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. [Operator Instructions] 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 on 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 that are being experienced in the rest of the manufacturing world. For the quarter, we generated comparable operating earnings of $417 million, which is flat against 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% North and Central America where we dealt with freight and supply disruptions,…

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 includes steep supplier cost pass-throughs beyond normal levels. Ultimately, the compounding effect of labor and trucking shortages outside of Ball had 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 continues and supports additional food service launches at stadiums and venues continues across the US. 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 cups' 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…

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 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 and with ample liquidity and flexibility. During the quarter, we completed a successful $850 million bond offering at three 1/8%. Proceeds will support general corporate purposes. And 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 US 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 in 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 project -- 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 and thank you for investing in Ball. And with that, Dina ,we're ready for questions.

Thank you. [Operator Instructions] 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 this from 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, they're lagging behind. And so I'll let -- I'll turn it over to Scott in a minute and he can talk about numbers. But -- and every customer is different. I would try and 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 this is -- we need to make sure that we are adequately capturing during 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 other 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 and 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 -- probably $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 -- to your other comment John about decadal shift in beverage cans and your packaging. Clearly, we've seen really good growth over the last number of years. One of your larger customers yesterday was having an ESG Day of sorts. And 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 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 that world. Traditionally, the pass-through mechanisms largely as John indicated, at least, for the last 20, 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. So 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, it's -- this whole larger topic it's -- the consumer realizes that plastic is polluting our planet. Full stop. We recognize that many of our customers have deep profit pools that are filled with plastic and we don't anticipate that they're going to do a wholesale shift from aluminum -- from plastic to aluminum. But let me just -- I'll pick on Europe right now. In 2019, the total package share of cans was 27%. 2021 it's 31%. That's a four percentage point change. CSD went from 16% can penetration to 19% in 2021. Beer went from 35% to 37%. Energy went from 69% to 76%. That's just in Europe. The same thing is going on here in North America. And so if you really want to talk about the circularity and the circular economy plastic is not the solution to that. We recognize that there are certain instances where plastic may make more sense. But in a wholesale way the train is already leaving and that's why we said that we really do believe this is a decadal shift and you're going to see more and more going into this. You see in the existing infrastructure bill there is discussion about infrastructure investments in the recycling side. You talk about plastic taxes that are on current bills on the floor right now. This is not leaving, this whole extended producer responsibility is going to become more and more important. Even in this quarter alone, Maine introduced an extended producer responsibility for responsibility law for plastic because they recognize that it's polluting the planet. This is only going to accelerate and we have a solution.

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.

Thank you

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 candidly labor issues both with our suppliers and our customers breweries are struggling filling locations 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 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. So 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. And 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 strat 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.

Great. Thanks. I guess, first off on -- maybe I can just get your perspective on the issues around magnesium. How would you kind of characterize maybe your supply? And maybe if there's any outlook on cost inflation in the magnesium area by region over the next, say, six months or so?

Yes. I think, the magnesium issue, you could argue that's a little overblown. I think in talking with our supply base on a regular basis -- typically you would hold anywhere between six to nine months of inventory. I think we've got assets, human capital actually that's in China that's working on a daily basis with our supply base over there and magnesium suppliers there. The operations are back up and running. I think there was an inflection point in inflation, as you said, a few weeks back. I think that's dissipating pretty significantly right now. So as we sit here today, I appreciate the question, but this is not sort of top of mind in terms of the surety supply issues, either with our supply base or with our -- or from a cost perspective.

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.

No, this -- I mean, I think, my prepared comments speak for themselves. I think this was a big accelerant during the third quarter and it is faster. And we've had to choke down some of those things. And so we're just working with our customers as partners saying we got to share in this going forward. But I don't believe it's structural. And as I said, to the extent they come back down, we'll work with our customers to make sure that they benefit from that as well. It's just we should not be the toggle in the whole supply chain switch here. 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. I think that's largely correct. I mean, we don't -- we're not going to go into forward guidance, but I think the reverse engineer of the math would suggest -- I'll tell you this, we're selling every single can we're making in South America. And so, if you backtrack into the capacity that we've added, reverse engineer that, you get to, I think, very close to the hypothesis you put forward.

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 the can candidly, 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.

And the only thing -- other thing, I'd add as well is when you think about all the substrates in beverage packaging whether it's plastic glass, aluminum cans the raw underlying costs are all tied in one way shape or form to energy. And so they all over time have a correlation that's relatively consistent. And I think it's -- I think sometimes we all collectively forget that about a little bit.

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, …

Hi.

… 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 American 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. And 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.

And just to clarify here. You mentioned okay, one year lag essentially but the idea was that as you were negotiating contracts and getting better -- make a better terms for the past few years one of the terms was offsetting of this cost. So, were the lags worse -- longer before? What has changed versus a few years ago?

No. Some of them -- what's happened a couple of years ago in some of the contracts particularly in the ones that we acquired through the acquisition didn't even have inflation pass-throughs. And so we've certainly adjusted that. I think what Dan just said is completely correct. It's really just the timing effect here. But again as I said earlier, we should not be the toggle in all this. And I think it's important that that's what we're focused on 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 that 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. Operator: 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? Thank you.

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 candidly 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. And I think when I think through it I specifically think about the driver shortages -- and even in Russia. And CO2 there are CO2 issues in the UK where many of our customers were down for several weeks if not longer on that. So, I think it was largely -- every country was a bit different. There are slight issues in Germany from a freight perspective trucker perspective. But I immediately think of the U.K. and Russia.

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

That's very helpful. And then in terms of you kind of touched on it earlier just impacts I guess to the customer level. As we think about -- I think you talked about it a little bit last year -- or sorry last quarter in terms of still water and what you're starting to see maybe some more chatter around that or maybe more launches. I guess any impact to that? Are you how is that progressing in terms of what you're hearing from your customers in terms of intentions or potential products there?

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. And I think 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 and 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, the 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 take the first part. The sale of the Korean JV that it was -- it wasn't really a strategic place for us to be. Our global customers it's not a critical place for us to operate. And for us the best solution -- and frankly, it was marginally profitable. So, frankly, the best solution was to get our capital off the table and do other things with it that we can earn better returns on. I'll turn it to John--

Yes. On the strategic front, it's -- while we're always looking, it's not the highest priority for us right now. And we've been looking -- we always look in all of our different businesses for opportunities, but to your point, it's well taken. We have more opportunities, internal opportunities for growth than I've seen in my 23 years at Ball Corporation. And we think that we're -- for the foreseeable future, we're going to continue to see that. Will there be an opportunity that pops up, kind of, like what happened in aluminum aerosol last year in Brazil? Yeah, there could be things like that. But I don't think it's anything that would stretch our balance sheet materially.

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?

Look I think start-up costs would be in the same range because we're still starting up a lot of assets next year. It could come down a little bit. But we'll have the benefit of -- we're exiting this year with 12 billion more units to sell next year. So I think that will -- we'll have a nice lift in profitability because of the investments that we're making today that will more than offset the start-up costs next year.

Yeah, you will see -- in North America specifically I think that's where you're catching that comment. You will see the majority of -- we've talked repeatedly that we will exit the year with 12 billion units globally of installed capacity heading into 2022. 60 -- two-thirds of that is North America and that will precipitate some really -- some nice growth for us for each quarter and the balance of 2022. And knock on wood we're going to enter the year with a much healthier inventory position. So we're going to be able to execute on that portion 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.

Thanks very much. Just a quick question on hard seltzers, and realizing that it's a small component of your business. Can you help us think about how your new plans that you're constructing and future plans will be impacted by the fact that hard seltzer growth is now appearing to come down even further? One of the larger producers, obviously, made an announcement a couple of weeks ago on that. And just wondering how that impacts your operation and your current production whether do you need to adjust your thoughts around that business. Even though it's still a relatively small component of your business wondering if you're going to be -- you have to adjust anything that you currently built or need to build to align with what's happening in that segment?

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 they all 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. And 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.

Got it. Appreciate that. And just one quick question on aerospace and labor. Obviously you guys cited labor being a challenge. We're hearing some chatter that there could be more significant challenges around the labor pool in the defense industry. So I'm wondering if -- obviously some of the labor pool there is very specialized labor working in highly technically skills. So I'm wondering if with respect to labor you're encountering any of those issues in aerospace.

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 of 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.

So my first question is just thinking about some of the cost pressures that have taken a lot of time on this call and your proactive intention to work with your customers on the contracts to get those inflation escalators back. On top of which you have absorbed a lot of start-up costs this year as you significantly added capacity across the network. Historically kind of we thought from a volume leverage perspective kind of profit growth for Ball can be nearly 2x volume growth. Over time clearly -- this year is maybe not quite living up to that or there's real headwinds to that kind of operating leverage. Do you think you can make sufficient progress on those contracts with your customers in this environment to be back in that kind of operating leverage range next year?

Absolutely. As we look to 2022 we get excited about it. It's just we -- this inflation came so quickly that the mechanisms were in place and that's what we've been talking about and that's what we are talking about with our customers. But that 2:1 ratio you're talking about we fully agree with that.

Okay. All right. That's great. And then I just in this environment where you've had issues in terms of sales volumes 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 where do I think the key bottleneck is in terms of your shipments returning back to a more normal cadence?

Well, it's interesting. It really is the whole supply chain. When you think about ocean port delays with raw materials on it then you think about once it gets to the port after sitting on the ocean for months then you got driver shortages. And then you -- as we talked before you some of our customers experienced CO2 issues and others are having labor issues in their own filling breweries. As a result of that -- and then combine our low inventories and what we have to do is play a bit of whack-a-mole. That's what 2021 has been around. To Stan's point earlier about being deliberate and intentional about building inventory so we have sufficient safety stock to eliminate that variability that's the key thing we're focused on in 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 things. There are some of those longer contracts that haven't – but those are largely over. Really what it has to do with is in some of our supply contracts there's hardship clause that have – if petrochemicals go up more than a certain percent that they have the right to surcharge. And we have the right to move that on to our customers but it's only on a yearly basis. And what we're talking about doing it more quickly because all this – a lot of this happened in the third quarter. It happened this summer and it was the most acute. It's been in 40 or 50 years. And so again, I want to reiterate, this is not a function of can we get it back, it's a function of the timing of when we get it back. And that's what we're talking about.

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 can.

Right. Understood, John. Appreciate that. And just one last question on – we no longer get the CMI data, but can you hazard 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% – 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.

And 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 -- we’re five minutes after the hour, maybe we – if there is one more question, we’ll take that.

Sounds good. Our next question is coming from the line of Mark Wilde with Bank of Montreal. Please go ahead.

Thanks. Good morning, John. Good morning Dan.

Good morning.

Just very quickly two issues. Can you just talk with us about how you expect the import volumes to kind of cadence going forward? I mean that 16 billion units is probably 2x, what I think most of us were expecting just maybe six months ago? And then the second question is, if you could just update us on your events -- your efforts to help improve the recycling rate on beverage cans in North America, because to me this looks like a little bit of a potential Achilles' heel if it's not addressed?

Great question on the import of cans. It surprised us to the upside as well. I think we entered the year thinking maybe more in the 10 billion to 12 billion range and that speaks to the strength of aluminum and maybe lends itself to your next question. But as we sit here today, we're putting a ton of capacity online. Our competitors are putting capacity online, and early insights into 2022 is we're significantly oversold again. And so I think there will be some need for importation again. We will be importing as well. We may be importing in other regions, because the growth is so significant in some of the other regions. So, yes, as we get a clearer picture, we'll indicate kind of what we think that is, but this is early stages of our planning period for 2022. And it's clear that our customers don't want to be paying that much in freight. So if we can domicile that, it's just going to be a matter of how fast we can domesticate that volume. But there will certainly be need probably for 2022 and I would assume 2023 for some importations at some level.

And Mark to your point about the growth, you're absolutely right. It does reinforce the need for recycling, and a couple of things. I just -- I'll remind people that while the recycling rate in the United States is the lowest in the world, it's still 8x to 10x of any other substrate in any meaningful way. So it's important to note that and 70-plus percent of all the aluminum in a can is recycled content currently. I think the recycling is a very complicated issue, but there's three things. You got to focus on the infrastructure, you got to focus on the collection, and then you got to focus on the producer responsibility. With the infrastructure in the existing bills that are being brand about in Washington D.C. today, there are money set aside, to help the local municipalities, reinvest on the infrastructure of recycling. And so we're very hopeful that that will get through, because that will provide the necessary means for these municipalities that have to focus on health care, and schools, and roads, and sewers, and everything else provide them the necessary means to recapitalize the recycling infrastructure that hasn't been recapitalized since the 1960s. Then it gets to the collection side. And we can have debates about curbside collection versus deposits. But if you get the infrastructure in place then you got to get the collection. And we do a very poor job across the United States in collection. And at the same time, then it gets to who's going to pay for all this. Well, then it gets to extended producer responsibility. And if there's no economic value in a recycling stream of certain substrates then they are a free rider and they ought to be paying for it. Those are the discussions we're having with our state and federal legislators about the recycling infrastructure, the collection and the producer responsibility. And so this is not a short-term game. It's a long-term game. I wish it would move faster, but it is what it is. But we are putting our shoulder into this to make sure that people understand the value of aluminum in a recycling stream.

All right. That's helpful. Thanks John. Good luck in rest of the year.

Okay. Great. Well, thank you everyone for your participation. Dina, thank you for hosting us, and we look forward to engaging with you over the next quarter. Take care.

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