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Owens-Illinois, Inc.'s (OI - Analyst Report) third-quarter 2013 adjusted earnings per share (EPS) of 79 cents improved 14% from the year-ago quarter driven by volume growth, benefits of global structural cost reduction and European asset optimization programs. Earnings were also above the Zacks Consensus Estimate of 77 cents by 2.6%. Including one time items, earnings per share in the reported quarter was also 79 cents, which however improved 44% from 55 cents in the year-ago quarter.

Net sales edged up 2% to $1.784 billion in the quarter, ahead of the Zacks Consensus Estimate of $1.764 billion. Price increased modestly while global volumes were up 2%, the first increase in seven quarters. Higher volumes in Europe, North America and Asia Pacific compensated the decline in South America. Currency was a headwind as a stronger Euro was offset by weak Brazilian real and Australian dollar.

In Europe, volume increased 7% due to growth in wine, food and beer as well as due to the company’s initiatives to woo wine customers. In addition, a delayed harvest in Europe led to a volume shift in the third quarter, leading to double-digit gains in food volumes. Beer volumes increased in Europe following a dip in the second quarter due to adverse weather. In North America, volumes increased both in beer and non-alcoholic beverages. South America witnessed a decline in volumes due to a broad macroeconomic slowdown and a general strike in Colombia.

Operational Update

Manufacturing, shipping and delivery expenses increased 2% year over year to $1.43 billion in the quarter. Selling and administrative expenses decreased 9% to $119 million. Segment operating profit increased 6% to $245 million. Operating profit improved in Europe and North America driven by sales volume gains and cost savings, while South America’s profit contracted due to lower demand and impact of currency headwinds.

Financial Update

Cash and cash equivalents were $219 million as of Sep 30, 2013 compared with $431 million as of Dec 31, 2012 and $336 million as of Sep 30, 2012. Long-term debt was $3.3 billion as of Sep 30, 2013 compared with $3.4 billion as Dec 31, 2012 and $3.5 billion as of Sep 30, 2012.

Cash flow from continuing operating activities was $227 million in the quarter compared with $225 million in the prior-year quarter. During the quarter, Owens-Illinois repurchased $10 million of its outstanding shares.

Guidance

For the fourth quarter, Owens-Illinois expects market demand in North America and Europe to remain sluggish, but stable. Given the limited visibility into the uncertain macroeconomic conditions in South America, the region is not forecasted to show any growth. Owens-Illinois reiterated its adjusted earnings guidance 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 is expected to 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. 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 balance of 2013.

Owens-Illinois currently retains a Zacks Rank #3 (Hold).

Peer Performance

An Owens-Illinois peer, Crown Holdings, Inc. (CCK - Analyst Report) reported third-quarter 2013 adjusted earnings of $1.13 per share, up 13% from the year-ago quarter. The results beat the Zacks Consensus Estimate of $1.08.

Silgan Holdings Inc. (SLGN - Analyst Report) posted adjusted earnings of $1.23 per share in the third-quarter of 2013, up 5.1% from $1.17 a share in the year-ago quarter. The results also fell short of the Zacks Consensus Estimate of $1.31.

Ball Corporation (BLL - Analyst Report) reported third-quarter 2013 adjusted earnings of $1.00 per share, up 11% from the year-ago adjusted earnings of 90 cents per share. The results also beat the Zacks Consensus Estimate of 93 cents.
 

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