Owens-Illinois (OI) Q3 Earnings: Disappointment in Store?

Owens-Illinois, Inc.OI is scheduled to report third-quarter 2017 results after the closing bell on Oct 24. In the last reported quarter, the company's adjusted earnings per share rose 15% year over year while revenues remained flat. Price inched up 1% on a global basis, which was offset by modestly lower sales volume and adverse currency translation.

Last quarter, the company's earnings beat the Zacks Consensus Estimate by 11.94%. Owens-Illinois surpassed the Zacks Consensus Estimate in the trailing four quarters, generating an average positive surprise of 7.70%.

Let's see how things are shaping up prior to this announcement.

Earnings Whispers

Our proven model does not conclusively show that Owens-Illinois is likely to beat estimates this quarter. This is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) for this to happen. This is not the case here, as you will see below:

Zacks ESP: The Earnings ESP for Owens-Illinois is -3.40%. This is because the Most Accurate estimate of 71 cents is pegged lower than the Zacks Consensus Estimate of 74 cents. You can uncover the best stocks to buy or sell before they're reported with our Earnings ESP Filter .

Zacks Rank: Owens-Illinois currently has a Zacks Rank #4 (Sell) which combined with a negative earnings ESP makes a beat unlikely this quarter. As it is, we caution against stocks with a Zacks Rank #4 or 5 (Strong Sell) going into the earnings announcement, especially when the company is seeing negative estimate revisions.

Owens-Illinois, Inc. Price and EPS Surprise

Owens-Illinois, Inc. Price and EPS Surprise | Owens-Illinois, Inc. Quote

Factors to Consider

The company projects adjusted earnings per share to lie between 70 cents and 75 cents in the quarter. The mid-point of the guidance range reflects a year-over-year growth of 6.6%. If delivered, this would mark the seventh consecutive quarter of year-on-year growth in earnings per share.

The Zacks Consensus Estimate for the third quarter is at 74 cents, near the upper end of management guidance, projecting year-over-year growth of 8.1%. The Zacks Consensus Estimate for revenues is at $1.77 billion, reflecting 3.15% growth.

The strength in the euro and Mexican peso during the quarter will contribute 1 cent to adjusted earnings per share. Enhanced volumes, improved price-cost spreads and ongoing benefits from total systems cost approach are likely to deliver margins of around 20% in Latin America. Combined with gains in North America and Asia Pacific, total segment operating profit is expected to increase double digits and margins are likely to expand by about 100 basis points year on year in the third quarter.

However, corporate costs are anticipated to be modestly higher sequentially in the to-be-reported quarter. Higher projected taxes of around 25% will also impact earnings. Further, Owens-Illinois's debt-to-capitalization ratio was a high 88% at the end of the second quarter. Increased interest expenses will continue to hurt margins.

The company has advanced cash restructuring of roughly $20 million to second-half 2017. The accelerated restructuring is primarily related to the closure of the company's Netherlands factory. It had previously planned for the closure near 2017 end, with a large share of the cash payment occurring in early 2018. This will impact margins in the third quarter.

Share Price Performance

The company's share price has underperformed its industry 's performance over a month. The industry gained 4.6%, while Owens-Illinois's share price rose 4.3%.

Stocks That Warrant a Look

Here are a few industrial products stocks worth considering as they have the right combination of elements to post an earnings beat this quarter.

Lakeland Industries, Inc. LAKE has an Earnings ESP of +13.5% and a Zacks Rank #1. You can see the complete list of today's Zacks #1 Rank stocks here .

The Earnings ESP for Altra Industrial Motion Corp. AIMC is +5.76%. It carries a Zacks Rank #2.

Terex Corporation's TEX Earnings ESP is +4.63% and it carries a Zacks Rank #2.

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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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