Ball Corp

Ball Corp's second-quarter global aluminum packaging volumes increased by 4.3% from the same period last year. Adjusted EPS increased by 14.4%, trending above management's goal to deliver at least 10% EPS growth.

Why it matters: We are encouraged by the solid growth in volumes, which gives us confidence that consumer demand for beverages remains healthy. Nonetheless, higher raw material costs have continued to pressure the firm's profitability. Although Ball Corp raised prices due to higher aluminum costs, the firm's second-quarter gross margin compressed by 200 basis points year over year, from 19.4% to 17.4%. While we don't expect gross margins to decline further, we are not modeling a significant near-term improvement either. Volumes in North and Central America are trending near the bottom of the long-term guidance range of 1%-3%, but this is driven by supply constraints. Healthy demand gives us optimism that the segment's growth can accelerate in the long run.

The bottom line: We are maintaining our $63 per share fair value estimate for narrow-moat-rated Ball Corp, as our more optimistic revenue growth assumptions were offset by more conservative margin assumptions. We see the name as fairly valued, with shares currently trading in the 3-star category. Ball Corp's sales have been growing at a double-digit clip since last year due to higher pricing in response to cost inflation, but in the long run we expect sales growth to moderate to mid-single digits. Our long-term forecast assumes low-single-digit volume growth.

Following second-quarter results, we've maintained our $63 per share fair value estimate for narrow-moat-rated Ball. For full-year 2026, management expects adjusted EPS growth of at least 10% and free cash flow of at least $900 million.

We see solid revenue growth and profitability for Ball over our five-year forecast horizon, with sales in its beverage packaging and other segment growing at a roughly 5% compound annual rate and adjusted operating margins averaging about 11% (compared with the 11.1% five-year average). We expect stable near-term growth in developed aluminum can markets and moderate growth in emerging markets.

In our view, Ball will benefit from continued growth of the aluminum beverage can market. A global push for eco-friendly packaging has increased demand for aluminum cans as their infinite recyclability and low price make them an ideal choice. We think Ball is well positioned to take full advantage of this shift as the firm has divested from multiple businesses in recent years to focus on aluminum beverage cans (95% of consolidated revenue after divesting its aerospace business). Ball also completed its acquisition of Rexam in 2016, which made it the world’s largest beverage can producer. Consumers are favoring eco-friendly packaging and many governments are passing new legislation to reduce harm to the environment. Many consumer packaged goods companies have committed to decreasing their ecological footprint, and aluminum cans are the clear choice for eco-friendly beverage packaging. That said, plastic and glass beverage packaging won’t be replaced for all products, but there is still plenty of opportunity for aluminum cans to steal market share.

Pandemic-era demand increases for aluminum cans forced Ball and its competitors to increase capacity at a historic pace. Historically, developed market demand would move in line with population growth, consumer preferences, and increased household income. Ball committed to spending over $5 billion to add 25 billion units of capacity but much of this expansion was shelved in 2023 as demand began to normalize and inventory destocking weighed on volumes. Nevertheless, we see positive volume growth in 2026 as aluminum beverage cans take share from plastic bottles.

We think Ball Corporation benefits from durable competitive advantages that should support economic profits for at least the next 10 years. We assign Ball a narrow moat rating based on efficient scale and intangible assets. The majority of Ball’s business (94% of 2025 revenue) involves producing aluminum beverage cans. The aluminum beverage can business is highly concentrated as most regions are typically serviced by a few large competitors that maintain long-standing relationships and strong contracts with beverage companies.

Ball’s aluminum beverage can business represents 94% of revenue after accounting for the sale of its aerospace business in February 2024. The aluminum beverage market is served by only a few large competitors due to the high capital costs required to efficiently produce aluminum cans. Ball has significant market share in most regions it operates, supporting their efficient scale moat. For the countries in which the company operates, it accounted for 42%, 43%, and 50% of total aggregate beverage container shipments in North America, EMEA (Europe, Middle East, and Africa), and South America, respectively. These developed markets are currently served by four or five competitors with almost no entry or exit in recent years. It's highly unlikely that an incumbent firm will exit, further preventing would-be entrants from attempting to join the market. Beverage can manufacturers must produce a large number of cans and run plants at high capacity in order to remain profitable. The low-value nature of aluminum cans paired with high costs of operating manufacturing plants produces a strong barrier for new entrants. Aluminum cans are also a commoditized product with little room for differentiation. Innovation in the space is easily replicable by competitors as it is usually a change in the size or shape of the can. Because of this, potential entrants would need to resort to price competition to steal market share, which is not a viable alternative.

Ball targets capacity utilization between 95% and 98% but has been running some plants near 100% in the last few years as strong demand and supply chain challenges constrained inventory. Running the plants lower than the target rate would directly affect margins as high operating costs would decrease profits. That said, Ball does not want to run its plants at 100% as it’s important to maintain some excess capacity to meet small increases in demand without having to make significant capital investments for a new production line or plant. Creating a new line at a plant can cost in excess of $70 million. It's also beneficial to operate with some excess capacity in case of an issue at the plant. If a line at the plant goes down or inventory is damaged, Ball will not have excess capacity to produce more cans. The company would have to transport cans from further away plants and incur the extra cost.

Due to the high costs associated with producing aluminum cans, competitors in the space are encouraged to act rationally and have over the years. There is almost no incentive to undercut prices or add additional capacity in hopes of taking business from a competitor. Most can manufactures operate under long term contracts that make poaching very difficult. New entrants would most likely be immediately unprofitable upon entering a market as the capital costs of starting and operating a plant are high and finding customers who are not currently serviced would be difficult.

Ball operates over 50 beverage facilities in various countries and regions around the world. Aluminum beverage containers have a low value/volume ratio so shipping empty cans beyond 200-300 miles is unprofitable. In order to win and service contracts, Ball must operate plants near customers to maintain profitability. This market dynamic discourages new entrants from joining the market as they would need to open multiple manufacturing facilities because it’s unprofitable to ship cans over long distances. Recently, demand for aluminum cans has outpaced supply in North America and forced Ball to import cans from other regions to meet demand. While this has historically been unprofitable, Ball has been able to pass through most of the transportation costs to the customer. We expect Ball to reduce the number of cans they import into North America over the next few years as increased capacity comes online and demand for cans normalizes.

Ball and its competitors typically sell aluminum beverage containers under staggered long-term contracts that provides Ball and its few competitors with a strong competitive advantage. The long-term nature of these contracts creates predicable demand, enabling Ball to prepare its production schedules for years ahead. This allows the plants to operate in a manner that maximizes capacity and efficiency. Since the contracts are also staggered, beverage producers do not have many choices when contracts are up for renewal as its unlikely any other can producer will have enough excess capacity to fulfil their orders. This is especially prevalent with larger customers that need a significant number of cans and cannot afford delays.

Ball’s contracts also contain cost recovery provisions that limit its exposure to aluminum prices with price contingencies. This contract feature has been especially important in recent years as aluminum prices have increased considerably. While Ball has been able to pass-through most increases, there is a lag as most contracts are on an annual basis. Historically, this lag was not an issue but recent increases in aluminum prices have outpaced Ball's ability to recover price through these contract provisions. As a result, Ball has been negotiating stronger provisions in new contracts and updating provisions in current contracts that would remove the lag and allow the company to recover costs quicker.

Ball's capacity expansion plans should amplify the firm's growth prospects. New products and shifts in consumer preferences will drive volume growth.

Aluminum cans are an eco-friendly beverage packaging that’s preferred over plastic. A global shift to renewable products will provide a strong tailwind for the firm.

Following the sale of its aerospace business, Ball is now a pure-play aluminum can producer, enabling management to focus solely on growing its competitively advantaged beverage packaging business.

Ball’s capacity expansion plans could prove aggressive and leave the company at risk of significant amounts of excess capacity should demand moderate.

As soft drinks are replaced with water, and mainstream beer is replaced by bottled craft beers, can manufacturers could be hurt by falling operating rates.

Ball will need to rely on emerging markets for growth as mature demand in developed markets leads to low growth rates.