Greetings and welcome to the Ball Corporation Third Quarter 2021 Earnings Conference 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, November 4, 2021. I would now like to turn the conference over to John Hayes. Please go ahead.

Great. Thank you, Dina. Good morning, everyone. This is Ball Corporation’s conference call regarding the company’s third 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 our outlook for the company. Ball Corporation finished the quarter in a strong position despite challenging year-over-year comparable results from the economic recovery this time last year, continued supply chain disruptions, and inflationary pressures being experienced in the rest of the manufacturing world. For the quarter, we generated comparable operating earnings of $417 million, which is flat against the prior year and up 13% from 2019 while generating comparable diluted earnings per share of $0.94, up 6% versus the prior year and 34% over 2019. Underlying demand for our products remains strong. Shipped volumes in the quarter were up 1% in North and Central America where we dealt with freight and supply disruptions while simultaneously deliberately building back our inventories. In EMEA, volumes were up 4% driven by continued package mix shifts. And in South America, volumes were down mid-teens percent largely due to a difficult year-over-year comparable as South America ramped up significantly in the third quarter of 2020 after being largely shut down during the second quarter of 2020. As we look forward, we expect year-over-year growth to accelerate further with strong expectations in the fourth quarter and going forward. Dan will elaborate more in his comments and we’ll also focus on providing more detail by segment. During the third quarter, we began absorbing the impact of global supply chain hardship clauses being triggered by some of our suppliers for the first time in decades, while also weathering the impact of indirect supply chain disruptions for certain materials, dunnage, freight, and transportation at our customer locations. Though we have existing mechanisms in our contracts to recoup certain costs and are confident in our ability to recoup such costs over time, at the moment these mechanisms are not sufficient in the current environment. And as a result, we are implementing a comprehensive commercial cost recovery plan to cover unprecedented excessive costs outside of our normal customer engagements. Our commercial teams have begun discussions with our customers on a case-by-case basis about the need for such cost recovery efforts if we are to continue to invest alongside the growth of our customers and partners. In conjunction with our commercial cost recovery plan, we'll also leverage existing contractual terms and conditions to recoup higher input costs in future periods in both our packaging and aerospace businesses. Despite this, our five-year growth and profitability outlook that we discussed a year ago at our Investor Day remains intact, and we are very excited about our trajectory going into 2022. Demand for our products and technologies continues to outstrip supply, and our new facility start-ups are all on track or better relative to our plans, which will both lead to significant growth in long-term diluted earnings per share, EVA dollars, cash from operations, and return of value to our shareholders over the foreseeable future. Other third quarter 2021 highlights include our global beverage can business completing the start-up of six lines including four in North America, one in EMEA, and one in South America; our global aluminum aerosol volumes up 15%; our cups team signing new contracts with the world's largest retailer and a major food service distribution and hospitality partner; our aerospace team opening its state-of-the-art payload development facility in Broomfield, Colorado, and expanding our aerospace manufacturing center in Westminster, Colorado as well as successfully launching the Ball-built OLI land imaging instrument on NASA's Landsat 9 satellite. Our North America and South America aluminum packaging business is continuing progress on the respective aluminum stewardship initiative certifications following EMEA's ASI certification last year. Our business has hired over 2,000 people net year-to-date to support our long-term growth. We successfully raised $850 million in a 10-year bond offering at three and an eighth percent; our Board declaring a quarterly dividend of $0.20 and electing Dr. Dune Ives to our Board who will bring a wealth of experience and knowledge as we proactively position our products to be the most sustainable in their respective categories; and in 2021 continuing to be on track to return $1 billion to shareholders while deploying in excess of $1.5 billion in EVA-accretive growth capital investments while generating earnings per share growth over time of at least 10% to 15%. In summary, despite near-term headwinds, Ball continues to operate from a position of strength. Our team is executing at a high level and ready to take our performance to the next level. To all of our global employees, customers, and suppliers, thank you for your hard work, for staying safe, and for navigating unprecedented supply chain disruptions. Collectively, we are working to regain efficiencies, recover costs, and deliver long-term value to stakeholders. And with that, I'll turn it over to our President Dan Fisher. Dan?

Thanks, John. I echo your thanks to our employees, customers, and suppliers. We strive to keep our teams safe. And to everyone listening, we strongly encourage vaccination and boosters. As John mentioned, the global operations, commercial, and procurement teams are managing accelerated growth, large-scale capacity additions, while navigating unprecedented supply chain disruptions. These impacts are largely outside of Ball's control and include steep supplier cost pass-throughs beyond normal levels. Ultimately, the compounding effect of labor and trucking shortages outside of Ball has impacted our operational efficiencies, customers' production and filling operations, as well as retailers' efficiency stocking store shelves, the degree of which varies greatly by region. Given the scale of cost being passed on to us and as John mentioned earlier, we are beginning conversations towards implementing the additional commercial cost recovery program. Our aerospace and aluminum packaging businesses delivered a tremendous amount of value amid current conditions. Third quarter single-digit volume growth in North America and EMEA aluminum beverage packaging was offset by double-digit volume declines in South America due to tough year-over-year comps of 30% growth in third quarter 2020 largely due to the timing effects of COVID in South America versus third quarter 2019 demand. Our retail marketing investments in cups continue and supports additional food service launches at stadiums and venues across the U.S. The Ball aluminum cup will begin an initial rollout at a major retailer during the fourth quarter and a new contract with a leading global food service and hospitality company that will further broaden the cup's presence at stadiums and venues. Our aerospace team brought online new infrastructure investments on time and on budget, and supported the successful launch of OLI aboard the Landsat 9 spacecraft complementing our legacy of value-added Earth imaging science. Demand for aluminum beverage cans continues to outstrip supply around the globe. We remain on track to exit 2021 with an additional 12 billion units of new installed capacity. We also recently announced additional domestic projects, all of which underscore our Investor Day commentary. To all the teams listening, I know it's been challenging to keep up with the growth. Keep your heads held high and focus on basic blocking and tackling. We have the contracts, we have the raw materials, we have the equipment, and we have each other. We also continue to make significant progress in operationalizing and commercializing sustainability and driving our D&I goals. Our operations in South America and North America are on track to achieve ASI certification by year-end 2021. We launched Brazil's first Circular Economy Lab in October and we continue to finalize our steps to achieve becoming carbon neutral prior to 2050 after publicly stating our intent to achieve such a goal. As we discussed throughout 2021, growth isn't always linear. Given our year-to-date global beverage shipment growth of 7% and recent supply chain dynamics, we are on course to achieve high single-digit global volume growth and global specialty mix in excess of 50% for full year 2021. We continue to see annual growth rates in excess of 6% for the foreseeable future. Ball is well positioned to capture growth, given our timely execution on new capacity additions and our established scale and innovation in the world's largest can regions. Now a few brief comments on each region. In North America, beverage third quarter ship volumes were up 1% versus 2020 and up 7.4% versus 2019. During the quarter, earnings were down as volume growth was offset by the combined effect of inflationary cost increases from suppliers, above current cost recovery provisions, project start-up costs, and operational inefficiencies in legacy plants brought about by unsustainably low inventory and indirect supply chain disruptions. Glendale and Pittston successfully started up additional lines during the quarter. Both plants will exit 2021 with four can manufacturing lines installed, and our Bowling Green manufacturing plant started up successfully in early October. In the near term, the work to build adequate inventory levels is ongoing. These actions and cost recovery will further position the business for success in 2022. Following the successful on-time start-ups of Glendale, Pittston, and Bowling Green, Ball has announced two new greenfield plants in Nevada and North Carolina. Both are supported by long-duration contracts with strategic global customers. We are excited to invest alongside our customers and anticipate these facilities coming online in late 2022 and '24 respectively. Lastly, I would be remiss not to acknowledge and thank Colin Gillis who is retiring from Ball for his 48 years of dedication to the company and our industry. We wish him well. Kathleen Pitre, who many of you know was our Chief Commercial and Sustainability Officer in our global beverage business, will do a great job in leading this business in the future. In the EMEA segment, ship volume for the third quarter was up 4% versus 2020 on tougher comps given prior year's volume increases due to COVID reopening timing and were also up due to customers adding new can filling investments. Versus third quarter 2019, volumes were up 10.7%. Across Ball's EMEA business, demand trends and positive momentum continue. Year-to-date, our can volumes in EMEA are up 9%. Ongoing high single-digit growth will be driven by new and existing categories utilizing cans and our new greenfield plants in the UK, Russia and Czech Republic which are supported by long-duration contracts for committed volumes with global and regional key partners. Our EMEA team is executing very well and managing complex country-by-country supply chain issues. In South America, third quarter volumes were down upper teens percent versus 2020 and up high single digits percent versus 2019. The 2020 volumes were up 30% versus third quarter 2019 due to timing effects related to COVID. Cooler-than-normal seasonal temperatures in the first two months of the third quarter this year and weather damage sustained to our Extrema facility contributed to lower year-over-year volumes. With unseasonably cold temperatures and the facility disruption largely behind us, October volumes recovered and were up 5%. We continue to see more earnings upside in South America in 2022 and beyond. The Frutal Brazil plant started up its first line earlier this month and anticipate starting up its second line in early 2022. Additional investments throughout the region are also on schedule. As we enter the busy summer selling season and given the nice volume bounce back in October, we anticipate double-digit can growth for the full year, and additional growth will be possible once we have more capacity online. In summary, our global beverage team is preparing for long-term durable growth while managing volatility and costs across our supply chain. No doubt money was left on the table. We are laser-focused on operating safely, controlling the things we can control, recovering costs, and delivering high-quality cans to our customers from new and existing facilities supported by equitable contracts. Our aluminum aerosol team did a good job supplying growth across EMEA, Mexico, and Brazil, resulting in 15% higher volumes in the third quarter globally versus 2020 and 5% higher volume versus 2019 for the same period. The team continues to manage varying degrees of reopening status in Brazil and India. In addition, the business continues to expand the rollout of refillable reclosable aluminum personal care and bottle packaging across multiple categories. To support the new cups contracts I mentioned earlier, we have increased marketing investments and are adding another cup manufacturing line in our Rome, Georgia cups plant. Following this investment, both lines will be capable of making multiple cup sizes. Turning to profitability, we anticipate 2021 total investment cost in the cup business will be in the range of $45 million and we expect the business to turn a profit in 2022. Turning to Aerospace, the team continued to win contracts and maintain record backlog. The operating earnings were up in the quarter and included the impact of rate adjustments on fixed-price contracts. This business continues to be positioned for sales and earnings growth in 2021 and margin improvement beyond 2021 given the contract mix. Across all of our operations, we are actively investing in the businesses to deliver on strong demand and grow and train our labor base while also effectively managing supply chain disruptions, recovering costs, achieving returns on capital employed, nurturing our culture, and delivering shareholder value. We appreciate all of the amazing work being done across the organization. And with that, I'll turn it over to Scott.

Thanks, Dan. As John mentioned, third quarter 2021 diluted earnings per share were $0.94 versus $0.89 in 2020, an increase of 6%. Comparable year-to-date 2021 diluted earnings per share were up 17%. Third quarter sales were up due to the pass-through of higher aluminum prices, higher sales volumes, and improved mix. Comparable third quarter diluted earnings per share reflects strong results in EMEA, South America, aerospace, and aluminum aerosol, and a lower effective tax rate related to higher R&D tax credits offset by lower North American beverage operating earnings, previously discussed higher year-over-year corporate, labor, and start-up 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. During the quarter, we completed a successful $850 million bond offering at three and an eighth percent. Proceeds will support general corporate purposes. In late October, we used the proceeds to redeem the bonds that were due in March of 2022. In addition, we completed the purchase of group annuity contracts and lump sum payments for certain U.S. pension benefit obligations. Assets totaling $325 million were transferred to an insurance company during the quarter. The purchases triggered non-cash settlement losses of $130 million recorded in business consolidation and other activities. Year-to-date, Ball has contributed approximately $200 million to its remaining pension plans. As we sit here today, some key additional metrics to keep in mind for 2021. Our full year effective tax rate on comparable earnings will now be in the range of 15%. 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 $80 million to reflect lower benefit accruals. We continue to see a path to doubling our cash from operations by 2025. Our 2021 cash from operations will grow in line with the 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 capital 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 through the lens of EVA discipline. We will prudently balance growth opportunities with consistent return of value to our shareholders via dividends and share repurchases. As John mentioned earlier, we'll return approximately $1 billion to shareholders through dividends and buybacks in 2021, and we intend to double that total return in 2022. With that, I'll turn it back to you, John.

Great. Thanks, Scott. In summary, our Drive for 10 vision continues to serve as our guide. We know who we are, we know where we're going, and we know what's important. Following our strong year-to-date results and outlook for the remainder of the year, we are positioned to exceed our comparable diluted earnings per share long-term goal of 10% to 15% and achieve our EVA dollar growth goals of 4% to 8% per year in 2021 and beyond. While we and the rest of the manufacturing world face inflation and supply chain headwinds in the near-term that are reminiscent of the 1970s, we are confident that we will get through it. You've heard from us that the sustainable growth trajectory of our business continues. And as we sit here today, we continue to believe we are on the front end of a decadal shift that will favor our packages. The key to our success is to just be Ball, be close to our customers, focus on attention to detail, and act like true owners of the business. If we do this, we will generate significant earnings, cash, EVA, and return even more value to our shareholders, all while helping to make our world more sustainable. In preparation for 2022, we intend to host our biennial Investor Day activities on September 21st and 22nd in Colorado. Thank you for investing in Ball. And with that, Dina, we're ready for questions.

Thank you. Our first question is coming from the line of George Staphos with Bank of America. Please go ahead.

Hi everyone. Good morning. Hope you can hear me okay.

Yes. We can.

Thanks for all the details. I know you have a lot of people on the line, so I'll just keep my questions to two. So, first of all, John, can you talk a little bit and Dan about the implementation of your commercial cost recovery plan and relatedly the hardship clauses that you mentioned? And in the third quarter, can you quantify to some degree what the unrecovered cost and other supply chain factors were. Your press release said a lot of this is going to continue into the fourth quarter so it would be helpful to know what it was in 3Q. And then I had one other question.

Yes. Happy to answer that, George. And as I said in my prepared remarks, this inflation we've seen we really haven't seen since the 1970s. And as you know, because you've been around a long time, we have various cost pass-through provisions in our contracts. In this such steep inflationary period, they're lagging behind. And so I'll turn it over to Scott in a minute and he can talk about numbers. But every customer is different. I would try to probably bucket it in three different ways. We have number one, we have some longer-term contracts where we have PPI and other provisions, but it’s a lag. And so, we're in discussions with our partners about investing in the future as part of that because we need to be recovering those if we're going to be able to invest going forward. The others, we have some contracts coming up and we've already baked that in and priced that into those discussions that we've been having. And then we have some open contracts that we will be pricing it in. Every customer is a bit different, but we need to make sure that we are adequately capturing all the costs in a timely way because we do believe over time we would get it. And if the hardship clauses and other things begin to abate, we're happy to talk to customers about making sure that they participate in that as well. So, maybe what I'll do is quickly turn it over to Scott; he can talk about the specific numbers.

Yes. George, the inflation impacts in the third quarter in North America alone think in the range of $25 million to $30 million. And there's probably another $10 million of inefficiencies where customers are out of CO2, so they can't run their operations. They don't have labor to run their operations, dunnage shortages, things like that that impacted us negatively to the tune of roughly $10 million-plus in the quarter.

Okay. Thanks, Scott. And just I'm not quite sure I recall what goes into the hardship clause if you could touch on that. And then one of your larger customers yesterday was having an ESG Day of sorts. It seems from our vantage point a lot of the focus was on trying to make plastics more sustainable. What were your impressions about the plastics industry's attempt to do this? And what are you seeing from your customers in terms of whether they truly see that as a solution or whether aluminum is still the preferred solution recognizing you might be a little bit biased in that? Thanks. I'll turn it over and good luck in the quarter.

So, maybe I'll take the hardship clause. George, thanks for the question. I think about sort of compounds, inks, chemicals, epoxies in that world. Traditionally, the pass-through mechanisms largely as John indicated, for the last 20 to 30 years sort of mirror our commercial contracts. But when those chemicals get outside of kind of a compounding inflationary rate, it differs for each compound, let's say, in excess of 10% just for purposes of this discussion. They have the ability to pass those through in shorter time intervals than on an annual basis. We've been absorbing that. And that's largely what we're experiencing. From a plastic standpoint, maybe I’ll let John handle that and then maybe I can give some color on the specific conversations we're having with customers on the branding side.

George, the consumer is increasingly aware that plastic is harming our environment. We understand that many of our customers have significant profit margins linked to plastic, and we do not expect them to completely switch from aluminum to plastic. For example, in Europe, the share of cans in 2019 was 27%, and by 2021, it had risen to 31%. In carbonated soft drinks, can penetration increased from 16% to 19% during the same period, while beer went from 35% to 37% and energy drinks increased from 69% to 76%. This trend is also evident in North America. When discussing sustainability, plastic is not a viable solution. We acknowledge that there are cases where plastic might be preferable, but generally, there is a significant shift underway. Our belief is that this change is a long-term trend, and we will see increasing movement in this direction. The existing infrastructure bill includes investments in recycling, and there are ongoing discussions about plastic taxes. The concept of extended producer responsibility is becoming increasingly crucial. Recently, Maine introduced a law promoting extended producer responsibility for plastic due to its environmental impact. This momentum will only grow, and we have a solution to contribute to this effort.

The only thing I'd add to the comments, I think you asked the question in and around customers and discussion. I would think about it this way, George, there are whole brands that are in PET. In the conversations we're having, very candid conversations with our customers, that's a real problem. And right now we can't move fast enough to convert those entire brands over. And as a result, I think folks are fighting a good fight to hold on to PET and collection efforts and what they can for as long as they can because the anti-plastic sentiment is not going anywhere. It's accelerating and the conversations we're having are candidly far different than even were a year ago.

Thank you, Dan. Thank you, John.

Our next question is coming from the line of Ghansham Panjabi with Baird. Please go ahead.

Yeah. Hi, guys. Good morning. I guess on the 1% volume growth in North and Central America, knowing that you had tough comps, I'm just trying to understand how much of the moderation in growth is supply chain related versus the actual comp. And just given all the constraints at current, has that started to slow new beverage launches at the customer level? Just trying to understand how volumes will evolve over the next couple of quarters as your capacity gets layered in, and where exactly the bottlenecks are in the supply chain and how you're managing your suppliers in context of that.

It's a great question. I think Scott commented in his financial overview on some of the impacts. But I think when you think of dunnage, when you think of freight, and when you think of labor issues both with our suppliers and our customers, breweries are struggling, filling operations are struggling. So it's across the entirety of the ecosystem. Rough math, when we've investigated sort of what our growth would be in a more stable supply chain for North America, it would have been in excess of 6% growth in shipped volumes for the quarter.

Okay. Got it. That's helpful. And then in terms of Europe just your outlook for 2022. One of your peers talked about a tougher year in Europe for them next year, and I'm just curious as to how you're viewing it at this point.

Yes. We're not looking at it in similar terms. We're very bullish on Europe. Some of this has to do – and we've reflected on this historically – we've got a significant presence in the U.K., in Russia, and with a large energy drink customer. Everything that we're seeing is really strong growth projected for 2022 and beyond. In a larger aggregate, we're in the early stages kind of putting together our three-year strategic plan right now. Ghansham, when I look at the three major regions, maybe this will be helpful: we're looking at demand in excess of capacity to the degree in the neighborhood of 10 billion units again for next year, and Europe has a good portion of that. So we're very bullish on the investments we've got going in the ground and the continued dialogue with our customers.

Yes. And even to my comments, Ghansham, on the commercial cost recovery plans, we're doing that in Europe. And so we expect to see good profitability growth in 2022. It's – now I will caution that it's early November 2021 right now, so we still have a lot of work to do and some go get, but that's our expectation.

Great. Thanks so much.

Our next question is coming from the line of Arun Viswanathan with RBC Capital Markets. Please go ahead.

Thank you. First, I would like to get your thoughts on the issues surrounding magnesium. How would you describe your current supply situation? Additionally, do you foresee any inflation in magnesium costs by region over the next six months?

Yes, I believe the magnesium issue may be somewhat exaggerated. In regular discussions with our supply chain, it's typical to maintain an inventory of about six to nine months. We have personnel in China who are working closely with our suppliers, including those for magnesium. Their operations are functioning again. There has been a noticeable change in inflation recently, and it seems to be significantly easing at this time. While I appreciate your inquiry, I want to emphasize that supply concerns are not a primary issue for us, neither from our suppliers nor in terms of costs.

And then just a little bit more detail on the larger cost reduction program. How did this kind of come about? And I guess, is this kind of a structural change to your business, or is that kind of the objective longer term? And if so, what kind of productivity targets should we think about on an annual basis? Thanks.

I think my prepared comments are clear. This was a significant accelerant in the third quarter, and it is accelerating even faster. We have had to manage some of those factors, so we are collaborating with our customers as partners to ensure we share in this moving forward. I don't think this is a structural issue. If the situation improves, we will continue to work with our customers to ensure they benefit as well. We should not be the ones causing fluctuations in the entire supply chain. That's the main point.

Thanks.

Our next question is coming from the line of Kyle White with Deutsche Bank. Please go ahead.

Hi. Good morning. Thanks for taking the question. I wanted to focus on volumes in South America. I think you said October was up 5% and you're pointing to double-digit growth for the full year, which I think would imply a much larger growth than 5% in 4Q, but maybe I'm misunderstanding something there. So any details you can provide on South America and trends there.

Yes, that's mostly accurate. We're not going to provide forward guidance, but if you analyze the data, you’ll see that we're selling every can we produce in South America. If you look at the capacity we've added and work backwards, it aligns closely with the hypothesis you suggested.

Got it. That helps. And then just talking about price elasticity of demand in regards to the beverage can, maybe just overall thoughts on that? And more specifically, for example, on premixed cocktails, which I think is kind of a faster-growing category that a lot of can-makers are bullish on. But some of those products are already priced relatively high for consumers. Are you concerned at all in terms of growth being impacted from all the inflation that we're seeing?

I'm not. And why I'm not or why we're not is when we look to a number of our customers. And if you look to some of their commentary, they're saying if you have innovation and you have the product, they're not seeing the same historical constraints relative to price elasticity. I think as John indicated, it's still November 2021. So I don't know where all of this goes in terms of supply-demand impacts. But the other thing that we're looking at is, inflation is hitting and supply chain challenges are hitting every other substrate. And I don't think anyone is going to retrench further into plastic or other substrates at this point given the sustainability challenges that those substrates have. So as we sit here today, pretty positive, pretty bullish that these products can take on more price, and it won't impact the volume curve.

One additional point I want to make is that when considering the various materials used in beverage packaging, such as plastic, glass, and aluminum cans, the fundamental costs are closely linked to energy. Over time, there has been a consistent correlation among them, and sometimes we tend to overlook that aspect.

Got it, I'll hand it over. Thank you.

Our next question is coming from the line of Salvator Tiano with Seaport Research Partners. Please go ahead.

Yes. Hi. So, the first thing I want to understand a little bit is, as you think about your contracts and your pass-through mechanisms and recovery, how do they differ by region EMEA, South America and North Central America? And how should we think about the price cost performance in the next few quarters by each region?

I think the only meaningful difference I think the economic integrity of each contract and the pass-through mechanisms are consistent. They may be more tied to regional inflationary mechanisms, as opposed to a standard inflation pass-through. The only thing that we're saying and the cost recovery comment that John provided in his prepared remarks is that these pass-through mechanisms outside of metal typically work a year in arrears. And in an inflationary period, that we're experiencing again something that we haven't seen in 40 years, that's not sufficient for quarter-to-quarter P&L integrity. And so we're going to try to address that with new contracts that we're entering and partnerships that we have established.

To clarify, you mentioned a one-year lag, but the idea was that as you negotiated contracts and improved terms over the past few years, one of the terms included offsetting this cost. Were the lags previously longer? What has changed compared to a few years ago?

No. In some cases, particularly with contracts we acquired through acquisition, there were no provisions for inflation adjustments. We have made necessary adjustments. I believe Dan is correct; this is primarily a timing issue. However, as I mentioned earlier, we should not be the sole focus in this matter, and it's crucial for us to concentrate on our relationships with our customers.

And the only thing that's different is inflation has gone through the roof at an accelerated pace. So that's been the difference. But the contracts have worked how we thought they would work.

Okay. Perfect. And just a little bit on 2022 recognizing, you typically don't provide specific guidance, but any key pointers you can provide for next year's earnings or EBITDA or any other buckets that can drive the earnings bridge?

I will stand by that we feel very bullish. With all the investments we're making, we will be able to meet or exceed our 10% to 15% long-term earnings per share goals as well as our 4% to 8% EVA growth.

Okay. Thank you very much.

Our next question is coming from the line of Mike Leithead with Barclays. Please go ahead.

Great. Thanks, and good morning, guys.

Good morning.

First I wanted to square maybe two of your comments on North American beverage can. I think you said shipments would have been up 6% or so if the downstream supply chain was just working better. And then secondly, you talked about inventories in the system still being quite low. So I guess, were you able to use some of that gap versus your actual 1% shipments to rebuild inventory in the quarter, or am I kind of misunderstanding some of the moving pieces there?

No. That's a great comment and good insight. Yes, we are really holding firm on trying to build inventory in Europe and in North America, specifically at this point in time. So some of that has constrained the ability to ship within the quarter, but the comment is in and around the 6% or – looking at Q3 for North America in particular, we thought we’d be – when we look at the upstream and downstream disruptions within the supply chain ecosystem, we would have been north of 6% for ship volume growth in the quarter.

Got it. That's helpful. And then secondly, I think the 3Q cash ending balance was the highest 3Q level in a while. And you did call it $200 million in buybacks in the quarter and you probably need to double that or so in 4Q to get to $1 billion cash return this year. So I guess, is there something wonky around the quarter end cash timing there, or I guess, why wasn't buybacks maybe a bit higher here in 3Q?

Yeah, there is something wonky. We did a bond offering during the quarter, and then we redeemed notes after the end of the quarter. So that's why the cash balance was so high. It will normalize by the end of the year. It’s normalized as of today. We paid off those bonds a couple of weeks ago.

Great. Thank you.

Our next question is coming from the line of Christopher Parkinson with Mizuho. Please go ahead.

Good morning. This is Kieran on for Chris. Just on the aerospace business, you had a strong quarter in 3Q. It looks like you're having some contracts ramping that benefited you and should continue to benefit in the fourth quarter. Any color you can give us around those contracts, like where are you seeing the pockets of strength, stronger activity, and maybe how we should think about that ramping into next year would be helpful?

No, it's good insight. I think you're reading it correctly. We're stepping into the meat of the backlog, if you will, and some stronger margin projects that are starting to kick off. They'll continue into 2022, 2023, and 2024. And so you should see – and I think I established that in my prepared remarks, you should see favorable project mix starting to show up in a cascading way over the next several years.

Great. And then just a quick one, I was wondering, if you can just parse out in terms of the volume headwinds that you experienced in the quarter in South America, is there any way that you can give us an idea of the magnitude from the weather events on the overall impact versus the kind of difficult comps per se?

Yeah. I think it's a combination of two things. What you saw in – from quarter two to quarter three in 2020 was a V-shaped recovery in that market. And so you shipped out a lot of inventory heading into Q3 that you built in Q2 transitioning out of COVID. Both July and August were double-digit declines in terms of year-over-year shipments, and we were more in line with the flattish growth trajectory in September. You should think probably in the neighborhood of one billion units was compromised in those – in that 8-week period.

Great. Thank you very much.

Next question is coming from the line of Angel Castillo with Morgan Stanley. Please go ahead.

Hi. Thanks for taking my question. I just was wondering if you could give us a similar view of what you've talked about kind of with South America and North America in terms of particularly for EMEA in terms of the ex-this environment and kind of the supply issues or supply constraints and intermittent issues that have taken place there. What growth would have been in that region for EMEA?

Yeah. I don't have that readily available. Probably a couple of percentage points more of growth would be what I would suggest. It was far more significant in North America, where the supply chain issues across the entirety of the ecosystem. And it was compounded by the fact that we had such low inventory levels. We could not react in locations in filling locations. If there was an opportunity to ship more, we just didn't have the safety stock to lean into that. So, it's far more pronounced in North America. But yes, we left a little growth on the table in Europe for sure.

Yes. When considering the situation, I specifically think about the driver shortages and even in Russia. There were CO2 issues in the UK that caused many of our customers to be down for several weeks or longer. Each country had its unique challenges, with some minor issues in Germany related to freight and trucking. However, my immediate concerns are with the U.K. and Russia.

Yes, the most pronounced was the UK, I agree.

That's very helpful. In terms of customer impact, you touched on this earlier. Thinking about last quarter, you mentioned still water and the increased discussions or product launches surrounding that. Can you provide any updates on how that is progressing based on what you're hearing from your customers regarding their intentions or potential offerings?

Yes. There is a fervor around still water right now. And what you're seeing is like I think any new market that's opening up, it's an awful lot of entrepreneurial attempts at it. Anything that's a closed venue, so it could be anything from the venues that we're seeing concerts, and the sporting events to theaters to airlines to you name it, those are easy locations to change out plastic and the composition of that in those venues. So lots of conversations in and around that. I won't go into too much detail because it will steal our strategic thunder. But I would see more and more opportunity moving forward with larger and larger brands to get more into still water.

Very helpful. Thank you.

Our next question is coming from the line of Anthony Pettinari with Citi. Please go ahead.

Good morning and congratulations to Colin. Some of your peers have seen demand impacted by COVID lockdowns maybe in some regions that you don't participate in as much like Southeast Asia. But I'm just wondering it sounds like there's some restrictions in Russia, which is a big market for you, and maybe kind of a worsening of cases in Europe. I'm just wondering if you're seeing any impact from that or if there's sort of a holistic way to think about that risk. Or do you think your customers in the channel have maybe gotten better in terms of managing those kinds of restrictions but still delivering product? Just kind of any thoughts there.

Yes, it's interesting. We have a significant series of assets and ecosystem in Russia. It feels like every other week there's something that pops up there. So, I would tell you that the customers, suppliers, and us have started to figure it out. And of course, we're not immune to a significant event in a major city, but I think everything that we're hearing is we're able to operate. Our team is doing a remarkable job figuring how to keep our folks safe and keep our customers in cans. We are still on allocation there. That is a terrific market and has been for us and will continue to be into 2022 right now. We are not concerned about continuing business surety or business continuance in that part of the world.

Okay, that's very helpful. And then the release mentions your sale of the minority stake in South Korea. I'm just wondering if you could touch upon that decision. And then maybe going the other way, I mean, your balance sheet is in good shape. Are there any opportunities at the margin for bolt-ons or acquisitions, understanding you have a lot of organic growth opportunities in-house?

Yes, I'll address the first part. The sale of the Korean joint venture wasn't really a strategic fit for us. Our global customers don't see it as a critical area for us to operate in. For us, the most effective move was to free up our capital, as it was only marginally profitable, and invest it in areas that can provide better returns. I'll pass it over to John.

Yes. While we are always exploring opportunities, it's not our highest priority at the moment. We consistently search for chances across all our different businesses, but I acknowledge your point. Currently, we have more internal opportunities for growth than I've observed in my 23 years at Ball Corporation. We believe that for the foreseeable future, we will continue to encounter this. There may be unexpected opportunities, similar to what occurred in aluminum aerosol last year in Brazil. However, I do not anticipate anything that would significantly impact our balance sheet.

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

Our next question is coming from the line of Phil Ng with Jefferies. Please go ahead.

Hey guys. You've provided great insight in terms of how demand and volumes are tracking in Brazil, call it October and just more broadly in the fourth quarter. Any color on how things are shaping up in North America and Europe right now, just because it would be helpful to give us a perspective as some of these issues you saw in the 3Q is abating at this point?

I think we're managing them better. I think the demand profile looks healthier in terms of improved performance year-over-year. I think we're also trying to manage and balance in my previous comments building inventory. So we can more effectively manage peak season next year, because we did not do an effective job of that this year in North America in particular, and it cost us a lot of money. So we are going to balance and try to thread that needle in terms of we're still oversold in North America. And if we're going to do the right thing for our customers, we're going to protect them for peak season next year.

Got it. That's helpful. And then that's a perfect segue Dan. When you kind of look out to 2022, how should we think about start-up costs in North America because you're adding more capacity? But more importantly, how much bandwidth do you have in that market for growth just assuming everything lines up properly? And how do you see inventory levels shaping up as you head into that peak selling season next year?

I believe start-up costs will remain similar since we are initiating several assets next year. They might decrease slightly, but we will benefit from exiting this year with an additional 12 billion units available for sale next year. This should provide a significant boost in profitability due to the investments we are making now, which will more than compensate for the start-up costs next year.

Yes, you will see in North America specifically, and that's where you're catching that comment. You will see the majority of what we've talked about repeatedly, that we will exit the year with 12 billion units globally of installed capacity heading into 2022. Two-thirds of that is in North America, and that will lead to significant growth for us in each quarter for the rest of 2022. Additionally, we're going to enter the year with a much healthier inventory position, which will allow us to execute on that part of the growth trajectory as well.

Got it, okay. And just one point up question for me. The $35 million to $40 million hit you saw in 3Q that you called out on inflation and inefficiencies, I mean, it sounds like most of this is timing related. But should most of that be flushed out when we think about 2022, or there's going to be some hangover effect still?

No, I think we have got good mechanisms as we talked about to offset all of that next year. What John was talking about in our commercial strategy is we need mechanisms that react quicker to be able to offset it when we have these big spikes.

Okay, super. Thanks a lot.

Our next question is coming from the line of Mike Roxland with Truist. Please go ahead.

Thank you. I have a quick question about hard seltzers, understanding that they represent a small part of your business. Could you explain how your current and future plans will be influenced by the decline in hard seltzer growth? Recently, one of the major producers made an announcement regarding this. I'm curious about how this affects your operations and current production, and whether you need to rethink any aspects of this segment. Even though it's a minor part of your business, will you need to make any adjustments to what you’ve established or plan to build in response to developments in this market?

Short answer, no. It will have no impact on our business moving forward. I would just refer you back to some of my comments on this call. Right now as we sit here today, we're 10 billion units oversold in our three major regions. The majority of that's in North America. The anti-plastic sentiment is really starting to build in a meaningful way. So a lot of brands that you have seen historically that have all been in plastic need to find a home. And so we've got no shortage of opportunity. I would also say as the retail providers begin to stabilize their supply chain, they want innovation, and our customers want to push out innovation. A more stable supply chain ecosystem is going to provide a lot of opportunities that candidly our customers and us have been sitting on for the last 12 months to 18 months. So no, hard seltzer is not going to impact our current plans or our future plans.

I understand. Thank you for that. I have a quick question about aerospace and labor. You've mentioned that labor is a challenge. We've heard concerns that there might be more significant issues with the labor pool in the defense sector. I'm curious if you're facing any of those specialized labor challenges in aerospace, particularly since it requires highly technical skills.

Yes. Short answer, no. I think there was a short-term dislocation, and it's happening everywhere. And I can tell you we've probably had a couple of hundred retirements that we knew were going to come within the next five years, but it’s happened because folks are exhausted from COVID. And so we saw that. We have been hiring for the last three years 1,000 folks a year. We'll continue to hire 1,000 folks next year. And so the balance of retirement versus attrition and what that net number can have an impact on the rate. But I think the team understands this. I think this is a spot anomaly just to be fully transparent. We're seeing it in other parts of the business. And I think as the world starts to reset and get back to normal, you'll see less and less of that. So I think we had an intermittent hit here in the last six months largely due to COVID because of unanticipated retirement. But the team has done a remarkable job recruiting. And I think what we're finding is Denver and the excitement about being part of Ball and some of the projects we're working on is a hell of a talent magnet.

Thank you.

Our next question is coming from the line of Adam Samuelson with Goldman Sachs. Please go ahead.

Hi, thanks. Good morning, everyone.

Good morning.

My first question pertains to the cost pressures discussed during this call and your proactive approach to renegotiating contracts with customers to address inflation escalators. Additionally, you have incurred significant start-up costs this year while expanding capacity across the network. Historically, we've viewed profit growth for Ball as nearly double volume growth. This year, however, seems to present some challenges to achieving that level of operating leverage. Do you believe you can make enough headway with your customer contracts in this environment to return to that range of operating leverage next year?

Absolutely. As we look to 2022, we are excited about it. This inflation came quickly and while the mechanisms were in place, we have been discussing this with our customers. We fully agree with the 2:1 ratio you mentioned.

Okay. All right. That's great. And then I just in this environment where you've had issues in terms of sales volumes and utilization issues both up and downstream that are causing pressure, which one do you see as kind of most important in terms of getting the shipment volumes back kind of where you target them? Is it really just your customers getting their issues sorted out? Is it your supply chain? I don't know where do I think the key bottleneck is in terms of your shipments returning back to a more normal cadence?

It's quite notable how interconnected the supply chain is. Considering the delays at ocean ports due to raw materials, and the subsequent issues once shipments finally arrive, including driver shortages, it's clear there are multiple challenges. Some customers have faced CO2 issues while others are dealing with labor shortages in their breweries. Combined with our low inventory levels, we find ourselves addressing these challenges in a reactive manner. This has defined much of 2021 for us. As Dan mentioned earlier, we need to be strategic and intentional about building our inventory to ensure we have enough safety stock to reduce variability. This focus is essential for us as we move into 2022.

Okay. Great. I will appreciate all that color. I’ll pass it on. Thanks.

Our next question is coming from the line of Adam Josephson with KeyBanc. Please go ahead.

Thanks. Good morning, everyone. I hope you’re well. Dan or John, just not to beat a dead horse here. But on the contract – the North American contract issue, can you just help me with – if I go back three years, freight was a big problem for the industry and you subsequently renegotiated some or many of your contracts and so freight was no longer an issue. So I'm just trying to understand what cost recovery mechanisms you had in place as a consequence of having restructured all those contracts compared to what you're dealing with now? I mean did you not have recovery of all non-aluminum costs in those contracts, or I guess why would you have a year in arrears recovery built into these newer contracts, or is it just that these contracts have not been renegotiated in several years? I'm just trying to better understand the sequence of events over the past few years.

Well, there are several factors to consider. Some of the longer contracts are nearly finished. The main issue relates to certain clauses in our supply contracts that allow for surcharges if petrochemical prices increase beyond a specific threshold. We can pass these surcharges on to our customers, but it can only be done on an annual basis. We are looking to implement this more quickly because much of this situation arose in the third quarter, particularly during the summer, and it has been the most severe in the last 40 or 50 years. I want to emphasize that this isn’t about whether we can recover the costs; it's about the timing of that recovery. That's the focus of our discussion.

And how are you able to do that? John, I appreciate that. Just without renegotiating, in other words, about renewing that – you're talking about doing so before the contract is up for renewal, is that right? And how does that work compared to how it's done when the contract is actually up for renewal?

Yes. Yes. Every customer and every contract is a bit different, so I'm not going to go into specific customer by customer. But many of our customers are partners. And as we invest with them longer term, you work as partnerships and say help us out in the short term, and we can help you out in the long term because they need cans.

Right. Understood, John. Appreciate that. And just one last question on – we no longer get the CMI data, but can you hazard a guess as to what you think the industry was up in the third quarter just compared to previous quarters and compared to last year for that matter? Just again, we no longer have the benefit of getting the industry information to be just interesting to know what you think the market did in the third quarter and previously for that matter.

Well, it's interesting because then you got to start thinking about imports and all these other things. And as we said before, we think imports – if you annualize what's happened after the last three quarters, we think the imports will be around 16 billion in North America alone. Now that would have never been captured in CMI data anyway. And so I think when you think about that and you think about the context of what – we had a 1% growth – we've actually had 7% growth year-to-date in North America. I can't tell you off the top of my head what our competitors have had. But you can layer all that in and you can very quickly see that this growth is stronger than any given quarter. And Dan said, it best, it's not going to be linear every quarter.

The only thing I would add to that, Adam, is we talked about the industry being up 100 billion units from the end of 2019 at our Investor Day, a little over a year ago. We are ahead of that right now, despite one of the largest supply chain disruptive periods and COVID. And so, the only thing I would continue to say is demand and the outlook looks far better than it did last quarter, two quarters ago, 18 months ago. And I think, North America is going to continue to grow, and it's going to be in excess of 6% for the foreseeable future.

I appreciate that. Thank you, Dan.

Dina, it’s five minutes after the hour, so if there is one more question, we’ll take that.

That does conclude the conference call for today. We thank you for your participation and ask that you please disconnect your lines.