Will Rising Costs Impact Ball Corp's (BLL) Q4 Earnings?

Ball Corporation (NYSE:BLL) is scheduled to report fourth-quarter and full-year 2017 results on Feb 7, before the market opens. The company’s results will be adversely affected by damages caused by the U.S. hurricanes, and spike in freight and fuel rates.

Notably, the company’s earnings performance has not been impressive over the past few quarters. In the last reported quarter, Ball Corporation missed the Zacks Consensus Estimate. Moreover, the company witnessed an average negative earnings surprise of 1.05% during this time period.

Let’s see how things are shaping up for this announcement.

Key Factors to Consider

Ball Corporation expects comparable EBITDA in the range of $1.7-$1.75 billion in 2017. However, the company might fall behind its 2017 EBITDA goal due to dismal performance in the North and Central American metal-beverage business in the third quarter. The Zacks Consensus Estimate for sales of this segment is pegged at $984 million for the fourth quarter, reflecting year-over-year growth of 2.6%.

Ball Corporation projects interest expense will be in the range of $290 million in 2017, up 10% from the prior projection. This is because the company’s year-end net debt will likely be closer to $6.5 billion, up from the previous guidance of $6.2-$6.3 billion due to strength of the Euro. Further, elevated costs due to additional expense related to closure of the company’s Recklinghausen facility might impede growth.

We expect that quarterly sales for its Beverage packaging unit in Europe will likely be $498 million, up 10.9% year over year.

Furthermore, the manufacturing inefficiencies experienced in 2017 in Ball Corporation’s food and aerosol segment also remain a matter of concern. This segment is projected to report sales of $252 million in the quarter under review, down 2.7% from $259 million reported in the prior-year quarter.

Ball Corporation expects its fourth-quarter results will be affected by severe impacts of the U.S. hurricanes occurred in 2017. Notably, Ball Corporation witnessed significant escalation in freight rates after the hurricanes in 2017. The company expects that freight and fuel rates will continue to be higher which will impact the fourth-quarter’s performance of its Aerospace and Technologies segment. Despite these headwinds, the Zacks Consensus Estimate for this segment’s net sales is pegged at $259 million for the quarter, reflecting 16.7% year-over-year improvement due to continued ramp-up on new contracts.

Ball Corporation’s South American business performed well in the third quarter. Segment volume grew in double digits, led by Brazil. The business benefited from customer mix, product portfolio and proximity to near-term market needs in the region. The company anticipates further growth in the nation and surrounding countries in the soon-to-be-reported quarter due to the summer selling season. The estimate for this segment’s sales is pegged at $501 million, reflecting year-over-year growth of 14.6%.

Shares of Ball Corporation have gained 3.8%, underperforming 4.7% growth recorded by the industry due to the prevailing headwinds.

Earnings Whispers

Our proven model does not conclusively show that Ball Corporation is likely to beat on earnings this quarter as it does not possess the key components. A stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or at least 3 (Hold) for this to happen. This is not the case here as you will see below:

Zacks ESP: The Earnings ESP, which represents the difference between the Most Accurate estimate of 51 cents and the Zacks Consensus Estimate of 52 cents, is -0.52%. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

Zacks Rank: Ball Corporation currently carries a Zacks Rank #3. While this increases the predictive power of ESP, we also need to have a positive ESP to be confident about an earnings surprise.

It should be noted that we caution against stocks with a Zacks Rank #4 or 5 (Sell rated) going into the earnings announcement, especially when the company is seeing a negative estimate revisions momentum.

Stocks to Consider

Here are some companies that you may want to consider, as our model shows that these have the right combination of elements to post an earnings beat this quarter:

ACCO Brands Corporation (NYSE:ACCO) , with an Earnings ESP of +0.76% and a Zacks Rank #2. Its shares have gained 10.7%, over the past six months. You can see the complete list of today’s Zacks #1 Rank stocks here.

Astec Industries, Inc. (NASDAQ:ASTE) , with an Earnings ESP of +0.74% and a Zacks Rank #2. The stock has gained 32.7% in six months’ time.

Altra Industrial Motion Corp. (NASDAQ:AIMC) , with an Earnings ESP of +1.03% and a Zacks Rank #3. The company’s shares have been up 17.9% during the same time frame.

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