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Ball (NYSE:BLL)

Q2 2012 Earnings Call

July 26, 2012 11:00 am ET

Executives

John A. Hayes - Chief Executive Officer, President and Director

Scott C. Morrison - Chief Financial Officer and Senior Vice President

Raymond J. Seabrook - Executive Vice President and Chief Operating Officer of Global Packaging Operations

Analysts

George L. Staphos - BofA Merrill Lynch, Research Division

Ghansham Panjabi - Robert W. Baird & Co. Incorporated, Research Division

Phil M. Gresh - JP Morgan Chase & Co, Research Division

Philip Ng - Jefferies & Company, Inc., Research Division

Adam J. Josephson - KeyBanc Capital Markets Inc., Research Division

Scott Gaffner - Barclays Capital, Research Division

Mark Wilde - Deutsche Bank AG, Research Division

Philip Terpolilli - Longbow Research LLC

Albert T. Kabili - Crédit Suisse AG, Research Division

Alex Ovshey Ovshey - Goldman Sachs Group Inc., Research Division

Christopher D. Manuel - Wells Fargo Securities, LLC, Research Division

Todd Wenning - Morningstar Inc., Research Division

Chip A. Dillon - Vertical Research Partners Inc.

Operator

Ladies and gentlemen, thank you for standing by. Welcome to the Ball Corporation's Second Quarter 2012 Earnings Call. [Operator Instructions] As a reminder, this conference is being recorded, Thursday, July 26, 2012.

I would now like to turn the conference over to John Hayes, CEO. Please go ahead, sir.

John A. Hayes

Thank you, Jennifer, and good morning, everyone. This is Ball Corporation's conference call regarding the company's second quarter 2012 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-Q 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 on our website.

Now joining me on the call today are Scott Morrison, our Senior Vice President and Chief Financial Officer; and Ray Seabrook, Executive Vice President and Chief Operating Officer, Global Packaging.

In a moment, Scott will discuss our financial results for the quarter. Ray will follow up with details about our packaging operating performance, and I'll close with comments on aerospace and the outlook for the second half of 2012.

Today, Ball reported second quarter 2012 results slightly ahead of last year's results. Recall that we had mentioned in April that our first half results would be relatively flat as compared to the first half of 2011. And to date, we performed slightly better than we expected. Our Drive for 10 levers include maximizing the value of our existing businesses, broadening our geographic reach, expanding into new products and capabilities, aligning ourselves with the right customers and markets, and leveraging our technology expertise to create competitive advantage.

During the quarter, we made progress in all of these. And several highlights include new metal beverage container plants in Qingdao, China. Alagoinhas, Brazil and Ho Chi Minh City, Vietnam all began production in the second quarter, further broadening our geographic reach. The Alumi-Tek reclosable bottle continued to add to its customer portfolio as we expanded this product in the new end markets including craft beer and CSD. In fact, year-to-date, our total specialty can portfolio in North America grew approximately 24%.

Ball Aerospace is leveraging its technological expertise. The B612 Foundation recently announced that Ball Aerospace will build a space telescope named Sentinel, which will scan the solar system for asteroids posing a threat to Earth. This will be the first privately-funded deep-space mission. And in addition to this, we want additional work that will soon be included in our backlog, highlighting the growth of this business despite an uncertain funding environment. We continue to make good progress in all 5 of our Drive for 10 strategic levers. And while we wish our end markets were just a little bit more robust, 2012 is progressing just as we expected.

I'll turn it over to Scott to talk about the quarter, and then Ray will provide color on our operations. I'll return with comments on our aerospace business and the outlook for 2012.

Scott?

Scott C. Morrison

Thanks, John. Ball's comparable diluted earnings per share from continuing operations for the second quarter of 2012 were $0.89 versus last year's $0.85. The following factors contributed favorably to the second quarter results: higher volumes in Brazil and China, as well as continued growth in specialty can volumes; solid program performance in aerospace business; a lower effective tax rate and a lower share count. FX translation negatively impacted the second quarter by $0.04. For a complete summary of the second quarter results on a GAAP and non-GAAP basis, please refer to the Notes section of today's earnings release.

Recapping the key financial metrics for 2012, interest expense will remain the same at approximately $175 million. Taking into account certain tax benefits achieved in the first half of the year, the full year 2012 effective tax rate is projected to be around 29%, so the tax rate in the remaining 2 quarters of 2012 will run closer to 32%.

Given recent global growth trends, full year 2012 CapEx is now anticipated to be in the range of $350 million. With the change in CapEx and some improvements in working capital, we now expect 2012 free cash flow to be at least $0.5 billion, with most of the free cash flow being returned to shareholders through share repurchases. Year to date, we have repurchased approximately $275 million of our stock. At current exchange rates, year-end net debt is expected to be approximately $3 billion, roughly flat versus 2011.

With that, I'll turn it over to Ray to talk more about the packaging operations.

Raymond J. Seabrook

Thanks, Scott. Comparable second quarter operating earnings in the metal beverage Americas and Asia segment were up 8%, and through the first half, are up over last year's level. Remember, first quarter sales volumes in Brazil were slow due to customer geographic supply relocation. But as Scott mentioned, have picked up in the second quarter and are up 10% through the first half. We expect this trend to continue in the second half and still expect mid-teens growth in Brazil for the full year.

Sales volumes in North America were relatively flat through the first half, with custom cans continuing to grow -- to show nice growth. Second quarter operating earnings in the Americas were up on the strength of tighter cost controls and better sales mix in North America, partially offset by higher cost inventory from Brazil production curtailments, primarily late in the first quarter and second quarter, and start-up costs at our new Alagoinhas plants, which came on line in the second quarter. For the balance of the year, we foresee the North American favorable sales mix continuing and expect that the Brazilian start-up costs are behind us.

In Asia, the new can plants in Vietnam and Qingdao, China are performing well. And from an operating standpoint, we're coming out of start-up by the end of the second quarter. Sales volumes in China through the first half are up low double digits, with operating results a little ahead of last year's level in the quarter and for the -- and through the first 6 months.

Comparable European operating results in the quarter were lower than a year ago, primarily due to a lower euro exchange rate, and to a lesser extent, some price cost squeeze in the beverage cans. Beverage can volumes in Europe were up low-single digits in the quarter and through the first 6 months in spite of poor early summer weather. Despite an appreciably lower euro exchange rate, we expect third quarter segment earnings to be comparable to or slightly better than a year ago due to some relatively easy comps.

Second quarter and first half earnings in the U.S. Metal Food & Household Products segment were on plan, but below last year due to inventory gains made in 2011 that were not realized this year. Food can volumes through the first half were mid single-digit below last year's level, and this trend will probably continue in the second half due to the drought weather conditions being experienced in most of the U.S.

Despite this difficult weather situation, we still foresee quarterly earnings -- segment earnings returning to a more typical seasonal pattern this year, which was reversed in 2011. With that said, we look forward to higher segment earnings in the second half than we earned in the first half.

With that, I'll turn it back to you, John.

John A. Hayes

Great. Thanks, Ray. Aerospace and technologies posted near double-digit EBIT margins for the quarter. Backlog ended the quarter at $780 million, which is holding in nicely, and as I mentioned earlier, is poised to grow as we move forward due to some recent wins. Previously awarded fixed-price programs continue to ramp up, and the program performance in that business is excellent.

As is evident with the Sentinel win, our aerospace team is executing on their Drive for 10 game plan. Our best cost, best value positioning provides Ball Aerospace a firm foundation heading into the election cycle. Now looking out beyond 2012, late in the second quarter, the company was notified of a shift in CSD customer requirements for our North American metal beverage packaging business beginning January 1, 2013. While we've lost some volume due to this shift, we have also gained some business from new and existing customers. In keeping with the Drive for 10 strategic lever of maximizing the value on our existing businesses, Ball will act appropriately in the -- to the resulting changes in supply and demand across our manufacturing footprint. And we are currently finalizing our plans, which are expected to include both permanent and temporary capacity realignment to address the situation. More information will be forthcoming in the near future regarding these activities. We believe that the net impact of this customer shift is not material to Ball's 2013 results and does not impede our ability to execute our Drive for 10 operational and financial goals.

In summary, we are slightly better than what we had planned halfway through the year. And as we always do, we are responding to the market environment from a cost and capital perspective that should generate higher free cash flow this year. We will continue our long-standing disciplined capital deployment strategy to return value to our shareholders and grow our company. With a slightly improved first half behind us, we are positive about the rest of this year and beyond. Profitability in the back half of 2012 will ramp up as new emerging market plants and the food and household business enter their seasonally stronger quarters, and we remain on track to achieve our 10% to 15% diluted per earnings share growth goal.

Recall that Drive for 10 is a mindset about perfection in everything we do, and it will play a key role in achieving our goal to more than doubling the EVA dollars generated over the next 10 years, as well as generating a compound average growth rate of 10% to 15% earnings per share over that time.

So with that, Jennifer, we're ready for questions.

Question-and-Answer Session

Operator

[Operator Instructions] And our first question comes from the line of George Staphos with Bank of America Merrill Lynch.

George L. Staphos - BofA Merrill Lynch, Research Division

I guess the first question I had, you said you wouldn't let us know about your plans for, I guess, capacity and production within North America at some point in the future. Will that happen before the third quarter earnings call, or when do you expect that you might be able to talk a little bit more about that?

Raymond J. Seabrook

Yes, George, this is Ray. The -- some details on that plan probably will be announced before the third quarter call, I would suspect. So let me see if I can lay this out for you. So late in 2011, we extended a long-term customer contract. And as part of that extension, as John mentioned in his comments, we picked up some fairly substantial volume, which would start in '13. And so that's been done. And as part -- and then I would say, in probably 3 or 4 weeks ago, we were notified by our customer that we'd lost some volume in '13. We've lost more than we've picked up. And so we have put together a tentative plan that, as John mentioned, rationalizes some surplus capacity. We've been doing a lot of shipping of our specialty cans across the country, so we're going to use this situation to improve our specialty can footprint. So we're going to do some of that. And then the capacity that we rationalize, we're going to move it to growing markets. So what you'll find is when we move this capacity, it costs us about half as much to install capacity that has been reconditioned as opposed to buying new. So that's the initial plan. We have 2 or 3 -- we have several near-term opportunities that probably will flesh themself out in the next 60 days. And once we see what those look like -- and those opportunities primarily are not in 12-ounce cans or specialty cans and other things. And so once we flesh those out, we'll finalize our plans and move forward. So as John said, the initial look at this is that it's not that significant to us as we look at '13. Does that help?

George L. Staphos - BofA Merrill Lynch, Research Division

Yes, it does. I appreciate the color. One additional follow-on to that, and then maybe a couple other quick ones, I'll turn it over. Would it be fair to say that what you lost is maybe 2x what you gained going into this year? And does this affect at all the Columbus lines that I know you haven't been running this year?

John A. Hayes

George, this is John. I think it's premature to talk about any of that right now. It's -- I think the key highlight is, we've got a game plan. We have a variety of stakeholders that we need to deal with. And at the appropriate time, we'll let people know what that is.

George L. Staphos - BofA Merrill Lynch, Research Division

Sure. I mean this has been a long time coming, so it's probably not a total surprise here. I guess, can you comment at all in terms of how the new plants are coming up the learning curve? Have you gotten to a point where they are at least breakeven from a margin standpoint? Are they still -- from an earnings standpoint, are they still dilutive at this juncture on the curve?

Raymond J. Seabrook

They're pretty much -- as we sit here today, they might be out of it. But pretty much for the second quarter, they were all in start-up. So they were dilutive. So they weren't adding anything. They've all come up differently. So the plant in Vietnam, it's come up a little slower because the work force is totally new. And it just takes time to learn how to do this thing. So Vietnam is fine, but it's come up a little slower. Qingdao, which is the one in China has come up quicker. But remember, we relocated a lot of employees from an old plant that we shuttered to the new plant. So we had much more expertise in Qingdao. So it's come up better. And as a matter of fact, we're even converting it to a different size right now as we speak. And then the one in Brazil, as I mentioned in the first quarter, we had some customer relocation situations with it. So it's really wasn't much -- it really wasn't a situation for the plant not coming up. It was to get the customer situation sorted out, and that's been done. So they're all a little bit different. But they're kind of all running now to speed, and we expect, as I said, a better third quarter.

George L. Staphos - BofA Merrill Lynch, Research Division

So Alagoinhas is where you wanted it in the second quarter and...

Raymond J. Seabrook

Alagoinhas, yes, it's now where we wanted it, but it took a while to get there because if you'll remember, we got a new customer location there. And so it just took a little longer than we had first anticipated.

George L. Staphos - BofA Merrill Lynch, Research Division

Understood. The last one for John. John, what does Sentinel add to the backlog? And do you have a view on project awards that have been funded that maybe didn't get to your June 30 backlog, what that would -- what that increment might look like?

John A. Hayes

Yes, Sentinel is not funded, and it's not in the backlog as well. The non-for-profit, the 501(c)(3) needs to go through a fundraising exercise. But they have announced that we will be the prime in building that. So it's a bit uncertain when they'll do that fundraising. We have in there very -- in the past couple of weeks have won a couple of other things in the classified world that, for obvious reasons, we can't talk about, but we believe will add materially to our backlog in the second half of the year and most likely in the third quarter.

Operator

And our next question comes from the line of Ghansham Panjabi with Robert W. Baird.

Ghansham Panjabi - Robert W. Baird & Co. Incorporated, Research Division

John, just more color on the CapEx reduction. Which regions does this adjustment -- which region is this specific to? And also, is this a function of you not winning some business that you thought you might have had at the beginning of the year, or is it just market condition based?

John A. Hayes

No, it's exclusively market condition based. And what I would say is things are moving out to the right. The overall growth of the global economy has slowed down. So I hope people aren't surprised by this. We're being prudent about it. But, as you know, the vast majority of our growth capital was allocated more towards Asia, generally speaking. So I think the vast majority of what's being pushed to the right is probably in that same area.

Ghansham Panjabi - Robert W. Baird & Co. Incorporated, Research Division

Okay. And then maybe I misheard this, but the custom cans, were they up 24% year-over-year in North America? Is that right?

John A. Hayes

That's correct.

Ghansham Panjabi - Robert W. Baird & Co. Incorporated, Research Division

And where were standard cans down for the quarter in North America?

John A. Hayes

Ray, do you have that?

Raymond J. Seabrook

No, I don't have that. But, obviously, that was the difference, obviously. So we were flat. So if -- you can kind of do the math.

Ghansham Panjabi - Robert W. Baird & Co. Incorporated, Research Division

Okay, I can try and do that. And the volume trajectory in Europe on the beverage can side, has that changed inter-quarter, month-to-month?

John A. Hayes

It was -- in the second quarter, it was a little bit slower than the first quarter. I think the big reasons for that were largely weather. It's -- we talked last year, this time last year, about Europe having a terrible summer for weather. Well, it's equal to or worse this year than it was last year. Offsetting that, we had some of the World Cup and some others things going through. So we've been holding our own. But it was up low-single digits.

Operator

And our next question comes from the line of Phil Gresh with JPMorgan.

Phil M. Gresh - JP Morgan Chase & Co, Research Division

Just a couple of questions. On Americas, Asia, the cost-mix benefit in North America, any -- can you calibrate roughly how much is cost and mix there?

John A. Hayes

Ray?

Raymond J. Seabrook

Yes, it's more mix than cost. I don't know the exact numbers, but I would say that it's 70-30. The mix been 70% of the improvement and 30% being cost.

Phil M. Gresh - JP Morgan Chase & Co, Research Division

Got it, okay. And just with respect to the specialty cans and the mix benefit there, would you say you're pretty much fully ramped on that benefit in the second quarter in terms of how we think about the run rate of that towards the -- through the second half?

John A. Hayes

Well, when you say fully ramped, I'm not quite sure. We expect continued growth in the specialty cans side of the business. We've -- for external market reasons, and we've been doing a lot of marketing and push from that overall product line, whether it's the Alumi-Tek bottle, smaller sizes, larger sizes, punch-top ends, things like that. It's a whole variety of different things.

Phil M. Gresh - JP Morgan Chase & Co, Research Division

Yes, I guess I was just referring to -- I mean, you brought on some new capacity, and I was just wondering if you're kind of -- you're essentially running full, getting the full profit benefit today?

John A. Hayes

Well, we're certainly running very strong.

Raymond J. Seabrook

Yes, we are to a point -- as I said before, the footprint isn't quite the way we'd like it. So we're spending a lot of money in freight shipping stuff in places we'd rather make it close to where our customer is. So we're going to fix that.

Phil M. Gresh - JP Morgan Chase & Co, Research Division

Got it, okay. And just with the CapEx reduction for this year, how should we think about preliminary thoughts around CapEx for next year? Perhaps, Scott, you could kind of talk about maintenance and whatever carryover there might be from any existing projects that would be kind of the starting point for next year?

Scott C. Morrison

Sure. Well, it's a little early to talk about CapEx for next year. But think about -- we just started up 3 new plants, and so just to keep up with incremental growth, you don't need to spend as much capital. So I would expect CapEx to trend down. But it's really more of a question of how strong global growth will be or not be. And I think we'll make more money next year, and so I think free cash flow probably goes up again next year. It's just a question of how much.

Phil M. Gresh - JP Morgan Chase & Co, Research Division

Got it, okay. And then final question is just on the comment about moving some of the can lines from North America to emerging markets and the cost saves from doing that. I mean, as you look at the emerging markets today, which markets do you think actually need new capacity? And if we think about Brazil and China, it feels like they don't.

Raymond J. Seabrook

Well, I said -- I purposely didn't -- I said growing. So you could even see some of the stuff -- we're fundamentally sold-out in Europe as we speak. So it's been growing 5% in the last -- since ever. So I'm not saying -- and it cost about half to redeploy -- to get a line in that's been refurbished versus buying new. So I don't know exactly as we sit here now where this is going, but it -- we definitely have growth markets for beverage cans. And this equipment that we rationalized as part of this exercise is going to end up somewhere where we need it.

Operator

And our next question comes from the line of Philip Ng with Jefferies.

Philip Ng - Jefferies & Company, Inc., Research Division

When I look at your bev business, if I heard you correctly, volumes were up low-single digits. But your EBIT on a year-over-year basis was down considerably. So I just want to know if there are any other factors other than FX weighing on the quarter?

Raymond J. Seabrook

Yes, the primary effect -- now remember, in the European numbers is also our extruded aerosol business, Aerocan. And the volumes were down just a little bit in that business, so it's not all beverage cans. So most of it is FX, but there's about EUR 6 million that probably is -- what I would classify as price cost. We haven't been able to pass on all our cost increases to our customers as part of our pricing...

Philip Ng - Jefferies & Company, Inc., Research Division

And that's also on the bev can side, is that correct?

Raymond J. Seabrook

Those are on the bev can side, yes.

Philip Ng - Jefferies & Company, Inc., Research Division

Okay. And demand ticking up, I mean, at least holding up decently in Europe on the bev can side. How do you feel about pricing next year because as you mentioned earlier, supply sounds to be pretty tight at this point.

John A. Hayes

Well, as you'll recall, I think earlier this year on a conference call, we talked about in 2012 we had plans to put some capacity in. But we shelved those plans because we said, "You know what, there's price cost going on in the marketplace, and we need to get our pricing right." So as we sit here today, Ray just mentioned that we continue to see some growth. But in terms of prioritization, our first priority is get our pricing right, and then we'll start to look at growth. And so as we go on the balance of 2012 and into 2013, that is kind of our strategy and go-to moves relative to what we're trying to do.

Philip Ng - Jefferies & Company, Inc., Research Division

Okay. And just one last final question for Ray. Demand for Brazil and China did pick-up in Q2. Is the back half still pretty robust? Because one of your competitors kind of talked about how both demand in China and Brazil is slowing. There's excise tax in the back half. So I just want to get a little clarity on what's giving you the confidence that demand is going to still be pretty solid?

Raymond J. Seabrook

Yes, that's all true. We -- actually, we had lower demand in the first quarter. I think we're up like 30% in the second net-net through year-to-date. In Brazil, we're up 10%. I said in my comments that we expect full year to be up 17%. So that means that we got to have a pretty good back half. And in our particular can -- and the thing about the beer is correct. The new beer taxes has caused some slowdown. There's no question about it. But we really have our contracts in place and our customers' positions in place where we're highly confident with what I said is going to happen.

Operator

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

Adam J. Josephson - KeyBanc Capital Markets Inc., Research Division

Regarding demand in Brazil, to what extent are you experiencing a slowdown of the conversion from returnable bottles to metal cans there? One of your competitors talked about that earlier decline.

John A. Hayes

Well, this is John. When you look at the aluminum can market growth in Brazil in the second quarter, it was reasonably healthy, both double digits in CSD and beer. I can tell you that on the beer side that we continue to see an uptick in can penetration. If you look year-over-year and again, you have to look at month-to-month, but it's up about a point. And we're not quite at 40%, but we're worth a stone's throw of that. And so we continue to see improvement there.

Adam J. Josephson - KeyBanc Capital Markets Inc., Research Division

With regard to the free cash flow guidance, how much of an additional benefit do you expect to get from better working capital versus lower CapEx?

Scott C. Morrison

There's a chunk of working capital, too. We've got a number of plans across all the businesses, really, a variety of different things that we're doing from an operation standpoint, a treasury standpoint, a sourcing standpoint that are all benefiting us. So we still expect -- part of the improvement of free cash flow for this year is coming from benefits that we're going to get on the working capital side. It's not all the CapEx.

Operator

And our next question comes from the line of Scott Gaffner with Barclays.

Scott Gaffner - Barclays Capital, Research Division

Just following up on the beer penetration question. Moving to Asia though, in particular, China, it sounded as if penetration there has slowed somewhat. I realize you're adding capacity slower than the market over there. But what are you seeing overall with can penetration in Asia? And how do you feel about your capacity additions versus market growth right now?

John A. Hayes

Why don't I talk about can penetration and Ray can talk about our capacity. I think in the second quarter, our overall beer market in China was up 5.5-or-so percent and cans were up double digits. So that says cans continue to have further penetration. Recall it's only in the beer segment, for example, it's only about 6% penetration. So there's a lot of room for improvement there. But as I said, it is growing -- the cans growing at a rate faster than the end beverage markets, which obviously means better can penetration.

Raymond J. Seabrook

Yes, and as far as the capacity goes, our original plan in China this year, we were importing, I think, 300 million or 400 million cans. And I think that's gone down. As you said, the market has slowed a little bit. But fundamentally, we're sold-out. Every can we could make, we're selling. So -- and as we look to next year, we are putting in a little capacity this year. We've -- some of that slowed. We've had some issues getting some land in the South that we thought we had. So we will be sold-out again next year. So everything we can make, we can sell.

Scott Gaffner - Barclays Capital, Research Division

Okay. And then just overall for the metal beverage and Asia business, looks like operating profit was essentially flat in the first half of the year. You had said before, I think, that you thought you could get the operating earnings up somewhere in the 10% to 15% range for this segment for the year. How are you feeling about that right now? And do you think you can get there with improvement in the second half?

Raymond J. Seabrook

Yes, we will definitely improve in the second half. There's no question about it. The -- whether I can get to the 10% to 15%, I think, is more difficult now because we're a little slower than we thought. But we will come close to the bottom part of that range. Let's put it that way.

Scott Gaffner - Barclays Capital, Research Division

And how much do you think currency is impacting that though?

Raymond J. Seabrook

Well, we've had a little negative currency in China actually. And the Brazil currency tends to devalue, which really doesn't have an impact -- such a big impact to us. We have lost actually a little currency in our China business.

Scott Gaffner - Barclays Capital, Research Division

Okay. And then just lastly, on this shift in business in North America. I mean, it sounds as if maybe it's more of a price issue rather than you not having obviously the capacity to serve the customer. Is that your sense of the shift in volumes at this point?

Raymond J. Seabrook

Yes, these things happen from time-to-time. If you -- I think some of it is sheet for me since 1990 on who's gained, who's lost, volume, and actually, I think we're net-net. I think after this that we're like 500 million with where we started with. So these things come and go a little bit. Usually, if you lose volume, it's price. And we don't do things for practice here. And we're not going to do things for practice. So we've got a plan to deal with this situation. So we're going to deal with it and try to make the most amount of money we can.

Operator

And our next question comes from the line of Mark Wilde with Deutsche Bank.

Mark Wilde - Deutsche Bank AG, Research Division

A couple of questions. Scott, I wondered, look like you made some changes recently in depreciation assumptions. Can you just give us a little background on that?

Scott C. Morrison

Yes, we looked at all of our -- if you look at our 10-K, there is a fairly detailed explanation of what we did. But we looked at -- as we standardized accounting practices around the world, if you look at the different lines that we're using in different places, and so we standardize that. And with that came a change in depreciation. What also happened was change in how we expensed some things, too. So net-net, on a full year basis, there really wasn't much of a difference. But that was the change.

Mark Wilde - Deutsche Bank AG, Research Division

Okay, that's helpful. And then over in food and beverage, can you talk about the fallout, if any, from the drought? And can you also talk about how much that slug business may be adding to EBIT right now?

Raymond J. Seabrook

Yes, this is Ray. The slug business is fairly small. It's up year-over-year. In our food can business, you've heard a lot of commenting on corn. We heard a lot of comment on the radio about corn. Corn is not that big of an impact for us. We're much heavily weighted towards, let's say, green beans or tomatoes. And the drought certainly has an impact. But it hasn't impacted those crops quite as bad as it has corn. The yield even on corn is something like 50%. So our guys -- it's going to hurt us no doubt in the second half from otherwise what it would have done. But I don't think it's a huge impact for us. It'll be lower, but not that significant.

Mark Wilde - Deutsche Bank AG, Research Division

If you try to put that in just volume terms, right, what would it be, kind of a ballpark, as you see it right now?

Raymond J. Seabrook

I got it more on EBIT terms. But in volume terms, it's probably a 2% or 3% lower than otherwise for us it would have been.

Mark Wilde - Deutsche Bank AG, Research Division

And in EBIT?

Raymond J. Seabrook

Yes, I got it in my head, I'm not trying [indiscernible]. I've got it, but I'm not sure I'm sharing it.

Mark Wilde - Deutsche Bank AG, Research Division

And, John, probably can you just talk about the acquisition landscape and whether you think given the slowing in emerging markets, whether that may present some more opportunities for you if you're patient over the next year or 2?

John A. Hayes

Yes, I think you've hit the nail on head. I do think when you look at where Ball has been successful about acquisitions, it's usually not in times of rosy economic environments, but in more challenging ones. And I'm thinking back into the 2009 when we acquired Metal Container. I'm thinking about the 2006 time frame when we acquired U.S. Can and then back -- even going as far back as 2002 into the headwinds of a credit issue in Germany, we did quite well with Schmalbach. The environment today feels a bit like that. And I think sellers' expectations are coming down. You guys know we're very disciplined in what we do. And so sometimes we're quite competitive than in an acquisition sense, and sometimes we're not because credit is flowing freely, and we have to compete with sponsors, et cetera. But it does feel a little bit better today and as we go forward, not only in developed markets but also, as you said, in developing markets that expectations are becoming a little bit more rational.

Operator

And our next question comes from the line of Alton Stump with Longbow Research.

Philip Terpolilli - Longbow Research LLC

It's actually Phil Terpolilli calling in for Alton. Just 2 quick questions. A lot of ours have been answered. You mentioned weak volume conditions still in standard cans in North America. Any signs of the major CSD players picking up promotions so far this summer?

Raymond J. Seabrook

That's been one of the issues that there hasn't been a lot of promotion in CSD. I think there's been pockets. But generally speaking, most of our customers have been sticking to their knitting, and they've been going for price and not volume. And I said there's been pockets of it, but there's probably more promotion in beer than there has been in soft drinks.

Philip Terpolilli - Longbow Research LLC

Okay, that's helpful. And then Scott, can you quantify that impact of currency to European beverage at all for 2Q?

Scott C. Morrison

From a translation standpoint or on the -- I'm sorry, on the EBIT side you said?

Philip Terpolilli - Longbow Research LLC

Yes.

Scott C. Morrison

I think the translation was $10 million of EBIT in the quarter from a currency standpoint. The rest was the price cost mix that Ray talked about.

Operator

And our next question comes from the line of Al Kabili with Crédit Suisse.

Albert T. Kabili - Crédit Suisse AG, Research Division

Just on Europe bev, you guys, from the sounds of it, outperformed the overall industry a little bit in the second quarter. And I was wondering if you gained any share this year, or if that's just a geographic mix difference?

Raymond J. Seabrook

I think maybe a tad, but not much. I think we did outperform the market just a little bit. And I think we did gain just -- but it's not a lot. It's -- the shares are still fairly comparable, but I think we did gain a little bit of share.

Albert T. Kabili - Crédit Suisse AG, Research Division

Okay. And can you just help us with -- if you saw any noticeable differences by region across Europe, how that's trending recently?

John A. Hayes

Across Europe, generally speaking, I think in the West -- in the Western part of Europe, it's actually held up okay, for example, in the Benelux region, which is a big export for many of the multinational beer companies there. That's been reasonably healthy. You've clearly seen some softness in the U.K. because of the weather. I don't know who watched the British Open, but you could see how wet it was there. And then as you go into the East, it varies so much. You have some strength in certain areas and some weaknesses in other areas. So I don't think there's big, big deviations between regions in what I just said, however.

Albert T. Kabili - Crédit Suisse AG, Research Division

That's helpful. On the aerospace side, you had a great second quarter there. And I was wondering if that's a sustainable EBIT that you see, or if there was any kind of benefit from onetime project closeout benefits, or how we should be thinking about the run rate for aerospace with the backlog you've got?

John A. Hayes

Yes, the short answer, there was no big material onetime items that impacted the second quarter. Our guys are performing very well. As we've talked about this in the past, we have a bit more -- a fixed cost business as a percent of the total business, which usually is helpful from a margin perspective. And that, combined with our strong execution, we feel pretty good about that business.

Albert T. Kabili - Crédit Suisse AG, Research Division

Okay, great. And along those lines, you've indicated some potential new business that you're looking at or bidding on there if I caught other earlier comments right. And I was just wondering if you could just help us with potential size of that as relative to backlog. What's in the pipeline there, or what are you seeing for potential new business?

John A. Hayes

Well, I think maybe you hopped on late. We did talk about that we've won some new business. It hasn't been booked, but we expect in third quarter for it to book, and we expect it to be material. Remember, it wasn't, what, 18 months ago that we're close to $1 billion of backlog. We weren't quite there. We can see a line of sight if certain things happen that within the next short period of time, probably not in the third quarter but certainly over the next few quarters, that we could be at or even above that level where we were just 18 months ago.

Raymond J. Seabrook

Was that aerospace or packaging, that question?

Albert T. Kabili - Crédit Suisse AG, Research Division

It was aerospace. Okay, great, that's helpful. And then the last question is just housekeeping on the corporate line. It was lower than at least I expected this quarter. And I was wondering what we should be thinking about for corporate expense?

Scott C. Morrison

This should be similar to what it was last year for full year. There were just some things that occurred in the quarter that were a little bit favorable, but we don't expect those to continue. So full year numbers should be very comparable to last year.

Operator

And our next question comes from the line of Alex Ovshey with Goldman Sachs.

Alex Ovshey Ovshey - Goldman Sachs Group Inc., Research Division

If we go around the world and just focus on your beverage can business in the key regions, can you provide a guesstimate or maybe you actually have the data of what the market was up in the second quarter and the first half for beverage can demand?

Raymond J. Seabrook

Let me give you the U.S. So the -- let's start with the U.S. So the quarter was down a little bit. You got soft drinks down, and you had beer up. But net-net, the quarter was down about 2%, a little bit less. And then year-to-date, it's kind of flat. And in Europe, you've got the quarter down about 1%, or flattish or down to 1%. And you've got year-to-date of 3%.

John A. Hayes

Up 3%.

Raymond J. Seabrook

The numbers -- yes, up 3%. In Brazil, you've got about 8% market growth in the quarter year-to-date. And I think that was about the same for the second quarter. And in China, it's somewhere between 9% and 12% year-to-date.

Alex Ovshey Ovshey - Goldman Sachs Group Inc., Research Division

Okay, that's very helpful. Right. And then Scott, did you guys buy back any stock in July thus far?

Scott C. Morrison

Yes, the comments I made in the prepared comments is through year-to-date, through right now, we've repurchased about 275 million net of shares.

Alex Ovshey Ovshey - Goldman Sachs Group Inc., Research Division

Okay, that's year-to-date. I thought that was for this second half. Okay, and then it's been really impressive to see how much stocks you bought back over the last couple of years, evident in the share price performance. Looking forward, can you just remind us how you think about buying back stock versus potentially a special dividend versus potentially a more incremental sustainable dividend?

Scott C. Morrison

Yes, we look at the dividend level all the time. We've raised that quite a bit in the last couple of years. But we continue to orient most of our returning value to shareholders through share buyback. And we'll continue to do that. But we do always evaluate what level of dividends we're paying, and where we want to be so.

John A. Hayes

And one of the positives, at least as we sit here today, is tell us what the government's policy is going to be 6 or 9 months from now and we can probably have a firmer answer. But with the elections coming up, I think there's lot of things on the table our government needs to deal with.

Operator

And our next question comes from the line of Chris Manuel with Wells Fargo Securities.

Christopher D. Manuel - Wells Fargo Securities, LLC, Research Division

Just a couple of -- kind of help me clarify a few items. When I look at -- Scott, you said that the total impact was about 10 million of currency translation in the Euro bev piece, I believe. If I look at the 19 million differential, at least there's 9 other that part price, but volume were up as well. So can you maybe help me, if you don't mind, parse what the differential is? How that -- the price cut, how that continues through the rest of the year? And then really what I'm trying to drive at, and I think this goes along with another question is, do you feel that in 2013 you can recover a chunk of that?

Scott C. Morrison

Well, I'll give you -- I'll talk a little bit about the quarter though, and maybe let Ray chime in. In the quarter, that [ph] was currency. Remember, we said Aerocan was a little bit softer, so that was a couple. And the rest was on the beverage side price cost mix with volume obviously offsetting some of the price cost, but not all of it. So going forward, as John mentioned in his comments, one of the things we need to do is improve the price cost situation in Europe. And I think we're going to be real focused on that as we move into '13.

Christopher D. Manuel - Wells Fargo Securities, LLC, Research Division

And is that event you can do in '13, you believe, carve back even half of that?

John A. Hayes

Well, it's...

Scott C. Morrison

The short answer is, it's too early to tell, but that's what's going to be our objective.

Christopher D. Manuel - Wells Fargo Securities, LLC, Research Division

Okay. And then if you can help me clarify earlier comments where you talked about -- you tried to provide us some color around -- or at least some thoughts around preliminary -- what the contract movements and then what your own actions on the specialty cans and then realignment -- things could do for '13 versus changes. I think you said it would not be material to the enterprise. So -- I mean, should I basically interpret that as 2013 EBIT out of your metal beverage, Americas, Asia could be at worst case flat?

Raymond J. Seabrook

Yes, I -- obviously, it will be lower than otherwise it would have been without the loss of business. No question about that. With the growth in China and Brazil, I would say that that's a reasonable assumption. I think we -- it's too early to predict '13, but based on things that we know, we would tell you that '13 will be flatter than it otherwise would be. And we don't think that -- we think it will be flattish.

John A. Hayes

Yes. Our guys -- having said that, our guys in North America have done a very good job of planning. And while we haven't announced anything, they're well on their way to recouping most, if not all, of the impact there. And so work continues on that. As Ray said -- Ray articulately outlined some of the things we're thinking of, and so stay tuned.

Raymond J. Seabrook

Yes, and the thing is, I would have stressed this, we do have some several near-term opportunities in specialty cans and even in some other things we're working on. So that's one of the reasons we haven't finalized our plans yet. We need to see how these things turn out. So -- and they're not 12-ounce opportunities. They're specialty cans and end situations. So stay tuned.

Christopher D. Manuel - Wells Fargo Securities, LLC, Research Division

Fair enough. I guess this is a -- probably a question we'll follow-up with again, after your next quarters, you get a better sense of what you're doing or where things are moving around and what you might win. But that's very helpful. Last question I had was with regards to change of can size and some of the things going on in China. That's a new line that you just put in. I think there had been some conversions from T [ph] that were taking place from 3 to 2. Can you talk a little bit more about what you are seeing in China? What -- why a new line you're putting in place, you're already making conversion to, what you're seeing?

Raymond J. Seabrook

Yes, we're seeing sort of the same phenomenon. We didn't talk about Europe at even our specialty, what we call non-12-ounce business in Europe, it's up 8% year-to-date. So we're seeing generally a trend from our customers. As they look at their markets, and business is tough out there, they look at new products and new opportunities to expand their markets. And they wanted different sizes, different shapes, different types of things. And even in China where the can is in its infancy, they're still looking at different types of situations for cans. And we want to -- we make sure we give our customers what they need. So you, yes, we -- in China, we've already got our brand new Qingdao line, we're converting to a different size for while. We're going to be on that size for a while, and then we'll convert back to 12 ounce. We put enough flexibility when we built that plant that we have the ability to convert it.

Operator

And our next question comes from the line of Todd Wenning from Morningstar.

Todd Wenning - Morningstar Inc., Research Division

With the recent fire at your plant in North Wales, do you know yet how that might affect your U.K. supply going into the back of the year?

John A. Hayes

Yes, it's -- this is John. It's -- the short answer is, it's not material. We had a small fire on July 22. There was no injuries. It was just contained in a portion of the facilities. The warehouses wasn't impacted. We expect -- and this happened, I guess, it was on Sunday, I guess, it was. We expect 2 of the 4 lines to be up and running by the end of this week. And then a third line running in the very near future, and then the fourth line, it's too early to tell, but probably a couple of weeks out beyond that. So, not a material impact.

Todd Wenning - Morningstar Inc., Research Division

Okay, well, that's good news. Could you give us an update on your volume expectations for the punch top cans going into the back half?

John A. Hayes

Yes. For those who don't know, the punch top cans, I think, you're referring to is in one of our beer customers. And they've had a lot of good success with that. It's always tough to tell the incremental growth because you don't know what it would have been and without it. But what we've been hearing from our customers is that that's been actually helping the overall brand for them. And they have seen a lift in cans with that package relative to their glass containers. So that's probably all I should say right now. But it's a good example of how innovation can add growth into a category that historically has not been as strong.

Todd Wenning - Morningstar Inc., Research Division

Okay. And then finally, how much of the North America specialty can volume gains came from craft beer versus other beverage types?

John A. Hayes

Difficult to tell. I don't have it in front of me but from a product...

Raymond J. Seabrook

With several energy drinks, we're growing quite strong. We got 16-ounce energy drinks, 24-ounce energy drinks. But I don't have that number either. But it's - - all those specialty can segments are -- continued to show a lot of promise.

John A. Hayes

Yes, and it's not isolated into the one size either. We had good growth in the smaller sizes, good growth into the larger sizes, good growth in Alumi-Tek. So it really is spread across the board.

Operator

And our next question comes from the line of Chip Dillon with Vertical Research Partners.

Chip A. Dillon - Vertical Research Partners Inc.

John, you mentioned that one of your key near-term priorities in the beverage can market is to get pricing a little bit stronger relative to costs and can you just give us a little more color on the geographies where that needs to be done sort of more than others where it doesn't need to be as much of a focus?

John A. Hayes

Well, I think my comments were related more to Europe than anywhere else. And we've been talking about a little bit of price cost compression. It isn't wholesale, but it's not where we want to be. And so what we're focused on is we can add capacity. Typically, when we do that, it's on the tail-end of a customer contract. You all know how we do that. But we're more focused on a relative sense of getting pricing to where we think it ought to be and getting back to where it was as opposed to adding capacity into a market that has been over-served and has been a bit soft. So that's particularly to Europe. I think generally speaking, the overall economy is putting pricing pressure on many, many different industries, and our industries are not any different. We've been able to weather much of that because we focus on what we do best, which is getting more for less and being very efficient with not only our capital, but our labor and things like that. We continue to have a lot of initiatives over in Asia, here in North America, down in South America and over in Europe to make sure we're focused on that. And we're seeing a lot of good opportunities that our folks in the plants do a great job at making sure that we're doing that day in and day out. And so we're going to continue to focus on that but with particular emphasis on the European side.

Chip A. Dillon - Vertical Research Partners Inc.

Got you. And then I know Ray was talking about the -- using some of the equipment that you might not -- no longer needed in North America, overseas, and just sort of 2 tangents to that. One, I would assume that you cannot effectively use some of the older standard can equipment in making specialty, and that's why you would do that. And secondly, can you give us an idea of the timing? It would seem like this could be stretched out really more into, say, '14 or '15 as opposed to '13 when we could actually see equipment moving. Is that a fair assumption?

Raymond J. Seabrook

As I said, in the next probably 60 days, we'll finalize these plans once we see all these other near-term opportunities sort out. So we will sort that out. We will -- obviously, not all of the equipment is usable, as you just mentioned, but a lot of it is. And we've got a pretty good idea where it goes now, but we will fine-tune that. And by the end of the year, we'll know where it's going. Now it may not be all bolted down and installed right away, but we know basically what -- probably what markets and what we're going to be doing with it.

John A. Hayes

And as Ray -- to follow-up on that as well, there's 2 binary things here. It's one, about the capacity curtailment, permanent curtailment, but then the other thing is about where to put that. And that's dependent upon market growth. And so we're not just going to automatically put it in somewhere just to say we have it in there. I think Ray's point is from a capital avoidance, as we go forward, as new projects come onstream, we have that used equipment at our disposal, which should help drive down some of our CapEx as we go forward.

Chip A. Dillon - Vertical Research Partners Inc.

Got you. And you might have answered this, but just to be clear, you gave us the breakdown between the U.S. volume changes, specialty versus standards, and I'm guessing that standard was down around 5%. So you might clarify that? What was the breakdown in Europe? Overall, you said it was up mid-single digits. How would you break that down between specialty and the standard cans?

John A. Hayes

Well, Ray, I think, mentioned that specialty was up 8%, and we were up just low-single digits. So that would imply that standard was down just a little bit.

Operator

[Operator Instructions] We now have a follow-up question from the line of George Staphos with Bank of America Merrill Lynch.

George L. Staphos - BofA Merrill Lynch, Research Division

I just want to come back first to a comment that was made on the outlook. Now from your press release, I think you said that the second half you hope to be able to do as well as in the first half, if I remember correctly and --

Raymond J. Seabrook

That was for food can? What segment?

George L. Staphos - BofA Merrill Lynch, Research Division

No, I think that was in total in earnings per share. So I was just trying to basically take the conclusion one would draw from that, Ray, with your comment that you would hope to be at both, maybe at the low end of your earnings growth target that you have annually, which is 10% to 15%. Because taking a second half that's a little bit better than your first half, if I'm not mistaken, would get you into your range?

Raymond J. Seabrook

Yes, the 10% comment I made is, I think, I was just talking about the Asia and North America segment. Someone had asked me -- I think earlier, we said we still think we could potentially grow that 10% to 15%. I think that's going to be difficult. I think we've got a shot at the bottom into that range, but we're going to get close to it, close to the bottom end of that range.

John A. Hayes

Yes. And I think, George, what's implied there, we expect, as we sit here today, to do a little bit better in the second half than we did in the first half.

George L. Staphos - BofA Merrill Lynch, Research Division

Okay, we'll keep that in mind as well. Secondly, same vein of question, when you were talking about the business shifting within the Americas beverage can business, you ultimately mentioned that you didn't think it was significant, and that it would ultimately not be -- I forgot what your phrasing was, but I'll say significant again -- wouldn't be significant relative to your overall Drive for 10 goals, which again includes a 10% to 15% EPS growth. At this juncture, given what -- and I realize some things can change and obviously, you don't control the economy or the weather. Is it your view that next year, you would not be able to hit your 10% to 15% range, or you think you shall be able to do that even with this dent on the volume front?

John A. Hayes

Well, it's -- how I'd describe it is, number one, we haven't changed our view short-term or long-term, point one. Point two, it is too early to tell because there's many things outside of our control. But we have good plans in place, not only in our North American metal beverage business, but in all of our businesses over the next 18 months and beyond. And number three, based upon all of that, as we get into 2013, we expect to do as well as we possibly can, and we're not changing what our long-term goals are.

Operator

There are no further questions on the phone lines at this time.

John A. Hayes

Okay, terrific. Well, thanks, everyone, for participating. As a heads up, our third quarter earnings conference call will be held on October 25, and it's going to be a little bit earlier. It's going to be at 9:30 a.m. Eastern Time. And so everyone, have a good rest this summer. Have a good third quarter, and we will look forward to talking to you then. Thank you.

Operator

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

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