Greetings. And welcome to the Ball Corporation Second Quarter 2021 Earnings Call. During the presentation, all participants will be in a listen-only mode. Afterwards, we will conduct a question-and-answer session. As a reminder, this conference is being recorded, Thursday, August 5, 2021. I would now like to turn the call over to John Hayes, CEO of Ball Corporation. Please go ahead.

Thank you, Kathy, and good morning, everyone. This is Ball Corporation’s conference call regarding the company’s second quarter 2021 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 company news releases. If you don’t already have our earnings 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 Dan Fisher, our President; and Scott Morrison, our Executive Vice President and Chief Financial Officer. I’ll provide some introductory remarks, Dan will discuss packaging and aerospace performance and trends, Scott will discuss key financial metrics and then I’ll finish up with comments on the outlook for the company. To all of our global employees, thank you for your hard work and for staying safe. We know the past 16 months have been trying on everyone and it’s not lost on us that we are not out of the woods yet. COVID is still with us and the science of the vaccine speaks for itself. Please get vaccinated if you can, if not for yourself, but for your loved ones and coworkers. In addition, I also want to thank our packaging and aerospace customers, suppliers and their employees. Collectively, we continue to navigate our supply chains, COVID-related restrictions in certain regions due to the ongoing Delta variant, re-openings in other regions. We are experiencing all of this while deploying new EVA creative investments, innovations and technologies that will increase the global availability of sustainable aluminum packaging, as well as deliver national security, environmental and climate intelligence. Our long-term prospects are right on track relative to our expectations. Our business has been very resilient and we have an exciting future ahead of us. In the second quarter, comparable diluted earnings per share were up 32%, comparable operating earnings were up 22%, global beverage volumes were up 13%, global aluminum aerosol volumes were up 20%, and aerospace finished the quarter with record backlog. Looking to the second half, growth continues across our global beverage businesses; aluminum aerosol volumes continue to rise as regions reopen; our cup team continues to roll out our Ball Aluminum Cup in more than 20,000 points of retail distribution and is working with stadiums and arenas to ramp up the food service side of the business; aerospace has multiple launches; and hiring continues at an elevated pace to staff aerospace contracts and aluminum packaging manufacturing projects in the U.S., South America, and Europe. While we’re still working through several supply chain disruptions in our aerospace in North and Central American beverage packaging business that Dan will speak to, we are leveraging existing contractual terms and conditions to recoup higher input costs in future periods in both our packaging and aerospace businesses. We have an even greater conviction in our ability to significantly grow diluted earnings per share, EVA dollars, cash from operations and return of value to shareholders in 2021 and beyond. To that end and Scott will elaborate, we are accelerating our return of value capital allocation strategy, given the conviction we have for our future performance. Second quarter 2021 highlights include, our global beverage businesses completing the startup of six lines, including three in North America, one in EMEA and two in South America. Our global aluminum aerosol volumes increasing 20%, as I mentioned before. Our cups team executing national retail distribution of the Ball Aluminum Cup in all 50 states and providing 16 ounce, 20 ounce, and 24 ounce aluminum cup to numerous sports and entertainment venues as COVID restrictions moderate. Our aerospace team winning new contracts to lift contracted backlog to a record $3 billion following the significant win late in the quarter. Our 2030 sustainability goals announcement includes ambitions to achieve net zero carbon emissions, 90% global recycling rates and 85% recycled content, as well as establishing regional diversity and inclusion goals and a vision of circularity for the aluminum beverage can. Our business is hiring nearly 1,600 people net year-to-date to support our long-term growth in normal attrition due to retirements. Our Board increased our quarterly dividend by 33% and reiterated our 35 million share repurchase authorization. We plan to purchase in excess of $500 million of stock this year while deploying $1.5 billion in EVA creative growth capital investments. In summary, Ball continues to operate from a position of strength. Our team is executing at a high level, standing up new greenfield plants, speeding up lines in existing facilities, bringing new aerospace infrastructure and expansions online to support our increasing backlog, and hiring amazing talent to join our team. To everyone listening, best wishes to you and your families for good health and continued safety. With that, I’ll turn it over to our President, Dan Fisher.

Thanks, John. I echo your thanks to our employees, customers, and suppliers. Our global HR, environmental health, and safety professionals and our own personal actions continue to keep our team safe and vigilant. The teams are doing a great job managing accelerated growth, large-scale capacity additions, and intermittent supply chain challenges. We’re entering the second half with a lot of momentum, a few manageable challenges, and a visible path to strong performance throughout 2021 and beyond. Second quarter global beverage volumes were up 13% versus 2020 with ongoing strength in EMEA and South America, offsetting startup costs in North America, retail marketing investments for our retail cup launch, the later than anticipated award timing for a new aerospace contract, and higher year-over-year costs. Demand for aluminum beverage cans continues to outstrip supply around the globe. Our global engineering and operations teams are executing at a high level. We’re on track to exit 2021 with an additional 12 billion units of new installed capacity and we recently announced global projects that underscore our Investor Day commentary. Cans are in high demand, contracts are in place and Ball is well positioned. Our focus on speed to market, talent, training, systems, and operational readiness is paying off as we continue to ramp up new capacity on time and on budget. To all the teams listening, our time is now, and you are making this happen. Keep up the great work. As John mentioned, we have hired 1,600 additional colleagues year-to-date, with the majority located in the United States. Our investment in talent, training and development, and emerging into the Ball culture and EVA mindset is vital to our near- and long-term success. Can demand across all beverage categories remains strong. Our focus on improving customer experience by expanding can availability via new production coming online and providing our network latitude to build adequate inventory will continue to aid that trend. We continue to make significant progress in operationalizing and commercializing sustainability. Following EMEA’s lead in 2020, our operations in South America and North America are on track to achieve ASI Certification by year-end 2021. In each of our global businesses, we have set specific regional D&I goals as part of our 2030 sustainability goals announcement. Proof points of our progress include women representing over 40% of the new team in one of our Brazilian plant investments. In aerospace, over 40% of our summer interns and new hires represent ethnic and gender diversity. We commend our global colleagues’ commitment to our sustainability journey and wish to recognize our supply chain's recent investments in sustainability-focused initiatives. As we discussed throughout 2020, growth in our global beverage business is accelerating, and our product portfolio continues to support our customers’ new brands, as well as broaden the addressable market for aluminum cans, bottles and cups. Given market characteristics and our project execution, I continue to be very positive about our ability to achieve our goals and deliver low double-digit global volume growth and global specialty mix in excess of 50% in 2021. We continue to see the global industry growing at an annual rate exceeding 6% for the foreseeable future. Ball is well positioned to capture growth, given our scale and innovation in the world’s largest can markets. Looking out, contractual terms and conditions are favorable and longstanding pass-through mechanisms are in place for aluminum and other items. And as we said on last quarter’s earnings call, now we execute. Now for a few brief comments on each region. In North America beverage, second quarter volumes were up 5% versus 2020 and up 6.4% versus 2019 during the quarter. Earnings were up slightly and as expected, higher volume offset the combined effects of project startup costs and operational efficiencies in plants brought about by unsustainably low inventory entering peak season. Glendale and Pittston are both operational, and as of today, three lines are running, and Glendale and Pittston's first line is coming up its learning curve. Both plants will exit 2021 with four can manufacturing lines installed and our Bowling Green ends manufacturing plant will start up early in the fourth quarter of 2021. The remaining half of the anticipated $50 million in startup costs will flow through in the second half of 2021. Across our broad customer base, beverage can demand is strong in all brand categories: alcohol, soft drinks, energy, and water. Despite recent chatter on hard seltzers, nothing has changed about our plans. We expect favorable growth trends across all categories to continue, which will drive more EVA-enhancing opportunities supported by long-duration contracts with strategic customers and large regional accounts. In the near-term, the work to build adequate inventory levels will offset some of the benefits of having new capacity online during the third quarter and position the business for success. Looking out longer term, Ball will build another beverage can manufacturing plant in the southeast. Our new North Carolina facility is supported by long-duration contracts with strategic global customers. We are excited to invest alongside our customers and anticipate the facility to come online in late 2023 or 2024. In EMEA, segment volume for the second quarter was up 18% versus 2020 on easier comps given prior year’s volume declines due to COVID onset; timing and we’re also up due to customers adding new can filling investments. Versus second quarter 2019, volumes were up 9%. Across Ball’s EMEA business, demand trends and positive momentum continue. We foresee European beverage can volumes up high-single digits throughout the second half of 2021 and beyond. Future growth will be driven by new and existing categories utilizing cans and additional regional plant opportunities emerging to fulfill market demand in the biggest can markets across EMEA. Our new greenfield plants in the U.K., Russia and Czech Republic are supported by long-duration contracts for committed volumes with global and regional key accounts. Our EMEA team is executing very well and is fully prepared for these exciting investments. In South America, second quarter volumes were up 15% versus 2020 and up 16% versus 2019, given easier comps due to the prior year’s COVID impact, despite cooler than normal seasonal temperatures and delivery channels in large cities limiting alcohol purchases. We continue to see more earnings upside in South America. As John mentioned, two new lines ramped up in existing facilities in South America during the quarter, and the Frutal, Brazil plant is preparing for a late third quarter startup. Additional investments in Brazil and throughout the region are also anticipated. Similar to our prior commentary, we anticipate can growth in the mid-teens for the full year and additional growth will be possible once we have more capacity online. In summary, our global beverage team did a terrific job navigating some uncontrollables during the quarter while also executing well on the things we can control. Our aluminum aerosol team did an excellent job supplying growth across EMEA, resulting in 20% higher volumes in the second quarter globally versus 2020 and 12% higher volume versus 2019 for the same period. The team continues to manage varying degrees of reopening status in Brazil and India. Additionally, the business continues to amplify the sustainability credentials of our extruded aluminum bottle to deliver innovation across multiple brand and product categories, including the second quarter rollout of refillable, reclosable personal care packaging at a leading U.S. mass retailer. Our cups team continues to raise awareness, establish distribution, execute initial sell-through, and invest for continued growth in 2021 and beyond. In addition to the 50 states retail launch, John mentioned, the team continued to invest in The Party Starts Here marketing campaign to engage and educate consumers about infinitely recyclable aluminum cups. We continue to expect our cups business to turn a profit starting in 2022. Turning to aerospace, the team continued to win contracts and year-to-date contracted backlog is up 25%. The aerospace business dealt with lingering effects of inefficient supply chains, though exiting the quarter we saw notable improvement with key subcontractors and we are excited to book a key contract at the end of the quarter. This win and the trajectory of recent performance sets up the business for notable sales and earnings growth in the second half of 2021 and beyond, in addition to margin improvement beyond 2021. At Ball Aerospace, we are managing challenges, nurturing our culture, while capturing the future. We appreciate all of the amazing work being done by not only the aerospace team but everyone across the organization. And with that, I’ll turn it over to Scott.

Thanks, Dan. Comparable second quarter 2021 diluted earnings per share were $0.86 versus $0.65 in 2020, an increase of 32%. Second quarter comparable diluted earnings per share reflects strong global beverage results, slightly lower interest expense and a lower effective tax rate, offset by previously discussed higher year-over-year corporate costs, as well as labor and startup costs to support business growth and marketing costs to drive the aluminum cup launch. Ball’s balance sheet is very healthy with ample liquidity and flexibility. As we sit here today, some additional key metrics to keep in mind for 2021. Our full year effective tax rate on comparable earnings will now be in the range of 17%. Full year interest expense will be in the range of $270 million. And full year corporate undistributed costs recorded in other non-reportable are now expected to be in the range of $95 million. We continue to see a path to doubling our cash from operations by 25%. Our 2021 cash from operations will grow in line with earnings trajectory and be aided by a source of working capital. We expect 2021 total CapEx to exceed $1.5 billion and returns on capital beyond our 9% after-tax hurdle rate will flow through as new growth projects become operational later in the year and in the years to come. Ball continues to be good stewards of our cash. As fellow owners and in alignment with our EVA discipline, we will prudently balance real-time growth opportunities with consistent return of value to our shareholders via dividends and share repurchases. Given the second quarter’s strength and net leverage in our target range, we will return significant value to shareholders via dividends, as John mentioned earlier, and our ongoing 2021 share repurchase program of at least $500 million. In 2021, we will return approximately $1 billion to shareholders, including dividends and buybacks, and we intend to double that total return to shareholders in 2022. With that, I’ll turn it back to you, John.

Great. Thanks, Scott. In summary, our Drive for 10 vision serves us very well, whether it be broadening our geographic expansion, developing new customers, markets, and products, and doing so with a commitment to being close to our customers and with uncompromising integrity. Following our strong year-to-date results and outlook for the remainder of the year, we are even better positioned to exceed our comparable diluted earnings per share long-term goal of 10% to 15% and exceed our EVA dollar growth goals of 4% to 8% per year in 2021 and beyond. We will work safely together to execute on projects, support our customers’ growth, drive the circular economy and generate significant earnings, cash, EVA, and return even more value to our shareholders. And with that, Kathy, we’re ready for questions.

Thank you. And our first question comes from the line of Ghansham Panjabi with Baird. Please proceed.

Thank you. Good morning, everybody.

Good morning.

So, Dan, maybe we can pick up on the hard seltzer comment. Obviously, the narrative of the market has changed quite a bit. Maybe you can give us a sense as to how many units you think hard seltzers will total for beverage cans in North America for as we exit 2021? What does that number look like for 2022? And then what gives you confidence that the momentum will continue in context of companies like Molson Coors already rationalizing some of their brands? Thanks.

Thanks, Ghansham. I think for how we looked at that category is and I think I’ve made this comment before. We look at sort of the ready-to-drink alcohol space. To give you some context, for Ball Corporation, hard seltzers of our unit volume make up less than 5%. We’ve seen, obviously, we participated in the growth of that space. But it is not the underpinnings for the things that we’ve been talking about in terms of long-term securitization of contracts, EVA accretion. It’s not on the backs of that category specifically. And so I think it will continue to grow; it’s clearly not going to grow at the rate it has been. I think what’s been clear in that space is the folks that continue to innovate and innovate effectively are the ones that are taking share. From that perspective, we believe that we have a right to play in the innovation space and I think we’d benefit from those customers in particular. And so that’s where our focus is. I’m leery to comment on unit volumes across the entire space for the back half of the year. But maybe that gives you a sense of how we at Ball kind of view that category. We’re continuing to bet on the long-term trajectory of the can and can wins in every channel. This is one that has done really well over the handful of years, but we like a lot of other categories and a lot of other spaces equally.

Okay. That makes sense. And then if we switch to Europe and the big improvement versus 2019. I mean, obviously, at energy cup last year, but really, what is driving the margin improvement versus 2019, even with aluminum costs that are much higher and obviously, dilutive? What’s driving that improvement there?

This may be too simple an answer, but our team is executing really, really well, in some instances, a little ahead of our expectations even. We’ve got a really stable footprint over there. We’re on the forefront of major greenfield expansions. But that’s stable. We’ve had the benefits of incremental speed ups and incremental line extensions and that’s a much easier operating environment, coupled with the fact that the team over there is doing a terrific job. So, I think, solid contracts that we’ve leaned into and talked about globally, the team performing extremely well, and the fact that they’ve benefited from the incremental growth expansion as opposed to some of the large greenfield footprint. So I think the combination of those three and that team just continuing to perform exceedingly well.

Perfect. Thank you.

And our next question comes from the line of Jeff Zekauskas with JPMorgan. Please proceed.

Thanks very much. Of your 12 billion can capacity expansion by the end of the year, how much of that volume is already committed?

Overwhelmingly, it’s committed. We haven’t deviated from that position. The long-term contracts are committed. They effectively in many instances have take-or-pay clauses in them. Good terms and conditions and equilibrium of risk. That’s improved over the course of the last four to five years in terms of the contract integrity. But, yeah, they’re overwhelmingly contracted. I’d say, 85% to 90% of each one of the facilities is contracted.

Okay. Great. And to follow up, I think, your long-term projection for the growth in the North American can market is 4% to 6%. So call it 5%. Of the 5% growth you expect on a normal basis, how much of the growth comes from alcoholic beverages and how much from non-alcoholic beverages to get to the 5%?

Good question. I think going back to 2019, when we had an Investor Day and we laid out the growth trajectory, we’ve been pretty consistent that I believe it’s going to be somewhere in the neighborhood of two-thirds alcohol, one-third other. It may be shifting a little bit more to 60% alcohol and 40%, and the reason for that is energy; the energy market continues to absolutely be on fire. And so that’s the only fundamental change I see in the underlying architecture. The good news is that means volumes more than what we anticipated a couple of years ago, but that segment in particular, and there’s more fitness energy drinks coming online. You are a consumer, you see all of this, and we’re obviously going to benefit from it.

Yeah. I’ll just add, let’s not forget that that 4% to 6% did not include any water, any still water and we are even just driving in the car today, I actually heard a radio commercial about still a new still water brand coming in. And so I think that provides, it was delayed about a year because of COVID, but we are starting to see it. A little bit less so here in North America, but certainly in Europe and we expect that to be upside to that 4% to 6% volume growth.

Great. Thank you very much.

And our next question comes from the line of Anthony Pettinari with Citi. Please proceed.

Good morning.

Good morning.

John, Dan, after bringing up and ramping the additional lines in North America in 2Q, 3Q, would you expect to still be importing cans at year end? Can you just kind of give a snapshot of where your global footprint stands from import/export standpoint? And when you get to a point where you no longer need to import into North America?

I think we’ll be importing far less in the back half of the year. Having said that, the can growth, we’re still in the early innings of the growth, so as all our channels and all our markets continue to open up and we’d lean more into new innovations, et cetera, those could spur some inputs, but we’re not planning on near as much to the extent that we saw in the first half of the year.

Yeah. But having said that, even going into 2022, we still expect some imports as we kind of catch up with all this. If you go back probably, I’ll call it, 18 months ago and asked us, we would have probably said the amount of imports in 2022 would be negligible, if any, but we’re seeing more just because of the overall demand growth and we want to be prudent in our investments. As Dan mentioned earlier, we make the investments based upon secured contracts. And so as those come through, that provides an underpinning, but I would expect that we’re still doing some level of importing in 2022.

Absolutely.

Okay. That’s very helpful. And then with the Delta variant, we’re seeing some renewed lockdowns, I guess, maybe in some Asian markets where you don’t participate as much. I’m just wondering if you’re seeing or does your guidance anticipate any impact on-premise demand in any of your global markets from renewed lockdowns?

No, it doesn’t. As you know, I think it's actually only positive. Kegs are rarely used here in North America, even less than in Europe, and they do not tend to favor on-premise serving. I believe that with the on-premise opening up, there is potential for growth because we have heard anecdotal evidence suggesting that as on-premise venues begin to reopen, kegs are at risk. This is because they had to dispose of a lot of spoiled product due to the lockdowns. Bar and restaurant owners are now looking for more flexible and adaptable supply chains, which I think benefits cans. In fact, as situations change, there is minimal downside but more potential for upside.

Maybe just adding a comment to John’s good take on on-premise, I think we’re also seeing the continued investment into the direct channel and there have been behavioral changes.

This is the Operator. The main line has disconnected. They will be dialing back in. So please stay on the line. The main line has disconnected, but they’ll be joining shortly. So please remain on the line. Please go ahead. The main line is connected. Please continue.

Apologies for that. It seems we lost connection for a moment, but we’re back now. Kathy, could you please take the next question?

Certainly. Thank you. And the next question comes from the line of Neel Kumar with Morgan Stanley. Please proceed.

Hey. Great. Thanks for taking my question. You mentioned several supply chain disruptions in the aerospace and North Central America segments. Can you just quantify for us the impact in the quarter and what impact you expect from these issues in the second half of the year?

On the aerospace side, we experienced some difficulties early in the quarter, but things improved significantly in the latter half. We are optimistic about moving forward, feeling that we have overcome the supply chain challenges. In North and Central America, costs related to warehousing, coatings, and other areas have risen, a trend that everyone seems to be facing across their supply chains. Our teams have been effective in ensuring we have the necessary metal for our operations, so we haven’t encountered any issues on that front. It is a challenging environment, but we are managing it quite well.

I think in total, I think, in aerospace, we think it costs in the range of probably $5 million in the quarter. I think in North America beverage, our startup costs were in the $11 million to $12 million, excuse me, $12 million to $13 million range. And then all the other inefficiency costs that, Scott alluded to, and don’t forget, we entered the quarter with the lowest inventory we had. And so as you’re going into a seasonally high period of time in North America, that’s what created the disruption; but that costs are probably in the range of $20 million to $25 million. As Dan talked in these prepared remarks, a big focus in the second half of this year is new capacity is coming online, getting our inventories back to a more normalized level, so that we are not making to order, but we’re making to stock, which is very important from a whole supply chain efficiency perspective.

It’s important to add to that. When we talk about we’re doing an effective job, controlling what we’re controlling, especially within the four walls of our plants, it’s exactly John’s comment, when you have historically low inventory levels that just promotes more label changes and more turnover. Our folks are operating incredibly well. They’re just doing it in challenging inventory level circumstances.

Great. That’s helpful. And you mentioned aluminum cups being profitable in 2022. I was curious what the drag is in 2021 and how much CapEx has been invested so far? And can we just generally expect a greater than 10% return on that investment on an ongoing basis?

I’ll add a couple of comments and then maybe turn it over to Scott. Number one, we’re having to see the market in terms of promoting and building the brand. So you can see commercials and traditional media, you can see a lot of activity in that arena. So we’re spending that money as we launch; we only have one time to launch in these 20,000 stores. We’ve leaned in heavier in the second quarter even than probably what you see in the back half of the year in terms of investment to build the brand. And then it’s a function of volume against the fixed cost, right? So as we’re seeing volume continue to pick up and seeing some nice velocity turns on this retail. We have pretty good line of sight into where we’re going to be exiting the year and a good line of sight in terms of this is going to be able to transition into a profitable business in 2022.

Yeah. We’ve invested about $250 million so far just in the realm of the cups plants so far and we expect to have returns, yes, well in excess of that 9% as it matures. To Dan’s point, the team has done an amazing job, given kind of COVID restrictions of getting into 20,000 retail locations in a short period of time. That doesn’t come without some additional investment. But we expect that investment to be well worth it as we get into 2022 and beyond and start to see those returns.

Yeah. And then one thing I’ll just add on that is, let’s also not forget the food service side, the sports and entertainment venues. They’re just in earnest over the last month or so, just starting to open up even on the concert side, they’re just starting as we speak. As we go into the second half of the year, that’s going to be a big focus. Assuming normal, no restrictions or very limited restrictions in 2022, that’s where we see the road to profitability.

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

Thanks. Hi, everyone. Good morning. Hope you’re doing well.

Good morning.

Thanks for taking the question. So I wanted to hit again on innovation. And I think sometimes it’s good to remember six years, seven years ago, I think you all were talking about how, especially on the alcohol side, there wasn’t innovation, relative CSD and that’s obviously changed a lot and churn is good. When you look at your customers’ new product pipeline, especially in alcohol, are you more or less confident looking out a year to two years than you were a year ago, in terms of the innovation and what it’ll mean for your growth and return and why or why not?

I’ll give a very high-level view. I’m probably a little bit more excited why. It’s not only just because of innovation. It seems like every new brand that’s coming out in cans. The amount of the sheer number of new product inquiries we get from big, big customers, regional customers, small customers has been the greatest I’ve seen in my 20 plus years at Ball Corporation.

I was building on that George versus three years or four years ago, every large CPG company now is getting into the alcohol space. So just by virtue of that, we’re seeing a lot more innovation on that side. As John said, almost everything is going into cans. So I’m more bullish. I don’t know which one’s going to win. But we know that the can is going to win and we continue to place our bets on that.

Are you seeing any innovation pipeline, any sort of mixture between previously separated categories? So energy drinks and alcohol, energy drinks and coffee, and what that might mean for your can business going forward?

I think, yeah, you’re probably just scratching the surface on the hybrid. Anything you can get alcohol into is being contemplated. Same thing on the fitness side; anything that can have fewer calories to give you energy or some benefits, there is no shortage of innovation there.

Yeah. George, just give you a context. People have been talking a lot about spike seltzer. What we’re also not talking about is the ready-to-drink that is just totally booming as we sit here right now. As Dan mentioned, energy is going very strong, and we’re seeing more and more coffee going in, with all sorts of functional benefits, whether it’s various oils being put into it or other things like that. And so, again, across the spectrum, that’s what we’re seeing.

Okay. Thanks for that. Hopefully, no alcohol and milk drinks. But we’ll see. I guess the last question…

There is such a thing in wide production, George.

I forgot. We'll look for that in the can at some point, if it’s not already out there. You mentioned that you plan to double the value return next year compared to this year. I was curious about what is ultimately driving that decision, understanding it will be a combination of factors. Is it the confidence in the returns from your investments that enables this? Is it the higher implicit cost of equity now associated with Ball stock due to its recent performance, suggesting it's time to reward shareholders? Or does it reflect a lack of confidence in the growth outlook, indicating it's time to start reallocating capital? I realize it might be something entirely different, but I’d like to hear your thoughts on this. Thanks, and good luck in the upcoming quarters.

Thanks, George.

Sure, George. I believe it's about having confidence in our business and its long-term prospects. We are currently in a comfortable leverage position; we aim for a year-end debt-to-EBITDA ratio of 3 to 3.5 times. We anticipate strong earnings growth over the next few years, which allows us to borrow more while maintaining flat leverage and returning significant value to shareholders, similar to our historical approach. This confidence led us to raise the dividend by 33% last week and increase the share buyback. This year marks a solid beginning, and I expect we will do much more as we move forward.

Yeah. And people have been around for long enough over the last 20 years, 25 years know that this lather rinse repeat strategy of making good investments, getting your debt down to the optimal capital levels, and then giving it back to shareholders. That is a tried-and-true model. The key point I was making in my prepared remarks is we had planned on really doing that in 2022. But we have enough conviction in the growth of cash flow, the growth of earnings, and our balance sheet, as Scott said, that we’re going to be accelerating that.

We do not have to compromise on growth investments. We can still invest significantly in growth, supported by the long-duration contracts that Dan mentioned. We will generate a substantial amount of cash, and a large portion of that additional cash will be returned to the shareholders.

Appreciate the thoughts. Thank you very much.

Thanks, George.

And our next question comes from the line of Mike Leithead with Barclays. Please proceed.

Great. Thanks. Good morning, guys.

Good morning.

I want to revisit the inventory discussion. Could you explain how much lower the current inventory levels are compared to your targets? Additionally, I assume that due to strong demand in recent years, your North American plants have been operating at nearly unsustainable levels. In a more stable environment, once all your plants are fully operational, would you prefer to reduce some of those operating rates for smoother operations? How should we view the desired plant operating levels compared to your current approach to meet demand?

Yeah. At a high level we are essentially running this business during peak season as make-to-order instead of make-to-stock business. Because of that, you see very different behaviors from consumers in North America. The volatility of what products win and what products win at a lesser degree, if you don’t have safety stock available to lean into that, that manifests and the more label changes and more turnover. That’s what our plants are up against right now. We have known we’ve got significant footprint investments coming online here. As I think both John and I mentioned in our prepared remarks, three lines came on in North America this quarter. They’ll start to gain efficiency, and then we’ll have built out into facilities, eight lines by the end of this year. That will give us much-needed breathing room. As those come online, we can build stock in the traditional December, January time periods; we will see the benefits in peak season next year in North America. We’re not done on expanding, obviously, to ensure that we’ve got the appropriate asset utilization. You’ll see the efficiency levels pick up in our plants because they’ll have the time to do what we’re planning to do.

Yeah. Just to give you some numerical context around that, historically, meaning over the last, I don’t know, five years, seven years, we would run on average inventory days in North America in the mid-20s, call it. We’re down this summer in the mid-single digits. To Dan’s point, you can’t efficiently run a system or network like that when your inventory levels are so low. What we’re planning to do in the second half of this year is get them back to the mid-teens, call it, 15 plus or minus, because that’s where we think more optimal levels can be. I don’t think we’ll get back to the 25, because I think the world is a bit different and the velocities, to Dan’s point of label changes is different, but certainly...

And this is the Operator. Unfortunately, it did disconnect again. I will wait for them to dial back in. So please just remain on the line. Please go ahead.

I apologize for the interruption. It seems we lost connection again. I was wrapping up by mentioning that this summer we've been in the mid-single digits, and we hope to return to around 15 days by the end of the year, as we believe that's a more optimal level. Otherwise, we risk putting too much stress on our system.

And our next question comes from the line of Adam Samuelson with Goldman Sachs. Please proceed.

Yeah. Thank you. Good morning, everyone.

Good morning.

Good morning.

Maybe first, just hoping to get some color on the aerospace business. You alluded to some of the kind of subcontractor and supply chain challenges labor issues there, but a much more constructive revenue outlook for the back half of the year and you talked about margins expanding in 2022. Is there been any change in terms of the revenue outlook for the business for this year, is anything slipping into next? And then I got a follow-up just after that?

No to the revenue and a little on the profit, but that’s negligible. Two things that influenced it, as Scott already indicated. Number one, and I think I’ve made a comment in a prior call: we were operating pre-COVID, with about 80% of our employees colocated on campus. We exited Q1 at about 50%. We’re exiting Q2 about 65%. We’re trending in a way that’s allowing us to be a heck of a lot more efficient and collaborative in our efforts. The same phenomenon is happening with our subcontractors. The combination of that gives us great confidence in the back half of the year. Why we’re bullish on the revenue outlook and why it’s in line, and in reference to John’s comments of nothing has changed. We did secure a significant project kind of late in the quarter and that will give us the ability to continue to execute in line with our previous comments and expectations on the business.

Yeah. To that point, we had expected to put that in the backlog at the beginning of the second quarter; it’s really more towards the end of the second quarter. And so that was in part relative to our expectations a little delay, but it was the right thing to do for various reasons, but nothing has changed as we go forward. We’re really excited about that business.

Okay. That’s really helpful. And then to the earlier question point on the acceleration in cash return next year and it’s a big step up, you announced the 33% dividend increase last week. Should we be thinking that dividend is an even bigger component of that, or do we think this goes with, where the dividend payout is now that’s comfortably north of $1.5 billion of buyback next year is the kind of base plan for at the moment?

We continuously evaluate the dividend, but we don’t make adjustments frequently. Instead, we assess it occasionally and implement larger changes. Most of our returns will come from share buybacks, but we aim to maintain a balance between dividends and share buybacks. As we gain confidence in our future cash flow and EVA generation, we are at the beginning of increasing both.

Yeah. That color is really helpful. I’ll pass it on. Thanks.

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

Thanks. Good morning, everyone. Hope you’re well. I think, Neel, asked earlier about the cup launch and the costs associated with it. And Scott, I think you address the capital costs, but not necessarily the P&L costs. So could you just give us a sense of what perhaps the swing could be if you turn a profit next year compared to whatever drag you’re experiencing this year?

Well, I think this year we’ll invest probably in total, close to $30 million in the startup of the plant of getting it into retail and all of that. I think the marketing costs that we’re experiencing this year, mostly in the second quarter, but some also in the third quarter. We will reduce greatly next year. I think our volumes will grow quite a bit next year. As John mentioned, kind of on-premise food service, stadiums, venues, those kinds of things come back. Having nice success on the retail side, nice success on the online. I don’t think it’d be a nice contributor year-over-year; I would expect it to be a positive shift.

Okay. So lastly, I think Jeff was asking earlier about the composition of the long-term growth in the North American beverage can market. You mentioned that you now believe it’s about 60% alcohol and have discussed hard seltzer, beer, and ready-to-drink cocktails. Can you elaborate on what informs your view of how each of these categories will contribute to that growth? Specifically, what insights do your customers have regarding the growth rate of each of these products over that period? Sure, in simple terms, that's how our revenue is structured now. We're seeing consistent growth across all product lines and channels, and we expect that to continue. We're observing equal innovations across all categories and channels. The fact that some larger beverage companies are focusing on alcohol gives confidence that it will continue to make up a significant portion of our volume. As both John and I mentioned, the wildcard within the 40% is still water and its accumulation in the market. If the 40% grows at a faster pace, we will all appreciate that, as we believe everything will grow in line with our expectations. It has been steady, indicating further entrenchment and growth in new still water categories.

Great. Thanks a lot, Dan.

And our next question comes from the line of Arun Viswanathan with RBC Capital Markets. Please proceed.

Great. Thanks for taking my question. I guess, I wanted to go back to the market development around seltzer and just the whole ready-to-drink alcohol market. A lot of us are under the impression that the market is sold out until 2023 here in North America. When the seltzer market slows down, how does that kind of affect the other categories? Do you think that there are a lot of new products that are pent-up that maybe get some cans? Does that give you a little breathing room? Given the tightness that you’ve experienced for the last couple of years? Is that something that’s potentially welcomed? Maybe you can just kind of square away how to interpret this slowdown and the impact on other categories?

Yeah. Thanks for that. I would say, first off, I think you’re hitting on an element that is still lost in the followership. But every single category, every single customer, and every channel is on allocation in our three biggest markets. There is an impact to growth. I don’t know if it’s disproportionate to one category because I don’t know what the ultimate sell-through of those products are. But we are contributing to some of the end customer growth targets and rates just by virtue of the fact that if we had more capacity, we’d be selling it through. To the second question, maybe I’ll turn it over to John…

Yeah. What I was going to say is, don’t forget, we’ve always taken a portfolio approach to this. As Dan mentioned earlier, hard seltzer itself represents 5% or less of our North American volume. We’ve always played on the mainstream beer side. We traded on the import beer side. We played on the spike seltzer, wine, ready-to-drink alcohol, all of those. You have to look at it from a portfolio theory. From a portfolio theory perspective, we’re on allocation and all these things are growing. So I do think the focus on hard seltzer is probably a bit overstated here because people are still drinking more alcohol from can products period.

Great. Thanks. And if I could, similar question just outside of the U.S., what’s the penetration and I guess momentum that you’re observing in similar new products? Maybe you can just touch on Europe and Brazil? Have you seen any potential increase and some of these new categories in those regions at all? Thanks.

Yeah. The new entrants that are coming into South America are 100% can entrants, and that’s been happening over the last handful of years. Their influence, and more importantly, how the end consumer is consuming products through the smaller retail channels and the mini marts in that part of the world; they like cans a lot more than they liked the historical returnable glass offerings. We’ve seen a manifestation. To your point, if a new product is coming out, it’s disproportionately coming out in cans. In Europe, that’s the lowest can penetration market in terms of substrate penetration anywhere in the world for us outside of Mexico. Much the same, I think; there’s ample growth and away from plastic, glass, from on-premise kegs through direct channels. We’re seeing the can win. I don’t know that I could point to one particular category because we’re seeing it across every category. There’s a heavier lane in terms of cans, and the thing that emboldens us and continues to sort of echo John’s comments at the outset that we are right in line with our expectations. Nothing has changed. We continue to see the filling operators overweight to manufacturing can filling lines, and that’s what’s getting purchased and that’s what’s being implemented and installed everywhere around the world.

To build on Dan’s point, I want to emphasize that not too long ago, one-third of all new filling lines being installed were for cans. Now, it's closer to two-thirds of those new lines. This shift is evident across all categories, including beer, soft drinks, energy drinks, craft wine, and flavored malt beverages.

Great. Thanks.

And our next question comes from the line of Salvator Tiano with Seaport Research Partners. Please proceed.

Yes. Thanks for taking my questions. So firstly, very quickly, if I understood correctly from the very beginning that you mentioned $1 billion in capital returns this year and I think the dividend is $200 million. So does this imply the excess of $500 million buyback is actually $800 million or did I miss any figures there?

The dividend is slightly higher due to the recent increase we've made. The share buyback is expected to be in the range of $700 million to $800 million. Yes, that's accurate.

Okay. Perfect. And in Europe, can you provide us a little bit with come color on each market, U.K., Russia, continental Europe, how we performed during the quarter?

Yeah. I mean they’re all consistently up in that mid-to-high single digits. I think ever since the third quarter last year when things started to reopen, not as much as in the U.S., but folks have figured out a way through the direct channel or other avenues to get their beverage of choice, and we’ve seen consistent growth across the continent.

Yeah.

Okay.

And I just I think a lot as you think about growth in Russia, we were on allocation, unfortunately, as we don’t have enough cans for the market. Think about the U.K. for all the things we talked about that Dan mentioned to earlier. This whole sustainability we haven’t talked much about this today. But you can clearly see in Europe a strategic mind shift changing as we speak. Let’s not forget in 2025, the European packaging directive comes into full force in terms of recycled content and other things. I think we’re seeing changes in behaviors by not only the consumers but also our customers in anticipation of that.

Thanks.

And our next question comes from the line of Phil Ing with Jefferies. Please proceed.

Hey, guys. John you mentioned that Russia, you’re on allocation? So curious with the capacity you’re adding on, one, do you have an anchor customer and then I noticed one of your bigger competitors in the region is adding more capacity. Does the market have enough demand to support that incremental supply?

Without question. I’ll turn it over to Dan. He can answer it more succinctly.

Yes. We have long-term contracts with all the major players there, especially on the brewery side. Those contracts were entered in alignment with adding this capacity. The challenge is going to be the markets growing faster than when we were negotiating those terms a while ago. We’re constantly monitoring that marketplace.

Got it. And Dan, you mentioned that really great execution and running full out in Europe, given some of the investment you’re going to be making in ramping up. Is that going to have an impact on your margins when we look out to next year for Europe into a meaningful fashion?

The U.K. and the Russia facilities, they can’t come online fast enough. I got tremendous confidence in the team’s ability to ramp those up. In terms of the Czech Republic, that market can sometimes be a little bit more volatile. But we’ve got again long-term contracts and a really good team executing there. I don’t anticipate the weight of startup costs to be in line with what we’re experiencing in the U.S., simply because those facilities are a little smaller and the cost profile obviously in the Czech Republic in Russia are far different than the U.S. wage rate.

Got it. That’s helpful. And in North America, really solid growth, but certainly lagging some of the other markets. Was that largely a function of you didn’t have enough capacity and then when some capacity you’re investing ramp up in the back half, you expect to run a little fuller. Any color on how strong that volume could look like if you run full out in the back half this year?

Yeah. Almost 100% capacity. And not to belabor at this point, but we were less efficient just simply because we didn’t have any inventory to buffer when things took off and a product was outpacing some of our anticipated projections. I imagine we’ve left a couple points of growth on the table in the second quarter because of the combination of that. In the back half as these lines ramp up, we’ve got really good contracts there. We are in constant conversations with the customers. They can’t wait to get those cans. I would expect accelerated growth in the back half of the year because of the capacity we put in place.

Okay. Thanks a lot, guys. Appreciate it.

Okay. Thanks. Kathy, we have time for one more question if there is one.

Certainly. Thank you. Our last question comes from the line of Alton Stump with Longbow Research. Please proceed.

I have a quick question about South America. There's a lot of discussion regarding your capacity constraints, particularly in Europe as well. What is your current assessment of the capacity situation for the next 12 to 18 months, especially concerning South America?

It’s tight. Yeah. During, obviously, in non-peak season, getting ready to enter into peak season and everything that we’re seeing is going to put us in an incredibly tight scenario. That team is doing a marvelous job trying to build inventory right now in anticipation of that growth. We’re starting up a new plant in Brazil in this quarter, probably back half of this quarter. Other line extensions and investments throughout the region are also anticipated. Similar to our prior commentary, we’re signaling high to middle-teen growth in that region; and a lot of that is coming from this returnable glass, the can shift, the can continues to win across all categories, and we will benefit from it as this capacity comes online.

Thank you, all for your participation. As you can tell, there’s a sense of excitement here that we really do believe we’re on the front edge of a meaningful capital allocation strategy to return value to shareholders. We see as we sit here today nothing has fundamentally changed from our Investor Day nine months ago and we’re just excited. I do wish and hope that everyone stays very safe and healthy. This Delta variant is a concern. I think strategically we’ll be able to get beyond it as a globe. Thank you all for your participation and we look forward to continued engagement.