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Owens-Illinois (OI) Up 9.5% Since Last Earnings Report: Can It Continue?

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A month has gone by since the last earnings report for Owens-Illinois (OI - Free Report) . Shares have added about 9.5% in that time frame, outperforming the S&P 500.

Will the recent positive trend continue leading up to its next earnings release, or is Owens-Illinois due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important drivers.

Owens-Illinois Earnings Beat, Sales Miss Estimates in Q3

Owens-Illinois reported third-quarter 2019 adjusted earnings of 54 cents per share, which surpassed the Zacks Consensus Estimate of 53 cents. The bottom line declined 28% from the prior-year quarter figure of 75 cents.

Including one-time items, the company reported loss per share of $3.69 in the reported quarter against profit per share of 75 cents in the third quarter of 2018.

Operational Update

Net sales declined 3.8% year over year to $1,670 million, as favorable pricing and contribution from the Nueva Fanal acquisition were offset by unfavorable currency translation and lower sales volume. Global shipments were down 1% year over year in the reported quarter, reflecting slower market growth, particularly in Mexico and China as well as continued weak demand for beer and non-alcoholic beverages in the United States. The top line lagged the Zacks Consensus Estimate of $1,734 million.

Cost of sales declined 2.8% year over year to $1,371 million. Gross profit declined 7.7% year over year to $299 million. Selling and administrative expenses contracted 6% year over year to $108 million.

Total operating profit was $205 million in the reported quarter, down from $255 million in the prior-year quarter primarily due to foreign currency translation and discrete items. Benefits of higher selling price and contribution from the Nueva Fanal acquisition were offset by cost inflation and lower volumes.

Segmental Performance

Net sales at the Americas segment declined 2.2% year over year to $918 million in the third quarter of 2019. Operating profit declined 22.1% year over year to $123 million.

Net sales in the Europe segment were $588 million in the reported quarter, down 4% year over year. The segment’s operating profit declined 9.2% year over year to $79 million.

Net sales in the Asia Pacific region dipped 7.9% year over year to $152 million in the reported quarter. Operating profit declined 70% year over year to $3 million.

Financial Update

Owens-Illinois had cash and cash equivalents of $273 million at the end of the third quarter of 2019, down from $512 million at the end of 2018. The company utilized $246 million of cash in operating activities in the first nine months of 2019 against an inflow of $99 million in the comparable period last year. Its long-term debt rose to $5.5 billion as of Sep 30, 2019, from $5.2 billion as of Dec 31, 2018.

Other Updates

Owens-Illinois continues to advance the tactical and strategic portfolio review drive, which now comprises the assessment of its Australia and New Zealand (“ANZ”) operation. The first commercial-quality ware was delivered, using new MAGMA technology. Further, the company announced the expansion of MAGMA at Holzminden, Germany, which should start production in the second half of 2020.

Outlook

For fourth-quarter 2019, Owens-Illinois expects adjusted earnings per share of 45-50 cents. The company lowered adjusted earnings per guidance for 2019 to $2.20-$2.25 from $2.40-$2.55 mentioned earlier. Owens-Illinois had reported earnings per share of $2.72 in 2018. Cash provided by continuing operating activities for 2019 is expected to be $390-$415 million and adjusted free cash flow to be approximately $100 million.
 

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed a downward trend in estimates review. The consensus estimate has shifted -19.32% due to these changes.

VGM Scores

At this time, Owens-Illinois has a nice Growth Score of B, though it is lagging a lot on the Momentum Score front with an F. However, the stock was allocated a grade of A on the value side, putting it in the top 20% for this investment strategy.

Overall, the stock has an aggregate VGM Score of A. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. It's no surprise Owens-Illinois has a Zacks Rank #4 (Sell). We expect a below average return from the stock in the next few months.


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