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Owens-Illinois, Inc.’s (OI - Analyst Report) second-quarter 2013 adjusted earnings per share (EPS) of 81 cents were flat with the year-ago quarter, but beat the Zacks Consensus Estimate of 79 cents by 3%.

Net sales edged up 1% to $1.781 billion in the quarter, falling short of the Zacks Consensus Estimate of $1.811 billion. Volume slipped 1% mainly due to lower beer volumes, which in turn were affected by unfavorable weather conditions in Europe and North America, and macroeconomic pressures in South America. However, increased wine volumes and double-digit growth in Southeast Asia were the positives.

Operational Update

Manufacturing, shipping and delivery expenses increased 2% year over year to $1.41 billion in the quarter. Selling and administrative expenses decreased 7% to $129 million. Segment  operating profit remained flat year over year at $267 million.

Owens-Illinois’ ongoing actions to optimize its footprint helped improve profits in Europe and Asia. South America’s results were negatively impacted by a higher level of planned furnace rebuilds.

Financial Update

Cash and cash equivalents were $249 million as of Jun 30, 2013 compared with $431 million as of Dec 31, 2012 and $336 million as of Jun 30, 2012. Long-term debt was $3.34 billion as of Jun 30, 2013 compared with $3.45 billion as Dec 31, 2012 and $3.57 billion as of Jun 30, 2012.

Cash flow from continuing operating activities was $156 million in the quarter compared with $100 million in the prior-year quarter. During the quarter, Owens-Illinois repurchased $10 million of its outstanding shares.

Guidance

Owens-Illinois projects adjusted earnings in the range of $2.65 to $2.85 per share and free cash flow of at least $300 million in 2013.

Our Take

Owens-Illinois will benefit from the restructuring actions undertaken in North American and Asia-Pacific regions, global structural cost reductions as well as its growth strategy in South America. However, since about 40% of its business is in Europe, the soft economic condition in the region may continue to impact Owens-Illinois.

In response to slowing sales, Owens-Illinois curtailed production in several locations in Europe. Owens-Illinois has embarked on a multi-year asset optimization program in Europe, which includes elimination of underperforming assets, reduction of idle capacity, outlining investments in low-cost additional capacity and enhancing quality, speed and flexibility. This is expected to lead to improvements in profits in Europe in the second half of 2013.

Owens-Illinois currently retains a Zacks Rank #4 (Sell).

Peer Performance

An Owens-Illinois peer, Crown Holdings, Inc. (CCK - Analyst Report), reported second-quarter 2013 adjusted earnings of 96 cents per share, up 14% from 84 cents earned in the year-ago quarter. The results beat the Zacks Consensus Estimate of 93 cents. 

Silgan Holdings Inc. (SLGN - Analyst Report) reported earnings per share of 63 cents, which improved 15% year over year but were short of the Zacks Consensus Estimate of 65 cents.

Ball Corporation (BLL - Analyst Report) reported earnings per share of 85 cents versus 89 cents earned in the year-ago quarter, beating the Zacks Consensus Estimate by a penny.

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