Owens-Illinois, Inc. ( OI ) reported third-quarter 2014 adjusted earnings of 75 cents per share, down 5% year over year. Improved performance in South America and Europe were offset by headwinds in North America and Asia Pacific. Results matched management's forecast of at least 5% lower earnings than the year-ago comparable quarter due to lower sales, announced last month. Results, however, beat the Zacks Consensus Estimate of 73 cents.
Including one-time items, earnings declined to 37 cents per share from 79 cents earned in the year-ago quarter.
Net sales declined 2% year over year to $1.75 billion and missed the Zacks Consensus Estimate of $1.78 billion. The price was up a modest 1% on a global basis. Owens-Illinois realized price gains in all regions except Europe. However, unfavorable foreign exchange rates weighed on reported sales, especially in South America and Europe.
Volume, in terms of tons shipped, was down 3% year over year as double-digit volume growth in South America was more than offset by declines in Europe, North America and Asia Pacific, mainly due to Owens-Illinois' reduced presence in China and weak demand in Australia.
Cost of sales declined 1.7% to $1.4 billion in the quarter. Gross profit declined 4.3% to $337 million from $352 million in the prior-year quarter. Selling and administrative expenses inched down 0.8% to $118 million.
Segment operating profit decreased 4.4% year over year to $248 million. South America delivered an increase of 45% in operating income due to volume gains. Europe also recorded 7% year-over-year growth in operating income, in line with guidance, driven by savings from asset optimization. Operating profit in the Asia Pacific declined 48.5%. Operating profit in North America went down 24% impacted by lower sales and production volumes as well as lower productivity.
Cash and cash equivalents were $264 million as of Sep 30, 2014, compared with $383 million as of Dec 31, 2013. Long-term debt was $2.4 billion as of Sep 30, 2014, down from $3.2 billion as of Dec 31, 2013. Cash flow from operations was $209 million in the first nine months of fiscal 2014 compared with $249 million in the prior-year period.
Owens-Illinois increased its share repurchase authorization to $500 million. The authorization expires on Dec 31, 2017 and has approximately $85 million remaining under the current program. The company intends to repurchase at least $100 million shares in 2015.
Owens-Illinois lowered its earnings per share guidance for 2014 to a range of $2.62 to $2.72 from its prior range of $2.85 to $3.05. The company also trimmed free cash flow guidance to around $320 million from approximately $350 million for the full year. The company guided free cash flow generation to be approximately $400 million in 2015
Owens-Illinois expects higher operating profit in Europe and South America supported by increased productivity and cost savings in the quarter. Profitability in Asia Pacific and North America, however, will remain muted in the face of lower sales and production volume.
On Oct 2, the company agreed to enter into a joint venture and long-term supply agreement with Constellation Brands Inc. ( STZ ) to supply glass for their growing beer business. The transaction is expected to contribute 5 cents per share to Owens-Illinois' 2016 earnings, increasing to $15 per share once the agreements are fully implemented.
This manufacturer of glass containers is optimistic of a strong balance sheet and generation of positive cash flow. However, foreign exchange volatility as well as political, social and economic instability remain headwinds.
Owens-Illinois currently holds a Zacks Rank #4 (Sell). Some other stocks worth considering in the packaging sector include Adept Technology Inc. ( ADEP ) and Advanced Emissions Solutions, Inc. ( ADES ). All of these stocks carry a Zacks Rank #2 (Buy).
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