for you guys?

Yes, I will tell you it's a new line, it's new capacity, and we'd rather not go into the specifics about the customer or the segment.

But we are excited about this.

It's a new, next-generation bottle-shaping technology, and it fits right into the sweet spot of our Drive for 10 vision around expanding our new product portfolio.

Okay.

Is it proprietary to this customer for any period of time?

I'd rather not get into that.

Okay; that's fine.

Second, on the FX side, does that FX impact that you talked about, does that include this increase we've seen in the Swiss currency?

Because I know you have your European headquarters in Switzerland.

Yes, the exposure there is really just on the people that are there for salaries.

We don't have a lot of costs in Switzerland, so it's not that significant.

Yes.

Remember our European business is a euro-denominated business.

Okay, all right.

Then the last question I had, John, was just on aerospace.

Last quarter you talked about prospectively having some news for us on this earnings call about new wins.

I noticed that your backlog is down by about $70 million quarter-to-quarter.

Can you just talk with us about where some of those bids are right now, and what you think the time frame might be?

Gosh, I wish I could tell you, because every time we think something, everything moves to the right.

The dysfunction in Washington continues.

I will tell you this: we have more bids outstanding than I can ever recall in the history of Ball aerospace.

We do expect some of them to happen first quarter.

I think more likely they are going to happen in the second quarter.

We actually won some things, some commercial things, in the fourth quarter.

The issue there is these commercial entities are in the fund-raising mode now, and so they need to raise the financing.

But whether -- it was the two things that we announced in the fourth quarter; we feel pretty good about them, but they are in the process of raising money.

So it's a whole amalgamation of things.

And as you know, even though we've won those projects for those commercial entities, we don't count that in backlog until it's funded.

So those are some of the things that we had referred to; and it's taking, candidly, a bit longer than we like.

But despite that, the long-term prospects of the aerospace business we feel good about.

Okay.

Would you say today, John, that you've got even more pipeline than when you talked with us at the end of the third quarter?

Yes, I think we do.

I think we do.

Okay.

Well, listen, good luck with those as we move through the year.

Thank you.

Al Kabili, Macquarie.

Hi.

Thanks, good morning.

Just on the specialty can start-up costs, if you could just help us size what that was in the fourth quarter; and do you anticipate any spillover of those costs early in the year?

Yes.

It was around $6 million in the fourth quarter and then we'll have some of that in the first quarter too, as we get to production capability near the end of the quarter.

Okay, okay.

Got it.

Then you would expect by 2Q, hopefully, we're at a more normalized operational rate there?

Yes, these start-ups -- our guys do usually a pretty good job of getting these things going and running well.

But there is always a learning curve as you start the line and start to get into it.

But that pressure should reduce as we start producing cans and selling cans.

Okay, got it.

I think last call you had mentioned perhaps a chance, with some cost-savings activity, that the Americas and Asia segment could be up year-over-year.

But with the additional pressure, I guess, in China, maybe some of these start-up costs, maybe you could -- if you could, update us on your thinking there.

Yes.

I think we still have a shot at it, of offsetting the decline in pricing with the performance at the other segments or the other areas we'll produce.

But it's a little too early to call yet.

It depends a lot on volumes and how things mature through the year.

Okay.

But assuming, like, similar volume trends in the US and similar trends in the industry that we had last year, you still think that there is a shot at offsetting some of these?

Yes, I think there is a shot at it.

I wouldn't say -- I wouldn't call victory by any stretch yet.

Okay.

All right.

That's helpful.

Then I guess the last question is for Scott.

It's just on the interest expense guidance.

I think you had mentioned $145 million; and I believe this year it was $160 million, so are we -- or last year, I'm sorry, in 2014.

So is there an assumption of debt paydown or some refinancing going on in that interest expense outlook for this year?

Thanks.

Just -- we have a variety of plans, so I'm just giving you the number that we think we will end up with at the end of the year.

Okay, thank you.

Anthony Pettinari, Citigroup.

Good morning.

In Americas bev, in Brazil you talked about the timing of contractual payments as a headwind.

I was wondering, is there a portion of EBIT that gets pushed into 1Q or 2015?

And then some packagers are flagging electricity costs in Brazil as a major headwind for 2015.

I was wondering if you could comment on electricity costs for your business there.

Sure.

The contractual payment part of it will spread out further.

I wouldn't count on it early in the year; it will spread out further.

It's complicated.

But we'll pick that up, but it's over a period of time.

On the energy side, it's definitely -- with the drought that's been going on, energy costs have been going up.

And that will be -- we do have a bit of a headwind from that standpoint in Brazil in 2015.

But despite those energy headwinds, we still expect the operating performance to be better.

Okay, okay.

Then on the food and household side, I was wondering if it was possible to size the headwind you had in the quarter from the Danville closure and lower production at Oakdale?

Yes, you know, I don't have that in front of me.

I don't think it was material is what I'd say.

The profitability in that segment in the fourth quarter year-over-year was down very slightly, and our volume on the food side was down very slightly.

So I don't think it was material.

Those closure costs runs through business consolidation.

So it doesn't show up in the segment.

Okay, okay.

Then final one -- apologies if I missed this earlier.

But do you have a tax rate guidance for 2015?

I think we said around 26%.

Okay, okay.

Thank you.

I will turn it over.

Adam Josephson, KeyBanc.

Thanks, good morning, John and Scott.

You talked about beverage cans doing well in a number of regions.

Can you hazard a guess as to what utilization rates are in North America and Europe?

And along those lines, do you think there is a need for capacity reductions in the foreseeable future in either region?

Yes, you know, let's go region by region.

I think Europe, Scott had mentioned it was growing low- to mid-single-digits.

I think it was 3.5% plus or minus in the growth.

We are putting a new line in Oss because we are sold out there.

So I think the capacity in the industry is reasonably high there.

I think as you go into North America, I don't want to speculate; I can only speak about us.

We are running relatively full.

We actually were up slightly because we were more weighted towards the beer segment and the specialty side of the business.

So we feel pretty good about that.

I can't comment on what others are thinking.

I can just tell you that for us we have no plans in terms of further plant rationalization as we sit here today in North America.

Thanks, John.

Just a couple others.

One on EBIT for 2015.

Obviously you've talked about pension expense, FX, aluminum premiums, Chinese pricing pressure, aerospace backlog being down, the ConAgra contract, start-up, etc.

Can you give us some sense as to -- assuming you expect your EBIT to be down this year, rough order of magnitude?

It's too early to tell.

This is what I would tell you, is -- you mentioned a lot of the headwinds, but we also mentioned a lot of the tailwinds wins that we have.

Whether it's this new shaping technology for bottle cans in North America and getting that up and running; whether it's the new tin-plate aerosol technology that we're going to be rolling out; whether it's the Oss facility that's going to be starting up in the second quarter; whether it's about the continued cost-out.

And not only in Europe, but the folks in North America have been doing a wonderful job, and that's in part why our working capital has been positive: because they're on their game in being able to reduce inventories and other things like that.

So we have a lot of good tailwinds as well.

As I said, as we sit here today, given the headwinds you said and given the tailwinds I was mentioning, it's going to be -- I don't think -- I not only don't think, it's going to be very difficult to make 10% to 15%.

But operationally we are very strong.

We're making investments.

We're doing the right things.

We're generating tons of cash.

And really at the end of the day your question, the answer to it depends on volume.

John, thanks.

Just one more on consumer spending.

Have you seen any pickup in your business on account of the recent decline in gas prices?

And do you expect one?

No, we haven't so far; but that doesn't surprise us because the slowest months of the year are the first couple of months of any year.

As we go forward I think there is a -- we believe that there would be a reverberation and a redistribution to those consumers.

Anecdotally, I know that customers are not necessarily buying more at the convenience store when they go in and pay for their gas.

They are trading up right now.

But speaking to customers and others, I think people expect that to become more of a tailwind as we get to the summer.

But that obviously depends on a variety of other factors as well.

Thanks a lot, John.

Appreciate it.

Chris Manuel, Wells Fargo.

Good morning, gentlemen, and congratulations on a very strong cash year, and looks like to be another strong cash year.

Thanks.

Couple questions for you.

First, with the shaped aluminum bottle stuff, I'm presuming -- and help me if I'm wrong -- does that start to show up in 2015 and 2016 through revenue and through earnings, etc.?

Is this in the metal food -- the target for this, is this beverage, or is this food, personal care, or what have you?

So what segment might this show up in?

Well, we have two.

The new bottles -- generation 2 bottle shaping technology is in the beverages side.

And as we said, we expect that to be up and running by the end of the first quarter.

So the way I'd think about it, I wouldn't expect much in the first half of the year.

But in the second half of the year, that's when you really start to see it.

But we also have this new tin-plate aerosol technology.

That won't get up and running until mid, perhaps even late second quarter.

So you won't really see much of it this year.

Because by the time it's ramped up, the large season in terms of tin-plate aerosol sales is over, and so I think that's more of a 2016 opportunity.

Okay, that's helpful.

Then maybe if I could dissect by some of the segments, I think you already earlier said that -- and I'm really thinking about these things on an EBIT basis year-over-year, 2014 to 2015.

I think you said that the metal food household segment would be difficult to be flat and may have some headwinds.

As we think about some of the other regions or some of the other elements, Europe in particular with -- have you quantified or could you quantify for us how much of a headwind currency is?

And is it likely that EBIT may be down in Europe given more metal premium and currency there?

And then I'm going to work through some of the other geographies as well.

Well, what I said in Europe is on a constant-currency basis, their earnings will be up.

Now, what happens to currency, I'm not smart enough to know what will happen this year.

So it really depends on where that settles out.

But on a constant-currency basis, their earnings will be up.

Yes, no, I can appreciate the constant-currency basis, given some of the work.

But at where we sit today, at $1.14 on the euro, and with aluminum premium, is it likely to be still up, or flat down?

No, I think -- if you -- I made this comment earlier -- think about a 1% move in the euro as roughly a $0.01 impact to the Company.

Yes, the reason why Scott answers it that way, don't forget we have a bunch of euro-denominated debt.

And there's euro pension expense.

Exactly, and so they kind of offset.

So we don't necessarily just look at it on an EBIT basis, because that's pure translation.

You've got to look at it on an economic basis, which includes the interest expense and other things like that.

Okay, that's helpful.

Then when I think about -- the last question I wanted to ask is, John, I want to take you back to 2009 when you purchased some of the metal container assets.

Given your experience with that and working through that process, I think you elected, if memory serves, to buy four of their facilities and left some of the other piece that's still there.

At that point in time, given again as you worked through the process what you learned, do you feel that you would have been able to shepherd through the process to have acquired the whole piece from a regulatory standpoint?

Or do you feel that that would have been too difficult of a hurdle?

That would be pure speculation, and I'd rather not comment on it.

Okay, thank you.

Robert Krayn, MidOcean Partners.

Congratulations on the quarter and thanks for taking my call.

I was wondering if you guys could reaffirm some kind of leverage targets, and then maybe comment on if something either tuck-in or anything were to come up, would those leverage targets be flexible, or if there is any other outer bounds?

Then also if you can just comment on your cap structure.

You've got some bonds that are becoming callable in a couple weeks here, and just wondering your thoughts on that.

Yes, probably not going to comment on any of that, actually.

We're flowing a lot of cash; our balance sheet's in very good shape.

I think we have a lot of flexibility, and I'd probably leave it at that.

Okay, thanks.

(Operator Instructions) Debbie Jones, Deutsche Bank.

Morning.

One of your competitors highlighted pricing reductions for specialty cans in the US rolling through in 2015.

I realize sizes and contracts differ.

But can you comment as to how this might relate to your capacity?

And could this have an impact when you're making decisions about additional conversions going forward?

What I'd tell you is, from our portfolio perspective, our pricing is stable in that part of the world.

So as you know, any investment we make we look at what the terms of the contract are and make our decision there.

So that's probably all I should say.

Okay.

Then my last question, just on China again.

A lot of people have talked about volume and price, but I think incremental supply is sometimes hard to pin down in this region.

I'm just curious if, with pricing and volume being a bit of an issue, are you seeing the influx of capacity slow down?

I think it's slowing down, but there is still a lot of excess capacity.

Yes.

There is net capacity additions, but it's not at the rate it was, in part, we think because the can market slowed down a little bit.

But again, let's put it in context.

For the full year, I don't have the number in front of me, but I think it was up -- it was up double digits as an industry.

It was the fourth quarter it was down.

So it's been strong.

And there's many small, individually owned plants that have been adding capacity in that, and I think we're starting to see a slowdown there.

But we started to see a slowdown before, too, and it still had net increases.

I think full year it's still up 13%, roughly.

Can you remind us what the penetration rate is for cans right now in China and how that differed a year ago?

Yes.

On the beer side, and that's what really we track because the information's better, but it's about 10% cans as a percent of the package mix.

That's -- gosh, I don't know exactly what it was last year; I want to say 8%.

But it's been growing, which is helpful because, as we all know, China is the largest beer market in the world.

Okay, thank you.

George Staphos, Merrill Lynch.

Thanks.

Hi, guys.

Recognizing that you may not be able to cover too much detail here, I just wanted to try to follow on.

One, the new shape and size aluminum aerosol -- excuse me, the aluminum bottle line, does that technology allow you to on-the-fly adjust shaping?

Obviously you probably have to change tools and dies and that sort of thing.

Or basically it produces one type of bottle?

It's a new technology, George, and once we get it up and running we would be delighted to show it to you.

We'll pass along that suggestion to our manufacturing guys; I'm sure they'd love it.

(laughter) Okay.

I got a similar question and therefore I'm guessing it's going to be a similar answer on the tin-plate technology line.

But can you share any more color in terms of what makes it new there?

It is -- same answer, George.

(laughter) Tell you, it's a new technology on the way to make tin-plate aerosol containers that we think has significant opportunity for metal savings.

Okay.

Well, we appreciate the consistency there, John.

I guess the last question I had -- I'm just going through my list here.

Taking a step back, you mentioned that the can is doing very well in most markets; and I'm paraphrasing there.

Correct it how you'd like.

As you think about the next two, three, four years, whatever the right longer-term interval is from your vantage point, what do you think the biggest challenge or two is to the beverage can?

Is it global procurement?

Is it some potential supply threat on aluminum sheet because everything now is going to go into automobiles?

What do you think the biggest threats are?

And how in turn do you manage your business against those threats?

Thanks, and good luck with everything.

Yes, thank you, George.

It's -- I hesitate to answer that question because I don't want to run afoul of anything that we are very respectful of relative to announcements (multiple speakers)

Okay.

So I'd rather not answer it.

But I will tell you this: not the beverage can, but in the industry writ large there is continued -- there is relatively anemic growth; and where there is growth, there is a lot of competitors.

And I say that whether it's in the automotive market or whether it's in the metals market or other things like that.

I do think we've done a very good job at Ball Corporation really focusing on the supply chain and, like you said, on the working capital side.

And as we go forward, we're going to continue to do what we've always been doing.

Okay.

Thank you very much, John.

Scott Gaffner, Barclays.

Thanks.

Just one quick follow-up on the North American beverage business.

As we go down the aisles in the grocery store these days, it seems like there is a proliferation of maybe trim can coming into the market.

Can you talk a little bit about if you are seeing that as well in your business, and maybe what the outlook is there?

Yes, we are -- yes.

The trim, the slim, the smaller-size cans on the soft drink, there's been a big emphasis on that over the past couple years and we've played our part in that.

Not only on the soft drinks but also even on the beer side.

When you think about some of the new products that have been coming out by brewers both large and small, the standard 12-ounce container, while it's still very important, they're trying to add incremental growth.

Kind of what I just said before, about creating new products different types of packaging, different size of packaging.

That's where the specialty growth has been coming from, and we've been playing our part in it.

Great, thank you.

Chip Dillon, Vertical Research Partners.

Yes, a couple questions.

One is, as we think about the beverage can, you've talked a lot about penetration.

But I think of any beverage that you don't pour into a glass from a tap, like water, would basically be in a single-serve container.

If you think about it in that context globally, or even by region, whatever, how big actually is the beverage can?

And is that a fair way to look at the market?

I guess secondly, are you finding that your -- I know another competitor mentioned that some of the bigger customers in beer, I think in particular, but maybe other areas, are trying to push you guys to negotiate can contracts at least in a globally coordinated fashion.

Is that a trend that is relatively new and something that you feel is going to change your approach to negotiations?

Yes, with respect to the second question, because I can't remember the first question, we'd rather not comment on that.

I think the world is globalizing; but that's all I'll say about that.

Yes, on the first question, we think there is all kinds of beverages that should go into cans.

You threw out water, but I think water and sparkling water -- I'm drinking a sparkling water right now out of a can.

So I think there's a lot of products that can go in cans.

And that's helping the growth, in finding some of these new categories.

But would you say, like, the can is less than 20% of all beverage containers when you throw in plastics and glass?

Yes.

When you think about it that way, yes.

We'd be guessing if you gave a specific number right now, but yes.

It's because, when you think about still and sparkling, there's a whole plethora of packaged beverages out there.

Yes.

Well, I'm sure that definition will be something you will want to look at as you move forward.

Thank you.

Al Kabili, Macquarie.

Hi, thanks for taking the follow-up.

Scott, just on the pension, if you could help us clarify if you have any sizable benefit this year from the highway funding bill, in terms of pension funding.

And if so, how you expect your required US pension funding to ramp up as this benefit abates.

Well, what I mentioned was in 2014 we funded a little over $140 million into the pension plans globally; and in 2015 will fund less than $30 million.

Our pensions are in pretty good shape from a funding standpoint, so I don't think it's -- it moves around from year to year and, frankly, a lot of our funding is dependent upon timing and how strong our cash flow is.

Our cash flow is quite strong.

Last year we put a lot into the plan.

So we're just commenting on 2015 and what that looks like.

Okay.

I don't know if you have it handy, but what the funded status is at year-end?

We have a number of different plans, but think around 80% for the funded plans.

We have a large German unfunded kind of pay-as-you-go plan; so I look at just the funded plans in the --

Right, right.

-- the Americas and UK, and we're roughly around 80%.

Okay, great.

That's helpful and, yes, good luck with everything.

Thank you.

Thanks.

Alex Ovshey, Goldman Sachs.

Great, thank you.

Morning, guys.

You talked about cost take-out as being an offset to some of the headwinds.

Would you be able to frame that for us a little bit?

Maybe perhaps talk about what that number was and what you accomplished in 2014, and maybe talk about a range for cost take-out for the Company in 2015.

Well, I mean in 2014 you saw a lot of improvement year-over-year in terms of the European earnings.

That's despite some metal headwind that we faced even in 2014.

In 2015, I think the cost take-out will continue.

We still have metal headwind in the first part of the year, first half of the year; but they've continued to do a good job of reducing costs.

So what I commented was that on a constant-currency basis we expect that business -- the operating profit to be up despite the metal premium headwind.

Okay; got it, Scott.

Then I believe there was a can sheet facility, an important one, that was off-line here in the beginning part of the year, or it may have started the end of last year.

Can you just talk about supply of can sheet and how that's looking right now, whether that may create some issues for the business in North America this year?

Yes.

It's all back up and running.

Both that can sheet supplier and our whole supply chain, including all of our sourcing folks, did a really good job managing through that so it wasn't impactful.

(multiple speakers) impact.

Okay, that's good to hear.

Then just last one, I think you said $7 million of higher pension expense.

Just from a modeling perspective, that would just be allocated across the segments; is that fair?

That's -- yes, generally.

It's probably more North American centered, but you'd be okay.

Understood.

Across the North (inaudible) segment.

Okay.

Thanks very much, Scott, John.

Take care.

Rebecca, we will take one more question if there are any more.

Chris Manuel, Wells Fargo.

Good morning, gentlemen, and thank you for taking my follow-up.

It relates to business conditions and things within China.

Last quarter -- and maybe this is just my perception, but it seemed as though you sounded much more opportunistic with respect to deploying or potentially deploying more capital into China in particular.

The change in pricing that you talked about earlier on the call, has that, A, maybe changed the appetite for doing so?

I guess really what I'm trying to get it is -- you had some longer-term contracts in China that were seemingly priced maybe a little a bit above where the market was.

So as stuff now has -- and pricing has changed for you, has your thinking changed with respect to what you would want to do or potentially allocate capital in China?

I think given the challenging pricing environment, we'll put capital to work where we are getting decent returns.

We've got some things to do in our own operations where we think we can improve our cost structure meaningfully.

So we are focused on the things we can control, because we can't control the pricing.

So we're going to do things in our own operations to get incremental volume out of our existing operations.

And then we're going to be real prudent with additional capital in China.

So it probably is a little different tone than it was a quarter ago.

Okay.

That's useful.

Thank you, guys.

Good luck.

Okay, thank you.

With that, Rebecca, I think we're finished.

As you can tell, we're quite excited about our prospects as we go forward.

We have some headwinds in 2015, but we think we have our handle on them; but we also have a fair amount of tailwind.

And as we go into the second half of 2015, we feel real good about the long-term prospects for our Company.

So we appreciate your support and look forward to a solid 2015.

Ladies and gentlemen, that does conclude the conference call for today.

We thank you for your participation and ask that you please disconnect your lines.