Owens-Illinois Downgraded to Strong Sell on Weak Outlook - Analyst Blog

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On Dec 10, Zacks Investment Research downgraded Owens-Illinois, Inc. ( OI ), the manufacturer of glass containers, to a Zacks Rank #5 (Strong Sell).

Why the Downgrade?

Owens-Illinois' share price fell 9% in a day on the announcement of weak third-quarter fiscal 2014 results on Oct 29 and a trimmed fiscal 2014 guidance. Earnings per share in the quarter declined 5% year over year to 75 cents per share as improved performance in South America and Europe were offset by headwinds in North America and Asia Pacific.

Net sales declined 2% year over year to $1.75 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.

Owens-Illinois lowered its earnings per share guidance for 2014 to a range of $2.62 to $2.72 from $2.85 to $3.05. The company also trimmed free cash flow guidance for the full year to around $320 million from approximately $350 million. The company expects 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. Foreign exchange volatility as well as political, social and economic instability remain headwinds.

Share price and estimates for Owens-Illinois have gone downward since the earnings release. Over the past 60 days, the Zacks Consensus Estimate for Owens-Illinois dropped 6% to $2.63 per share for fiscal 2014 and 14% to $2.69 a share for fiscal 2015.

Other Stocks to Consider

Some better-ranked stocks worth considering at the moment include MeadWestvaco Corporation ( MWV ), Sealed Air Corporation ( SEE ) and Crown Holdings Inc. ( CCK ). All of these have a Zacks Rank #2 (Buy).

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OWENS-ILLINOIS (OI): Free Stock Analysis Report

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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