If you are still holding on to shares of Owens-Illinois, Inc.
(OI - Free Report
) in your portfolio, it is time you dump those as chances of favorable returns in the near term appear bleak. Owens-Illinois has witnessed significant price decline in the year-to-date period owing persistent fall of beer consumption in domestic market and high debt levels.
Similar to wise buying decisions, offloading certain underperformers at the right time helps maximize portfolio returns. Further, negative earnings estimate revisions for the current quarter and the fiscal indicate bleak prospects for the company in near term. Further, the company’s Zacks Rank #4 (Sell) only reflects its innate weakness.
Shares of this manufacturer of glass containers have plunged approximately 24% year to date, faring worse than the industry
’s decline of 19%.
Let’s take a look at factors behind this dismal performance.
Weak Q2 Guidance
For second-quarter 2018, Owens-Illinois expects adjusted earnings to be approximately 75 cents per share, flat year over year. Currency will have a favorable impact and the company anticipates a modestly favorable price-cost spread in the quarter, while shipments are likely to be flat overall. The impact of engineering activity is likely to be partially offset by global total systems cost efforts plus continued footprint benefits in Europe. And lastly, interest in taxes will be higher than prior year. Improvement in on-going business operations will be negated by investments in assets and new technology developments compared with the prior-year quarter.
Notably, the Zacks Consensus Estimate for earnings the quarter has gone down 3% over the past 90 days. The estimates are currently pegged at 75 cents, in line with the company guidance.
Weak U.S. Beer Sales
The company is grappling with continued decline in beer in the United States. Falling beer sales in the United States, which dipped 0.5% in 2017, offset gains in wines and spirits eventually dragging down the overall alcohol consumption. People are drinking less mainly due to health concerns or spending more on other beverages like wine or spirit rather than beer.
Higher Debt Level Remains a Concern
Interest expense is likely to be higher due to higher variable rates in the United States and the strengthening euro. Despite Owens-Illinois’ deleveraging and refinancing actions in the past 12 months, its debt-to-capitalization ratio remains high at 84%. This is a headwind.
Looking at the prevailing challenges and an unfavorable Zacks rank, it is wise to stay away from investing in Owens-Illinois stock right now.
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