John A. Hayes - Ball Corp. Scott C. Morrison - Ball Corp..

Anthony Pettinari - Citigroup Global Markets, Inc. Matthew T. Krueger - Robert W. Baird & Co., Inc. Scott L. Gaffner - Barclays Capital, Inc. Tyler J. Langton - JPMorgan Securities LLC Brian Maguire - Goldman Sachs & Co.

Mark William Wilde - BMO Capital Markets (United States) Victoria Madsen - Bank of America Merrill Lynch Philip Ng - Jefferies LLC Adam Jesse Josephson - KeyBanc Capital Markets, Inc. Debbie A. Jones - Deutsche Bank Securities, Inc. Clyde Alvin Dillon - Vertical Research Partners LLC.

Ladies and gentlemen, thank you for standing by. Welcome to the Ball Corporation First Quarter Earnings Conference Call. During the presentation, all participants will be in a listen-only mode. Afterwards, we'll conduct a question-and-answer session. As a reminder, this conference is being recorded Thursday, May 4, 2017.

I would now like to turn the conference over to John Hayes, CEO. Please go ahead, sir..

Great. Thank you, Kathy, and good morning, everyone. This is Ball Corporation's conference call regarding the company's first quarter 2017 results. 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 the 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 first quarter earnings release, it's available on our website at ball.com.

Information regarding descriptions of our segment reporting and the use of non-GAAP financial measures may also be found in the notes section of today's earnings release.

The release also includes a table summarizing business consolidation and other activities, as well as a reconciliation of comparable operating earnings and diluted earnings per share calculations. Joining me on the call today is Scott Morrison, our Senior Vice President and our Chief Financial Officer.

I'll provide a brief overview of our company's performance, Scott will discuss financial and global packaging metrics, and then I'll finish up with comments on our aerospace business and the outlook for 2017 and beyond.

We had a strong first quarter operationally with all of our reporting segments experiencing year-over-year improvement and we're well positioned as we move into the seasonally strong quarters. 2017 is right on track. Momentum is picking up in our businesses and the beverage can is winning versus other substrates around the globe.

We are confident in our ability to capture planned cost savings and grow earnings cash flow and EVA dollars in all of our businesses.

In addition to all of the great work being done, during the first quarter, our first quarter global beverage can volumes were up 51% driven by the Rexam transaction and related divestitures which closed at the end of June 2016.

On a pro forma basis and after taking into account the impact of such transactions, global beverage can volumes were up approximately 2%, led by low to mid-single digit growth in North and Central America, South America and Europe that were offset by declines in EMEA and China. Scott will get into more details in his comments.

We further improved operating efficiencies from our recently deployed growth CapEx projects in our Monterrey, Mexico beverage can and end facility. Our Canton, Ohio tin plate cutting and coating facility, our new Chestnut Hill, Tennessee aerosol line, and our devices UK and Velim, Czech Republic impact extruded aerosol expansions.

We began preparations for the Reidsville, North Carolina beverage can plant closure, which is still expected to close in mid-summer. We completed the complex IT system integration work in the North American beverage operations and embarked up on additional transformational cost-out projects.

We completed the closure of our food and aerosol metal service center in Weirton, West Virginia at the end of March. We sold our former Hubbard, Ohio, paint and general line container plant and an EVA positive transaction, and our aerospace business won additional contracts allowing our quarter-end contracted backlog to stand firm at $1.4 billion.

Our multi-year value capture plants are on course and we will recognize the majority of the $150 million of expected 2017 synergies in the second half of the year.

Before I turn it over to Scott, our board acknowledged the step-change we expect in terms of a higher level of free cash flow in 2017 and beyond by increasing the quarterly dividend by 54% to $0.80 per share annually on a pre-split basis and declared a 2-for-1 stock split effective this quarter.

These announcements represent the confidence in our expectations, and it is the initial step in returning value to shareholders.

Later in 2017, as we have line of sight towards a 3.5 times net debt to comparable EBITDA leverage, we will look towards returning additional value through share repurchases with over $20 million post-split shares currently available for repurchase under existing authorization. And with that, I'll turn it over to Scott.

Scott?.

Thanks, John. As John said, we're pleased with our first quarter results. Ball's comparable diluted earnings per share for the first quarter of 2017 were $0.76 versus last year's $0.59, a 29% improvement.

First quarter comparable diluted earnings per share reflect the benefit of last year's beverage can acquisition, solid operational performance in all of our businesses, increased global demand for both beverage and aerosol containers and the lower tax rate.

These benefits were partially offset by higher compensation and project costs, as well as higher interest expense and a higher share count. Details are provided in note 2 of today's earnings release and additional information will be provided in our 10-Q.

Our Beverage Packaging North & Central America segment comparable operating earnings for the first quarter 2017 were up year-over-year due to the contribution of the recently acquired plants in the U.S. and Mexico, plant efficiencies and continued specialty can growth. Industry demand in the U.S.

and Canada as measured by the Can Manufacturers Institute dipped just slightly in the first quarter likely due to Easter slipping into the second quarter of this year and no leap year, while volumes in Mexico continued to grow in the beer sector. Overall volumes in our North and Central America segment were up 5% on a pro forma basis.

Drivers for Ball's growth were craft beer, super premium beer and imported Mexican beer brands, coupled with robust demand for certain specialty cans in the CSD category.

As a reminder, the acquired JVs in Guatemala, Panama and South Korea, as well as our legacy Rocky Mountain Metal Container JV are not consolidated and are reflected in equity earnings of affiliates along with our other equity investment in Vietnam.

As you can see, these operations performed well in the quarter, largely due to strong can demand in these regions.

Our Beverage Packaging South America segment saw improving volumes as we went through the quarter after a lower-than-expected January and February from a volume perspective, the industry saw strong March volumes and overall demand was up nearly 4% in the quarter and we were up roughly in line with the industry.

For the full year, the South American team feels much more constructive about the market and economy. Our customers are using specialty cans to grow their business and deliver what the consumer is looking for.

It may be too early to call, but the Brazilian government appears to be taking action to stimulate their economy, and while there are many challenges for the economy to overcome, it appears that the economic situation in Brazil is starting to improve.

Results for the Beverage Packaging Europe segment reflect the typical seasonality and performed in line with our expectations.

As we mentioned in January, our European beverage segment has work to do on its margins and certain initiatives to support multi-year plans have been initiated to improve revenue and cost management via repositioning into sleek, slim cans, as well as previously announced intention to close the Recklinghausen, Germany facilities.

In the near-term, cost savings benefits in the region, including better operational performance will bolster second half performance. Industry supply demand is healthy, specialty demand remains favorable and construction of our new Spain plant is progressing as planned.

Our other includes Ball's legacy Asia-Pacific business, the acquired EMEA business and corporate undistributed cost.

Note 2 of the press release references approximately $45 million of corporate undistributed costs in the quarter, which is higher than the fourth quarter run rate, largely due to three equal items including the relocation of certain pension costs that formerly resided in the legacy Europe segment, higher stock based compensation in the quarter and incremental project costs that will benefit the corporation in the long-term.

After netting off the corporate costs, you could see that the operations in Asia and the Middle East performed well. Moving to food and aerosol, comparable segment earnings were up year-over-year due to continued growth in global aerosol up 6% in the quarter, largely due to strong aluminum aerosol growth offset by U.S.

food can demand declining 6% in the quarter. Starting in the second quarter, the segment will benefit from this cost savings associated with the West Virginia metal service center closure and anticipated growth for aluminum aerosol products.

In summary, our global packaging businesses posted strong results and everyone is extremely focused on keeping this momentum going, meeting demand and effectively managing their invested capital base to drive EVA dollars from the combined business. Thank you again to all our operations teams around the globe.

You will notice that our first quarter net debt came in around $7.5 billion. This is right on top of our plan and the debt will begin to come down as we move to the back half of the year. As we think about 2017, our previously communicated goals remain intact.

We expect full year 2017 comparable operating earnings in the range of $1.3 billion to $1.4 billion, excluding the amortization associated with acquired customer intangibles. After spending in the range of $500 million of CapEx, 2017 free cash flow is expected to be in the range of $750 million to $850 million.

The full year weighted average diluted shares outstanding for 2017 will be closer to a 179 million shares, given the dilutive effects of recently adopted accounting guidance for stock-based compensation plans and the absent – and absent the impact of timing of share repurchases. Full year 2017 interest expense will be in the range of $280 million.

The full year effective tax rate for 2017 on comparable earnings is now expected to be in the range of 26% due to a more favorable foreign rate differential. Corporate undistributed will now run about a $140 million for the full year 2017. The difference from our previous estimate of $115 million is divided pretty equally across three buckets.

The first bucket is the inclusion of both the one-time true-up and stock-based compensation as well as accruing for higher incentive compensation this year.

The second bucket has to do with some project costs related to more transformational projects now underway since the first stage of integration is behind us, and the third bucket is the inclusion of inactive retiree pension expenses moving to corporate from the legacy European beverage can business no longer owned by Ball.

With that said, the operational performance is certainly enough to offset this full year increase. At current FX rates, we continue to expect year-end net debt to be in the range of $6.2 billion to $6.3 billion.

As you begin to think about the progression from the first quarter to the second quarter, there will be a nice step-up in profitability due to the normal seasonal ramp-up and moving in the third quarter, we need to phase in the closure of Reidsville as well as the phase-in of synergies. With that, I'll turn it back to you, John..

Great. Thanks, Scott. Our aerospace business reported improved first quarter results driven by solid contract performance and the initial ramp-up related to our growing backlog. Congratulations again to the entire aerospace team for winning even more work since our last call, despite continued government contracting issues.

Our aerospace business will see a nice step-up quarter-on-quarter as we roll in the new contracts.

Now, across the company, and as we look forward, our team continues to be focused on achieving the financial benefits from the acquisition, optimizing our packaging, manufacturing network and beverage, food and aerosol, and managing the growth and investment in our aerospace business.

Scott mentioned our 2017 goals, and nothing has changed since our January call that would warrant any changes to our targets. By 2019, we continue to aspire to generate $2 billion of comparable EBITDA, and generate in excess of $1 billion of comparable free cash flow.

For those of you who have known Ball over the years, we lever up to get a deal done, rapidly de-lever, spend any necessary growth capital on high returning projects, and then return our free cash flow to our fellow shareholders through share repurchases and dividends. And that time-tested financial strategy is exactly what we plan to do.

And with that, Kathy, we're ready for questions..

Certainly, thank you. And our first question comes from the line of Anthony Pettinari with Citi. Please proceed with your question..

Good morning. In North and Central America bev, you talked about overall volumes up 5%. I was wondering if it's possible to parse that out between U.S. and Mexico, and maybe other markets. And you talked about some of the reasons why the CMI data might have been a little bit weaker this quarter for the U.S.

I was just wondering if you could talk about the U.S.

market in terms of the tightness of the market and maybe how your CSD and beer customers seem to be doing early in the year?.

Yeah, Anthony, this is John. I'll try and tackle that. It's – we run it as a system. So sometimes, it's difficult to parse it out. But I'll give you a couple of observations. Recall that this time last year, we're really just getting our Monterrey, Mexico facility up and running.

So we are actually shipping cans from the United States into Mexico to backfill that ramp-up. With Monterrey up and running right now, that's not happening. And so, when you look at CMI data, that excludes Mexico, it doesn't include shifts like that, that you would see.

The second thing I would say here in North America you – excuse me, here in the United States, what you're seeing is, as we talked about, we're having very strong – continued strong growth in the craft segment, we're up 26% or so in the first quarter. A lot of the mainstream brands by the domestic producers continue to be off a couple of percent.

It's a soft drink despite 12-ounce continue to be declining overall as a segment and for us, it was up driven by the specialty containers, which is good. And so, Mexico has been growing relatively strong for us just because we're on the back of many of our customers down there that are doing quite well.

So hopefully, that gives a little flavor of it all..

Yeah. That's very helpful. And then just one more, at the Analyst Day, I think you talked about footprint opportunities as being separate from the core $300 million plus synergy number. And the closures of Reidsville and Recklinghausen, I guess, on our math could be over $50 million in cost savings.

I'm wondering as you think about going forward in – should we think about kind of a $350 million plus number as opposed to a $300 million plus number or there are offsets or is that the right way to think about it?.

Well, recall from the very beginning, we said, we're not going to get into this parsing out, because we're not going to have a bunch of accountants running around, trying to track down everything.

I think the best way to say it is we standby what we talked about in terms of our targets around 2017 and 2019, and we did talk about that we're going to be chasing, we're economically incentivized for all of us to be chasing as many of the cost and revenue synergies that we can get at and you should expect that's exactly what we're going to do..

Got it. I'll turn it over..

Thank you..

And our next question comes from the line of Ghansham Panjabi with Robert W. Baird. Please proceed with your question..

Hi. This is actually Matt Krueger sitting in for Ghansham.

How are you doing today?.

Good. Thanks.

How are you?.

Good, Matt..

Good, good.

So, given the comment in the release that the 1Q results exceeded your expectations, can you provide some additional color on what this refers to specifically? Was it regional volumes, integration efforts or was it something entirely different?.

I would say yes. Yes to all that. As we were – as we kind of came into the year, obviously, it's a seasonally slow quarter and from a volume perspective, we were having – we finished the year in Brazil a little bit softer. It really started to come back in the second half of the quarter, which is quite strong.

I mentioned some of the trends in North and Central America.

A very strong beer volume particularly down in Mexico, even CSD volumes on the specialty side offsetting many of the declines (17:12) and even in Europe, while there was nothing overly exciting in Europe, it was kind of as an industry and as Ball, we were growing a couple percent, which is right in line. And so, I think that was part of it.

And then our integration efforts continue to go well. We've got – still have a lot of work in front of us.

Maybe I'll turn it over to Scott in a minute from a G&A and the integration and talking about some of the investments we're making that will help us pull out some of the G&A as we go forward, but I think overall from a cost perspective, from a best practice sharing perspective, from a sourcing perspective, from G&A, I think we're making progress, though..

Yes. And even the aerospace backlog, I mean it continues to be incredibly strong, and we chase more work. I think on the some of the projects that we're going after as it relates to corporate costs, I think we're finding a lot of opportunities to streamline, centralize, standardize things.

And those types of things will take a little bit more time to have a benefit, but we're feeling really good about those opportunities.

And on the working capital front, our sourcing teams, treasury, the operations, I think we're finding a lot of opportunities, to get after it, it's just a question of when those things will show up, will we get benefit in 2017, or how much benefit will we get in 2017, and how much will we get beyond..

Yes.

And just to amplify a little bit on what Scott said on the G&A side and centralizing some of this, when you go to centralize and take things out of the various facilities would have been done much more locally and/or regionally, sometimes you have redundant costs, because you first have to set up a centralized capability before you can look at taking some of the cost out at the plant level, and that's the process we're in right now..

Okay. That's helpful.

And then, piggybacking on that question, given the first quarter outperformance, do you feel better about how you're tracking within your 20% to 30% earnings growth target for 2017? And would you maybe comment on if you feel yourself drifting towards the higher end of that range at this point?.

No. Yes, I think, to be honest, it's too early to tell. We are right where we expected, and as I said in my prepared remarks, relative to what we told the world in January, nothing has changed at all.

I do think that as you all know that we make a fair amount of our money in the second and the third quarter and so the next couple of quarters will largely determine where we'll be in the range, but I think it's premature to speculate about what part of that range we're going to be in..

Okay. That's helpful. That's it from me. Thank you..

Thanks..

Thanks..

And our next question comes from the line of Scott Gaffner with Barclays. Please proceed with your question..

Thanks. Good morning..

Good morning..

Scott, I was hoping you could just help out for a minute just on the European margin. You said you took some of the pension expense. It sounded like stranded pension expense from assets you sold and moved it into the corporate line.

Was that in the fourth quarter number and maybe just trying to figure out what that was so we could see the sequential improvement in Europe versus just moving the pension out?.

No. And you are comparing – it's not helpful to compare Europe year-over-year because we have two different businesses..

Oh, I just meant sequentially 4Q to 1Q, was trying to figure that out..

Got it. There was just a – there's a difference in interest rate assumptions that will impact 2017 going forward. Our pension cost in total, if you think about the company in total, it's not at all different than what we thought, it's just in different buckets..

Okay. And if I look at the – in South America, two questions on South America.

One, is 2Q the seasonally weakest quarter of the year, and how should we think about the progression there into the second half mostly from a volume and earnings perspective? And then just the other part would be on substrate substitution, are you seeing anything that would lead you to believe that cans or glasses, one or the other is gaining or losing market share there? Thanks..

Yes, Scott, I'll take this. With respect to your first question, yes, the second quarter and even the third quarter are the two seasonally slow quarters and it depends year-to-year, which one is a little bit slower, so it's too premature to tell.

But as Scott had mentioned in his remarks, are we at the bottom in terms of overall economic growth in Brazil? Perhaps too early to tell, but the tone and tenor feels a bit better now than it did three months ago. In terms of your question about package mix, I can tell you the can continues to take share in there.

Again just to give you some facts here; the beer consumption in the first quarter in Brazil, like happened in last year, it decreased 2.1%, but despite that the aluminum can was up almost 4% in there. So by definition, we are taking share.

You know, soft drink, it declined 9%, the can was off about that much as well, so I don't think there's a lot of movements, but we do continue to see the can taking share relative to other substrates in Brazil, particularly on the beer side..

Okay, thanks a lot..

And our next question comes from the line of Tyler Langton with JPMorgan. Please proceed with your question..

Yes, good morning. Thank you. Just with Europe, I think you know that in the past you've talked about your efforts there to sort of improve the margin via sort of like mix and cost and that I think you expected some progress in 2017 and more in 2018.

Could you just, I guess, give any more details on how you're doing with that, and if your expectations have changed at all?.

No, I think what you just described is exactly what we're doing; we're focusing on mix, and we're focusing on the cost side. And on the mix side that we've got a great network of specialty that we believe is under-levered.

And so as we go to really push and take the strategy that we've done in North America, and move it over to Europe, to really creating greater profit pools for our customers by using our specialty network, that's one area of value that we're focused on.

The other one is on the cost side, and whether it's on everything from operating cost to SG&A cost to plant efficiencies to sourcing, we're focusing on all those things. And we said it's going to take – it'd be a multiyear program, we're right in the midst of it, we see nothing that changes what our aspirations and goals are around that..

Great. Thanks.

And then just for South America, I think on last Chorus Call, you kind of talked about how maybe in Brazil, the hope was for (23:57) to be flat, maybe up a little bit, I guess, I know Q3, so this quarter is a smaller quarter, but I mean, do you have any sense as whether you kind of beat those expectations and whether lines could be up a little bit better than sort of flat to up 1%..

Yes. I honestly think, it's all of us are looking into a crystal ball. Economically, it's volatile there, I know the middle class continues to struggle, employment's around – unemployment, excuse me, is around 13% and it really hasn't moved all that much. I know retail sales are flat to down a little bit.

That really needs to change in the second half of the year. And I'm no economist, but speaking to people there, most people think that the worst is behind us. The question is, will there be a rebound or will it just be stagnant, and that's a $24,000 question..

Got it. Okay. Thanks so much..

Thank you..

And our next question comes from the line of Brian Maguire with Goldman Sachs. Please proceed with your question..

Hey, good morning. Just sticking with Brazil for a minute, I think you said in the release, the volumes were up mid-single digits, wasn't sure if that was for the quarter or that was the run rate as you exited the quarter and sounded like the trends definitely accelerated through the quarter.

So, I was hoping you could maybe provide your view on kind of how you exited the quarter? I know, there was some shift with Carnival and Easter, but just trying to think of it on an apples-to-apples basis..

Yes. The number I gave was a full quarter number, it was actually down in January, February and then it bounced back in March. So, it actually – coming out the of quarter was at a much higher run rate than that..

Yes. The volumes continue to be reasonably strong, but don't read into too much, anytime you have – given the supply chain months and months, particularly in environments like Brazil can shift relatively quickly there. So I know you're trying to look at the acceleration of momentum.

I would temper you a little bit there because we are entering into a seasonally slow period of time..

Okay. That helps. Thanks. And, Scott, just on the corporate change, it sounds like we're thinking it's a little – maybe $25 million higher than before, but the full year guide, sounds like nothing has really changed.

Just wondering what the offsets are? Is it maybe Latin America being a little bit better or progress on Europe margins?.

The tax rate – yes, maybe, if you think about it, I gave a little bit lower tax rate by a couple of 100 basis points versus the original tax base or the tax rate would offset it..

But also....

(26:35) too..

Yes. And with the volume trends that we see not only now, but obviously we need to have the right weather this summer. But in all the various regions that we laid out before, we continue to see good volume trends in that and that will be a big determinant.

But as we sit here right now from both an operating earnings perspective, and Scott said it from an EPS perspective, we don't think the added undistributed cost really impact anything we said..

But you think you can end the year kind of at the same run rate you are at or some of these costs seem like they're maybe frontloaded in the year?.

Yes. I think they were higher in the first quarter. They'll come down as we move through the back half of the year..

Yes..

It's not going to run at the same pace as the first quarter..

Yes. And remember, the first quarter relative, Scott mentioned that there was kind of three buckets. Two of the three arguably were one-time items and – certainly the higher stock-based incentive was a one-time kind of catch-up. And then as I said we're kind of pre-investing at a centralized G&A level to take things out of the regions.

And then, the third thing in terms of legacy pension, that will continue to grow..

Okay. That helps a lot. Thanks..

And our next question comes from the line of Mark Wilde with BMO Capital. Please proceed with your question..

Good morning, John. Good morning, Scott..

Good morning..

John, I wondered just, you are working your way through Rexam, you've had a lot of new projects come online over the last year.

If we look out two or three years, what are the opportunities for kind of further expansion look like to you?.

Well, as....

Just, in terms of perhaps new plants or whatever?.

Yes, I think we talked a lot about this at our Investor Day back in December. Nothing has really changed. I think there is great opportunity in all three of our product lines, the beverage can, the food and aerosol and the aerospace.

On the beverage can side, a lot of the trends over the first couple of years we said, we're really going to be focusing on going after the value capture that we identify, but there is still growth.

We talked about Spain as a good example and this continued move in the specialty, where we've got a footprint that we think we can leverage to the benefit of our customers and that is exactly what we're going to be doing. Beyond that, that we talked earlier on the call about the can is winning relative to other substrates.

We see that as a secular movement and we're going to try to do as best we can to take full advantage of that in every region in we operate and continue to look at other emerging regions that we think the can could perform well there. On the aerosol side, as we mentioned, aerosol volumes in the quarter I think, were a good representation.

We were up very strongly in that. The only place we were a bit down was down in Argentina and that largely had to do with the Zika virus a year ago, when we weren't selling as many disinfectant cans.

And then on the aerospace side, we continue to do some great things and win some great work and as we talk about, as the program started up, some of the margins started to go down a little bit only because the way the accounting works. But we are very well-positioned to have a multiyear run in that business.

So all those things, you never know, what happens in the global environment and global economy. But as we look out three years, four years, five years, we continue to see all those trends developing in a way that we're going to try and take full advantage of..

Okay.

And I know it's not a huge part of the portfolio, but can you talk about what you saw in the first quarter both in China and in EMEA?.

Yes, those are both volatile types of places. We've had our own challenges in China as you know over the past couple of years. The volumes were down in that segment, low double digits kind of 10% or 11%. But that was again seasonally slow and had to do a little bit with Chinese New Year and some other things like that.

We see no fundamental changes going on in that. I know, the overall market was a little flat, but we chose not to make cans, that we would be losing money on.

And then on EMEA, it's so many different regions everywhere from Turkey to Egypt to Saudi and other places, that was down as well, but again that was, I think, that was more a one-time related, in terms of some of the political issues we've seen. So I don't read into that too much. And we still think that area shows some promise..

Okay..

And despite softer volumes, the financial performance was right in line with what we expected there. Both those regions are going to do a good job of cost out. So the financial performance will be fine..

Okay. And then finally just on aerospace, your backlog was steady quarter-to-quarter.

Wondered if you could talk about just sort of what the pipeline of bids and potential wins looks like right now?.

Well, that's great that our government was able to get through a budget resolution at least for the next five months, which is good.

And because stability in terms of predictability around those things help, through any transition we've gone the – the government's gone through a pause because there is a lot of turnover on the people side of it and we're a little bit behind the curve and having new people and seats, but as we look out, like we said over the last couple of quarters, we see the most amount of opportunities I've ever seen in my time here at Ball Corporation, for aerospace and we're going to continue to bid on those types of things, but it's all predicated on us executing very well and we have been doing that and great execution creates great opportunities and that's where we sit right now..

Okay. Very good. Good luck in the rest of the year..

Thank you..

Thanks..

And our next question comes from the line of George Staphos with Bank of America. Please proceed with your question..

Thank you. This is actually Victoria Madsen sitting in for George.

Hi, John, Scott, how are you?.

Good.

How are you?.

Well, thanks..

Doing well. Thank you.

So, first of all, can you just discuss volume trends in key businesses so far in the second quarter?.

Yes, I think, we've discussed almost all of them and so I'd just ask you maybe when the transcript comes out, you can review it again and see if you have any questions you can give us a buzz, because we did largely cover them, but overall, I think, we're relatively pleased with the volume trends we've seen to start off the beginning of the year..

Okay. Thank you.

And well, it maybe a little bit too early, can you comment thus far on your efforts to pursue commercial benefits, particularly as contracts come up for renewal?.

Well, I think, the acquisition – nothing has changed relative to the acquisition of what we've always tried to do and we'll try and do.

We've discussed in the past that we always try and give value for our products and services and everything that we do and that could include price, it could include tighter order call-offs, it could include helping our customers becoming more efficient using cans on their lines, it could include mix that I talked about earlier on the call.

As we all know, 12 oz is a very competitive package and where we compete with others. We're trying to be the leaders, but you got to be realistic in terms of our customers' alternatives.

But what we try to do over the past number of years, particularly here in North America and we're spreading it out, South America is doing well and Europe we still have more work to do, is trying to help our customers expand the profit pools of the products, so that we can all win.

Whether better graphics in the craft beer segment, different can sizes in CSD, for example that are going well, so far this year, new can formats, penetration like sparkling water, energy drink markets, or even bottles for both beer and non-alcoholic areas.

So, if we can help our customers grow their profit pools, it's going to be helpful to us as well..

Okay, okay. Great. Thank you. And, just one last quick one and apologies if I missed it, but can you go over, how much of your synergy target was achieved in the first quarter? Given that assuming, it'll be a relatively comparatively low amount, given that work, early in the year and integration.

But if you could, have any commentary around that?.

Yes. What we said, we said earlier in the call, but what we also said nine months ago that we're not going to get into parsing out of synergies, because you have to get more accounts to track that down, what we standby is, what our targets are in terms of 2017, 2019 and beyond, related to our comparable EBITDA, as well as our free cash flow.

And, we did say that in 2017, the majority of the synergies would be coming in the back-half of the year, and we standby what we said..

Okay. Great. Thank you..

Thank you..

And our next question comes from the line of Philip Ng from Jefferies. Please proceed with your question..

Hey, good morning, guys..

Good morning..

Can you give us – I guess a question for Scott, can you give us a refresher on how to think about the cadence in the synergy capture this year, and the big bucket as you layered in there? I know it's a little bit more back-half loaded versus front-half. Is it like a 30:70 split, 40:60, any color would be helpful..

We'll get more on the back-half than they will in the front-half. We're going to get – the 150 run rate is still going to – is still good.

We haven't seen much of that other than the closure of Millbank in the first part of the year and then a lot of the other things that we've been working on start to run through our P&L in the second quarter, but you're not going to see the benefit of those things until we get to the third quarter and fourth quarter..

Yeah. And just amplifying, Scott, remember that we announced the closure of the Charlotte facility and it kind of happens mid-year, so that's really the third quarter and fourth quarter..

Reedsville..

Yeah. We talked a lot about the – in prior calls about the sourcing side of it where we really didn't get any benefit in the first quarter. We're going to get some, but not a full run rate benefit in the second quarter, and as we move to the third quarter and fourth quarter, that's when it'll really start to show up.

I think a lot of the operational improvements in terms of best practice sharing at the plants, those take time to mobilize and rally the people and it really gets down to the manufacturing side, and as you know, our high season in the second quarter and third quarter, so as we go through the year, we're going to get more and more of that.

So, qualitatively, those are the types of things why we continue to say it's going to be in the second half. But we don't want to get pinned down as a 30:70 or 40:60 because the reality is we're driving real hard to show up with a comparable EBITDA and free cash flow we set for 2017 and 2019 and beyond..

Okay. That's helpful. And it's becoming less, I mean a smaller segment for you, but North America food seems like volumes for you, lagged the market a little bit.

Was there any share shift in there, thoughts on just the vegetable pack? And I guess lastly in that segment, you talked about how there are some cost savings that's going to start rolling to a little more fully in 2Q.

Can you help us – can you remind us what the opportunity could be in terms of the magnitude of the savings?.

Yeah. First with – we said we were down more than the overall market, but there was no share loss. All of our customers, every customer is a bit different, but it's a very seasonally slow quarter, in some of our quarter our customers just weren't pulling as much as we had expected. So, I wouldn't read into that too much.

As for the pack, as we go to summer, it's too early to tell. It's beginning of May and plantings are just starting to go in many of our customers and so, we'll be able to update you as we go through the summer on that.

And then your last question about cost savings, remember we had a very big cost saving, a big project about the closure of our Weirton, West Virginia facility and investment on the cutting and coating side in the Canton, Ohio. Weirton, West Virginia didn't officially close until the end of March, but we've gotten no benefits of that.

So, as we go forward, that's where we see a lot of the improvement to come from..

Okay. Just one last one from me on aerospace, backlog is obviously, they have been pretty strong.

How should we think about the ramp up phase in terms of these new wins from a revenue and a margin standpoint in next few quarter? And then big picture, what's been the big catalyst for some of these recent wins, I mean obviously you guys are taking share? Thanks..

Yeah. In terms of the ramp up, it's really no different than historically what we've seen.

And remember, we really do three businesses in that, we've got a – I'll call it as the traditional satellite business, we've got a components business which is the tactical products, things that go in the Joint Strike Fighter for example and then we have a services businesses.

The first two, the satellites and the tactical products is really where we've been winning the preponderance of the work and majority of those types of things, it spread out, but majority of them are cost plus in nature.

And so, as you get started on these new programs, the margins that show up are a little bit less because as you de-risk the programs, that's when the margins start to increase. And so, I think our margins in the first quarter were slightly down relative to last year.

It was wholly expected because of these new startups and as we go through over the next couple of years, you should see an improvement in those margins as we de-risk these programs that are just starting now. In terms of the opportunity set, we've talked about this in the past, some of our capabilities are exactly what the U.S.

government needs right now.

A lot of it's in the classified world, so we can't talk about it, but when you think about the needs for intelligence, surveillance and reconnaissance and you also see in terms of the budgets being relatively restricted, they need more for less and the exquisite maybe important, but sometimes we can do something at a cost basis that's a little bit less than what other people can do.

And I think the government in this environment is looking for new ways of doing business with them, and that's where it falls into our sweet spot..

Okay. Thanks..

Thank you..

And our next question comes from the line of Adam Josephson with KeyBanc. Please proceed with your question..

Thanks. Good morning, everyone..

Good morning..

John or Scott, is there a way to help us with how much Rexam contributed to EBIT in the quarter?.

We're running it out of the system, so I mean, the obvious would be to look at Brazil where we acquired a much bigger business than what we had before, so the vast majority of that would be what we acquired in Europe, we exchanged a large degree – a new business and sold our old business, so it's an apple and a pear there.

And then North America, we're running it from an integrated standpoint, we're now looking at it as these are Rexam earnings and these are Ball earnings, they're all Ball earnings. So, we don't really look at it that way..

Right. Okay.

Why the decision to split your stock?.

It was really – we've done this historically a number of times, when we get to this range and splitting the stock without a nice juice of the dividend doesn't really do much. So it was really about confidence in our cash flow going forward and liquidity in the shares.

We will continue to be – once we de-lever to the point we've talked about, we will be an aggressive acquirer of our shares. So creating more liquidity in the stock helps, so splitting the stock and bumping the dividend is a sign that we feel pretty good about where we're at and where we're going..

Thanks, Scott. And on working cap, I know you said last call you expected it to be a source of $100 million this year, is that still the case? And where....

Yeah. I think it will be better than that. I think our teams, treasury, sourcing, the operations are all working great together. And we're an EVA company, we acquired pretty big businesses that didn't focus on EVA, and didn't focus on their capital base.

And when you get people focused on working capital and what we can do and people get paid off of EVA, I think we're finding no shortage of opportunities, it's really a question of the execution – the timing of the execution of those opportunities and how much will show up in 2017 and then how much will show up beyond 2017..

Thanks.

And just, of that $100 million-plus, how much roughly is coming from which bucket if you can go into that level of detail?.

There is all kinds of buckets, I mean, every component of working capital we're looking at, so..

Yeah..

You know, receivables, payables, inventory, I mean every – I'm not going to get by region, by segment..

Right..

We run it in total..

Yeah. But let me give you an example, I think as someone asked earlier about the amount of Rexam earnings. In North America here, we're running it as a – North and Central America, we're running it as a system. And so, we've moved volumes around into the various plants to optimize that from a freight and logistics perspective.

And as we do that, we realize that there is inventory opportunities both on the raw materials side as well as the finished goods side. And so, that's just one area, in addition to focusing on the receivables and focusing on the payables..

Thanks. And just one last one on working cap.

If you get the $100 million-ish this year, is there more where that came – would you expect a comparable level of benefits next year?.

I think the benefit over the next few years will be well in excess of the $100 million..

Thanks a lot, Scott..

Yeah..

And our next question comes from the line of Debbie Jones with Deutsche Bank. Please proceed with your question..

Hi. Good morning. I have just two questions on South America and one on Russia. Just kind of broadly speaking, if we look at South America, I think the long-term expectations for growth is probably one of the reasons you've seen another player move into that market.

Can you talk about your customer mix and whether that allows you to kind of grow in line with the market, and does that matter? And then two, kind of the impact of any potential new capacity that would be coming on in the region?.

Yeah. Well, first, we've got a relatively – not relative, we have a large position down in South America, and we do business with every major customer down there. And so, I think it's safe to say as the mark goes, so do we.

So I wouldn't really focus on over-weighted one customer relative to the other because we're big with many of the customers down there. With respect to the new competitor coming in, as I said, the overall, the market was down a little bit last year.

It's actually come back strongly particularly as we move through the first quarter and it's obviously going into a seasonally slow, but we see some tightness in there and I don't want to comment on what the customer activities, we're focusing on what we can do. The other thing we really haven't talked about is we always focused just on Brazil.

We also acquired a business in other regions as well including Argentina and Chile and have the ability to serve multiple of markets in that and the can continues to gain share in those markets as well and so that's one of the areas we're also focused on..

Okay. Thanks. That's helpful.

And then Russia, I just – I don't think you talked about trends there, forgive me, if you have, but can you just kind of give us an update on how things are going in Russia where you see that the market is heading this year in utilization if possible?.

Yeah. We'll – again Russia is – the first quarter is seasonally slow, Russia is going okay right now. There is nothing magical about it, it's a slow quarter, but then it was up a little bit in the first quarter.

We expect for the full-year it to be up modestly as a lot of the trends we've talked about earlier and our capacity I think it's in reasonably good shape right now.

And so as we look to it – it is different than the business in Europe that we used to have, because it is more weighted to the second quarter and third quarters and it was the first quarter and the fourth quarters, and we're just about to enter into the that seasonally strong period, but nothing – no big deviations from expectations.

That's the way to say it..

Great. Thank you. Thank you for all the updates..

And our next question comes from the line of Chip Dillon with Vertical. Please proceed with your question..

Yes. Good morning..

Good morning..

John as you look at the volumes in the first quarter, which seem to be pretty strong.

Do you expect to see that kind of progress and I know it's tricky with the pro forma computations, but do you think we will see certainly as we get into the second half and your footprint is similar year-to-year, does some mid-single digits number in most of these regions look sustainable?.

Well, mid-single digit sounds a touch higher to me, but let's take a step back and think about all the trends that we've talked about, because there is – it's really in line with some of the long-term trends we talked about. We talked about in North America is relatively flat, you've got 12 lines declining, but you have specialty increasing.

We talked about Mexico doing quite well in part, because of the domestic consumption and in part because of the exports in the United States that continues to grow.

We talked about long-term South America being in kind of the 3% to 5% range just kind of right where the first quarter was, we talked about Europe, kind of in the 2% to 4% range, 1% to 3% depending on what location in Europe, that's exactly where it's coming in.

I think what was little bit soft was EMEA and China, but again, those are volatile markets, so you never really look quarter-to-quarter and structurally what we see is nothing fundamentally different there.

So, I don't think anything was way out of line and as we go forward and laugh, if you will, the closing date of the acquisition, I think some of those trends longer-term are remain intact now.

Will any given quarter be a deviation from one of those things for some reason or another, I'm sure, it will, but I think as a system around the world, we continue to believe that the can is going to take share from other substrates..

Got you.

And by the way, when you were going at the beginning of the call, I think you mentioned some volume numbers and I might have just missed them, but that seem to be different from the press release, for example, I think the press release said, Europe was up low single digits, and I think you mentioned it may have been down, maybe you were talking about a different comparison? And also, I think you refer to low to single – sorry, low-to-mid digit increases in North and South America and Central America when at the press release, sort of implied or said mid single digits.

I don't mean to split hairs, but could you just put some light on that?.

Yeah. For the avoidance of doubt, our European business was up 2.5%; 2.8% or so. Our South American business was around 3% increase and our North and Central America was up about 5%. And I think Scott mentioned that, so....

EMEA and Asia..

And then EMEA and Asia were down as I mentioned Asia – excuse me, China was down about 10%, 11% and EMEA was down as well..

Got you. Okay. And the last thing is, it's interesting that you all are or actually quite – I think terrific that you gave us this forecast or guidance back in I think late July, early August last year for 2017 and you're holding to it, for example, the $750 million to $850 million in EBITDA.

And if you think about it, you all are, and I don't mean to do a math lesson here, but it looks like you said at the low end of your guidance that you would have like $651 million in net earnings attributable to Ball, but that when we do your adjusted earnings like you did this quarter, we should add back the after tax impact of the amortization of customer payables.

So, given that that's somewhere in the zone of $128 million a year and you – tax effect this at the new tax rate of 26%.

Basically, what I'm seeing is something like $746 million at the low end and that seems to be exactly where the consensus is $4.17 and I just didn't know if you had a comment that you believe that's because the Street and aggregate definitely thinks you're only going to maybe get to the low end or do you think there might be some people treating your amortization of intangibles differently and that might be affecting the computation?.

Well, I'm still trying to go through your math, but I got to be honest. I don't think my computer could work that fast. But in all seriousness, what we standby everything we said, which is 20 – what we said, it was $1.3 billion to $1.4 billion, it's too early to say, where we're going to end up in that.

We've got our most strongest quarter is coming in front us over the next two quarters. So it's premature to really talk about that. But we laid out what we thought for interest expense, what we laid out for the tax rate, what we laid out for the share count.

And when you do all – and then we also talked about 20% to 30%, when you kind of do all that math, I don't disagree with exactly what you said..

I mean, it's pretty simple, it's $651 million plus the $95 million, which is tax effective $130 million – $128 million and you divided that by $179 million, which by the way means no buybacks and you get to $4.17 just for those listening. But I appreciate the clarification..

All right. Thanks, Chip..

And Mr. Hayes, there are no further questions at this time. I'll turn the call back over to you..

Great. Thank you, Kathy. Well, thank you all for your interest. And we look forward to talking with you as we go forward and looking for the next quarterly conference call as we enter this important summer season. Thank you..

Ladies and gentlemen, that does conclude the conference call for today. We thank you for your participation and ask that you please disconnect from the call. Thank you. Have a great day..