On May 24, we maintained our Neutral recommendation on
), based on expected benefits from its restructuring actions in
the North American and Asia-Pacific regions, the multi-year asset
optimization program in Europe, lower interest costs and a new
furnace in Brazil which will lead to volume growth and logistics
savings in the region. However, soft European economy, stiff
competition from alternate packaging and high debt remain
concerns for this manufacturer of glass containers.
Owens-Illinois' first-quarter 2012 adjusted earnings per share
declined 18% to 60 cents due to weak economic conditions in
Europe, which offset improved operating profits in South America
Owens-Illinois will continue to benefit from the restructuring
actions undertaken in North American and Asia-Pacific regions in
2012. Owens-Illinois has embarked on a multi-year asset
optimization program in Europe, which includes elimination of
underperforming assets, reduction of idle capacity and outlines
investments in low cost additional capacity and enhancements in
quality, speed and flexibility. The company expects to improve
the long-term profitability of this region through this program
over the next several years.
To partially lessen the capacity constraints in Brazil,
Owens-Illinois completed the construction of a new furnace late
in 2012. This has improved the company's profitability in the
region by lowering logistics costs and reduction in imports from
other regions and will also contribute to volume growth in the
In the first quarter, Owens-Illinois retired EUR 300 million 2017
notes and issued EUR 330 million notes due in 2021. The company
significantly extended its debt maturity schedule and lowered its
interest rate for the next 8 years, which will aid margins.
On the flipside, given that 40% of Owens-Illinois' business is in
Europe, its results will continue to be impacted by the soft
European economy till conditions improve. Owens-Illinois faces
intense competition, not only from other well-established glass
container manufacturers but also from manufacturers of
alternative forms of packaging, such as aluminum cans and plastic
containers. Furthermore, the company has a significant amount of
debt, with a debt to capitalization ratio of 77% as of Mar 31,
Other Stocks to Consider
Other stocks in the containers industry that are currently
performing well and have a good visibility include
Berry Plastics Group, Inc.
Bemis Company, Inc.
UFP Technologies, Inc.
) with a Zacks Rank #2 (Buy).
BERRY PLASTICS (BERY): Free Stock Analysis
BEMIS (BMS): Free Stock Analysis Report
OWENS-ILLINOIS (OI): Free Stock Analysis
UFP TECH INC (UFPT): Free Stock Analysis
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