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Owens-Illinois (OI) Q2 Earnings Top, Sales Lag, View Up

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Owens-Illinois, Inc. (OI - Free Report) reported second-quarter 2017 adjusted earnings per share of 75 cents, surpassing the Zacks Consensus Estimate of 67 cents. In addition, earnings jumped 15% year over year and exceeded the management’s guidance range of 63–68 cents per share.

Including one-time items, the company’s earnings increased to 85 cents per share in the quarter from 65 cents recorded in the year-ago quarter.

Operational Update

Owens-Illinois’ net sales remained flat year over year at $1.75 billion. Revenues missed the Zacks Consensus Estimate of $1.77 billion. Price inched up 1% on a global basis, which was offset by modestly lower sales volume and adverse currency translation. On a global basis, pricing was up 1%.

Owens-Illinois, Inc. Price, Consensus and EPS Surprise

 

Owens-Illinois, Inc. Price, Consensus and EPS Surprise | Owens-Illinois, Inc. Quote

Shipments in Europe remained flat year over year in the second quarter. In Latin America, volume increased in low-single digits, mainly stemmed by higher spirits and beer shipments. Growth was concentrated in Mexico, which reported record sales. Another positive sign was reported in Brazil where low single-digit growth in shipments in the quarter was driven by gains in June.

On the other hand, sales volume in North America declined due to lower shipments and the ongoing unfavorable mix seen in prior quarters. Sales volume in the Asia Pacific declined primarily due to lower domestic sales in China.  

Cost of sales dipped 1% year over year to $1.4 billion. Gross profit ascended 1.2% to $346 million from $342 million recorded in the year-earlier quarter. Selling and administrative expenses declined 2.4% to $123 million. Segment operating profit improved 8% year over year to $252 million. Segment operating profit margin expanded 120 basis points to 14.4% in the quarter.

Financial Update

Owens-Illinois had cash and cash equivalents of $335 million at the end of second-quarter 2017 compared with $492 million at the end of 2016. The company recorded cash used for operating activities of $156 million during the six-month period ended Jun 30, 2017, compared with cash usage of $107 million in the comparable period last year.

Owens-Illinois’ long-term debt increased to $5,471 million at the end of second-quarter 2017, compared with $5,133 million at the end of 2016.

The company also announced that its European subsidiary sold to a third party its right, title and interest in amounts due under its arbitration award against Venezuela. As consideration, the subsidiary received a cash payment of $115 million, and retains a modest potential upside depending upon recovery of the award. The company intends to use the after-tax proceeds of the cash payments to reduce outstanding borrowings under its revolving line of credit.

Guidance

The company raised its earnings guidance reflecting consistent solid operating performance, strong business performance through the second half, favorable currency translation and a lower tax rate. Owens-Illinois now guides its adjusted earnings per share for 2017 to be in the range of $2.55–$2.65, up from the prior band of $2.40–$2.50.

Owens-Illinois continues to successfully execute on its strategic initiatives in commercial activities, end-to-end supply chain management and working capital reduction. Its focus on systems cost improvement is on track to yield $35–$45 million in segment operating profit for the full year.

The company continues to focus on transformation efforts. Successful program execution will allow the closure of the plant in the Netherlands earlier than anticipated. It expects margin improvement on the back of continued operating stability and lower total systems cost. Moreover, additional investments, capability building in innovation and integration, as well as organizational simplification, will drive growth.

Share Price Performance

Over the last one year, Owens-Illinois outperformed its industry with respect to price performance. The stock gained around 31.1%, while the industry recorded growth of 25.3% over the same time frame.



Zacks Rank & Other Key Picks

Currently, Owens-Illinois carries a Zacks Rank #2 (Buy).

Other top-ranked stocks in the sector include AGCO Corporation (AGCO - Free Report) , Deere & Company (DE - Free Report) and Apogee Enterprises, Inc. (APOG - Free Report) , all three sporting a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

AGCO has expected long-term growth rate of 12.41%.

Deere has expected long-term growth rate of 9.17%.

Apogee has expected long-term growth rate of 12.50%.

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