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Owens-Illinois (OI) Down 7.2% Since Earnings Report: Can It Rebound?

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It has been about a month since the last earnings report for Owens-Illinois, Inc.OI . Shares have lost about 7.2% in that time frame, underperforming the market.

Will the recent negative trend continue leading up to the stock's next earnings release, or is it due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important catalysts.

Owens-Illinois Beats on Q3 Earnings, Trims Guidance

Owens-Illinois reported third-quarter 2017 adjusted earnings, up 13% year over year to 77 cents per share. The uptick primarily stemmed from improved segment operating profit in Europe and Latin America, and lower interest and tax expense. In addition, earnings surpassed the Zacks Consensus Estimate of 73 cents and exceeded the management's guidance range of 70-75 cents per share.

Operational Update

Owens-Illinois' net sales were up around 5% year over year to $1.79 billion. The improvement in net sales was due to a 1-percent increase in price on a global basis and favorable currency translation. Also, revenues beat the Zacks Consensus Estimate of $1.76 billion.

In Latin America, volumes climbed 5% year over year in the third quarter mainly due to higher beer and spirits shipments. Shipments in Mexico increased in mid-single digit, while shipments in Brazil are up significantly. Sales volume in the Asia-Pacific region rose 5% primarily due to elevated beer shipments in Australia. In Europe, sales volumes inched up 1% chiefly due to favorable product mix as shipments were flat. Meanwhile, in North America sales volume declined due to lower shipments, primarily in beer.

Cost of sales flared up 4.5% year over year to $1.4 billion. Gross profit ascended 5.1% to $353 million from $336 million recorded in the year-earlier quarter. Selling and administrative expenses edged down 0.8% to $120 million. Segment operating profit improved 10% year over year to $260 million. Segment operating profit margin expanded 70 basis points to 14.5% in the quarter.

Financial Update

Owens-Illinois had cash and cash equivalents of $339 million at the end of third-quarter 2017 compared with $492 million at the end of 2016. The company's cash from operations decreased significantly to $39 million during the nine-month period ended Sep 30, 2017, compared with $226 million recorded in the comparable period last year.

Owens-Illinois' long-term debt increased to $5,378 million at the end of third-quarter 2017 compared with $5,133 million reported at the end of 2016.

The company continues to make solid progress on executing its strategic initiatives. Its focus on total systems cost contributed approximately $8 million in cost savings in the third quarter, leading to a year-to-date total of $26 million.

Expansion of Strategic Joint Venture

Owens-Illinois has agreed to expand its 50-50 joint venture (JV) with Constellation Brands, Inc. The JV operates a glass container production plant in Nava, Mexico. The plant, established in 2014, provides bottles exclusively for Constellation Brands' adjacent brewery.

The original JV agreement included the expansion of the glass production plant from one furnace to four furnaces by 2018. The initial expansion plans have been progressing as scheduled, with three furnaces currently in operation. The fourth furnace is expected to be operational in the first half of 2018.

To meet the rising demand from Constellation Brands' adjacent brewery, the newly-expanded relationship provides for the addition of a fifth furnace, which is expected to be operational by the end of 2019. This capacity expansion, which is estimated to cost approximately $140 million, will be financed by equal contributions from both partners. Furthermore, the term of the JV agreement was extended for 10 additional years to 2034.

Guidance

The company trimmed its earnings per share guidance for 2017 to the range of $2.60-$2.65, from the prior band of $2.55-$2.65. The slashed outlook mainly reflects uncertainty in macroeconomic conditions and currency rates.

How Have Estimates Been Moving Since Then?

Following the release, investors have witnessed a downward trend in fresh estimatse. There has been one revision higher for the current quarter compared to four lower.

VGM Scores

At this time, the stock has a subpar Growth Score of D, a grade with the same score on the momentum front. However, the stock was allocated a grade of A on the value side, putting it in the top 20% for this investment strategy.

Overall, the stock has an aggregate VGM Score of B. If you aren't focused on one strategy, this score is the one you should be interested in.

The company's stock is suitable solely for value based on our styles scores.

Outlook

Estimates have been broadly trending downward for the stock and the magnitude of this revision also indicates a downward shift. Notably, the stock has a Zacks Rank #3 (Hold). We are looking for an inline return from the stock in the next few months.

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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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