Daniel Fisher - SVP & COO, Global Beverage Packaging John Hayes - Chairman, President & CEO Scott Morrison - SVP & CFO.

Ghansham Panjabi - Robert W.

Baird Tyler Langton - JPMorgan Anthony Pettinari - Citi Edlain Rodriguez - UBS Adam Josephson - KeyBanc Capital Markets Mark Wilde - BMO Capital Markets Debbie Jones - Deutsche Bank Scott Gaffner - Barclays Brian Maguire - Goldman Sachs Chip Dillon - Vertical Research George Staphos - Bank of America, Merrill Lynch Chris Manuel - Wells Fargo Arun Viswanathan - RBC Capital Markets.

Ladies and gentlemen, thank you for standing by. Welcome to the Ball Corporation Fourth Quarter Earnings Conference Call. During the presentation, all participants will be in a listen-only mode. Afterwards, we will conduct a question-and-answer session.

[Operator Instructions] As a reminder, this conference is being recorded today, Wednesday, February 7, 2018. I would now like to turn the conference over to John Hayes, Chairman, President and CEO for Ball Corporation. Please go ahead, sir..

Great. Thank you, Nelson, and good morning, everyone. This is Ball Corporation’s conference call regarding the company’s fourth quarter and full-year 2017 results. The information provided during this call will contain forward-looking statements, including estimates related to the impact of the U.S. Tax Cuts and Jobs Act.

Actual results or outcomes may differ materially for 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’s news release.

If you don’t already have our fourth quarter and full-year 2017 earnings release -- release, it’s available on our website at ball.com. Information regarding 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.

Now, joining me on the call today are Scott Morrison, Senior Vice President and CFO; and Dan Fisher, Senior Vice President and COO of our Global Beverage business.

I’ll provide some brief introductory remarks, Dan will discuss the beverage packaging performance, Scott will discuss the key financial metrics, and then I’ll finish up with comments on our Food and Aerospace businesses as well as our outlook for 2018.

We were very pleased with our strong fourth quarter comparable operating earnings and free cash flow. Each of our public reporting segments were up year-over-year from an earnings perspective and much of the hard work in terms of cost out and value in and for each of our businesses continued to show up.

While we are pleased with this performance, we are not surprised. Since the closing of the acquisition, there have been questions and opinions regarding our ability to hit our 2017 and 2019 comparable EBITDA and free cash flow targets.

When we closed on the acquisition of Rexam 18 months ago, we had a pro forma comparable EBITDA of just over $1.5 billion and laid out a 3.5-year plan to increase that by the end of 2019 to $2 billion, while generating free cash flow in excess of $1 billion.

We also said that we expect it to generate in 2017 comparable EBITDA of $1.75 billion to $1.85 billion, free cash flow in excess of $750 million. Along the way, we knew that there would be ups and downs, but we're confident and had conviction that these targets were achievable. Nothing has changed in our view.

In the 18 months since then, we indeed have had our ups and downs, in the ups column, we have met or exceeded our initial synergies in terms of G&A, sourcing and footprint activities.

We have had exceptional performance from our South American business, continued improvement from our European business, greater stability in terms of North America CST volumes, continued strong growth in craft, sparkling water and other emerging categories, and strong growth in Central America, particularly in Mexico.

We've had good aluminum aerosol growth and continued strong performance from our aerospace business. In the downs column, we have had and continue to face headwinds in terms of domestic U.S. beer consumption, difficult manufacturing performance in our food and aerosol business in the first half of 2017, that is now behind us.

Challenging food industry dynamics, supply disruptions in North American beverage due to the hurricanes last fall, volatile volumes in our EMEA beverage can business driven by governmental regulation, carbonation tax and economic disruptions and continued pricing pressures in China.

However, because and in spite of all of these, we achieved or exceeded our 2017 targets. Our long-term strategy is intact.

As we go forward, we will continue to execute our long-term strategy of growing our earnings through a mix of volume, price, cost and supply demand and innovation management, generating higher free cash flow, reinvesting in EVA dollar value creating growth projects and returning excess free cash flow to our shareholders through dividends and share repurchases.

Now, as we look back over the fourth quarter 2017, several highlights include; the beverage can continue to win versus other substrates across the globe. Depending on geography and on beverage segment, this is due in part to the economic value creation of the can to our customers and their consumers.

It’s recycling and sustainable attributes relative to other substrates. The superior product protection that the can provides the beverage itself, and the overall efficiency the can provides from our freight distribution warehousing and retail shelf perspective.

We continue to believe that the can has much further runway to capture a greater share of the packaging mix. Dan Fisher will amplify that a bit more later. In addition to lowering our G&A cost structure and achieving sourcing savings, we recognize cost savings from the beverage can, plant network optimizations in North America and Europe.

We continue to improve manufacturing efficiencies in our tinplate businesses, and saw a slight pull forward of certain food can shipments in the fourth quarter in advance of anticipated raw material hikes and we achieved record contracted backlog of $1.75 billion in our aerospace business.

Going into 2018, it's on us to execute on our existing plans to maximize the value of each of our businesses, broadening our geographic footprint, aligning with the right customers and markets, expanding into new products and capabilities, leveraging our technical knowhow and positioning our products is the most sustainable in the segments in which we operate.

Key areas of emphasis for us will be the successful startups of our Goodyear, Arizona and Madrid, Spain beverage can facilities, effectively managing our various beverage can footprint initiatives, positioning the can as the most sustainable package in the world in which we live, successfully managing the growth and investment in our aerospace business, profitably growing our aluminum aerosol businesses and improving the probability of our food can and China beverage can businesses.

Thanks to all of our 18,000 plus employees, who helped the company achieve these results with numerous customer awards and once again being recognized as an industry leader on the Dow Jones Sustainability Index and on the Corporate Equality Index. And with that, I'll turn it over to Dan..

Thanks, John. As we begin 2018, our global beverage businesses are poised to execute on numerous growth projects, network optimizations and product launches. Our global beverage can volumes grew nearly 2% in 2017 and almost 2.5% in the fourth quarter led by South America, Europe and our specialty portfolio.

The beverage can is the most environmentally sustainable and capable package in our customer's line up and you will continue to hear us from all of these qualities to consumers and customers like. John referenced the disciplined growth investments and efficiency activities going on across each of our regional segments.

Project teams are aligned on budget and on schedule. Moving to the individual segments.

Though much gets said about continued pressure on domestic mass beer declines, Ball’s North American segment volumes were flat versus the industry, which was down slightly and this is largely due to continued growth in Mexican imports, craft, sparkling water, and brands using specialty containers to promote their products.

And let's not forget that Ball is well-positioned with the two fastest growing segments of the U.S. beer industry, which are Mexican imports and craft and that the beverage can continues to win versus other substrates. In 2017, cans picked up another 1.5% of share from glass.

The North American team did a great job in the fourth quarter and they recorded good financial results despite the lingering effect of higher freight rates.

In advance of our second half 2018 planned network optimization, where will we add no new net capacity and tightened 12-ounce supply demand, we will be contemplating line speed ups and other efficiency programs that remaining facilities across the network.

With this in mind, our first quarter utilization rates will likely be lower than fourth quarter. We have a busy and exciting year in North America and the team is much more on its toes as we position ourselves for additional fixed cost savings in 2018 and beyond. Our South American business had a really nice quarter.

Segment volume grew mid-teens versus mid-teens declined in fourth quarter 2016. In addition to better weather, the overall bill beer consumption trends in Brazil stabilized and our customers further emphasized cans over glass across South America.

With cans growing its share of the beer segment from 43% to 45% in Brazil and even higher package share gains in other surrounding countries.

To further support beverage can growth in countries surrounding Brazil and having a multi-year contract in place, we’re building a beverage can plant in Paraguay to serve its needs as well as continued growth in Argentina and Bolivia.

In Brazil, our resulting discipline response to competitive behavior will likely lead to Ball's volume growing slower than the market rate during 2018. Despite this comment, year-to-date demand trends have remained quite favorable in advance of Carnival, and I would expect will remain strong through World Cup.

I do anticipate tougher year-over-year comps in the second half for our Brazil business, due to the profit recorded on the INS manufacturing contract, that supported the divestment business. Going away and challenging year-over-year volume comparisons.

The European business once again saw mid-single-digit volume growth led by Russia and Spain, our ongoing plant construction in Spain is right on track with the plant likely starting up late May, early June, which is a bit ahead of schedule.

Our near-term and long-term initiatives to get segment performance back to where Ball's legacy business was are on track and the cost savings from the German plant closure will anniversary in early August. The ongoing finance transformation projects will largely be complete by year end 2018, which will contribute to planned G&A savings in 2019.

The European team finished the year strong both from a free cash flow and earnings perspective and I'm sure everyone is looking forward to World Cup being held in Russia, where we have a nice presence and an outstanding regional team.

In EMEA, demand volatility remains with full year volume down mid-teens yet, the team continues to do a great job dealing with the complexity.

As we look forward in the region, we are lowering our cost structure and helping certain governments understand how legacy laws on their books are stifling job growth, and impeding environmentally friendly, packaging growth.

Our China business continues to be cash flow positive and we will continue to exercise a disciplined approach in this market and prudent larger chunks of capital when appropriate. In summary, our global beverage business posted strong results to close the year. We have a feeling of momentum across most of our regional businesses.

We know what we need to do in 2018 and our multi-year thesis for acquiring Wrexham and deploying growth capital remains intact. Thank you again to all of our teams around the globe. With that, I'll turn it over to Scott..

Thanks, Dan. Comparable fourth quarter 2017 earnings were $0.60 versus $0.44 in 2016, a 36% improvement. And full year 2017 comparable earnings per diluted share improved 17% from a $1.74 in 2016 to $2.04 in 2017. Fourth quarter comparable diluted earnings per share reflects solid operational performance across every segment and lower corporate costs.

Full year results were driven by strong operating results in our largest global beverage businesses and our aerospace business, offset by slightly lower Food and Aerosol segment performance and higher year-over-year interest expense.

Details are provided in the notes section of today's earnings release and additional information will be provided in our 10-K.

Net debt ended the year at $6.5 billion, which was right on top of our expectation after $200 million of pension funding and returning over $200 million to shareholders and despite $275 million of unfavorable FX impact on foreign-denominated debt.

We exceeded our free cash flow goal for 2017 coming in at $922 million after spending $556 million of CapEx. Activities to squeeze working capital out of the balance sheet were incredibly successful and a team effort across all our businesses.

As we think about 2018, we expect full year 2018 comparable EBITDA to be pretty much a straight line straight-line into our 2019 goal of $2 billion of EBITDA.

Free cash flow is expected to be in the range of $900 million after spending at least $600 million of CapEx, reporting the completion of the Goodyear with Madrid and Paraguay plans as well as the Aerospace expansion. Full year 2018 interest expense will be in the range of $295 million.

The full year effective tax rate on comparable earnings will be in the range of 23%, we saw on our current estimates of the impact of U.S. tax reform. And corporate undistributed will be in the range of $115 million for full year 2018.

The cash is showing up, so in addition to our ongoing quarterly cash dividends, we’re planning for our share buyback to step up as well. Our initial estimates are for $350 million of share buybacks in 2018, largely but not exclusively in the second half of the year, given the timing of our season seasonal working capital bill.

We feel good about where we are, and at this early stage in the year, we look forward to returning even more value to shareholders in 2019 and beyond. And with that, I’ll turn it back to you, John..

Great. Thanks, Scott. Our Aerospace business reported an improved fourth quarter results driven by solid contract performance and the continuing ramp-up on new contracts. We’ve been saying that the Ball Aerospace team was winning new work, and it now has translated into contracted backlog.

Our staffing levels will continue to increase in 2018 as we ramp-up on these key wins. The Aerospace team has done a wonderful job leveraging the capabilities of our customer focus, world-class technology and knowhow in talent and year-over-year profitable earnings growth which will extend beyond 2018.

Now, as we look forward for our corporation, as mentioned previously, we’re on track to achieve our 2019 targets largely through the stated synergy benefits from the transaction, continued growth of our beverage can, improved performance from the food and aerosol business, and the ramp up of new business in aerospace.

From a synergy perspective, recall that we had a three and a half year plan to realize $300 million of net synergies. Phase 1 and 2 of synergy capture would be in the form of G&A office reduction in sourcing synergies, which would come within the first 18 month of the closing of the acquisition.

We are currently at or above our targets in both of these phases and still have more synergy opportunities that we should realize on the sourcing side in 2018, as well as realizing our shared services, G&A efficiencies in late 2018 and 2019.

Phase 3 is our footprint work, which would come in years one through three following the closure of the acquisition. We have already closed the Recklinghausen, Germany and Reidsville, North Carolina facilities and have announced three plant closures in the U.S.

We were also building new plants in Arizona, Spain, Powerglide in our joint venture in Panama and are installing new lines in several other plants, including Texas and Mexico. Once realized we should be above our goals with this phase.

Phase 4 is to leverage any commercial benefits from the transaction, including but not limited to providing our customers anything, anywhere, anytime with respect to product, service, innovation and other discriminators.

We did not count on any synergies in these – in this area and if we are able to realize some we said it would be in the backend and beyond to the three and one-half year planning period. We are delivering on our commitments and see a path to further growth beyond 2019, as our newly deployed and 2018 growth capital hits its stride.

And with that, Nelson, were ready for questions..

Thank you. [Operator Instructions] Our first question comes from the line of Ghansham Panjabi with Robert W. Baird & Company. Please proceed..

All right. Good morning. This is actually Mehul Dalia sitting in for Ghansham.

How are you doing?.

Good, thanks.

How are you?.

First question on EBITDA. I guess, your EBITDA comments imply a $1.6 billion in EBITDA for 2018.

Is that right? And how should we think about the cadence on a quarterly basis, just given there's a lot of moving parts with plant additions and shuddering throughout the year?.

No. I don’t think the number you're referencing is right. I would take in the back of the earnings release, I think it rolls up to $1.752 billion. I take that and add $2 billion and divide by 2, that’s kind of get you where I was referring to..

Yeah. Said another way, we finished the year about $1.75 billion. We said by 2019, we'd hit $2 billion. So, split the difference between to that and that's a good guidepost for 2018. I think as we said in the first half of 2018, we actually have some good momentum going into it.

When we go through, there is going to be some ups and downs, but we continue to expect continued improvement in each of the quarters. I think, as we get to the second half of the year with the fall, with no longer providing the ends as we talked about in South America, that will be a little bit of a headwind in South America.

But at the same time, if we execute correctly, we'll be ramping up on some of our cost out initiatives in North America as well as continuing our cost out initiatives in Europe. And so, remember, its February right now, so I think it’s premature to give any additional guidance, but that’s what we see as we sit here right now..

Okay. Great. Yeah. And sorry, I did the calculation wrong, but that makes sense.

And just one follow-on, can you – do you have your expectations for Brazilian growth in 2018? How much lower do you expect that to be for you guys on a relative basis?.

Yeah. Well, I don't expect it to be lower, I expect it to be higher on a year-over-year basis. I think we will – with the new market entrants that we gave guidance on in our last earnings call, I expect all the participants to have a slower growth profile than the overall growth in the marketplace..

Yeah. The Brazilian, in particular, but also surrounding countries, the growth in that was quite strong. We mentioned in South America, we had 13% to 15% growth in the fourth quarter and for the full year, it was close to -- just under 10%.

We don't expect that to continue, but I do think in the first half of the year with the World Cup coming up, we'll continue to see some strength but in the second half of the year we're going to be facing some very difficult comps.

And I think as Dan alluded to with a new competitor in there, we expect to be growing at a rate lower than the overall market for 2018..

Sorry, I guess my question wasn't clear. I think that's what I was trying to ask.

So how much lower do you expect it to be versus the market in 2018?.

It's premature to tell. What I would say is probably a couple of points, three to four percent points lower than the overall growth of the market, but that's just a guess because here's the reality, we have a new competitor coming on, they're adding a couple of new lines into that market, which is about a $1.5 billion.

We understand that they are in the process of ramping up and we understand that's largely contracted. Much of that business was able to -- came out of Ball’s business but we still see overall growth well on access of that, so we're going to see some growth in our business just not as great because we face that headwind..

The other signal to the point is to go back to the last World Cup, there will be a winner and a loser from a retail presence and a customer. We don't know who that's going to be at this point and that could -- that makes answering that question a lot harder given the year and the events that are going to take place..

Makes sense. Thank you so much..

Thank you..

Thank you. Our next question comes from the line of Tyler Langton with JPMorgan. Please proceed..

Good morning. Thank you. I just had a question on the free cash flow guide for 2018.

Scott, give us a sense I guess how much working capital is baked into that $900 million number?.

I think we really overachieved in '17 on getting a lot of the working capital out, so I still expect the benefit in 2018, but it's probably more like a $100 million in '18..

Got it. Thanks. And then, just South America is down. I don't know if you can give any -- I know the third-party sales of ends are benefiting.

Can you give a sense of like how much I guess they benefited 4Q results and sort of what do you expect for 2018?.

We were -- what we’re trying to say it's tough to parse out because we've had that since the close of the acquisition. What we're saying is as part of the divestiture, the company we sold it to is going to be building their own capacity that we expect that to be coming online sometime in mid-2018.

So, we've actually been selling them in mid-2016 through mid-2018, in the second half of 2018, we won't be selling those ends..

Okay.

And then, just final question on CapEx, and I know it's going to be a little bit higher in '18 is $500 million is still sort of depending on projects, a good run-rate kind of through 2018 and beyond?.

No. We said in '18, we’ll probably spend a little over $600 million -- in the range of $600 million, because we’ve got the big projects are good year, finishing up spending, getting that up and running, some specialty investments and then all the aerospace capital that we’re spending for their facilities..

Yeah. And we also announced yesterday a new -- yeah, a new Paraguay facility..

And also, if I may, post-2018 like 2019 beyond is $500 million sort of a….

Yeah, I think that’s a good proxy. It depends on growth, right. And if it grows and we continue to find places to deploy capital, we’ll do that. If it's a little bit slower, we’ll probably dial it back. These are some pretty big chunks. So, I would expect it to come down in '19..

Got you. Okay. Thanks so much..

Thank you. Our next question comes from the line of Anthony Pettinari with Citi. Please proceed..

Good morning. I had a couple of questions on Europe. I think in your last Q, you discussed pockets of negative pricing in bev cans, obviously had a very strong 4Q.

I don’t know if it’s abated or to the extent you can if you can talk generally about price cost in the region? And then, can you remind us in terms of World Cup, typically how that helped your volumes and the timing of that – of that bump in Europe and maybe the host country?.

Yeah. Why don’t I take your first one and I’ll turn it over to Dan. First, in terms of your question, we inherited some comment – contracts that had year-over-year price increases as we went into the 2017. As we go into 2018, we still have a little bit of it, although it’s a little bit less of a headwind and then those contracts expire.

And so, we still feel some of the effects of it. But I think overall in terms of the overall market tone it’s a relatively flat market right now, in terms of the price cost mix.

In terms of your quite second question about the World Cup is, as we’ve alluded to in our prepared remarks, it’s in Russia where we have a very good presence and a very good team. What we have found is always World Cup – always adds some benefit, but quite candidly it depends upon what geographies and which regions are doing well in the World Cup.

If South America does well, it’ll benefit that, if a European team does well, it will benefit that, and unfortunately, I wish I could say if an American team did okay, but other than Mexico, I’m not sure that’s the case.

So, Dan, do you have anything up to add?.

Yeah. Just one clarifying comment. I think, John said price increase it was obviously, a price decrease on those contracts that we inherited. So that wasn’t in the negotiating context that was just being inherited and what was built into those.

And then the other point specific to World Cup is if the World Cup’s happening in a region, where it’s already peak season you’ll have a negligible increase. So, to John’s comments if you’re in an off-peak season in a place like Brazil, the World Cup can stimulate growth in that area.

So, I wouldn’t necessarily read into Europe’s going to have a significant benefit given the timing of when that happens in it relative to the peak season..

Okay. That’s very helpful.

And then just switching to North America, quick question, freight and weather was a big concern in 3Q, is it possible to say how much of an impact higher freight costs had in 4Q? And kind of as you said today, would you say those costs have kind of mostly normalized or how do you think about freight in North America?.

Well, I would say that the freight rates have definitely increased, what we experienced in the third quarter was disruption because of the weather patterns and with that you get expedited freight rates as opposed to just a natural rate increase.

The natural rate increase is probably in the area of $5 million to $7 million in a quarter in North America, and we’re experiencing that right now in Q1, and we don’t see that dissipating until fuel prices or oil prices come down..

Okay. That’s helpful. I’ll turn it over..

Thank you. Our next question comes from line of Edlain Rodriguez with UBS. Please proceed..

Thank you. Good morning. Some questions on U.S., like how much was volume down in the U.S. from for Big Beer? And two, do you continue to expect like the strength in Mexico imports and the region down there to continue to be able to offset the weakness we've seen in U.S.

mega beer?.

Yeah, well, I would say I mean, what we've continued to see when you talk about kind of the top 10 brands in mega beer, they were off double digits for the full year.

And then craft beer, Mexican imports and other things like cider, seltzers that go into that category, essentially offset it, so it's negligible a couple of decimal points down in aggregate for North Americas.

Yes, we continue to see all the trends will suggest with the Hispanic millennial, so that will continue to be a demand stimulant and craft beer, it may not necessarily be that the craft beer segment is growing, but substrate penetration has a lot of legs left on it for us in the can..

Yeah. I may just add, I do think people are talking a little bit too much about this mass beer in the United States. It's been in a slow decline for a number of years now and it's been declining.

There's two large mass beer companies in the United States and they've collectively been declining around 3% on some of the bigger brands that Dan alluded to, one of them manufactures their own cans in-house and the other one we do effectively a 100% with in the United States.

We’ve been able to more than offset that through exactly what Dan said and through other categories that have been growing whether it’s Mexican imports, whether it’s Kraft, whether it’s the alcoholic seltzers and we expect those trend trends to continue.

One of the things we are seeing in terms of the mass is they are trying to use different types of cans and specialty cans to really help drive incremental volume. And we expect as we go forward, we’re going to see more and more of that going on..

That makes sense. And one last one on Food and Aerosol, I mean I think you’ve noted that some of the volume growth was due to customers carrying more inventories into 2018.

Will that lead to lower volume in 2018 given that it’s far been taken away volume from the first quarter or the second half?.

You know it could. As we’re sitting here now, we really haven’t seen it. But you know that is a really a seasonal business. And until you get into the big seasonal selling season and planting season, it’s premature to tell. You are right, there was some pull ahead or appeared to be some pull ahead, but it was also a relatively muted pack as well.

And so, it’s difficult to separate those two. I think overall though the market in the fourth quarter was up about 3%. We were up a little bit more than that. But again, for the full year, the overall market was down only about 1%. We were down a little bit more than that. But I wouldn’t read too much into that..

Okay. Thank you..

Thank you. Our next question comes from line of Adam Josephson with KeyBanc Capital Markets. Please proceed..

John, Scott, Dan, good morning..

Good morning..

Just a couple on Brazil, and thanks for taking my questions by the way. Dan, I think you mentioned you expect to grow by a few points less in the market in 2018.

Did you -- forgive me if I missed this, but what was the market up by in 2017 and roughly what are your expectations for 2018 in Brazil?.

I think let me jump in because I have that in front of me. I know the overall market in the fourth quarter was up about just under 5%, 4.5%, 5% and I think overall for the full year, it was up about 3% to 4%..

And …..

And in reference to the – yeah, I said in reference to the go – the feature question. As we sit here today and refer back to my comment on who the winners and losers are going to be relative to the World Cup. I would expect this to grow slightly below the aggregate market because of the new market entrant..

Okay. But a similar level of market growth it sounds like an 2018 versus 2017 up three four sort of thing..

Yeah. The Brazilian economy is coming back, it's still – unemployment is still higher than what we'd like to see, but you're actually starting to see some positive economic indicators coming out of that.

You're starting to see investment that's going to create job growth going into Brazil and that – to Dan's earlier comments about continued can penetration growth particularly in the beer side which makes up the majority of the can market. Those are the things that underweight the continued growth there..

Thanks. And just one other on Brazil, I think you mentioned about 1.5 billion cans coming in and I think let's call it a 26 billion can market. Correct me if I'm wrong there. So, we're talking 5% or 6% capacity growth, you’re talking about growth of 3% to 4%.

So how do you think about just the interplay between those two factors and any pricing impact that you would anticipate based on the fact that it appears as if supply is growing a bit faster than demand this year?.

Well, remember though, that’s a $1.5 billion, and it all doesn’t come on at once. It’s phased in. And they – that our competitors started up in the fourth quarter, but they haven’t completely ramped up all the way. So, you’re not going to get a full $1.5 billion in 2018..

Thank you very much, John..

Thank you. Our next question comes from line of Mark Wilde with BMO Capital Markets. Please proceed..

Good morning..

Good morning..

Good morning..

I wondered, Dan, if you can give us a little bit more guidance on the expansions that you announced yesterday in terms of both the cost and just the timing?.

Yeah, I think for, I mean, typically a new – this is a greenfield startup. And so, you think about in the 18-month to 24-month range depending on environmental permitting, and all the fun stuff that happens relative to that. We’ve obviously made some commitments to our, to our anchor investor there.

The capital outlay would look consistent to a one line can point at startup. The difference for us is we’re going to use a lot of used equipment. So, it’ll be somewhat significantly less than a typical greenfield startup would be. And a greenfield startup one line could be somewhere in the neighborhood of $80 million to $100 million.

It will be less than that, depending on how much used equipment and how much new equipment we have to use..

And what about in Argentina, Dan?.

Yeah in Argentina, we’ve got, we got a facility that -- we’ve continue to make small investments in and we’ll continue to build that facility out. It’s relatively insignificant in terms of capital dollars. So, I think our latest installment will be in the $10 million to $15 million range..

Okay. And then just as a follow on, I wondered we’re seeing a little bit of an uptick in aluminum premiums, and I think some of your business in Latin America.

America may be influenced by alumina premiums, can you just talk about sort of what type of impact and what you’re might be doing to kind of hedge yourself there?.

You’re able to hedge those premiums so, we won't see a near-term impact for any of that..

Okay. That's helpful. Thanks Scott. I'll turn it over..

Thank you. Our next question comes from the line of Debbie Jones with Deutsche Bank. Please proceed..

Hi good morning..

Good morning..

You made comments about the sourcing benefits and shared services that you think you can get. Should we assume that the opportunity is really in the U.S.

and Europe or is this -- are you approaching this across your entire system?.

No, it's really across our entire system. There's different opportunities in different places, so it's really across the three big segments and its just different buckets in different places, but in total we're really happy with where we're at, and what we expect to show up in 2018 and beyond in 2019..

Okay.

And then just it seems to be a bit of renewed debate about plastics specifically in Europe as single-use plastics and I'm just wondering if you think that there could be an opportunity to kind of increase the shift away from let’s say PET and kind of the non-beer categories, are you having any of those conversations, is this an opportunity for you in certain regions?.

Absolutely it is. I think all of us for a long time have recognized not only the inherent advantages of aluminum and used aluminum in a recycling stream, but also people are increasingly waking up to the very difficult fact that we're polluting our oceans and putting our world with plastic.

And people often confuse recycling with collection too often that what happens is plastic gets collected, but doesn't necessarily get recycled. And last fall China turned off that spigot where they’re no longer accepting any import of any plastic and that's creating more and more of a discussion about it.

I think it's a wonderful opportunity for the beverage can really be extolling our benefits as the most sustainable package in the world. And I would – you should expect to see Ball Corporation really starting to put its shoulder into that because I think it's the right thing to do, but more importantly it's in our economic best interest to do..

Okay. Thank you. I’ll turn it over..

Thank you. Our next question comes from the line of Scott Gaffner with Barclays. Please proceed..

Thanks. Good morning..

Good morning..

Dan when I think about some of the added complexity that you've mentioned on prior calls within this system, a lot of it seems to be on the printing side of the equation.

I’m just wondering from a technological standpoint, has Ball or the industry really being able to solve some of that complexity, such that, it's not nearly as much of an issue as far as changeovers, et cetera within the system.

How should we think about that?.

Yeah. I think there's been an awful lot of work that's gone on twofold. Obviously, digital printing is really sexy. I think a lot of folks are investing in that. That might be able to apply to certain segments of our business, think about craft beer.

And obviously, the proliferation of labels there and – but the biggest thing right now, it's still costly. I don't know who's going to pay for it right now. There are some solves but it's at lower speeds and not quite what the industry needs in a $300 billion marketplace.

But the other more likely is using robotics and automation on the printers, and obviously a lot of investments going in there.

Nothing has really cemented itself in the four walls of our plans, but I think we're probably a lot closer to that than we have been historically, and why we’ve organized the way we have and around the global businesses to make sure that we're prioritizing investments and increasing skill mix in areas like that to get after that ahead of our competitors and in line with what our customers expect..

Okay. And Scott, when I think about the share buyback for 2018, you said weighted to the second half of the year and I understand that's when you typically generate most of your free cash flow for the year. But if I look back historically, most of your share buybacks have been in the first half of the year.

Is this only in the second half, because we're at an inflection point of trying to pay down the balance sheet first and then getting the free – to share repurchase or has there been a fundamental sort of rethink about when the timing of share repurchase throughout the year?.

No, no fundamental change, it’s just we have a big working capital build that happens in the first half of the year, we'll be able to reassess our business after we get through the first quarter and be able to dial it in better. So just as we sit here right now that working capital build will use a lot of our cash right now.

But I think 350 is a good starting point for 2018. And I see that growing in 2019, because I think our cash flow, we expect to get a $1 billion of free cash flow and will be at a point from a leverage standpoint we're really non-delevering has to occur.

And I would see us being able to orient all or if not all, the vast majority of that cash to our share buyback and to our dividends and I see that continuing for a while, because this is going to be a cash machine..

Sure.

And the last thing is just on the working capital that you generated in 4Q, I mean, how much of that was coming out of the European business because if I recall correctly, I think that business in particular had higher than expected working capital uses in 4Q of 2016, just as broadening our line?.

I think you're thinking about it right. The businesses, the large businesses that we acquired from Rexam, they weren't a EVA company. So obviously, there was more opportunity on those balance sheets to get a lot of cash flow.

And we saw that going into the deal and our teams both from kind of our corporate treasury, sourcing legal standpoint working with the finance teams in each of those businesses did a fantastic job and there's more to come..

All right. Thanks guys. Congrats on a good quarter..

Thank you..

Thank you. Our next question comes from line of Brian Maguire with Goldman Sachs. Please proceed..

Hi, good morning, everyone..

Good morning..

Just wanted to cut back on South America, is obviously a really strong performance in there, at least relative to what we were expecting. Just wondered if you could, looking at the 23.5% margin you generated there, is that kind of in line with how you guys thought the quarter was going to shape up.

And I just wanted to get a sense of how sustainable that was or if there were any sort of one timers or good guys in there that would reverse out in 2018 other than the – other than ends plant and the new entrant to the market that you called out?.

Maybe, I’ll point, because as we've said in the past that you know that, that is an excellent management team we have scale there which is very important. It's a seasonally strongest quarter. And we grew volume wise 14%.

That in large part is what drove the continued strong performance as Dan had mentioned and as I had talked about, as we go into 2018, I do think that, that is unsustainable from a margin perspective, because the competitive nature that Dan alluded to and because we'll be losing some end volume and so we're going to have to right size that size of it.

But yes, we had a better than expected quarter in South America, but not just South America. Dan alluded to it, it’s in the rest of the surrounding countries, Argentina. That's why we're building in Paraguay, and Chile was another one that will continue strong growth. So, I think we did very well there and candidly above our own expectations..

Yeah, I would just echo that. We were better than expected, but we were not surprised, and that's why we were able to deliver.

So, we had – we were reading in August and September that this was going to be a strong fourth quarter from some of our major customers there, and we made sure that we had capacity on line in metal to deliver, and that's what showed up..

Okay. Great. And then just switching gears to the Food business. I think in the past, you've sort of articulated it, it doesn't consume a lot of capital, generates a lot of cash.

Just wondering if the thought there on its strategic position in the overall company has changed at all in the last couple of months and just any thoughts on how that business will contribute to Ball going forward?.

Well, it's an important part of our business and it is part of our business until it’s not anymore, but our sole objective is to maximize the value of each and every one of our businesses, and we’ve had some manufacturing issues in the first half of 2017.

We got pass those and you see since that time, they've had year-over-year profitability improvement. And as we go into 2018, we continue to expect continued improvement in that business.

We are facing headwinds in terms of secular decline in terms of the Food category, the food can category, but that doesn't mean we don't expect to make more money as we go forward..

Okay. Thanks very much..

Thank you. Our next question comes from line of Chip Dillon with Vertical. Please proceed..

Yes, and good morning. A couple of questions. Could you update us on the start time that you expect for the Madrid plant? Number one. And number two, you mentioned I think Scott mentioned that CapEx in 2019 would likely be down.

Would that be the case if it made sense and could it make sense to add capacity somewhere in Mexico given that it will have been a while since you last added that third line in Monterrey?.

For the startup in Madrid I referenced in the notes at the beginning a little ahead of where we thought maybe 90 days ago, but tail end of May, beginning of June which is probably three to four weeks ahead of where we thought this time last quarter..

And on the CapEx side, as I mentioned, we've got some big projects coming on that'll come online in 2018 and then we'll see what kind of opportunities we have going forward. We're always talking with our customers to make sure that if they're growing we're able to supply that growth and we'll see where that takes us..

And then just as a quick follow on. Can you talk a little bit about how your mix changed last year or either you know in a given region or as a company when you look at specialty versus standard? And is that partly a factor in what's going on down in South America? You mentioned the new competitor.

Are they mainly coming into the standard sizes and that's sort of and therefore that's what you're losing in terms of share and maybe that will be over time offset by higher specialty volumes? Any comments there would be helpful..

Yes, so it's hard to parse out the definition of what is standard and specialty can is outside of the U.S. because all the other markets around the world have essentially gone through something other than a standard 12 ounce or 33 scintillator can.

So, the competitors coming in with cans that are not at 33 scintillator can, but that doesn't mean that that's not the overwhelming majority of product that shift in that marketplace.

And I think our specialty growth has been in line or slightly ahead in probably every region in the world and we continue to see that continuing as that's what the end consumer preference is, that's what our customers want and that's what we've been investing in..

Just to give you context, sorry, on a global basis, our specialty mix is about 37%, and to Dan's point in South America, it's almost 50%. When you think about how we define it in the United States, and it's even much greater in EMEA, it's closer to 80% to Dan's point.

And so, it varies, but we are seeing growth in specialty stronger than growth in quote, "standard in every major market"..

And the 45% in Brazil, that's just for beer or for everything?.

No. That's for everything..

Okay. Thank you so much..

Yeah. And when you said 45%, I want to clarify. I said just under 50%, so it's between 45% and 50%..

Okay.

Of the share that can have them all – all beverage continues?.

Clarification, the 45% is can mix. And so what John referenced was the mix within that can mix. Yeah, the specialty – set in other way, just under 50% of all cans we sell in South America are specialty containers..

Understood, but you had said earlier that the can share of all substrates I believe or was it just for beer went from 43% to 45%? That was in the prepared remarks.

I didn't know if that was for beer or for everything?.

I'm sorry. That was just for beer..

Okay, great. Thank you..

Thank you. Our next question comes from line of George Staphos of Bank of America. Please proceed..

Hi everyone. Good morning. Thanks. Thanks for all the details and for taking my question. So, I know you didn't really want to chat too much about or you feel that we chat too much about North American beverage. I want to come back to a question here as it relates to the fourth quarter.

Was there anything aberrational from what you saw in terms of your customers and/or their customers in terms of destocking. We had heard from some of our contacts that there might have been a little bit of effect there, were in effect related to changes in excise taxes part of the overall tax policy regime change that we've had in the states.

I don't know if you have any numbers around that but I was curious.

And then on specialty, maybe piggybacking off of Chip’s last question, what was the specialty growth for you? Recognizing it's difficult to parse, you had to put a number on it either globally or within North America in the quarter?.

I'd say on the destocking and in excise tax really no, no impact to us. And then on the specialty growth….

Yeah, it was about 10% on a global basis..

Okay. Thank you for that. And then the next question I had, if we think about the synergies with Rexam, and again traditionally, it was around SG&A procurement footprint. And it sounds like from your comments earlier in the presentation that those are at least trending in line or better than your expectations.

I know better than to ask you for a specific number guys but is there any one bucket that is seeming maybe a little bit better than your initial expectations, recognizing that the whole pie is at least in line or better than where you initially started? And if so, could you provide some additional clarity around that?.

Yeah. Let me -- let’s take a step back and when we said that net 300, it roughly broke into about a third a third, a third between G&A, sourcing and then manufacturing/footprint/all other.

On the G&A side, we said we'd probably get half of it through closure of offices, and recall that we closed the Millbank office, and remember that in June of last year, we closed the Charlotte office. We probably got a half or a little bit more of that.

The second half of it, it's going to be coming from moving a lot of activities into our shared services areas that we stood up in 2017, including Querétaro, Mexico and Belgrade. So, we have yet to get half of that $100 million from G&A, and we expect to get that late 2018, but really going into 2019.

On the sourcing side, we have gotten all of that, and of that roughly $100 million and we think there could be a little bit more as we go into 2018. And then, as you know, on the footprint side, we have announced the closure of Recklinghausen and closed it in August, we announced the closure of Reidsville in United States and closed that last summer.

We have only haven't even gotten a full year benefit of those, and we've announced three additional closures in North America that we've gotten zero benefit from. And we said between those three things on a run rate basis, it's approximately $120 million..

Okay. Fair enough. And so, when it actually occurs then you can measure it, then we can ask you at least qualitatively how you performed there, but certainly nothing that would suggest that you're not trending where you expect to be on that front.

Phase 4, can you provide a little more clarity in terms of what phase goes into Phase 4 and is there any commercial benefit built into that recognizing it would be in excess of the $300 million dollar plus that you had guided to..

Well, I'll stand by what I said, that we have counted on no benefits in any of the numbers we've talked about from a 2019 perspective in our related to the commercial activities. But the various types of things that you should think about that we are contemplating is number one, let’s just focus here in North America.

Dan, talked about we are building a new plant and closing three new facilities and we're adding no new net capacity. So, we're closing standard 12 ounce and adding specialty. The continued growth of that is a part of it. Changing the customer mix over in Europe where we were far too over weighted to soft drink is a part of it.

I talked about in Europe that we inherited some contracts that were declining year-over-year to at a minimum stop that decline is another example.

I could go on and on, but there's hundreds of different things, in terms of being more disciplined about the call off, fences that we allow our customers to order, so they can't change their orders within 12 hours, but they need 48 hours or 72 hours to do it. There is hundreds of different things. Those often require renegotiation of contracts.

And as you know George and the other people know that when we closed on the acquisition of it, we said we have no big contracts coming up for a couple of years. So, you put that all together and hopefully you're starting to see a mosaic that we're painting towards..

That's where I was going with the remaining question so. I appreciate the color guys. I'll turn it over and congratulations on the year..

Thank you..

Thank you. Our next question comes from the line of Chris Manuel with Wells Fargo. Please proceed..

Good morning, gentlemen. Congratulations on a strong finish to the year and really good outlook here for 2018 and beyond. I wanted to switch gears a second if I could, and help us a little bit with aerospace.

So, I kind of look at the progress of the backlog, just two years ago the backlog was around $600 million, so you almost tripled the backlog over the last couple of years and I know there kind of tends to be a little bit of a lag as that gets monetizing goes forward.

But appreciating that we’re packaging analysts moonlighting in this aerospace business to try to cover help us with how you would anticipate revenue and EBIT growth goes in the next couple of years? Thinking about something that’s $10 million to $20 million of EBIT growth that does that sound crazy to you in the next couple of years?.

No. I think that’s not the realm of possibility at all. The only point of nuance that I would add is usually the growth of the profitability on the frontend of those contracts is a little bit slower as you de-risk those contracts and it ramps up.

And so, I think as we start to execute on this you’re going to see all things being equal or slightly muted growth and then if we perform well, we see it on the backend as you know and we’ve done that time and time again..

Okay.

And the new business has come in is it proportionally weighted towards fixed or cost plus or how should we think about kind of where that sits?.

Yeah. No. It’s a little bit more proportionally weighted towards cost plus and we have been over the last three to five years.

A lot of these are very big programs, some of them are developmental programs and as you know in a developmental program, the cost plus is far more favorable for us and our customer because the specs, if you will, have not been defined..

Okay. That’s helpful. And then, one question for Scott.

As we think about the working capital component, I think you indicated this year perhaps another $100 million and how should we think about that going forward? Does it start to appreciating at a lot you wanted to bring out of Rexam as you translate it -- migrated them towards an EVA platform, but metal costs are going up a little bit, should we kind of think that working capital begins to flatten out after 2018 or do you feel you start a little more runway?.

I was way too early to tell. We think 100 is a good proxy for 2018, but every year, our people have been – when people are motivated by EVA, they get incredibly creative on ways generate even more. And so, I'm sure as we get through 2018, they'll be thinking about what we can do in 2019..

Or perhaps, there's something as you open up Goodyear and you get the other three plants closed that can continue to move as well. So okay, that's helpful..

Yeah..

Last question I had was book and cash tax. So, I think you indicated that the book rate was going to migrate down in 2019 or 2018, I'm sorry..

2018..

2018.

You have a number for us to what you did cash taxes in 2017 and what you think kind of a reasonable cash tax rate might be on a go-forward basis from here?.

We didn't pay much in the way of cash taxes in 2017. We've got NOLs that we’re utilizing, and we will pay much in the way in 2018. That wasn't – that wasn’t different with the tax reform that was already anticipated..

That's for our U.S. tax..

Correct U.S. taxes..

Yeah. So, as a whole corporate.

I mean, there’s something in the 20%-ish range reasonable for cash taxes going forward?.

It would be -- there would be -- let me check on that, Chris, and I'll get back to you, I think it's lower amount..

Okay. Thank you. Good luck, guys..

Thank you..

Thank you. Our next question comes from line of Arun Viswanathan with RBC Capital Markets. Please proceed..

Great. Thanks. Just a question on the European margins. They are slightly below our estimate.

And just wondering, if that was more due to a metal pass through or if it’s just kind of delayed benefits from some of the actions or if it’s just kind of delayed benefits from some of the actions you’ve taken there like working housing?.

You’ve got a -- are you adjusting for the depreciation change?.

Yes..

Well, I think there -- to answer is they’re in line or ahead of where we anticipated 90 days ago. So, I can’t comment on it Bob..

Okay, no problem. Similarly, in the U.S., I guess, your margins also on our basis was little bit lower.

But how would you characterize that versus your own expectations? Was there added softness from the beer weakness?.

No, we didn’t, I mean, we didn’t experience the beer weakness in Q4 largely due to our customer mix and our segment mix. The only thing, we were favorable on basically every line item of our cost structure in the fourth quarter with the exception of the continued headwinds on the freight rates.

But all-in-all, we were ahead of where we thought we’d be in Q4 in the U.S. as well..

And then just real quickly what will an appropriate level of corporate expense per quarter going ahead?.

Well, I’d say it’d be 115 for the full fourth quarter..

Okay. Thanks..

Well, thank you..

All right. Nelson, we’ll take one more question, then we’ll wrap it up..

Thank you. Our last question is a follow up from the line of Mark Wilde with BMO Capital Markets. Please proceed..

Yeah, I’m just curious if we can get any sense of what the incremental CapEx is in Aerospace?.

Yeah, so it’s an excess of $100 million..

Spread over several years..

Yeah, spread over couple of years. We’ve got, if you come out to Colorado market, we’ve got a number of big projects going on right now to expand the number of test facilities and manufacturing facilities. And that will be mostly in 2018 and in 2019..

Yeah. And just to give you a context, in our satellite manufacturing, we're building some more chambers by which you test, so much larger chambers. And then, as you know, we've experienced some very strong growth in our tactical products, which are the -- everything from the stealth antennas to the video cameras.

And we are building on a very large manufacturing wing onto our existing manufacturing site. Those were the probably the two biggest ones and if you came out and wanted to visit, we’d be happy to show you..

I'd love to do that. John, I just wanted to ask about this diet coke rollout. That's they've been publicizing over the last several weeks, and lately, it’s going into sleek cans. And I wondered if you’re just – you're seeing kind of more inquiries from the beverage companies on that sort of thing..

Yeah. I think that hits to the trend that Dan talked about earlier and I did as well, I think you're seeing that's why we're seeing 10% growth on a global basis of our specialty. And I think repositioning that is a great example of creating profit pools for themselves and using specialty cans to help do it for them..

And if that works, if that roll out takes, will they usually use the same packaging format kind of globally, so they use the sleek cans in other markets around the world..

Not necessarily because tastes are very different by geography and region, and also they have different bottlers that have different areas of focus, but I do think the use of specialty generally is you are seeing more and more across all of our customer base..

Okay. That's helpful. Listen, good luck in the year..

Okay. Thank you..

And there are no further questions..

Okay. Great. Thank you, Nelson, and thank you, everyone for your participation and we look forward to a strong 2018..

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 your line..