Owens-Illinois Beats Expectations

Owens-Illinois’ ( OI - Analyst Report ) third-quarter 2012 adjusted earnings were 69 cents per share compared to the year-ago adjusted earnings of 84 cents per share; beating the Zacks Consensus Estimate of 66 cents.

On a reported basis, the company posted earnings of 55 cents per share compared with the year-ago earnings of 72 cents.

Net sales decreased 6.2% to $1.747 billion in the quarter; net sales, however, beat the Zacks Consensus Estimate of $1.746 billion. The year- over- year decline in net sales was attributable to negative impacts of foreign currency as well as lower volumes and lower demand in Europe, which offset the positive effects of price and product mix and higher shipments in the Americas.

Operational Update

Manufacturing, shipping and delivery expense decreased 4.7% year over year to $1.405 billion in the quarter. Selling and administrative expenses fell 5.1% to $131 million. Operating profit also dipped 8.6% year over year to $245 million.

The decline in operating profit was attributable to higher expenses related to manufacturing and delivery, cost inflation as well as lower global shipments, offsetting the positive effects of higher sales prices.

Financial Update

Cash and cash equivalents were $336 million as of September 30, 2012, versus $400 million as of December 31, 2011. Long-term debt amounted to $3.537 billion as of September 30, 2012, compared with $3.627 billion as of December 31, 2011. Cash provided by operating activities was $225 million during the quarter compared with $189 million in the year ago quarter.

Guidance

The company is hopeful about generating free cash flow of $250 million in 2012. It expects profit in South America to grow year over year, driven by strong demand and efficiencies from the furnace in southern Brazil. However, the company apprehends that lower demand in Europe will exert pressure on earnings in the fourth-quarter 2012.

Owens-Illinois competes with companies like Silgan Holdings Inc. ( SLGN - Analyst Report ) , Ball Corporation ( BLL - Analyst Report ) and Crown Holdings Inc. ( CCK - Snapshot Report ) . In third-quarter 2012, Silgan’s adjusted earnings improved 2.6% year over year to $1.17 per share, but missed the Zacks Consensus Estimate by a penny.

Owens-Illinois retains a short-term Zacks #3 Rank (Hold). We have a long-term Neutral recommendation on the stock.