Government Focus Bounces Ball Aerospace Higher

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While being overshadowed by its parent company’s much larger metal and plastic packaging business, Ball Aerospace & Technologies Corp. has quietly improved its performance across the board over the last four years.

The company has nearly doubled its sales and earnings before interest and taxes since 2000 by focusing its satellite and component manufacturing expertise on U.S. government business, said Dave Taylor, president and chief executive officer of Ball Aerospace.

PRIVATE tabstops:<*t(0.0000,0," ",459.0000,0," ")> Ball Aerospace, based in Boulder, Colo., reported revenue of $653 million in 2004, up more than 80 percent over revenue of $363 million in 2000. Over the same period, earnings before interest and taxes improved 79 percent from $27 million in 2000 to $48.3 million in 2004.

“Our core capabilities are what’s generating this growth,” Taylor said. “First and foremost, we are a government contractor, and we feel there is enough of an addressable market that we can grow organically and continue to prosper.”

Ball Aerospace represents about 12 percent of the revenue for parent company Ball Corp., which reported revenue of $5.4 billion in 2004, mainly on the strength of its packing segments. But investors have been pleased by the performance of the aerospace segment, said Ghansham Panjabi, an analyst with Lehman Brothers of New York.

“Clearly the packing side commands the bulk of the attention, but the aerospace segment will be a source of profitability going forward,” Panjabi said. “It puts out a fair amount of free cash and has been a great business for” Ball Corp., he said.

Lehman Brothers has received compensation for investment banking services from Ball Corp. within the past 12 months.

The revenue mix for Ball Aerospace, about 50 percent from defense work and 50 percent from civil government “is right where we want to be right now,” Taylor said. “We’re not looking at true commercial business. We did that for a while in the late 1990s, but right now we’re opportunity rich in terms of market opportunities and we’re growing at a fairly good clip.”

Ball Aerospace’s backlog has grown from $351 million at the end of 2000 to $694 million at the end of 2004, and the company is in the midst of a facility expansion and sitting at record employment with more than 3,100 workers.

“One of our issues is not only program execution but managing our growth,” Taylor said. “Our head count is up 45 percent since 2000, and we are doing a major capital expansion as a function of the growth.”

Among the wins for Ball Aerospace in the past year is a contract that could be worth up to $100 million to build the conical-scan microwave radiometer instrument for the Global Precipitation Measurement Mission, and the unit also remains in contention to build the mission spacecraft.

Ball also received in February a contract from NASA Ames Research Center to design, build and test a scientific instrument for the Kepler planet-finding mission, and in October, NASA awarded a contract to build the Wide-field Infrared Survey Explorer.

NASA’s science budget, which funds many of the programs Ball Aerospace is either working on or pursuing, is slated to grow at a very small rate over the next five years – from $5.5 billion in 2006 to $6.8 billion in 2010, as the agency turns its attention to the vision for space exploration. But Taylor thinks his organization can capture business related to the new vision.

“I think that the science side will hold in terms of the budget, and we foresee a solid future at NASA,” Taylor said. “On the exploration side, we’ve always done components for robotic missions, such as imagers and cameras. We do robotics and subsystems and cryogenics. I’m pleased with our positioning.”

On the defense side, Ball Aerospace is producing the tracking, telemetry and control C-band antenna for the Kinetic Energy Interceptor program under a subcontract from prime contractor Northrop Grumman Corp. Ball Aerospace may be impacted by a sharp cut in the program’s budget in 2006, but other defense-related work should be able to offset any potential losses with the Kinetic Energy Interceptor, Taylor said.

“Missile defense is one of the mission areas in defense, but we are also focusing in the classic areas of spacecraft and imagery and making pretty good progress there,” Taylor said.

The one disappointment for Ball Aerospace and its corporate parent during this growth period is that operating earnings dipped from $49.5 million in 2003 to $48.7 million in 2004, as operating margins have fallen short of expectations.

David Hoover, chairman, president and chief executive officer of Ball Corp., has said Ball Aerospace needs to improve its operating margins, which reached their expected 8 percent in the 2004 fourth quarter after three consecutive quarters at 7 percent.

Taylor blamed the shortfall on business in new government markets — classified and deep space exploration. “We had large programs in both of those areas and to be honest, margins are not where we want them to be,” he said. “We are fixing that as we work on those programs.”

Even though Ball Aerospace posted a strong 2004, expectations are that 2005 should be even stronger, and the aerospace segment could become an even larger contributor to Ball Corp.’s overall numbers, Panjabi said.

Ball Corp. is “focusing on the growth aspects of the business, and if you look at rest of their business, there’s not that much growth in there,” Panjabi said. “Ball Aerospace is growing at an outstanding rate, and part of that is due to defense budgets being high and they just have great technology.”