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Owens-Illinois' Q2 Earnings Beat Estimates but Lag Y/Y - Analyst Blog

Owens-Illinois, Inc. 's OI second-quarter 2015 adjusted earnings of 60 cents per share were down 25% year over year but beat the Zacks Consensus Estimate of 58 cents. Weakness in Brazil, lower profit in Europe due to asset optimization and furnace rebuilds along with ongoing competitive pressure offset solid results in North America and Asia Pacific. Earnings per share benefited from the refinancing of $300 million in high coupon bonds and the completion of a $100 million accelerated share buyback program.

Including one-time items, earnings in the quarter stood at 26 cents compared with 80 cents in the year-ago quarter.

Owens-Illinois Inc. - Earnings Surprise | FindTheBest

Operational Update

Owens-Illinois' net sales declined 14% year over year to $1.54 billion beating the Zacks Consensus Estimate of $1.53 billion. Currency headwinds had a negative impact of approximately $240 million on sales. On a constant currency basis, net sales declined 1%.

Price was flat on a global basis, as lower prices in Europe and North America were offset by higher prices in South America. The company reported a 1% decline in sales volume during the quarter mainly dragged down by lower beer shipments in Brazil. Shipments in Europe were flat year over year. Volume in North America increased nearly 2% as a modest decline in beer shipments was more than offset by higher shipments in all other categories. Volume in Asia Pacific dipped 3% due to the waning impact of plant shutdowns in China in 2014. In Australia, shipments were modestly lower than prior year. Sales volume in South America contracted 10%.

Cost of sales declined 12% to $1.27 billion in the quarter. Gross profit declined 23% to $274 million from $358 million in the prior-year quarter. Selling and administrative expenses decreased 10% to $118 million.

Segment operating profit decreased 29% year over year to $187 million. Segment profits in North America and Asia Pacific were flat year over year. Europe's operating profit declined due to the devaluation of Euro, lower selling prices because of competitive pressures and more production downtime owing to planned furnace rebuilds and engineering activities associated with the asset optimization program. Profit in South America declined 27% due to currency devaluation, primarily the Brazilian real and the Colombian peso.

Financial Update

Owens-Illinois had cash and cash equivalents of $378 million at the end of second-quarter 2015, down from $512 million at 2014-end. The company reported utilized cash flow from operations of $110 million in the first half of 2015 compared with $31 million in the prior-year quarter. The company's long-term debt increased to $3.2 billion as of Jun 30, 2015 from $2.97 billion as of Dec 31, 2014.

In May 2015, Owens-Illinois announced the proposed acquisition of Vitro, S.A.B. de C.V.'s food and beverage glass container business. The transaction will provide Owens-Illinois with a competitive position in the attractive and growing glass segment of the packaging market in Mexico. The deal, expected to close in the second half of 2015, will be accretive to cash flow and earnings per share in the first year after closing.

Guidance

Owens-Illinois reduced its adjusted earnings per share guidance for 2015 to the range of $2.00 to $2.20 from the previous range of $2.00 to $2.30 due to unfavorable foreign exchange.

For the third quarter, Owens-Illinois expects to benefit from stable markets, lower pension and interest expense. North American manufacturing operations are expected to continue to improve, and Asia Pacific volumes will benefit from a major new beer contract in Australia. Lower volumes in South America, especially Brazil, are likely to continue weighing on the region's profitability. European results will be affected by the carryover of production downtime from engineering projects and lower prices. The company expects flat year-over-year results on a constant currency basis in the quarter.

Owens-Illinois currently holds a Zacks Rank #3 (Hold). Better-ranked stocks the packaging sector include AptarGroup, Inc. ATR , Sealed Air Corporation SEE and Fibria Celulose SA FBR . While AptarGroup sports a Zacks Rank #1 (Strong Buy), Sealed Air and Fibria Cellulose carry a Zacks Rank #2 (Buy).

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SEALED AIR CORP (SEE): Free Stock Analysis Report

OWENS-ILLINOIS (OI): Free Stock Analysis Report

APTARGROUP INC (ATR): Free Stock Analysis Report

FIBRIA CELULOSE (FBR): 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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