Beverage cans on the up again

The coronavirus pandemic has diverted attention from the revival in sales of beverage cans on both sides of the Atlantic. Arthur Stupay studies the figures

Shipments of beverage cans in North America in the first quarter of the year were the highest in many years, increasing by 8.3 per cent compared with a year earlier, as detailed in Table 1.

Over the past five years, there’s been a rise of almost 10 per cent in that three-month period, following a gradual decline. It is likely that at this rate the year’s total will top 100 billion units, a figure last reached in 2007.

Yet there are warning signs for canmakers. With the coronavirus lockdowns, beverage can shipments in Europe are expected to be lower in the second quarter. Also, canmakers had to contend with the pass-through of lower raw material cost. While tinplate prices, according to Crown, were down in mid-single digits, aluminium canstock fell by more than 10 per cent, and this was reflected in sales because of the effects of pass through to customers.

Social distancing and the lockdowns hit sales of beer in bars and pubs, but sales of drinks for home consumption were up, to the benefit of can volumes. At the same time, retailers sharply increased inventories of canned drinks to meet customer demand.

Sales of cans for soft drinks in North America continued to show strong gains. In the first quarter, Coca-Cola reported overall unit case volume rising by 3 per cent, with strong growth in enhanced water and sports drinks, including premium brands such as Bodyarmor and Smartwater, as well as its Zero Sugar line.

Here we review the most recent financial results for Ardagh, Ball and Crown. The next article will review the canned food sector.

With volume and cash growth Ardagh prospers
Ardagh’s first quarter was positive and the outlook encouraging, if the coronavirus pandemic is to be slowed. The Europe-based canmaker showed strong profit performance, but volume growth lagged behind the market. Nevertheless, it continued to focus on margins and segment returns remain impressive, turning away marginal accounts, as detailed in Table 2.

In Ardagh’s Metal Beverage Americas segment, which includes Brazil, volume growth was 7 per cent. Ardagh benefited from its concentration in the off-premise market, which usually accounts for an estimated 80 per cent of its packaging sales, as brewers shifted from draft to packaged beer. Also, brands are emphasising lower-price and higher-volume drinks, at the expense of speciality products, to improve efficiencies and as a way of meeting volume requirements.

Segment ebitda rose by 20 per cent in the quarter, due to volume growth, held back by its operations in Brazil. This led to higher beverage can segment margins, at 13.7 per cent, as shown in Table 3.

Ardagh’s Metal Beverage Europe segment reported a small rise in its volume/mix, but lower metal input costs reduced reported sales. Adjusted ebitda was below a year ago, due in part to lower metal input costs.

The canmaker indicated that it still plans to proceed with an ambitious capital investment programme, with US$350 million devoted to existing projects and an additional $250m on growth projects that were identified earlier. The coronavirus pandemic may, however, delay these. There’s been strong financial support for Ardagh’s bond offerings, increasing total liquidity to $1.5 billion.

Ball up in most markets, except Brazil
Beverage can volumes at Ball were up 4 per cent globally and in the Americas, its largest segment. Sales in the quarter were $1.6bn, much higher than its competitors, as shown in Table 3, and segment profits rose significantly.

Sharply higher off-premise sales in the segment led to even tighter supply conditions. Highest demand off-premise was in cans for soft drinks, sparkling water, spiked seltzers and beer, which more than offset declines in sales through food stores and on-premise outlets, such as restaurants and bars. Tight supply will be eased when Ball’s new canmaking lines in Arizona and Texas start up in the second half of this year.

In South America, volume rose 1 per cent, mainly in Chile, Argentina and Paraguay, offset by a sharp fall in Brazil, as Ardagh also reported, due to the closure of small grocery stores and fuel stations, at the start of the pandemic. With depressed business conditions in Brazil, two new canmaking lines planned for the fourth quarter will be delayed until 2021. Its Mexican operations also faced declines in local demand, offset by increased metal can shipments to brewers and bottlers in the US.

European and Middle East volume rose by 5 per cent, but sales were slightly lower due to higher freight and warehousing costs and some production downtime due to coronavirus. As in the Americas, can demand gained from off-premise consumption. Cans for energy drinks also rose. There were notable increases in volume in the UK, Europe and Russia, offset by lower demand in southern Europe, the Nordics and Turkey.

Ball’s plants in Myanmar, India and Saudi Arabia reported lower volume in late March and April, due to the pandemic.

At the same time, aluminium aerosol volumes in North America and India rose by 2 per cent. Ball is also in the process of acquiring a monobloc aerosol can plant in Brazil, completing in the third quarter.

As the other canmakers reported, Ball is well-capitalised, with $1.3bn in cash, plus an additional $500m in uncommitted lines of credit. It projects free cash flow for 2020 of $500m, lower than earlier expectations. Capital spending is planned at $800m, but subject to business conditions in the second half of the year, with a continued commitment to build its aluminium cup capability at Rome in Georgia.

Strong volume growth for Crown, especially in North America
In North America, Crown reported a 16 per cent volume gain in the first quarter, accelerating in March when coronavirus took hold, with continued gains reported in April. Supply was improved by extra capacity at the Weston plant near Toronto, which began in late January.

But the pandemic delayed the completion of the third line at Crown’s plant at Nichols, New York, which will now come on stream in June. Work has started on a new beverage can plant at Bowling Green in Kentucky, with start-up scheduled for the second quarter of 2021.

Streamlining of SKUs, with a smaller range of labels, by customers is enabling Crown, like Ardagh, to focus production and logistics in this emergency period.

The tightness of supply in the US at Crown US may be helped by shipments from its plants in Mexico, because on-premise consumption of canned beer and other drinks declined, especially in March. This will provide some swing capacity for the oversold US market, both in the traditional carbonated drinks and proliferation of carbonated flavoured water drinks, especially for home consumption.

Crown’s volume in Brazil, where the plants are run by a joint-venture, was up by 9 per cent in the quarter, but shipments slipped significantly in March and the second quarter is expected to be significantly down.

Chief executive Tim Donahue noted that the decline was severe “as rising unemployment and declining income [of consumers] are shaping their spending behaviour”. In addition, beer consumption in restaurants and bars, which accounts for 70 per cent of sales, has been hurt by the severe restrictions on social gatherings. But Donahue believes that the second half of the year will see some recovery.

Beverage can volume in Europe was up by 5 per cent in the quarter, despite the severe restrictions on social gathering in the UK and Italy, but volume was significantly down in Turkey.

Volume in the Asia Pacific region was up by 3 per cent, with continued growth in Cambodia and Vietnam; China was down by around 20 per cent, from a low base, after the closure of a number of plants.

While Crown has withdrawn its free cash flow forecast for 2020, along with many other canmakers, its capital spending programme is still around $600m, but subject to a number of caveats, depending on the effectiveness of the control measures to contain the coronavirus pandemic. At the same time, the canmaker has secured over $1.5bn in liquidity, consisting of cash and borrowing capacity to insure that it can withstand a prolonged period of economic weakness. Its net leverage ratio remains well below its covenant requirement.

More information from Arthur Stupay, Tower Research, 12526 Cedar Road, Cleveland Heights, Ohio 44106, USA.
Tel: 1 216 241 3078.
Email [email protected]