BALL Corp Q4 FY2021 Earnings Call

Greetings and welcome to the Ball Corporation 4Q 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, January 27, 2022. I would now like to turn the conference over to John Hayes. Please go ahead.

Great. Thank you, Malika, and good morning everyone. This is Ball Corporation's conference call regarding the company's fourth quarter and full-year 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 the company's 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. Joining me on the call today are Dan Fisher, our President and CEO Elect; and Scott Morrison, our Executive Vice President and CFO. I'll provide some introductory remarks; Dan will discuss our company's performance and trends; Scott will discuss the key financial metrics, and then we'll finish up with closing comments. 2021 was a strong year for Ball. We exited the year with momentum and expect another strong year in 2022. Our global beverage can volumes were up 7%, aerospace revenues were up 10%. Comparable operating earnings increased 12% and comparable diluted earnings per share increased 18% despite ongoing challenges related to the pandemic, adverse weather events, global supply chain disruptions and higher costs. We also increased EVA dollars over 7%, returned approximately $950 million to shareholders after investing over $1.7 billion in capital expenditures in 2021. For the fourth quarter, global beverage can volumes increased 7%, comparable operating earnings increased 17%, and comparable diluted earnings per share were up 20% versus 2020 despite persistent shortages and cool rainy conditions during the Brazil seasonal summer, which muted overall shipment growth in the fourth quarter and the full year. As we look forward, we expect growth to accelerate further supported by strong demand for sustainable aluminum packaging, aerospace executing on significant contracted backlog, increasing returns on capital deployed, and maintaining pricing leverage across our innovative and sustainable product portfolio. Yesterday, in addition to declaring our quarterly dividend and following our review of the company's governance profile, our board of directors amended the company's bylaws to accomplish three things. One, to opt out of the classified board structure required by Indiana Business Corporation Law to begin to destagger our board; two, to prevent shareholders from amending the bylaws; and three, to increase the board retirement age to 75 years from 72 years. As per the press release we issued yesterday, the board intends to recommend shareholders approve the amendments at our 2022 shareholders meeting, and more information will be found in the forthcoming proxy statement. In addition, and as part of a multi-year succession planning process that began before the onset of the COVID pandemic, we announced that Dan Fisher will be assuming the role of CEO and then I'll remain Chairman. Dan is ready, and all of us on the board have a high degree of confidence in his ability to lead our great company. Dan will be the 12th person in our 142-year history to have the privilege to serve as Ball's CEO. Going forward, I'm handing over the reins to Dan to lead the company and after 70 earnings and M&A calls with the investment community over my 20 plus years with Ball, today will be my last one. You're in great hands going forward. And I can also say with confidence that while I will miss you all, I will not miss these calls. My time going forward will be spent sharing the board and its related responsibilities, helping Dan with our sustainability advocacy work with various stakeholders, focusing on the philanthropic work that my wife Susie and I have established, spending more time with family and friends, and perhaps most importantly, being the biggest cheerleader of this great institution. Thanks to each of you for your support over these years. This is an amazing company in an amazing industry working with amazing people. If you were to give me a clean sheet of paper to design the most ideal job in the world, it would be this and I'm the luckiest person in the world for that. And it is time, Dan has proven that he is ready and has an excellent management team to continue and accelerate the strong financial, operational and cultural performance we have experienced not only since 2010, but indeed since 1999 when I joined the company. When I reflect on becoming CEO, the bar was set very high then into me our Drive for 10 vision was intended to replicate or exceed the prior decade's performance and returns over the following decade. And you know what? We did just that. And at the same time, as we sit here today, we have more opportunities to continue this growth than we did in 2010. And there's never been a better opportunity set than the company has in front of itself. However, what will be required to capitalize on those opportunities going forward; will no doubt be different than what was required in the past. There will of course be challenges Dan and the team will face, but the leadership, the culture, the people, our EVA and ownership mindset, and our Drive for 10 vision will be there to support and guide Dan and team just to say were there for me and my team. Right now, I also think about the more than 24,000 employees around the world. The power of 'we not me' at all is alive and real. And it has been an honor to serve our company alongside them. They really are what makes the company better each and every day. Those aren't just words, it's the truth. So it's with great pride and optimism that I turn the call over to Dan and Scott, to speak to our performance and the outlook for 2022 and beyond. Thank you, everyone. And with that, our new incoming CEO, Dan Fisher.

Thanks, John. I would be remiss if I didn't properly and publicly thank John Hayes for his 22 years of service to Ball Corporation, and for his personal support and mentorship of me as a leader at Ball. Some of you may have listened to nearly all of the 70 earnings and deal-related investor calls John has participated on during his tenure. As you know, John dedicated his time to ensuring the company remained committed to its longstanding culture. EVA and ownership mindset and high ethics, while also being innovative, inclusive, sustainability-driven, and positioning our business for global growth, while also supporting our communities where we live and operate and generating great returns for fellow shareholders. We as owners and students of Ball in our industries are better off because of his leadership and dedication. We'll forever be indebted to you, John. The performance and stock price development under your leadership speak for themselves. And while it is indeed a team sport here at Ball, John was the team captain for the past decade. John, thank you for setting a high bar for us. I can assure you that speaking on behalf of all Ball employees; we're focused on replicating and/or exceeding the company's performance under your leadership. Another decade with nearly 500% return sounds pretty good. Our team is up to the task. I'm humbled and honored to assume the role of CEO and carry on the Ball culture, Drive for 10 vision, EVA discipline, and ownership mindset. And as the saying goes, if it ain't broke, don't fix it. We know who we are. We know where we're going. And we know what is important. Now on to reviewing our performance and outlook. We continue to strive to keep our team safe and educated about vaccinations and boosters and focused on their mental health. We're not immune to the external forces impacting the global operating environment. However, our teams are doing a heck of a job at navigating those external forces and filling in for one another when needed. We extend our well wishes to our employees, customers, suppliers, stakeholders and everyone listening today. 2021 was another year where our Ball team and businesses faced challenges and through it all rose to the occasion to care for one another and deliver value to our stakeholders. In 2021, our business highlights included our global beverage business completing the startup of four new multi-line facilities, three in North America, one in South America and the expansion of existing facilities across all regions. The company also announced five additional Greenfield facilities, two in North America, and three in EMEA, which will come online in 2022 and beyond. Our global aluminum aerosol team introduced new re-closable aluminum bottles for personal care and other categories. Our aluminum cups team signed contracts with the world's largest retailer and continue to have our cup featured at key sporting events and venues. Our aerospace team expanded its infrastructure, opening its state-of-the-art payload development facility in Broomfield, Colorado, 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, the XV astrophysics mission spacecraft in the Optics and Mirror Systems aboard the James Webb Space Telescope. Our North America aluminum packaging business continued progress towards aluminum stewardship initiative certification, following South America's ASI certification in the fourth quarter of 2021, and EMEA's ASI certification in 2020. The company also announced the ambitious 2030 sustainability goals, including inclusion and diversity goals, recycling goals, and our aspiration to achieve net zero before 2050. Our businesses hired over 2,600 people in 2021 to support our long-term growth and attrition largely due to retirements and returning approximately $950 million to shareholders after investing $1.7 billion in capital expenditures to generate additional profitable growth for decades to come. In 2021, our global packaging businesses absorbed $120 million of non-aluminum inflationary headwinds and additional costs of startup for new facilities. Also, in North America, EMEA and South America, operational efficiencies, price costs squeeze and advance of contractual cost recovery and geopolitical volatility respectively, resulted in a loss of reduction, and money was left on the table in 2021. As we embark on 2022, contractual price escalators based on PPI and other indices, which phase in throughout the year, normal cost pass-throughs and our additional commercial cost recovery program benefits will generate significant incremental value and support higher levels of growth capital in 2022, which Scott will discuss later. Demand for aluminum beverage cans continues to outstrip supply around the world. We shipped 112.5 billion cans in 2021, 50% were specialty cans and we exited 2021 with 12 billion units of new installed capacity. We also have plans in place to exit 2022 with another 12 billion units of new installed capacity. Capacity available to sell through in 2023 and beyond, announced projects in line additions in existing facilities all underscore our late 2020 Investor Day commentary and additional long-term EVA generating contracts for committed volumes are now in place to domestically supply our customers in the regions where we operate in 2022 and beyond. In addition to global beverage, our aerospace, aluminum aerosol and cups teams continue to win new work and position and train talent to support multi-year growth and offset attrition largely due to retirements. To all the teams listening, thank you for finishing the year strong and leaning into another year of growth. We also appreciate your efforts to operationalize and commercialize sustainability, drive our D&I goals and live the Ball culture. As we discussed throughout 2021, growth isn't always linear. We continue to rely on our supply chain raw material inputs and look forward to additional investments being announced in 2022 to enable more growth for aluminum packaging. Given our established global scale, significant increase in installed capacity exiting 2021, our capable asset base and innovative product portfolio we're on course to achieve double-digit global volume growth and global specialty mix in excess of 50% for full-year 2022 and sold out market conditions continuing beyond 2022. Now a few brief comments on each region. In North America, beverage fourth quarter shipped volumes were up 5% versus 2020. During the fourth quarter, earnings were up nearly 17% as volume growth specialty mix, and the operational benefit of better finished goods inventory levels, more than offset higher costs and operational efficiencies and legacy plants brought about by dunnage tightness and indirect supply chain disruptions. Glendale and Pittston exited 2021 with four can manufacturing lines installed and each have room for additional lines. Our Bowling Green Ins manufacturing plant started up successfully early in the quarter and continues to operate after incurring some roof damage during the December Southeastern U.S. tornado outbreak. We are thankful our Bowling Green team and their families are safe. The plants teams leadership safety actions and post-event resiliency were outstanding. The business continues to work to build adequate inventory levels is ongoing. These actions formulate contractual price increases, higher levels of domestically produced cans, and cost recovery will further position the plants and our business for strong double-digit growth in 2022. Ball's previously announced multi-line Greenfield plants in Nevada and North Carolina are supported by long-duration contracts with strategic global customers and are on track to come online in late 2022 and early 2024 respectively. In EMEA, shipment volume for the fourth quarter was up 6% versus 2020 on tougher comps given prior-year's 20% volume increases due to COVID reopening timing, and were also up due to customers adding new can filling investments. Across Ball's EMEA business, demand trends and positive momentum continues. Near double-digit growth in 2022 will be driven by new and existing categories utilizing cans and available cans from our 2021 line additions and speed ups across the region. In 2023 and beyond, 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 will extend our ability to serve growing customers and categories. Our EMEA team is executing very well in managing complex country-by-country supply chain issues. Key inputs are in tight supply, and though we have contracts and mechanisms to control costs, we're keeping a watchful eye on driver availability and pandemic-related labor shortages impacting timely stocking in store shelves. In South America, fourth quarter volumes were up 3% versus 2020 and up 16% versus 2019. 2020 volumes were up 12% versus fourth quarter 2019 due to timing effects related to COVID rebound and warmer temperatures during the seasonal summer fourth quarter. Cooler than normal seasonal temperatures and excessive rain in Brazil contributed to softer than anticipated volumes during the fourth quarter of 2021. We continue to see more earnings upside in South America in 2022 and beyond. The Frutal Brazil plant started up its second line during the first quarter of 2022. Additional investments throughout the region continue to be on schedule. In summary, our global beverage team is preparing ourselves and our supply chains for long-term durable growth while managing notable volatility. Our customers are continuing to lean on the can as their package of choice, as brand proliferation and the blurring of the category lines accelerates. We are operating safely controlling the things we can control, recovering costs, delivering high-quality cans to our customers and even more new facilities supported by equitable contracts and closely monitoring global supply chains. Our aluminum aerosol team did a good job supplying growth across North America. The team continues to manage varying degrees of consumer demand volatility in Brazil and India. The business continues to make progress on the rollout of refillable reclosable aluminum personal care and bottle packaging across multiple categories. To support the new cups contracts I mentioned early, 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. We anticipate profit starting in late 2022. And turning to aerospace, the team continued to win contracts and maintain record backlog. Segment operating earnings were up 38% in the fourth quarter versus 2020 supported by improved program execution. Carrying in the momentum from the fourth quarter, the business continues to be positioned for sales and earnings growth in 2022 and margin improvement in 2022 given the contract mix. Across all our operations, we are increasing year-over-year capital in training investments to deliver on strong contracted demand and position our plant operations for success. We appreciate all of the amazing work being done across the organization. And with that, I'll turn it over to Scott.

Thanks, Dan. Dan and John, I couldn't be happier for both of you. Congratulations, John. Thank you, first and foremost for your friendship and for everything you've done for Ball. It's been a lot of fun. And thank you for your continued thought leadership on sustainability going forward. Dan, I'm very happy for you, your family, and for Ball. This is a great day. You're a great leader and ready for this role. I look forward to us continuing to work together. I have one word of advice for John. Work on your putting. When you don't have the CEO title, you're much less likely to be given those three-foot putts. And now to the numbers. Fourth quarter 2021 comparable diluted earnings per share were $0.97 versus $0.81 in 2020, an increase of 20%. Comparable full-year 2021 diluted earnings per share are up 18%. Fourth quarter and full-year sales were up due to the pass-through of higher aluminum prices, higher sales volumes, and improved mix. Comparable fourth quarter diluted earnings per share reflect strong results in North America, aerospace and other non-reportable, and lower year-over-year corporate costs during the quarter offset by unfavorable Euro earnings translation. In addition, the Ball and Platinum Equity announced sale of the Ball Metalpack investment closed yesterday. As a minority partner, Ball's net proceeds from yesterday's transactions were approximately $300 million. The sale represents the final step in a two-step exit from the tin-plate steel food and aerosol businesses. Recall that Ball received approximately $600 million in cash proceeds in 2018, but our legacy steel food and aerosol assets were sold into the minority-owned JV with Platinum. Ball's balance sheet is very healthy with ample liquidity and flexibility. Year-end net debt to comparable EBITDA was 3.4 times and within our optimal leverage range. As we sit here today, some additional key metrics to keep in mind for 2022. Our full-year effective tax rate on comparable earnings is expected to be in the range of 19%. Full-year interest expense will be in the range of $270 million and full-year corporate undistributed costs recorded in other non-reportable is expected to be in the range of $120 million to reflect higher year-over-year incentives based on anticipated higher performance and investments to our systems infrastructure to support our robust growth. At this time, and given additional growth projects in all of our businesses to support EVA enhancing contracted volumes, we expect 2022 total CapEx to be at least $2 billion and return in the range of $1.75 billion to shareholders in the form of share buybacks and dividends in 2022. We continue to see a path to doubling our cash from operations by 2025. And look forward to even more opportunities to invest in our businesses for profitable returns. Rest assured, 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. We look forward to consistently investing in our business and returning even more value to shareholders in the coming years. With that, I'll turn it back to you, Dan.

Thanks, again, 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 is important. We are positioned to exceed both our comparable diluted earnings per share long-term goal of 10% to 15%, as well as our EVA dollar growth goals of 4% to 8% per year in 2022 and beyond. While we are not immune to facing inflation, volatility, and supply chain headwinds in the near term, we are confident that we will get through it successfully and maintain our pricing leverage. Over our 142-year history, it has been done before, and it will be done again. The decadal shift that will favor our packages is happening. We look forward to continuing our journey and being close to our customers, focusing on attention to detail, acting like true owners of the business, being good corporate citizens to our people and our planet, and returning value to our shareholders. And with that, Malika, we are ready for questions.

Thank you. Our first phone question is on the line of Christopher Parkinson with Mizuho. Please go ahead. Your line is open.

Good morning and congratulations on an incredible career, John and good luck in all your future endeavors, and also to you, Dan, congratulations on your new role as CEO.

Thank you.

I was just wondering if you could just detail a little bit more the volume trends by region and specifically you discussed some headwinds in South America, in terms of weather-related impacts, in the fourth quarter. I think in North America, where overall earnings, when we think about 2022 and some of those headwinds, maybe not recurring, how should we think about that demand progressing throughout the year?

Sure, I'll begin by discussing our outlook for 2022 and growth across the three major regions. As I mentioned earlier, we've significantly expanded our $12 billion capacity that came on line at the end of 2021 in North America. Therefore, we expect double-digit growth in that area. In Europe, we've made several incremental investments, and we believe our team there can achieve near double-digit growth. In South America, we have previously indicated a long-term growth forecast of 4% to 6%, and we expect to be at the upper end of that range. Overall, we have a strong opportunity to reach double digits in our global beverage business due to the capacity we've established, the demand dynamics, and our effective execution. Regarding South America, we recently communicated with our team there. It's important to note that we experienced unexpected demand disruption in Brazil during the fourth quarter, which impacted our expectations for the end of the quarter. The rainfall in Brazil was significantly above normal, increasing by about 300%. Additionally, COVID-19 restrictions began affecting gatherings in November and December, limiting opportunities for consumers to enjoy canned beverages. These two primary issues contributed to the challenges we faced in Brazil. However, the positive aspect is that we operate in various countries within the region, which allowed us to achieve growth overall due to strong performance in other markets. As of now, COVID-19 remains a consideration, and we are closely monitoring the situation. It is peak season, and with improved weather conditions as the rain has ceased, we are moving in a more favorable direction for South America. Nevertheless, we need to overcome the broader challenges posed by Omicron to regain a sense of normalcy in the first quarter in that region.

All right. No, that's extremely helpful. And then just a really quick one, obviously, whether it's been supply chain logistics, raw materials, a lot of people have been dealing with higher costs. And I think you mentioned you initiated additional cost recovery mechanisms throughout the quarter. If we assume that this persists a little bit longer into, let's say, the first half of next year. Can you just discuss a little bit more what those actions are in terms of your cost recovery actions and any additional leverage you can take to help offset this in the near term?

Yes, thank you for that. One thing to keep in mind is that we are implementing this across all our businesses. This may not have been as clear when we discussed our strategy during the last earnings call. Our teams are actively engaging in meaningful discussions with each of our major customers as partners. The feedback so far is overwhelmingly positive; we have made significant progress, and we expect to see improvements in 2022. These conversations begin with an understanding of current market conditions. Two months ago, for instance, no one anticipated the changes in energy prices and the impact of the situation in Ukraine. Therefore, we will need to continue these discussions as new, unexpected challenges emerge, but the team has performed well. We are on track for a solid plan, and we should expect to see positive results in 2022.

Thank you. And our next question is from Ghansham Panjabi with Baird. Please go ahead. Your line is open.

Hi, good morning, everyone. This is Matt Krieger standing in for Ghansham. First off, congratulations to John and Dan on their announced elections and transition yesterday. I’ll jump right into my first question. Can you provide us with an update on some key growth categories in the beverage can market, especially focusing on areas that may have experienced fluctuations over the past couple of years, such as hard seltzer and other products? It seems there are numerous new introductions and momentum in other areas, so any details on that would be appreciated.

Sure. I'll break this down by region. Overall, energy drinks are performing exceptionally well, and we have a strong presence in that market, which has contributed to our growth. Beer continues to see growth globally, and we noticed a shift in carbonated soft drinks in Europe, where we also have a solid position. In South America, growth was largely affected by weather conditions, but beer remains the leading category, influencing overall growth there. In North America, we experienced growth in carbonated soft drinks, double-digit growth in energy drinks, slight growth in sparkling water, while domestic beer, hard seltzers, and craft beer saw slight declines. However, carbonated soft drinks and energy drinks are the largest segments for us and have performed well, driving our success in North America.

Great, that's helpful. And then can you talk a bit about how free cash flow is expected to evolve in 2022? Maybe bridge 2021 to 2022 and then can you comment on some of the challenges or hurdles that you have to get over in deploying over $2 billion of capital in an environment that is increasingly marred by labor shortages and disruptions?

Sure. On the free cash flow front, we actually did a little better in 2021 than we expected. We had some milestone payments that we collected really from our aerospace business that helped us. Also if, when commodity prices rise, when aluminum rises, we get a benefit from a working capital standpoint, because we have longer payable terms than we have receivable terms. And so that helped working capital in 2021. In 2022, we're kind of expecting relatively flat commodity prices and expecting free cash flow to be or working capital to be relatively neutral. As it relates to deploying the capital, our teams have done a fantastic job of all the new builds, all the incremental lines that we put in plants, on time, on schedule, there's a slip here or there for maybe a week or so. But I have to commend our operating folks; they have done a spectacular job. Despite all the challenges, despite the COVID challenges, despite the supply chain challenges, they've really done an excellent job. So it's not without challenges. But I think we have a really good plan as to how we're going to deploy this $2 billion of capital. And we expect the strong performance operating performance to continue.

One build on Scott's comments relative to the execution of deployment. Remember, three, four years ago, what we decided to do was create a global engineering organization. And so we have the ability to deploy resources, not region-dependent, but where the work needs to be done. And that team has done a remarkable job of organizing itself, standardizing the installed base. I think we got ahead of the process equipment by, I think there's been a lot of things that we've done right over an extended period of time that are now showing up. And you can't underestimate the fact that we're hiring people well in advance. We're training them, when they come in, they know what to do. They feel safe, operating in our environments. And I think that's enabled us to retain people, far in excess of kind of what the industrial manufacturing sector is doing. So knock on wood. We're really encouraged about what we've done. And it's a really good building block and gives us a great deal of confidence that we're going to be able to continue to do that over the next 24 months.

Thank you. Our next question is from the line of Anthony Pettinari with Citi. Please go ahead. Your line is open.

Good morning. And congratulations to John for everything you've accomplished and to Dan as well. Dan you talked about adding 12 billion cans this year after adding 12 billion last year. From a big picture perspective, can you walk through your major regions and maybe just discuss, which might require imports this year and are extremely tight versus maybe regions where your supply situation might be getting more comfortable or more normal?

The 2021 capacity and the expected growth in 2022 was largely focused in North America. We established a new facility in South America, and we anticipate benefits from that. Additionally, we made incremental investments in both South America and EMEA. Looking ahead to 2022, we will be increasing capacity primarily in South America and North America, which will account for most of the $12 billion exit rate for installed capacity. Then in 2023, and particularly in 2024, you can expect to see a significant increase in EMEA.

Okay, okay, that's helpful. And then just on EMEA, you obviously have a large Russian business. Do you anticipate the moving of the Ruble and tensions there to have any financial or maybe operational impact in the quarter? And can you help us understand how you might be sort of insulated from geopolitical risk? Or how you're thinking about that?

Yes, what truly runs is a dollar-based business as most of the Russian economy does tied to oil. So our treasury team does have an incredibly effective job of insulating us from valuation changes in the currency, so you don't see much of that, to be honest.

Thank you. Our next question is from the line of Mike Leithead with Barclays. Please go ahead. Your line is open.

Great, thanks for taking my question. And I want to echo my congrats to both John and Dan. First on beverage packaging and in the America, just as we're bridging to 2022 and earnings potential for that business can you maybe just help us with what one-time occurrences that hit the expense line that should roll off as we get into this year? And just what type of operating leverage we should expect from volume growth as well?

I will make a comment and then turn it over to Scott for more details. When we discuss the impact of inflation, most of it has been related to North America, and it connects with how we manage inflation through our PPI mechanism. When considering the year-over-year progress, you should expect to see the benefits of this inflation transition throughout the year, as not all contract renewals happen on January 1. There have been numerous supply chain challenges, and while I'm cautiously optimistic that the supply chain and ecosystem will stabilize to some extent, I can't guarantee it. However, I do believe we will see improved performance since we ended 2021 in North America with a much healthier inventory position compared to 2020. This should enhance the net inflation pass-through. I'm also very encouraged by our execution regarding the projects we mentioned, which will all support us. I anticipate a strong year for North America next year.

Got it, I mean the only thing I would add is exactly on the PPI adjustments, some happen in the first quarter, some happened in the second quarter, and some won't happen until the third. By the third quarter, we should see all of that benefit or all of that cost recovery coming back to us, if you will.

Great, that's super helpful. And then second, just on capital deployment. If we go back to the Investor Day, should be about a year or so ago, you talked about roughly a billion dollars of CapEx per year through 2025. And now it seems like we're going to be running at double that this year and maybe a little bit that's coming out of buybacks versus what you talked about last quarter. So can you just talk about what's driving that change? I'm just assuming the organic growth opportunity has simply gotten better. But just any color on kind of how you're looking at that and the tradeoffs there?

Yes. I think it's really the organic growth continues to strengthen. We're entering into additional contracts, long-term contracts with customers. And so we have a high degree of confidence in deploying this capital. It really hasn't changed a heck of a lot from our view in our Investor Day in 2020. If anything, it's just gotten firmer and become more real. And so we're executing on those plans.

Thank you. Our next question is from the line of Arun Viswanathan with RBC Capital Markets. Please go ahead. Your line is open.

Sorry about that. Good morning. Thanks for taking my question. Congrats on the retirement, John and congrats to you, Dan as well.

Thank you.

I wanted to clarify, as we heard some concerns about a potential demand pullback or impacts from COVID in Q4. However, it seems there was no significant effect on your business. Was there any impact from COVID? Looking ahead, do you anticipate any issues from absenteeism or similar factors that could jeopardize your projects?

Yes, thank you for that question. I would say COVID didn't impact our demand with the exception of precautions in South America, where it's peak season down there, and they didn't allow for the public gatherings to the same extent. That's the one where it's most acute. And we can describe that and understand that. We're absolutely experiencing some impacts to production here in the first couple of weeks of January. I mean, it's the wave of Omicron has hit. I think we had nearly double-digit dislocation of our manufacturing folks in all three regions here. Last week, it's where it peaked. I think it's sharply rose, and now it's sharply declining. So I think we got a chance to deliver a strong first quarter. But yes, on the demand side, COVID, with the exception of South America, I'm not entirely sure we saw much impact. And I think the other question that you had was just relative to demand profile in general. For us, we've been very fortunate that the partners that we have are winning in the marketplace. And so I think in that regard, and we've, obviously, there's a ton of focus and has been for the last six months, the spiked seltzer category, we had minimal exposure to that, coupled with the fact that a number of our key partners are doing extraordinarily well in the marketplace. So that may be an insulation from maybe other participants in the market. But I'll leave it there for now.

Thanks for that. And then, just as a follow-up, I guess, you obviously had talked about the 25 billion and 45 billion of units that you plan to bring on. That was about a year ago. There has been some other announcements by yourselves and other competitors subsequent to that. Do you still think those are kinds of the range that we'll expect to see? Or you see that maybe there's some upside to that or given the demand continues to be robust that some of these markets are on fire. I've seen some real strong numbers in the RTD ready to drink cocktail market as well. So maybe you can just update us on your capacity plans and maybe for the industry as well?

Yes, first is our Investor Day 2020 late 2020, when we sort of laid out a multi-year growth plan. So as we sit here today and was referenced in a previous question, we've spent capital in excess of what we had planned at that time, up to this period, which is all good. We have really solid contracts to back it, EVA generative opportunities. So based on what we've seen thus far, we're going to take advantage if those opportunities continue to show up and manifest in the same way we'll lean into them. We've got a healthy balance sheet, as Scott's already indicated, and if there's more opportunity to grow, we'll take advantage of it. I think one thing that is a sign toward more growth is if you reference and maybe Ann could send this out as part of our materials. But Ellen MacArthur Foundation produced the top 10 CPG companies and their producer responsibility, recycled content targets over the next five years. Every one of them has a significant improved target position that they've said publicly, and they can't get there without aluminum is the bottom line. So we didn't see that type of target in earnestness behind public targets from our largest customers. They're out in the public domain now and they're going to have to hit those. So there's quite a lot of belief, at least as we sit here in Broomfield, Colorado today that we've got more upside than we do downside in those projections.

Thank you. Our next question is from the line of Angel Castillo with Morgan Stanley. Please go ahead. Your line is open.

Hi, thank you for taking my question and congratulations to you both gentlemen. Just wanted to follow up on the volume number that you noted for the fourth quarter of 7%. Given what you kind of outlined for the various reasons it seems like there might have been, maybe more in the kind of non-reportable segment that was strong growth. And I assume that's essentially imports to, whether it's North America or other regions. So I was just wondering if you could give us a little bit more color on, kind of what the numbers were for the non-reportable. And then, for imports, as you see those into 2022 how should we think about those in terms of absolute numbers versus the strong 2021 that we saw?

Thank you for the question. You are correct. The other non-reportable segment experienced significant growth, primarily due to our joint ventures and majority-owned assets around the world. This includes markets like Saudi Arabia and Southeast Asia, where demand has outstripped supply. As a result, we saw a positive impact on performance. I haven't provided specific comments on imports, but from our viewpoint, we are oversold in all three markets as we enter the year. We will need to maintain adjustments in our supply patterns, particularly from those regions into Europe and North America throughout 2022. While I can’t comment on our competitors, we will continue to see imports from us, depending on their needs. I don't have that information available.

Got it. And in terms of finished goods, you noted that inventory as you continue to work towards normalizing that. I think in the past, you've given kind of a sense for in terms of days where we are today versus historical. Could you just kind of update us on that how much more work there is left to do to get to a place where you really feel kind of back to normal and have good inventory heading into kind of the summer season?

I believe we are very close to where we need to be in Europe. In North America, I don't have the exact number, but I think we will be about 10 days better than we were a year ago regarding finished goods. Having a two-week buffer is much improved compared to how we started last year.

Thank you. Next question is from the line of Salvator Tiano with Seaport Research Partners. Please go ahead. Your line is open.

Yes, thank you very much. And John congratulations on the great career and Dan congratulations on the new role.

Thank you.

Firstly I want to ask a little bit about the hard seltzer market. And since recently, there have been some introductions in some more mainstream products with glass packaging. And there seems to be some saturation with all these brands and having all these different products of this substance. Really small subcategories of what was the hard seltzer market? Do you see any risk there that some of your customers in order to differentiate themselves may start to think it will be towards other packaging substrates?

I believe the can will continue to excel due to its recycled content attributes and the commitments from major CPG companies. Transitioning to other substrates could be detrimental. Our data indicates that the can is performing well, and we are strengthening our partnerships with major customers who are increasingly favoring the can. Overall, I think we're in a strong position. Additionally, I would like to reiterate that our exposure to the spiked seltzer market is quite limited.

Okay, great. I know you've discussed these topics before, but I'm curious about your thoughts on the high capital expenditures this year and especially the guidance for next year. How have things changed regarding that $2 billion figure, considering inflation, if you look back a few months or a year?

Inflation is a part of it, but a very small part. The real driver is opportunities that we have to deploy capital. It's too bad during COVID. We're not doing plant tours and things, but if you went to Glendale, Arizona, that would be a great example of investments that we're making that are really just spectacular facilities. So it's really driven more by opportunities and increasing our capacity versus inflation. I mean, there's definitely some inflation in steel and putting up buildings and things like that. But that's not what's driving the increase.

Thank you. Our next question is from the line of Phil Ng with Jefferies. Please go ahead. Your line is open.

Hey, guys. Congrats, Dan in a new role, and John, thanks for all the help over the years.

Thank you.

My first question, Dan, you've been pretty explicit saying that 2022 North America is going to be sold out again. But when we think about supply demand for 2023. How are you thinking about it? I mean, are you expecting to get more balanced at that point, or still pretty much on allocation?

Yes, 2022, 2023. It's a great question. 2022 what we see in front of us, we're oversold. 2023 will continue to be tight based on every conversation that we're having with our customers. I just continue to think this is the case. No, I don't think this is a 2022, 2023. Things get right the supply-demand balance out; I think the sustainability tailwinds are so pronounced. And the commitments are now so public from our customer base that they are going to have to move into aluminum to hit those goals. And so that's what we're monitoring right now.

Thank you. Next question is from the line of Mike Roxland with Truist Securities. Please go ahead. Your line is open.

Thanks very much. Good morning, everybody. Congrats, Dan, on your new role.

Thank you.

And congrats John on all your accomplishments. And in particular, your retirement from all these earnings calls. Just first part of this is probably on what Phil mentioned and Daniel's response to the oversold in 2022. Dan, you mentioned 2023 will be tight. But you need the word oversold. So I'm wondering how much of your capacity production is accounted for in 2023 at this point?

I would estimate that 95% is accounted for, although there might be some spot volume involved. It's important to note that we have contracts that expire at different times, so it's not fully contracted, but it is largely contracted. I won't elaborate on my statement about not claiming we're oversold just yet. I will provide more details as we delve deeper into 2022 in relation to 2023. Currently, we are in discussions with our customers, and they are highly focused on addressing immediate needs, ensuring products are on the shelves. While we are discussing 2022, the capacity we are implementing, which we've mentioned for several years now, is contracted and generating EVA, and we believe we will be pleased with the returns.

And remember, it's January of 2022. So we've been surprised by the upside since our Investor Day. And we're not making great predictions about 2023. But to Dan's comments, everything we're seeing looks pretty darn good.

There are a lot of interesting details. I have a question about inventories and current supply chain logistics issues. How should we consider inventory levels as we move beyond COVID? Clearly, there was a certain level of inventory before the pandemic. Should we anticipate that you will be maintaining a higher inventory level moving forward? It seems to me that the just-in-time strategy may need to be adjusted based on everyone's experiences over the past 12 to 18 months. I'm curious about your thoughts on inventory management going forward.

Yes, I've been in manufacturing for 30 years, and for 29 of those, we've been moving jobs overseas. And we've been low-cost country sourcing, and we've gone to a just-in-time mentality. And I think all of that will change moving forward. I don't know what that means in terms of working capital, use of cash, I would imagine there would be a combination of folks are going to get a hell of a lot smarter and more effective and efficient on the stocking levels, they have to manage that working capital. But you would think you're going to have to buttress the working capital with trucking continues to be a concern, a number of things that you're managing, but I think this just-in-time inventory phase may be a thing of the past for the next few years. Terrific. Thank you. Malika, we are a couple minutes over. So maybe we take one more question.

Certainly. Next question is from the line of George Staphos with Bank of America. Please go ahead. Your line is open.

Hi, guys. Thanks for fitting me in here.

George, we've got you.

We got you.

Oh, my gosh. Well, congratulations to both of you in the next chapters and John, in particular, it has been great working with you for the last 22 years and congratulations on all the performance. I guess I have two questions. I guess, first of all, thinking about Europe and what's been going on there from a geopolitical standpoint, are your customers? Are you doing anything differently to manage against the risk? I don't know that you could. But if there is anything that you could share on how you're guarding against that would be appreciated. Second question, bigger picture, Dan, how do you see the company's evolution on a couple of fronts over your tenure relative to John's tenure vis-à-vis what you're going to do to promote sustainability in aluminum place and how the footprint of Ball's facilities evolve over time you have all these opportunities coming in, you're spending more capital and you should be given the EVA returns that you're seeing, what's it going to mean in terms of your typical plant in terms of its flexibility, size, modularity, and so on. Thanks, guys and good luck in the quarter.

Yes. So a lot there. I will tell you, the thing that I'm most proud of to inherit in this role is that and John has steward us to this point, we are a sustainability company. All of our strategies in all of our businesses are tied to circularity. And even in aerospace, we have a wonderful opportunity to lean into our climate censoring technology, our data analytics. And so I think that does a couple of things for us. If you don't have sustainability tailwind, you've got a headwind and our businesses have tailwind. The other thing is, it's an incredibly powerful attractor of talent, not just our incredible culture here at Ball. But folks want to make a change; they want to make a difference. And they can do that at Ball. And so I'm going to lean heavily into that. And I think the leadership team that's supporting me and supporting our 24,000 employees, all believe in that. And so what that means, we have to tell our circularity story, we have to own the aluminum story, we have to improve every aspect of that story. The primary goal of that is recycled content. And I think our supply chain partners know that, we know that. And we're going to try to influence the hell out of that over the next decade. One of the things that John commented on in his prepared comments are, I asked John specifically to stay in role and support this business because he has been a foundational element and storyteller of our product. And John is going to continue to do that at the highest levels of our government, and stakeholders around the world. And we're going to lean on that and continue to build off that. I'd say that that our 24,000 folks are going to define our future a hell of a lot more than Dan Fisher is. But what we have this culture, how we focus on our capital investments, and the company being a sustainability company, first and foremost is something that we've got a hell of an opportunity to build on, George.

In terms of geopolitical concerns, we have a strong presence in Russia. As Scott mentioned, it's a dollar-based business, which is currently facing the most speculation and instability. I’d like Scott to discuss how we approach hedging and how we safeguard our contracts, including energy contracts.

Yes, they are still investing at an accelerated rate in filling lines compared to historical trends, and they remain optimistic about aluminum cans. This is why we are proceeding with three new Greenfield projects in Europe, which is a significant commitment from us and our customers who have signed contracts for those facilities to support growth in those regions. Thank you, George. And Malika, with that I will just thank everyone for their questions and look forward to speaking to everybody at the end of the first quarter and everybody stay safe.

Thank you, ladies and gentlemen. That does conclude today's call. We thank you for your participation and ask that you please disconnect your lines. Have a good day.