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Why Is Owens-Illinois (OI) Down 14% Since its Last Earnings Report?

It has been about a month since the last earnings report for Owens-Illinois, Inc.OI . Shares have lost about 14% in that time frame.

Will the recent negative trend continue leading up to its next earnings release, or is OI 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 Q1 Earnings & Sales, Keeps View

Owens-Illinois reported first-quarter 2018 adjusted earnings of 59 cents per share, up 1.7% year over year. Also, the figure came close to the higher end of management's guided range of 55-60 cents. Earnings also beat the Zacks Consensus Estimate by a penny. The year-over-year earnings improvement was led by sales growth and margin expansion in the Americas and Europe.

Including one-time items, the company had reported earnings of 30 cents per share in the prior-year quarter, while the first quarter does not include any adjustments.

Operational Update

Owens-Illinois' net sales were up around 8% year over year to $1.74 billion. Revenues also surpassed the Zacks Consensus Estimate of $1.71 billion. The improvement in net sales was driven by a 2% increase in price on a global basis and favorable currency-translation impact. Favorable currency-translation impact benefited net sales by $99 million, primarily due to a stronger Euro.

Shipments in Latin America improved 2% mainly due to higher shipments to food and alcoholic beverage customers and shipment improvements in Brazil. In the United States, solid growth in food and non-alcoholic beverages was more than offset by a decline in alcoholic beverages. The Asia-Pacific shipments declined in the reported quarter, partially driven by the timing of returnable float replenishment in Southeast Asia. In Europe, sales volumes continue to be robust.

Cost of sales flared up 9% year over year to $1.4 billion. Gross profit inched up 1.3% to $319 million from $315 million recorded in the year-earlier quarter. Selling and administrative expenses were up 5.9% to $126 million. Segment operating profit improved 3% year over year to $224 million. Segment operating profit margin contracted 50 basis points to 13% in the quarter.

Financial Update

Owens-Illinois had cash and cash equivalents of $418 million at the end of the first quarter, up from $312 million at the end of the year-ago quarter. The company used $370 million of cash in operating activities during the quarter compared with cash usage of $337 million recorded in the prior-year period. Owens-Illinois' long-term debt increased to $5.6 billion as of Mar 31, 2018, compared to $5.4 billion as of Mar 31, 2017.

Owens-Illinois repurchased 2 million shares in the first quarter. The company remains on track to repurchase approximately $100 million shares in 2018.

2018 Guidance

The company maintained its adjusted earnings per share guidance of $2.75-$2.85 for 2018. The mid-point of the range reflects a 6% year-over-year improvement. Cash provided by continuing operating activities is expected to be approximately $800 million, whereas adjusted free cash flow will likely be around $400 million.

For second-quarter 2018, Owens-Illinois projects adjusted earnings per share to be around 75 cents. The company's results will benefit from solid improvement in business operations. However, investments in assets and new technology developments, as well as a higher tax expense will hurt its performance.

How Have Estimates Been Moving Since Then?

It turns out, fresh estimates have trended downward during the past month. There have been four revisions lower for the current quarter.

Owens-Illinois, Inc. Price and Consensus

Owens-Illinois, Inc. Price and Consensus | Owens-Illinois, Inc. Quote

VGM Scores

At this time, OI has a poor Growth Score of F, however its Momentum is doing a lot better with a C. Charting a somewhat similar path, the stock was allocated a grade of B on the value side, putting it in the second quintile for this investment strategy.

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

Our style scores indicate that the stock is more suitable for value investors than momentum investors.

Outlook

Estimates have been broadly trending downward for the stock and the magnitude of these revisions indicates a downward shift. Notably, OI has a Zacks Rank #3 (Hold). We expect an in-line 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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