Why the Downgrade?
On Feb 2, Owens-Illinois reported its fourth-quarter results, wherein adjusted earnings declined 9.8% year over year to 46 cents per share. Net sales also declined 9% year over year to $1.6 billion due to a stronger U.S. dollar that adversely impacted sales by 6%.
The company guided adjusted earnings per share for 2015 in the range of $2.20 to $2.60. On a constant currency basis, adjusted earnings are expected to be in the $2.60 to $3.00 range. In 2015, earnings will be negatively impacted by the strong U.S. dollar. Currency rates are expected to reduce translated sales by nearly 10%.
Owens-Illinois anticipates the gains from potentially higher discretionary income of North American consumers, emanating from lower gasoline and energy costs, to be offset by a slowdown in beer demand in the region. In South America, the company expects subdued growth in 2015 due to inflation as well as some major local issues such as rise in electricity costs in Brazil. Owens-Illinois will also face difficult comparisons in the first half of the year in Brazil due to the volume uptick related to the Soccer World Cup in 2014.
The impact from currency in the first quarter of 2015 is expected to be approximately 7 cents, mainly reflected in Europe and South America. In all, adjusted earnings will likely be in the range of 40 cents to 45 cents.
Additionally, Owens-Illinois faces intense competition from other well-established glass container manufacturers such as Compagnie de Saint-Gobain, Anchor Glass Container Corp. and Ardagh Plc. Competition from manufacturers of alternative forms of packaging, such as aluminum cans and plastic containers, could also affect the company's performance.
Moreover, the estimates for Owens-Illinois have moved downward in the past 60 days. The Zacks Consensus Estimate for 2015 decreased 9.4% to $2.40 per share and for 2016 the same went down 6.2% to $2.73 per share.
Stocks to Consider