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Owens-Illinois, Inc.'s (OI - Analyst Report) shares went up 1.4% on Jan 28 as the company reported a 28% improvement in its fourth-quarter 2013 adjusted earnings per share to 51 cents driven by higher sales, increased production and cost savings.
 
Earnings were, however, a penny below the Zacks Consensus Estimate. Including one-time items, the company reported a loss per share of 88 cents, lower than the year-ago quarter’s loss of 99 cents.
 
Net sales edged up 1% to $1.761 billion in the quarter, narrowly missing the Zacks Consensus Estimate of $1.781 billion. Price gains of 1% were offset by a negative currency effect of 2%. Volume in terms of tons shipped was up 2% year over year, driven by global wine gains, as well as moderately higher beer volumes in North and South America. This marked the second quarter of volume increase after decline witnessed in volumes for straight seven quarters. 
 
Operational Update
 
Cost of sales remained flat at $1.47 billion in the quarter. Selling and administrative expenses decreased 11% to $129 million. Segment operating profit increased 19% to $195 million. 
 
Fiscal 2013 Performance
 
Owens-Illinois reported adjusted earnings per share of $2.72 in fiscal 2013, up 3% from $2.64 in the prior fiscal. Earnings fell short of the Zacks Consensus Estimate of $2.68 but were within the company’s guidance range of $2.65 to $2.85 per share. Including one-time items, earnings were recorded at $1.22 compared with $1.12 in the prior year. Revenues were flat at $7 billion from the prior fiscal as well as with the Zacks Consensus Estimate.
 
Financial Update
 
Cash and cash equivalents were $383 million as of Dec 31, 2013, compared with $431 million as of Dec 31, 2012. Long-term debt was $3.24 billion as of Dec 31, 2013, compared with $3.45 billion as Dec 31, 2012.
 
Cash flow from continuing operating activities was $682 million in fiscal 2013, compared with $575 million in the prior year. Free cash flow generated during the year was $339 million, above the company’s projected $300 million and a 17% year over year increase. The improvement was driven by higher segment operating profit, improvement in working capital and lower pension contributions. 
 
Guidance
 
Owens-Illinois has issued an earnings per share guidance range of $2.80 to $3.20 for 2014. Free cash flow is projected to be approximately $350 million.
 
Our Take
 
Owens-Illinois will benefit from its asset optimization program in Europe, increased volumes in North America and Europe, cost cutting initiatives, debt reduction and share repurchases. However, given the uncertain macroeconomic conditions in South America, the region is not expected to show any growth in the near term. Furthermore, demand in Australia remains weak and foreign exchange remains a headwind.
 
Owens-Illinois currently retains a Zacks Rank #3 (Hold). Another stock in the containers industry that is currently performing well and has good visibility is Ball Corp. (BLL - Analyst Report) carrying a Zacks Rank #2 (Buy).
 
Peer Performance & Expectations
 
An Owens-Illinois peer, Silgan Holdings Inc. (SLGN - Analyst Report) posted adjusted earnings of 45 cents per share in the fourth quarter of 2013, a 4.2% decline from 47 cents a share in the year-ago quarter. The results also fell short of the Zacks Consensus Estimate of 49 cents.
 
Another peer, Bemis Company, Inc. (BMS - Analyst Report) will announce its fourth-quarter results tomorrow. The Zacks Consensus Estimate for the fourth quarter is at 54 cents, reflecting a 3.42% rise; while for fiscal 2013 the Consensus is at $2.28, projecting 6% year-over-year growth.

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