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FOR IMMEDIATE
RELEASE
O-I REPORTS SECOND
QUARTER 2019 RESULTS
PERRYSBURG, Ohio (July 31,
2019) - Owens-Illinois, Inc. (NYSE: OI) today reported
financial results for the second quarter ended June 30, 2019.
"The Company has been on a
transformational journey and has made meaningful progress over the
past three years. However, the second quarter was a
challenging period for O-I. Earnings fell short of
management's guidance as sales volumes were essentially flat with
last year compared to our expectation of modest growth. Despite
encouraging demand trends in April and May, June shipments were
softer than anticipated including the impact of extreme weather
conditions in Europe," said Andres Lopez, CEO. "We also
incurred higher than expected costs in the Americas related to the
commissioning of a furnace at a joint venture as well as unplanned
downtime due to flooding and weather-related issues. While 2019 is
turning out to be a difficult year, we believe many of these
factors are temporary and we are taking action to accelerate
performance."
Highlights
-
For the second quarter 2019, earnings from
continuing operations were $0.42 per share (diluted), compared with
$0.31 per share (diluted) in 2018. Excluding certain items
management considers not representative of ongoing operations,
adjusted earnings[1] were $0.69
per share, compared with $0.77 per share in 2018.
-
Net sales were $1.8 billion, essentially flat
with the prior year second quarter. Higher prices were offset by
unfavorable foreign currency translation while sales volumes were
essentially flat with the prior year.
-
Earnings from continuing operations before
income taxes were $98 million, compared to $78 million in the
second quarter of 2018. This improvement reflects lower
restructuring charges in the second quarter of 2019 than in the
prior year.
-
Segment operating profit1 was $236 million which
compares to $255 million in the second quarter of 2018. While the
benefit of higher selling prices more than offset cost inflation,
operating costs were higher than the prior year. Increased costs
reflected additional costs related to the commissioning of a
furnace at a joint venture, unexpected weather related downtime and
timing of an energy credit.
-
Despite a challenging second quarter, O-I
recently achieved key milestones across a number of strategic
priorities:
-
Sales volume growth was strong in the markets
where O-I recently commissioned new capacity including Brazil,
Colombia and China.
-
Production of commercial ware at the Company's
first MAGMA line started in early July.
-
The acquisition of Nueva Fábrica Nacional de
Vidrio, S. de R.L. de C.V. ("Nueva Fanal") was completed at the end
of June and is supported by a long-term customer supply agreement.
Nueva Fanal is expected to be immediately accretive to
earnings.
-
The Company refinanced its Bank Credit Agreement
to improve financial flexibility and reduce future interest
expense.
-
On July 31, 2019, the Company's Board of
Directors declared a quarterly cash dividend of $0.05 per share,
payable on September 16, 2019, to stockholders of record as of the
close of business on August 30, 2019.
-
O-I has revised its full year 2019 earnings
guidance and now expects 2019 adjusted earnings of approximately
$2.40 - $2.55 per share. The Company also now expects its
cash provided by continuing operating activities for 2019 to be in
the range of $550 to $575 million and adjusted free cash flow of at
least $260 million for 2019.
Second Quarter 2019
Results
Net sales in the second quarter of
2019 were $1.8 billion and essentially flat with the prior year
second quarter. Prices were up approximately 2.5 percent,
reflecting the pass through of cost inflation and changes in sales
mix. The benefit of higher prices was offset by unfavorable
foreign currency translation.
Global sales shipments were flat
with the prior year and below management's expectation of 2.5
percent growth. While volume growth and trends were favorable
in April and May, June demand fell short of the prior year mostly
reflecting the impact of extreme weather conditions in Europe. As a
result, volumes were flat for the quarter. Importantly, sales
volume growth was strong in the markets where O-I recently added
new capacity, including Brazil, Colombia and
China.
Segment operating profit was $236
million in the quarter, compared with $255 million in the same
period of 2018.
-
Segment operating profit in the Americas was
$144 million, $8 million lower than the prior year. Foreign
currency translation was slightly favorable on a year-over-year
basis. Overall, the benefit of higher price and volume was
more than offset by increased operating costs. The contribution
from higher average selling prices exceeded cost inflation as sales
volumes increased by approximately 1 percent from the prior year.
Demand growth was strong in Brazil, Colombia and Mexico while
softer demand continued in the U.S. across the beer category. The
Company incurred additional costs related to challenges
commissioning a furnace at a joint venture as well as unexpected
weather-related downtime. Furthermore, a continued shift in product
mix from mega-beer to other growing categories has increased
production complexity.
-
In Europe, segment operating profit was $90
million, $11 million lower than the prior year. Foreign
currency translation was a modest headwind on a year-over-year
basis. The benefit of higher average selling prices was more than
offset by lower sales volume and elevated operating costs. Higher
average selling prices more than offset cost inflation while sales
volumes declined nearly 2 percent from the prior year. Most
of the volume decline pertained to lower alcoholic beverage
shipments in June as consumption patterns were interrupted by
extreme weather conditions. As expected, operating costs were
higher year-over-year partially due to the timing of an energy
credit that was earned in the second quarter of 2018, compared to
the first quarter of 2019.
-
Segment operating profit in Asia Pacific was $2
million, flat with the prior year. Foreign currency
translation was a slight headwind on a year-over-year basis.
The impact of lower average selling prices was offset by
higher sales volumes while operating costs were on par with the
prior year. Higher selling prices were more than offset by
cost inflation as the region's contracted annual price adjustments
typically do not begin until mid-year. Sales volumes
increased 7 percent from the prior year and improved across nearly
all end-use categories. More broadly, the region benefitted from
improved operating costs as a result of increased productivity, but
this was offset by the acceleration of planned maintenance and a
furnace rebuild.
Retained corporate and other costs
were $2 million less than the prior year primarily reflecting the
benefit of recent organization simplification initiatives and lower
management incentive compensation expense.
During the second quarter, the
Company re-negotiated its Bank Credit Agreement ("BCA") to improve
financial flexibility and reduce interest expense. Net
interest expense was $68 million in the second quarter 2019,
compared to $74 million for the second quarter 2018.
The Company completed the
acquisition of Nueva Fanal, which includes a one plant operation
near Mexico City, Mexico, with four furnaces to produce and supply
approximately 300,000 tons of glass containers annually for Grupo
Modelo brands serving the local and global export markets.
O-I expects the business to contribute approximately $140
million of revenue and $40 million of EBITDA[2] on an
annual basis. Incremental synergies are anticipated.
Further, O-I has entered into a long-term agreement to supply
glass to Grupo Modelo. The purchase price was approximately
$195 million with $157 million paid in June and the balance to be
paid in December 2019.
Outlook
The Company expects third quarter
2019 adjusted earnings of approximately $0.60 to $0.65 per
share. This compares to earnings from continuing operations
of $0.75 per share (diluted) in the third quarter of 2018 which
also included 13 cents of one time benefits related to a favorable
indirect tax resolution in Brazil and the sale of CO2 credits in
Europe that will not repeat in 2019. The benefit of higher
selling prices, sales volume and accretion from Nueva Fanal is
expected to be offset by increased operating costs as well as a
higher effective tax rate related to shifts in regional earnings
mix.
O-I now expects 2019 adjusted
earnings of approximately $2.40 - $2.55 which excludes certain
items management considers not representative of ongoing
operations. The Company expects cash provided by continuing
operating activities for 2019 to be in the range of $550 to $575
million and adjusted free cash flow of at least $260 million.
This outlook reflects foreign earnings translation at July currency
rates, higher full year sales volume which is expected to grow up
to 0.5 percent compared to the prior year as well as the impact of
increased operating complexity and a higher effective tax rate.
Adjusted free cash flow guidance includes a revised outlook for
capital expenditures of $450 - $475 million.
The earnings and cash flow guidance ranges may not
fully reflect uncertainty in macroeconomic conditions and currency
rates, among other factors.
As the Company remains focused on
enabling its strategy to create long-term shareholder value,
specific actions are underway to accelerate performance. In
addition to the Company's highly successful Total Systems Cost
initiative, an accelerated cost reduction initiative is being
launched to help advance productivity and cost take-out across the
enterprise and will be supported by a leading third party
consulting organization. And, the Company continues its strategic
review of its business portfolio in order to focus on core
operations best aligned with the interests of the Company and its
strategic customers. This review is in addition to O-I's current
tactical divestiture program and is supported through the Company's
ongoing engagement with Goldman Sachs.
Conference Call Scheduled for
August 1, 2019
O-I CEO Andres Lopez and CFO John Haudrich will conduct a
conference call to discuss the Company's latest results on
Thursday, August 1, 2019, at 8:00 a.m. EDT. 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. EDT, on August 1, 2019. 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
O-I news releases are available on the O-I website
at www.o-i.com.
O-I's third quarter 2019 earnings conference call
is currently scheduled for Tuesday, October 29, 2019, at 8:00 a.m.
EDT.
About O-I
At Owens-Illinois, Inc. (NYSE:
OI), we love glass and we're proud to make more of it than any
other glass bottle or jar producer in the world. We love that it's
beautiful, pure and completely recyclable. With global headquarters
in Perrysburg, Ohio, we are the preferred partner for many of the
world's leading food and beverage brands. Working hand in hand with
our customers, we give our passion and expertise to make their
bottles iconic and help build their brands around the world. With
more than 26,500 employees at 77 plants in 23 countries, O-I has
global impact, achieving revenues of $6.9 billion in 2018. 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 as well as
certain retained corporate cost. 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
five to seven 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 Brexit, 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 data privacy, 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 ability of the Company and the third
parties on which it relies for information technology system
support to prevent and detect security breaches related to
cybersecurity and data privacy, (15) the Company's ability to
accurately estimate its total asbestos-related liability or to
control the timing and occurrence of events related to outstanding
asbestos-related claims, including but not limited to settlements
of those 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 Company's Annual Report on Form
10-K for the year ended December 31, 2018 and any subsequently
filed Quarterly Report on Form 10-Q.
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 segment operating profit of reportable
segments ("segment operating profit") are non-GAAP financial
measures. See tables included in this release for reconciliations
to the most directly comparable GAAP measures.
[2] The Company
is unable to present a quantitative reconciliation of its
forward-looking non-GAAP measure, EBITDA, to its most directly
comparable GAAP financial measure, Net Earnings, because management
cannot reliably predict all of the necessary components of this
GAAP financial measure without unreasonable efforts. Net Earnings
includes several significant items, such as restructuring, asset
impairment and other charges, charges for the write-off of finance
fees, and the income tax effect on such items. The decisions and
events that typically lead to the recognition of these and other
similar items are inherently unpredictable. Accordingly, the
Company is unable to provide a reconciliation of EBITDA to Net
Earnings or address the probable significance of the unavailable
information, which could be material to the Company's future
financial results.
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2Q 2019 O-I Earnings Release
O-I Logo
2Q 2019 O-I Earnings Presentation
This
announcement is distributed by West Corporation on behalf of West
Corporation 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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