Glass Packaging Demand to Aid O-I Glass Amid Coronavirus Woes

On Sep 16, we issued an updated research report on O-I Glass, Inc. OI. The company continues to benefit from the growing preference for glass packaging, focus on innovation, capacity expansions, joint-venture deals and acquisitions. Further, turnaround initiatives and cost-control measures will aid the company.

Some of the prominent customers of O-I Glass include Carlsberg A/S CABGY, Nestlé S.A. NSRGY, Coca-Cola and Heineken among others. These customers account for 10% of O-I Glass’s consolidated net sales.

The company has provided an update on the current-quarter sales volume. It expects sales volume for the current quarter to be flat to slightly up compared with the prior-year quarter. O-I Glass expects a slight improvement in third-quarter results compared with the prior projection of flat to modestly down. However, production is likely to be down 7-10% in the ongoing quarter due to capacity management earlier in the quarter.

Improved Glass Demand to Aid Growth

O-I Glass projects current year sales volumes to be down 4-7%, year on year. This reflects a more favorable outlook compared with the previous guidance of a 5-10% decline. Further, the company is gaining from the elevated off-premise sales owing to a sharp drop in demand at bars and restaurants. The company expects to benefit from glass demand and improved consumption trends as well. O-I Glass focuses on improving its operating performance through several turnaround initiatives, enhanced factory performance and cost reduction. These factors will boost its current-year performance.

Investments & Acquisitions to Aid Company

O-I Glass is driving innovation in the glass segment, evident from the development of MAGMA, a revolutionary breakthrough initiative to reimagine glassmaking with transformational technology and new processes. Additionally, it launched O-I: Expressions, a direct-to-glass digital printing technology that will enable brands to create highly-personalized and customized glass packaging at an affordable value. These innovations will open up opportunities in the near term.

The company’s top priority remains investments in the business. It intends to achieve this by investing in joint ventures (JVs) and incremental capacity, and through bolt-on acquisitions in emerging geographies, while delivering a favorable return on invested capital.

The company acquired a 49.7% interest in EmpresasComegua S.A with two glass manufacturing facilities in Costa Rica and Guatemala. The buyout has aided the company to expand its presence into newer and growing glass markets in Central America and the Caribbean. The company’s Nueva Fanal acquisition supports its growing premium beer category in Mexico. The buyout, along with the previous acquisition of Vitro's food and beverage business, solidifies O-I Glass’ position in the attractive and growing glass segment of the packaging market in Mexico and Central America.

Apart from this, the company has been mitigating the impact of the persistent decline in mega beer in North America by positioning itself to benefit from the rapidly-growing U.S. beer import market. It intends to achieve this through its JV with Constellation Brands, Inc. STZ and long-term sales contracts in Mexico.

Few Headwinds to Counter

The resurgence of coronavirus cases might impact the economic recovery unfavorably. Hence, uncertainty related to the severity of the pandemic and governmental authorities’ actions to contain the virus might affect O-I Glass’ current-year performance.

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