Owens-Illinois, Inc. (OI Quick QuoteOI - Free Report) reported third-quarter 2016 adjusted earnings per share of 68 cents, outpacing the Zacks Consensus Estimate of 66 cents. Earnings also surged 19% year over year and were within management’s guidance of 65–70 cents.

Including one-time items, the company reported earnings of 68 cents per share in the quarter, up significantly from 11 cents in the year-ago quarter.

Operational Update

Owens-Illinois’ net sales improved 9% year over year to $1.71 billion, falling short of the Zacks Consensus Estimate of $1.73 billion. The year-over-year improvement was driven by benefits derived from the company`s acquisition of Vitro`s food and beverage business.  Excluding the acquired business, sales volumes fell 2% from the prior-year quarter. On a global basis, pricing was up $19 million, primarily driven by price adjustments that reflect cost inflation.
 

Shipments in Europe were flat as gains in wine were essentially offset by lower beer shipments. In North America, legacy volumes witnessed a modest rise from the prior year due to higher beer shipments, chiefly related to contracted volumes to Constellation Brands, Inc. (STZ) and higher non-alcoholic beverage shipments. Third-quarter shipments for legacy Latin America slumped 15% due to weakness in Brazil and Ecuador.  Asia Pacific reported a 5% decrease in volumes.

Cost of sales was up 6.7% to $1.38 billion in the quarter. Gross profit surged 21.7% to $336 million from $276 million in the prior-year quarter. Selling and administrative expenses advanced 11% to $121 million.

Segment operating profit improved 19% year over year to $237 million. The increase was largely due to the $37 million of incremental segment operating profit from the acquired business. All regions barring Europe witnessed higher segment operating profit compared with the prior year. Strategic initiatives contributed approximately $15 million to segment operating profit. Segment operating profit margin expanded 110 basis points to 13.8% in the quarter.

Financial Update

Owens-Illinois had cash and cash equivalents of $294 million at the end of third-quarter 2016 compared with $399 million as of Dec 31, 2015. The company generated $226 million of cash in operations for the nine-month period ending Sept 30, 2016 compared with $106 million in the comparable year-ago period. As of quarter end, Owens-Illinois’ long-term debt was at $5.33 billion compared with $5.34 billion as of Dec 31, 2015.

Guidance

Owens-Illinois narrowed its adjusted earnings per share guidance for 2016 to the range of $2.27–$2.32 per share. The company had earlier projected earnings per share guidance range of $2.25–$2.35. The guidance reflects uncertainty in macroeconomic conditions and currency rates as well as other factors. The company retained its free cash flow generation of approximately $300 million.

OWENS-ILLINOIS Price, Consensus and EPS Surprise