Owens-Illinois (OI) Tops Q2 Earnings & Sales; Affirms View

Owens-Illinois, Inc. (NYSE:OI) reported second-quarter 2016 adjusted earnings per share of 65 cents, outpacing the Zacks Consensus Estimate of 62 cents. Earnings also jumped 8.3% year over year and came at the high end of management’s guidance of 60–65 cents per share.

Including one-time items, the company reported earnings of 64 cents per share in the quarter, up significantly from 25 cents in the year-ago quarter.

Operational Update

Owens-Illinois’ net sales improved 14% year over year to $1.76 billion, surpassing the Zacks Consensus Estimate of $1.73 billion. The year over year improvement was driven by benefit derived from the company`s acquisition of Vitro`s food and beverage business. Excluding the acquired business, sales volumes were 1% above the prior-year period, in line with management`s full year expectations.

Currency headwinds had a negative impact of approximately $31 million or 2% on sales. The newly-acquired food and beverage business contributed $234 million or 13% of sales led strong by shipments within Mexico and to the U.S. On a global basis, price was up $18 million.

Shipments in Europe inched up 3%, driven by mid-single digit gains in beer and wine. In North America, legacy volumes were on par with prior year, as higher spirits and non-alcoholic beverage shipments mostly offset the decline in beer. Second-quarter shipments for legacy Latin America dropped as weakness in Brazil was partially offset by double-digit increases in the rest of the region. Asia Pacific reported a 2% increase in volumes, due to higher beer and wine shipments in the region`s mature markets.

Cost of sales was up 11.7% to $1.42 billion in the quarter. Gross profit increased 24.8% to $342 million from $274 million in the prior-year quarter. Selling and administrative expenses enhanced 6.8% to $126 million.

Segment operating profit improved 25% year over year to $233 million driven by stability and operational performance of the legacy business, as well as the effect of the acquired business. Adverse currency translation, primarily in Europe and Latin America, affected segment operating profit by $5 million compared with the prior-year second quarter. Segment operating profit margin expanded 110 basis points to 13.3% in the quarter.

Financial Update

Owens-Illinois had cash and cash equivalents of $334 million at the end of the second quarter of 2016 compared with $378 million at the end of the prior-year quarter. The company used $107 million of cash in operations for the six-month period ending Jun 30, 2016 compared with cash usage of $110 million in the comparable year-ago period. As of quarter end, Owens-Illinois’ long term debt surged to $5.55 billion from $3.22 billion as of Jun 30, 2015.

Guidance

Owens-Illinois affirmed its adjusted earnings per share guidance for 2016 in the range of $2.25-$2.35 which reflects uncertainty in macroeconomic conditions and currency rates. The company also retained its free cash flow generation of approximately $300 million.

Zacks Rank

Owens-Illinois currently carries a Zacks Rank #4 (Sell).

Better-ranked stocks in the broader industrial products sector include Apogee Enterprises, Inc. (NASDAQ:APOG) , Harsco Corporation (NYSE:HSC) and Mobile Mini, Inc. (NASDAQ:MINI) . All these stocks sport a Zacks Rank #1 (Strong Buy).

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