It has been about a month since the last earnings report for Owens-Illinois, Inc. (NYSE:) . Shares have lost about 2.2% in that time frame.
Will the recent negative trend continue leading up to its next earnings release, or is OI due for a breakout? 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 Beats on Q4 Earnings, '18 View Upbeat
Owens-Illinois, Inc. reported fourth-quarter 2017 adjusted earnings of 55 cents per share, up 10% year over year, ahead of the Zacks Consensus Estimate of 52 cents. The uptick primarily reflected the benefits of the company’s global focus on reducing Total Systems Cost.
Including one-time items, the company reported a loss per share of 81 cents compared with a loss per share of 43 cents in the prior-year quarter.
Operational Update
Owens-Illinois’ net sales were up around 4% year over year to $1.71 billion but fell short of the Zacks Consensus Estimate of $1.72 billion.
The improvement in net sales was due to a 1% increase in price on a global basis and favorable currency translation. Global sales volumes were flat from the prior-year quarter.
Also, shipments in Latin America improved 2% mainly due to higher beer and non-alcoholic beverage shipments and improvements in Brazil. Sales volume in the Asia-Pacific region dipped 2% as higher food volumes were offset by lower shipments of beer. In Europe, shipments inched up 1% chiefly due to higher shipments for wine and beer. Meanwhile in North America, shipments were flat as higher food shipments offset lower beer volumes.
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Adjusted cost of sales flared up 4.7% year over year to $1.4 billion. Adjusted gross profit ascended 2% to $320 million from $313 million recorded in the year-earlier quarter. Selling and administrative expenses edged down 5% to $122 million. Segment operating profit improved 5% year over year to $212 million. Segment operating profit margin expanded 20 basis points to 12.4% in the quarter.
Financial Update
Owens-Illinois had cash and cash equivalents of $492 million at the end of 2017, flat compared at the end of 2016. The company’s cash from operations was $724 million during 2017, compared with $758 million recorded last year. Adjusted free cash flow for the year was $393 million, ahead of the management’s guidance of $365 million.
Owens-Illinois’ long-term debt increased to $5.12 billion at the end of 2017 compared with $5.13 million reported at the end of 2016.
The company continues to make solid progress on executing its strategic initiatives. Its focus on total systems cost contributed approximately $39 million in cost savings in 2017.
The company’s Board of Directors authorized a $400 million share repurchase program. Owens-Illinois expects to repurchase about $100 million in shares in 2018.
2017 Performance
Owens-Illinois’ adjusted earnings for 2017 came in at $2.65, a 15% improvement year over year. Earnings beat the Zacks Consensus Estimate of $2.64 and were also at the upper end of the company’s guided range of $2.60-$2.65. Net sales were up around 2% from the year-ago quarter to $6.87 billion but fell short of the Zacks Consensus Estimate of $6.88 billion.
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Including one-time items, earnings per share in 2017 was $1.11, down 16% from $1.32 in 2016.
2018 Guidance
The company guides adjusted earnings in the range of $2.75-$2.85 per share. The mid-point of the range reflects a 6% year-over-year improvement. Higher segment profit is expected to lead to higher earnings in 2018. Cash, provided by continuing operating activities is expected to be approximately $800 million, whereas adjusted free cash flow is expected to be approximately $400 million.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed a downward trend in fresh estimates. There have been three revisions lower for the current quarter.
VGM Scores
At this time, OI has a nice Growth Score of B, though it is lagging a bit on the momentum front with a C. The stock was allocated a grade of A on the value side, putting it in the top quintile 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.
Based on our scores, the stock is primarily suitable for value investors while also being suitable for those looking for growth and to a lesser degree momentum.
Outlook
Estimates have been broadly trending downward for the stock and the magnitude of these revisions indicates a downward shift. Interestingly, OI has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.
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