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Will FX Woes Offset Owens-Illinois' Stable Volume in Q2? - Analyst Blog

On Jun 15, 2015, we issued an updated research report on Owens-Illinois, Inc.OI . This manufacturer of glass containers reported a 29% year-over-year decline in its first-quarter 2015 adjusted earnings per share to 44 cents.

For 2015, Owens-Illinois reduced its adjusted earnings per share guidance to the range of $2.00 to $2.30 from the previous range of $2.60 to $3.00 citing unfavorable foreign exchange. For the second quarter, the company expects to benefit from stable market and volume trends but currency headwinds will persist. Continued pricing pressure and lower production linked to a heavier furnace rebuild schedule in the first half of the year will impact its results in the quarter.

The company hopes to generate $250 million in free cash flow in 2015 as it expects improved operating profit in local currency terms. The year-on-year impact of foreign exchange on cash flows will be substantially lower than that on earnings because the company in general generates cash flow in the latter half of the year.

Owens-Illinois initiated a $100 million accelerated stock repurchase program in Feb 2015. The company intends to repurchase at least $25 million additional shares over the course of the year. This will be accretive to earnings.

The company's ongoing asset optimization program has improved productivity in Europe. Through this program, the company expects to enhance long-term profitability in the region through investments and by addressing higher cost facilities to better align its European manufacturing footprint with market and customer needs.

Owens-Illinois' promising agreements with Constellation Brands Inc. STZ are expected to be accretive to the company's earnings in 2016 and allow it to benefit from the fast-growing Mexican beer import market in the U.S.

Also, Owens-Illinois' acquisition of the food and beverage glass container business of Mexican company, Vitro, for $2.15 billion will provide the company a competitive edge in the attractive and growing glass segment of the packaging market in Mexico. It will further solidify its position as the world's leading glass container producer

On the flipside, slowdown in beer demand in North America will affect the company. In South America, the company expects growth to pause in 2015, as profits will be dampened by decline in production volume in the Andean countries due to lower buffer stock requirements from Brazil and the U.S. Further, Owens-Illinois will also face difficult comparisons in the first half of the year in Brazil due to the volume uptick related to the Soccer World Cup in 2014. Sales and production will decline in the first half of 2015 and also in Australia.

This Zacks Rank #3 (Hold) stock has witnessed downward estimate revisions over the last 60 days. The Zacks Consensus Estimate for 2015 and 2016 decreased roughly 7% to $2.14 per share and 3% to $2.51 per share, respectively.

Key Picks from the Sector

Some better-ranked stocks in the same sector include Fibria Celulose SA FBR and Sappi Ltd. SPPJY . Both of the stocks carry a Zacks Rank #2 (Buy).

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OWENS-ILLINOIS (OI): Free Stock Analysis Report

CONSTELLATN BRD (STZ): Free Stock Analysis Report

FIBRIA CELULOSE (FBR): Free Stock Analysis Report

SAPPI LTD -ADR (SPPJY): 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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