Owens-Illinois (NYSE: OI) today reported financial results for the second quarter ended 30 June 2018.
"O-I's second quarter results exceed management's guidance, again demonstrating resilience in the face of well-known headwinds arising during the quarter, such as transportation strikes in Brazil and the stronger US dollar," said Andres Lopez, CEO. "Global shipments were solid, taking into account the strong performance of our joint venture with CBI. We continue to benefit from favorable pricing dynamics and a concerted effort to improve sales mix. And, Asia Pacific is nearing successful completion of its asset advancement project. Building on a secure foundation, we expect continued growth in sales, margins, earnings and cash flow in 2019 and beyond."
Highlights
- For the second quarter, earnings from continuing operations were $0.31 per share (diluted), compared with $0.85 per share in 2017. The decline was primarily driven by higher charges related to restructuring activities.
- Excluding certain items management considers not representative of ongoing operations, adjusted earnings were $0.77 per share, up 3% compared with prior year. This exceeded management's second quarter guidance of $0.75 per share.
- Net sales were $1.8bn, which was 1% higher than prior year second quarter. Higher prices, reflecting cost inflation and sales mix, and the impact of the stronger Euro were partially offset by modestly lower shipments and weakening currencies in Latin America.
- Earnings from continuing operations before income taxes were $78m for the second quarter compared with $152m for the same period in 2017. This decrease is largely related to the restructuring charges.
- Segment operating profit of reportable segments for the second quarter of 2018 was $255m, which is 1% higher than the prior year. In line with management guidance, segment operating profit in Europe was up substantially, while Americas and Asia Pacific reported declines.
- The Company repurchased 2.7 million shares in the quarter. Year-to-date, the Company repurchased a total of $95m in shares.
Second Quarter 2018 Results
Net sales in the second quarter of 2018 were $1.8bn, which was 1% higher than prior year second quarter. Prices were up approximately 2%, reflecting cost inflation and sales mix. The overall impact of currency was favourable on net sales, with an increase reported in Europe and a decline in the Americas.
Global sales shipments were down 1% compared with prior year. The decline is largely attributed to the impact of external transportation strikes in Brazil and a raw material batch disruption in Mexico. Both incidents, now resolved, limited product available for sale in the quarter. The company's joint venture with Constellation Brands continues to perform well, reporting higher sales compared with prior year.
Segment operating profit was $255m in the quarter, compared with $252m in the same period of 2017.
- Segment operating profit in the Americas in the second quarter of 2018 was $152m, $9m lower than prior year. Favourable pricing was largely offset by higher operating costs. These costs were primarily driven by aforementioned challenges in Brazil and Mexico, as well as higher-than-anticipated cost inflation, which was impacted by the strong US dollar on raw material purchases in Latin America and high transportation costs in the US.
The Americas continues to focus on Total Systems Cost efforts to mitigate inflationary pressures. The Americas are undertaking steps to adjust its manufacturing footprint to better align with ongoing customer needs. The company announced during the quarter its plans to shut down a plant in the US that primarily produces megabeer and is progressing with plans to expand capacity in Brazil to support customer needs.
- In Europe, segment operating profit continues to expand year-on-year. In the second quarter of 2018, segment operating profit was $101m, up more than 25% compared with $80m in the second quarter of 2017. This increase was driven by favourable foreign currency exchange rates, price increases, continued benefits from Total Systems Cost, and the recognition of an energy credit.
- Segment operating profit in Asia Pacific in the second quarter of 2018 was $2m. While lower than prior year, the magnitude of the year-on-year decline was less than that reported in the first quarter of 2018. As planned, asset improvement projects underway in the region drove operating costs higher. As most of the projects in the region are now substantially complete, improving production volume and lower manufacturing expense will drive higher margins sequentially in Asia Pacific the rest of 2018.
Consistent with management guidance for the second quarter 2018, non-operational costs partially offset positive operating performance.
- Retained corporate and other costs were essentially in line with prior year.
- Net interest expense in the quarter was $74m. The Company re-negotiated its bank credit agreement in the quarter to lower interest expense, reduce financial risk, and reduce complexity. Excluding the $11m charge related to deferred finance fees written off in the quarter, net interest expense was $63m, which is on par with $62m for the second quarter 2017.
The Company launched its $400m share repurchase program during the first quarter of 2018. In the second quarter of 2018, the Company repurchased 2.7 million shares for approximately $50m. Year-to-date, the company has repurchased 4.7 million shares for $95m.
Outlook
The Company expects earnings from continuing operations for the full year 2018 to be in the range of $2.29 to $2.39 per share.
Excluding certain items management considers not representative of ongoing operations, the company continues to expect adjusted earnings to be in the range of $2.75 to $2.85 per share, based on current foreign currency exchange rates. However, management continues to drive operational performance to offset currency, amongst other headwinds. company results are likely to be on the lower end of the range.
The company expects earnings from continuing operations, and adjusted earnings, for the third quarter of 2018 to be approximately $0.75 per share. Solid improvement in on-going business operations is expected to be offset by currency headwinds and the lack of the energy credit in Europe, which was already recognised in the second quarter of 2018.
The Company continues to expect cash provided by continuing operating activities for 2018 to be approximately $800m and adjusted free cash flow to be approximately $400m, with downside pressure from currency.
The earnings and cash flow guidance ranges may not fully reflect uncertainty in macroeconomic conditions and currency rates, among other factors.
