Bev Can Americas/Asia Segment Breakdown for 2008 (this is not explicitly provided by the company):

• Asia revenues of $270mn. We know that Asia had $250mn worth of sales in 2007. Applying a conservative 8% annual growth rate yields $270mn in 2008 revenues. EBIT margins in Asia are assumed to be the same as in 2007 at 10.9%.
• North America breaks down into beer, specialty* beer, specialty non-alcoholic and soda cans
• Beer 37% of sales, 10% EBIT
• Specialty beer 8% of sales, 13% EBIT
• Specialty non-alcoholic 8%, 17.5% EBIT
• Coke 11% of sales, 5% EBIT
• Pepsi 23% of sales, 4.5% EBIT
• *Specialty are cans that aren’t 12oz

2. Restructuring benefit in the Food & Household business to bear fruit in 2009.

In 2007 BLL announced that they are closing 10 manufacturing lines and shedding non-profitable customers. The changes have already been implemented result in a $15mn in cost savings in 2009. This is a straight forward addition to 2009 EBIT, which translates to about $0.10 of EPS in 2009.

3. Margins doubling in the Plastics Packaging business.

This is a similar situation to Coke and Pepsi contract repricing described above. BLL is locked into a 5 year contract with a large customer in the Plastics segment. Because there was no raw material inflation when the contract was signed raw material cost adjustments were not included. As raw material costs increased BLL was unable to pass the cost on to this large customer. This put significant pressure on margins. Repricing of this contract will substantially increase prices to account for the recent increases in raw material costs. The repricing of this large contract, repricing of other contracts and capacity reductions should dramatically improve margins. The Plastics segment margins are expected to double in 2009. The change in the margin will add $0.19 to EPS in 2009.

4. Share buyback

BLL has consistently bought back stock.

In the second half of 2008 the company plans to spend $119mn to buy back stock. Assuming BLL spent $59.5mn in 3Q08 and buys stock at $42 and spends $59.5mn in 4Q08 and buys at $36 the company will end the year with 95.4mn shares. The 2008 benefit is small, around $0.02 per share. Looking further out into 2009, BLL has a stock buyback cap of $175mn. Considering that the company wanted to change its debt covenants to increase the size of the stock buyback it’s safe to assume that the company will buy back the stock that it can in 2009. Assuming the company buys back their stock at $40 (23% above current price) results in 93.2mn diluted shares outstanding in 2009. The buyback will add approximately $0.10 to EPS in 2009. I am not assuming a stock buyback in 2010 though it’s likely that the company will continue to buy back stock.

5. BLL is likely to call some of its debt resulting in a lower interest payment.

Management expects the company to generate $400mn of cash in 2009. Assuming that $37.3mn is used for the dividend and $175mn is used for a stock buyback leaves $187.7mn to pay down debt. BLL will likely recall the 2012 Senior Notes, which carry a 6.875% interest. If $187.7mn of the debt is called in interest savings result in approximately $0.10 of additional EPS.

To summarize, assuming no revenue growth in any segment except for China the above five developments suggest an EPS figure of $4.57 in 2010.

Valuation:

Reviewing the last 10 years, on a 2 year forward basis BLL is trading at a significantly depressed level. The average 2 year forward P/E over the last 10 years is 12.4x. The stock is currently trading at 7.8x. Considering that the beverage and food packaging business is typically viewed as defensive, the positive fundamental developments described above and the current valuation the stock is very cheap.