FOR IMMEDIATE
RELEASE
O-I REPORTS FULL YEAR AND FOURTH QUARTER 2017
RESULTS
Company delivers strong financial performance for
2017 and
expects higher earnings and cash flow generation in 2018
PERRYSBURG, Ohio (February 6,
2018) - Owens-Illinois, Inc. (NYSE: OI) today reported
financial results for the full year and fourth quarter ended Dec.
31, 2017.
"In 2017, we delivered strong earnings and cash
flow generation, in line with the commitments we made at Investor
Day in early 2016. We have been building capabilities in the
commercial, manufacturing and supply chain space that are
demonstrably adding to the top line - through higher shipments
year-on-year - and the bottom line - through the tangible benefits
of our Total Systems Cost approach," said Andres Lopez, CEO. "We
are working together in a new way, as one enterprise, enhancing the
customer experience, executing on our initiatives and deleveraging
the balance sheet that together support our conviction to deliver
rising earnings and cash flow in 2018. Even as we continue to
invest in new capabilities and explore non-organic growth
opportunities in the industry, we have begun to pivot towards a
more balanced approach to capital allocation that we anticipate
will include share buybacks in 2018."
Highlights
-
For the full year 2017, the Company recorded
earnings from continuing operations of $1.11 per share (diluted),
compared with $1.32 per share in 2016.
-
Excluding certain items management considers not
representative of ongoing operations, adjusted earnings[1] were $2.65
per share. This was up 15 percent compared with the prior year of
$2.31 per share and at the high end of management guidance of $2.60
to $2.65 per share.
-
The Company generated strong cash flows,
exceeding guidance. Cash provided by continuing operating
activities for 2017 was $724 million compared with $758 million for
2016 which included a non-recurring value added tax refund of
approximately $130 million. Adjusted free cash
flow1 for 2017 was
$393 million, which exceeded management guidance of $365
million.
-
Net sales were $6.9 billion, an increase of
nearly 3 percent compared to the prior year, due to higher
shipments, higher prices and favorable currency translation. Total
glass container shipments increased approximately 1 percent on a
global basis, compared with the prior year, led by gains in Europe
and Latin America.
-
Earnings from continuing operations before
income taxes were $275 million, which was $81 million lower than
2016 despite higher segment operating profit[2] in
2017. The decline is driven by pension settlement charges of $218
million, as well as higher charges related to debt redeemed in
2017.
-
Segment operating profit of reportable segments
for 2017 was $942 million, an increase of 7 percent compared
with prior year. Gains were reported in Europe, North America and
Latin America. As expected, segment operating profit was lower than
2016 in Asia Pacific, the Company's smallest region, mainly
reflecting higher supply chain costs which are being addressed with
asset improvements.
-
Strategic initiatives in commercial programs and
end-to-end supply chain management generated benefits as planned.
Total systems cost improvements generated approximately $39 million
in cost savings during 2017.
- Separately, the Company continues to focus on
deleveraging the balance sheet. During 2017, the Company retired
its highest cost debt - $250 million of its 7.80% Senior Debentures
due 2018. The Company also continues to reduce its pension benefit
obligations ("PBO"); in 2017, the Company executed a series of
transactions that reduced its PBO by more than $500 million. Since
2012, the Company has reduced its outstanding PBO by approximately
$1.8 billion.
- In light of ongoing progress in reducing
leverage, the Company has begun to shift to a balanced approach to
capital allocation. The Board of Directors authorized a $400
million share repurchase program. The Company expects to repurchase
about $100 million in shares in 2018.
-
In 2018, the Company expects to deliver higher
earnings from continuing operations mainly driven by higher segment
operating profit. Earnings from continuing operations, and adjusted
earnings, are expected to be in the range of $2.75 to $2.85 per
share, which compares favorably with adjusted earnings of $2.65 per
share in 2017. Cash provided by continuing operating activities is
expected to be approximately $800 million, whereas adjusted free
cash flow for the year 2018 is expected to be approximately $400
million.
Full Year 2017 Results
Full year net sales were $6.9 billion, up $167
million from 2016, an increase of nearly 3 percent. Prices were 1
percent higher on a global basis, mainly due to price adjustments
resulting from cost inflation. Global shipments increased
approximately 1 percent in 2017. From a geographic perspective, key
contributors to shipment growth were Italy, Mexico and Brazil.
Favorable foreign currency translation also benefited net sales by
$106 million.
Shipments in Europe increased 1 percent, primarily
due to favorable beer, spirits and wine volumes. In North America,
sales volumes declined 3 percent compared to the prior year period,
mainly due to lower shipments of beer. Full year shipments for
Latin America rose 4 percent, primarily due to higher shipments of
beer and spirits. Overall, Asia Pacific shipments declined 1
percent as higher shipments to food customers were more than offset
by lower shipments to beer and non-alcoholic beverage customers. In
mature markets within Asia Pacific, sales volumes increased
approximately 1 percent, primarily due to higher beer shipments.
Sales volumes in China declined for the full year because, during
the first half of 2017, domestic production was exported to support
sales elsewhere in the region.
Segment operating profit was $942 million in 2017, compared with
$882 million in the prior year, an improvement of 7 percent.
-
In Europe, segment operating profit was $263
million, an improvement of $26 million over the prior year period,
or 11 percent. The region profited from improvements in Total
Systems Costs, cost savings from the closure of a plant in the
Netherlands, and higher sales volumes. These benefits were
partially offset by lower average selling prices that were not
fully offset by deflation.
-
North America's segment operating profit
increased $19 million, or 6 percent. Higher equity earnings and
benefits from Total Systems Cost initiatives provided the most
significant improvement from prior year. The region also benefited
from approximately $5 million in gains related to non-strategic
asset sales. Partially offsetting these benefits, were lower sales
volume and cost inflation that was not fully covered by price
increases.
-
Segment operating profit in Latin America rose
$27 million compared to prior year, an increase of 10 percent.
Benefits from Total Systems Cost initiatives and higher sales
volumes favorably impacted Latin America's segment operating
profit. These benefits were partially offset by cost inflation that
exceeded price increases.
-
Asia Pacific reported segment operating profit
of $65 million which was $12 million below the prior year. Despite
cost containment efforts, higher supply chain costs for
intra-regional shipments and higher costs related to planned asset
improvement projects negatively impacted results compared to the
prior year. Asset investments in this region, taking place through
mid-2018, are expected to improve the region's cost structure in
the second half of 2018.
Retained corporate and other costs were $104
million in 2017 compared with $98 million for 2016. These corporate
costs were higher in 2017 because equity earnings related to the
Company's joint venture with Constellation Brands began to be
reported in the North America region in 2017, whereas they were
previously recorded in retained corporate.
The Company's effective tax rate from continuing
operations for 2017 was approximately 25 percent, compared with
approximately 33 percent for 2016. The lower rate in 2017 was
primarily due to the resolution of a tax matter that resulted in
approximately $26 million of tax accruals being reversed in 2017.
The effective tax rate on adjusted earnings was approximately 21
percent for 2017 and 24 percent for 2016.
In both 2016 and 2017, the Company recorded
several significant items impacting reported results as presented
in the table entitled Reconciliation to Adjusted Earnings and
Constant Currency. Management considers these items not
representative of ongoing operations. The most significant charges
in 2017 include $218 million of non-cash pension settlement charges
related to the continued de-risking of the Company's pension plans,
as well as $77 million for restructuring, asset impairment, and
other charges. Charges in 2016 included restructuring and
impairment charges of $129 million, primarily driven by
restructuring activity in Europe, Latin America and at corporate,
as well as $98 million of non-cash pension settlement charges.
Cash provided by continuing operating activities
was $724 million for 2017. After deducting cash payments for
property, plant and equipment, and adding back asbestos-related
payments, adjusted free cash flow was $393 million, exceeding
management guidance of approximately $365 million.
Fourth Quarter 2017
Results
Net sales in the fourth quarter of 2017 were $1.7
billion, an increase of 4 percent compared to the prior year fourth
quarter. On a global basis, the improvement in net sales was due to
a 1 percent increase in price and favorable currency
translation.
Global sales volumes were on par with the prior
year fourth quarter. Shipments in Latin America increased 2
percent, mainly due to gains in beer and non-alcoholic beverages.
The largest increase in Latin America's fourth quarter shipments
was reported in Brazil, providing further evidence of recovery in
that country. In Europe, shipments increased 1 percent, primarily
in wine and beer. North America volumes were similar to the
prior year with higher food shipments offsetting lower beer
volumes. In Asia Pacific, shipments were 2 percent below the same
period of 2016, with higher food volumes more than offset by lower
shipments of beer.
The Company continues to realize benefits from
successfully executing its strategic initiatives. The Company's
focus on Total Systems Cost contributed approximately $13 million
in cost savings in the fourth quarter, leading to a full year total
of $39 million. The contribution of the total systems costs
approach was partially masked by higher spending associated with
higher asset repair and production downtime experienced in Asia
Pacific, consistent with Company plans to revitalize and enhance
production in the region.
In all, segment operating profit was $212 million
in the fourth quarter, 5 percent higher than the prior year fourth
quarter.
For the fourth quarter 2017, the Company recorded a loss from
continuing operations of $0.81 per share (diluted), which compares
with a loss from continuing operations of $0.43 per share (diluted)
in the same period of 2016. Loss from continuing operations before
income taxes was $121 million in the quarter, which was unfavorable
by $82 million compared with the same period in prior year. These
figures include significant items that management considers not
representative of ongoing operations.[3]
Excluding certain items management considers not
representative of ongoing operations, adjusted earnings were $0.55
per share. Adjusted earnings increased 12 percent, or $10 million,
compared with prior year primarily reflecting the benefits of the
Company's global focus on reducing Total Systems Cost.
2018 Outlook
The Company expects earnings from continuing
operations, and adjusted earnings, for the full year 2018 to be in
the range of $2.75 to $2.85 per share, which compares favorably
with adjusted earnings of $2.65 per share in 2017. The midpoint of
this range represents more than a 10 percent compounded annual
growth rate in adjusted earnings per share since 2015. The Company
expects cash provided by continuing operating activities for 2018
to be approximately $800 million and adjusted free cash flow to be
approximately $400 million.
The earnings and cash flow guidance ranges are
consistent with targets conveyed by senior management during
Investor Day in early 2016. The earnings and cash flow guidance
ranges may not fully reflect uncertainty in macroeconomic
conditions and currency rates, among other factors.
On December 22, 2017, the Tax Cuts and Jobs Act
("the Act") was enacted in the U.S. The Act reduces the U.S.
federal corporate tax rate from 35 percent to 21 percent, and
requires companies to pay a one-time transition tax on earnings of
certain foreign subsidiaries that were previously tax deferred and
creates new taxes on certain foreign sourced earnings. Presently,
no substantive impact on the Company's adjusted earnings or cash
taxes is expected in 2018 as a result of the Act.
Conference Call Scheduled for
Feb. 7, 2018
O-I CEO Andres Lopez and CFO Jan Bertsch will conduct a conference
call to discuss the Company's latest results on Wednesday, Feb. 7,
2018, at 8:00 a.m. EST. A live webcast of the conference call,
including presentation materials, will be available on the O-I
website,
www.o-i.com/investors, in the Webcasts and Presentations
section.
The conference call also may be accessed by
dialing 888-733-1701 (U.S. and Canada) or 706-634-4943
(international) by 7:50 a.m. EST, on Feb. 7. Ask for the O-I
conference call. A replay of the call will be available on the O-I
website, www.o-i.com/investors, for a year following the call.
Contact:
Sasha Sekpeh,
567-336-5128 - O-I Investor Relations
Kristin Kelley, 567-336-2395 - O-I Corporate Communications
O-I news releases are available on the O-I website
at www.o-i.com.
O-I's first quarter 2018 earnings conference call
is currently scheduled for Tuesday, April 24, 2018, at 8:00 a.m.
EST.
About O-I
Owens-Illinois, Inc. (NYSE: OI) is the world's
largest glass container manufacturer and preferred partner for many
of the world's leading food and beverage brands. The Company had
revenues of $6.9 billion in 2017 and employs more than 26,500
people at 78 plants in 23 countries. With global headquarters in
Perrysburg, Ohio, O-I delivers safe, sustainable, pure, iconic,
brand-building glass packaging to a growing global marketplace. For
more information, visit o-i.com.
Non-GAAP Financial
Measures
The Company uses certain non-GAAP financial
measures, which are measures of its historical or future financial
performance that are not calculated and presented in accordance
with GAAP, within the meaning of applicable SEC rules. Management
believes that its presentation and use of certain non-GAAP
financial measures, including adjusted earnings, adjusted earnings
per share, segment operating profit, segment operating profit
margin and adjusted free cash flow, provide relevant and useful
supplemental financial information, which is widely used by
analysts and investors, as well as by management in assessing both
consolidated and business unit performance. These non-GAAP measures
are reconciled to the most directly comparable GAAP measures and
should be considered supplemental in nature and should not be
considered in isolation or be construed as being more important
than comparable GAAP measures.
Adjusted earnings relates to net earnings from
continuing operations attributable to the Company, exclusive
of items management considers not representative of ongoing
operations because such items are not reflective of the Company's
principal business activity, which is glass container production.
Adjusted earnings are divided by weighted average shares
outstanding (diluted) to derive adjusted earnings per share.
Segment operating profit relates to earnings from continuing
operations before interest expense (net), and before income taxes
and is also exclusive of items management considers not
representative of ongoing operations. Segment operating profit
margin is segment operating profit divided by segment net sales.
Management uses adjusted earnings, adjusted earnings per share,
segment operating profit and segment operating profit margin to
evaluate its period-over-period operating performance because it
believes this provides a useful supplemental measure of the results
of operations of its principal business activity by excluding items
that are not reflective of such operations. Adjusted earnings,
adjusted earnings per share, segment operating profit and segment
operating profit margin may be useful to investors in evaluating
the underlying operating performance of the Company's business as
these measures eliminate items that are not reflective of its
principal business activity.
Further, adjusted free cash flow relates to cash
provided by continuing operating activities less additions to
property, plant and equipment plus asbestos-related payments.
Management uses adjusted free cash flow to evaluate its
period-over-period cash generation performance because it believes
this provides a useful supplemental measure related to its
principal business activity. Adjusted free cash flow may be useful
to investors to assist in understanding the comparability of cash
flows generated by the Company's principal business activity. Since
a significant majority of the Company's asbestos-related claims are
expected to be received in the next ten years, adjusted free cash
flow may help investors to evaluate the long-term cash generation
ability of the Company's principal business activity as these
asbestos-related payments decline. It should not be inferred that
the entire adjusted free cash flow amount is available for
discretionary expenditures, since the Company has mandatory debt
service requirements and other non-discretionary expenditures that
are not deducted from the measure. Management uses non-GAAP
information principally for internal reporting, forecasting,
budgeting and calculating compensation payments.
The Company routinely posts important information
on its website - www.o-i.com/investors.
Forward-Looking
Statements
This document contains "forward-looking"
statements within the meaning of Section 21E of the Securities
Exchange Act of 1934, as amended (the "Exchange Act") and Section
27A of the Securities Act of 1933. Forward-looking statements
reflect the Company's current expectations and projections about
future events at the time, and thus involve uncertainty and risk.
The words "believe," "expect," "anticipate," "will," "could,"
"would," "should," "may," "plan," "estimate," "intend," "predict,"
"potential," "continue," and the negatives of these words and other
similar expressions generally identify forward-looking statements.
It is possible the Company's future financial performance may
differ from expectations due to a variety of factors including, but
not limited to the following: (1) foreign currency fluctuations
relative to the U.S. dollar, (2) changes in capital availability or
cost, including interest rate fluctuations and the ability of the
Company to refinance debt at favorable terms, (3) the general
political, economic and competitive conditions in markets and
countries where the Company has operations, including uncertainties
related to economic and social conditions, disruptions in the
supply chain, competitive pricing pressures, inflation or
deflation, and changes in tax rates and laws, (4) the Company's
ability to generate sufficient future cash flows to ensure the
Company's goodwill is not impaired, (5) consumer preferences for
alternative forms of packaging, (6) cost and availability of raw
materials, labor, energy and transportation, (7) the Company's
ability to manage its cost structure, including its success in
implementing restructuring plans and achieving cost savings, (8)
consolidation among competitors and customers, (9) the Company's
ability to acquire businesses and expand plants, integrate
operations of acquired businesses and achieve expected synergies,
(10) unanticipated expenditures with respect to environmental,
safety and health laws, (11) unanticipated operational disruptions,
including higher capital spending, (12) the Company's ability to
further develop its sales, marketing and product development
capabilities, (13) the failure of the Company's joint venture
partners to meet their obligations or commit additional capital to
the joint venture, (14) the Company's ability to prevent and detect
cybersecurity threats against its information technology systems,
(15) the Company's ability to accurately estimate its total
asbestos-related liability or to control the timing and occurrence
of events related to asbestos-related claims, (16) changes in U.S.
trade policies, (17) the Company's ability to achieve its strategic
plan, and the other risk factors discussed in the Annual Report on
Form 10-K for the year ended December 31, 2016 and any subsequently
filed Annual Report on Form 10-K, Quarterly Report on Form 10-Q or
the Company's other filings with the Securities and Exchange
Commission. It is not possible to foresee or identify all such
factors. Any forward-looking statements in this document are based
on certain assumptions and analyses made by the Company in light of
its experience and perception of historical trends, current
conditions, expected future developments, and other factors it
believes are appropriate in the circumstances. Forward-looking
statements are not a guarantee of future performance and actual
results or developments may differ materially from expectations.
While the Company continually reviews trends and uncertainties
affecting the Company's results of operations and financial
condition, the Company does not assume any obligation to update or
supplement any particular forward-looking statements contained in
this document.
[1] Adjusted
earnings per share and adjusted free cash flow are each non-GAAP
financial measures. See tables included in this release for
reconciliations to the most directly comparable GAAP measures.
[2] Segment
operating profit of reportable segments ("segment operating
profit") is a non-GAAP financial measure. See tables included in
this release for a reconciliation to the most directly comparable
GAAP measures.
[3] See table
entitled Reconciliation to Adjusted Earnings and Constant
Currency.
FY & 4Q 2017 Earnings
Presentation
O-I Logo
FY & 4Q 2017 Earnings Release
This
announcement is distributed by Nasdaq Corporate Solutions on behalf
of Nasdaq Corporate Solutions clients.
The issuer of this announcement warrants that they are solely
responsible for the content, accuracy and originality of the
information contained therein.
Source: Owens-Illinois, Inc. via Globenewswire
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