FOR IMMEDIATE RELEASE
O-I Glass, Inc. (NYSE: OI) today reported
financial results for the full year and fourth quarter ended Dec.
31, 2019.
“O-I’s 2019 earnings were in line with our most
recent guidance and cash flows exceeded expectations. We made
significant progress during the second half of the year, ending on
a positive note despite a very challenging start to 2019,”
said Andres Lopez, CEO.
“As we enter 2020, we are taking bold structural
actions to improve O-I’s business fundamentals. We are
optimizing the company’s business portfolio and capital structure
through accretive acquisitions and divestitures of assets that are
not core to our strategy. Likewise, our recent corporate
modernization effort, which rebranded the company as O-I Glass,
supported January’s actions to establish a final, certain and
equitable resolution of our legacy asbestos-related claims
liabilities. We are focused on improving our operating performance
with key turnaround initiatives including revenue optimization,
factory performance and cost transformation. Furthermore, we intend
to revolutionize glass, supported by our new MAGMA technology and
leveraging glass’s clear advantages as a highly sustainable
packaging choice. The combination of these efforts will drive
improved operating performance and cash flow generation in 2020 and
beyond,” said Lopez.
Comments
- For the full year 2019, the company recorded a loss from
continuing operations of $2.56 per share, compared with earnings of
$0.89 per share (diluted) in 2018. Both periods included items
management considers not representative of ongoing operations.
- Excluding certain items management considers not representative
of ongoing operations, 2019 adjusted earnings1 were $2.24 per
share, compared with the prior year of $2.72 per share.
Current year results were in line with the company’s guidance of
$2.20 to $2.25 per share.
- Cash provided by continuing operating activities for 2019 was
$408 million, compared with $793 million for 2018. Adjusted
free cash flow1 for 2019 was $133 million, which solidly exceeded
the company’s expectation of approximately $100 million, compared
with $362 million for 2018.
- 2019 Key Accomplishments:
- O-I continued to optimize its business portfolio and capital
structure. The addition of Nueva Fanal further aligned O-I to the
growing premium beer category in Mexico. As part of the company’s
ongoing tactical divestiture program, O-I sold its interest in a
soda ash joint venture with proceeds used to reduce debt. O-I also
advanced its strategic portfolio review to improve the company’s
competitive position and create shareholder value. This review
includes the evaluation of alternatives for O-I’s Australia and New
Zealand operations which the company expects to resolve by
mid-2020. Following refinancing activities, including the first
high-yield industrial Green Bond by a U.S. issuer, the company has
significantly improved liquidity, reduced interest costs and
extended near term maturities.
- In December 2019, the company completed a corporate
modernization effort which resulted in the creation of O-I Glass,
the new public company. In January 2020, Paddock Enterprises, LLC,
a new subsidiary containing all of the company’s legacy
asbestos-related claims liabilities, voluntarily filed for Chapter
11 relief with the aim of establishing a final, certain and
equitable resolution for the company’s asbestos-related claims
liabilities. This action does not include O-I Glass or any of its
operating subsidiaries which continue to operate business as
usual.
- O-I is driving profitable growth with key strategic customers
supported by capacity expansion initiatives across South America
and Europe.
- The company has initiated several turnaround portfolio
initiatives to improve operating performance. The company has
identified over $150 million of benefits over the next 3 years,
and is targeting between $35 and $50 million of net benefits
in 2020.
- The first commercial products were delivered utilizing the
company’s new MAGMA technology. Building from this important
milestone, the company announced the deployment of MAGMA to its
second location at Holzminden, Germany which should start
production in the second half of 2020.
- On February 4, 2020, the company’s Board of Directors declared
a quarterly cash dividend of $0.05 per share, payable on March 16,
2020, to stockholders of record as of the close of business on
February 28, 2020.
- O-I expects full year 2020 adjusted earnings will be
approximately $2.10 – $2.25 per share. Cash provided by
continuing operating activities is expected to exceed $650 million
and free cash flow1 should approximate or exceed $300
million.
Full Year 2019 Results
Full year net sales were $6.7 billion compared
to $6.9 billion in 2018. Higher selling prices increased revenue
$176 million reflecting a 2.6 percent increase in average selling
prices on a global basis. However lower shipments negatively
impacted sales by $96 million as sales volume in tonnes declined
0.6 percent. Sales volumes reflected the net effect of a 1.7
percent decline in organic sales volumes and the benefit of Nueva
Fanal. Unfavorable foreign currency translation reduced net
sales by $239 million compared to 2018.
Segment operating profit was $841 million in
2019, compared with $945 million in the prior year.
- Americas: Segment operating profit in the Americas was
$495 million in 2019 compared with $585 million in 2018. Lower
earnings primarily reflected incremental operating costs which more
than offset the benefit from higher selling prices (net of cost
inflation) and higher sales volumes. Total sales volumes in tonnes
improved 0.4 percent as additional shipments attributed to the
Nueva Fanal acquisition in mid-2019 more than offset a modest
decline in organic sales volumes primarily due to lower demand in
the North American beer category. Operating costs were unfavorably
impacted by increased operating complexity following mix changes in
North America, incremental costs to commission new capacity and
market-related production downtime to balance supply with lower
organic sales volumes. Earnings were also unfavorably impacted by
foreign currency translation and temporary items that benefited
2018 but did not repeat in 2019, including a favorable resolution
on indirect tax matters in Brazil.
- Europe: Segment operating profit in Europe was $317
million in 2019 compared with $316 million in 2018. Reflecting
Europe’s focus on improving mix, sales benefited from higher
selling prices (net of cost inflation), which more than offset the
unfavorable impact of lower sales volume and slightly higher
operating costs. Sales volumes in tonnes declined 1.8 percent and
were negatively impacted by weather-related factors in mid-2019 as
well as capacity constraints across the network. Earnings were also
unfavorably impacted by foreign currency translation and temporary
items that benefited 2018, but did not repeat in 2019, including
CO2 credit sales.
- Asia Pacific: Segment operating profit in Asia Pacific
was $29 million in 2019 compared with $44 million in 2018. Lower
earnings primarily reflected a decline in selling prices, cost
inflation and slightly lower shipments. Sales volume in tonnes
declined 0.4 percent. Earnings also reflected unfavorable
foreign currency translation.
Retained corporate and other costs were $97
million in 2019 compared with $106 million for 2018, reflecting
efforts to mitigate costs and lower management incentive
expense. Interest expense was $311 million in 2019 or $246
million after excluding $65 million of charges for note repurchase
premiums, write-off of finance fees and third party fees, compared
to interest expense of $261 million in 2018 or $250 million after
excluding $11 million of charges for note repurchase premiums,
write-off of finance fees and third party fees. The company’s
effective tax rate was negative 45.2 percent in 2019 compared to
39.0 percent in 2018. Excluding items that management does
not consider representative of ongoing operations, the effective
tax rate was 25.7 percent in 2019, which was higher than 20.8
percent in 2018 primarily due to changes in regional earnings
mix.
Cash provided by continuing operating activities
was $408 million for 2019 and $793 million in 2018. After deducting
cash payments for property, plant and equipment, and adding back
asbestos-related payments, adjusted free cash flow was $133 million
in 2019 and $362 million in 2018. Lower adjusted free cash flow
reflected a decline in operating profit, unfavorable foreign
currency translation and higher working capital levels which was
partially offset by lower capital expenditures. $133 million of
adjusted free cash flow in 2019 was favorable to O-I’s most recent
guidance of approximately $100 million reflecting working capital
management efforts in the second half of the year. Importantly,
2019 results were net of a $61 million decrease in accounts
receivable factoring levels as the company rebalanced its overall
liquidity position.
Total debt was $5.6 billion at the end of 2019
compared to $5.3 billion in 2018. Net debt2 was $5.0 billion
compared to $4.8 billion in the prior year and was favorable to the
company’s most recent guidance of approximately $5.1 billion. At
year-end 2019, O-I maintained approximately $2.0 billion in
liquidity including cash and lines of credit.
In both 2019 and 2018, the company recorded
several significant items impacting reported results as presented
in the table entitled Reconciliation to Adjusted Earnings.
Management considers these items not representative of ongoing
operations and they are excluded from adjusted earnings. In 2019,
the most significant items excluded from adjusted earnings were a
$595 million non-cash charge for goodwill impairment of the North
America reporting unit, $113 million for restructuring, asset
impairment and other costs and $65 million of debt refinancing
expense. Also excluded were $93 million of charges for a number of
other items including corporate modernization expense, non-cash
pension settlement charges and adjustments for asbestos-related
liabilities. Asset sales resulted in $107 million of gains that
were also excluded from 2019 adjusted earnings. In 2018, charges
excluded from adjusted earnings reflected $125 million for
asbestos-related liabilities, $74 million of non-cash pension
settlement charges, and $102 million for restructuring, asset
impairment and other charges, primarily related to the Americas
region.
Fourth Quarter 2019 Results
Net sales in the fourth quarter of 2019 were
$1.6 billion, flat to the prior year period. Higher selling prices
increased revenue $42 million, reflecting a 2.6 percent increase in
average selling prices on a global basis. However the net effect of
shipments and mix changes negatively impacted sales by $5 million,
as sales volume in tonnes increased 1.1 percent. Sales volumes
reflected the benefit of Nueva Fanal which was partially offset by
a 0.8 percent decline in organic sales volumes. Unfavorable
foreign currency translation reduced net sales by $20 million
compared to 2018.
For the fourth quarter 2019, the company
recorded earnings from continuing operations of $0.20 per share
(diluted), which compares with a loss from continuing operations of
$0.79 per share (diluted) in the same period of 2018. Earnings from
continuing operations before income taxes was $65 million in the
quarter, compared with a loss of $105 million in the same period in
the 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 $0.50
per share in the fourth quarter of 2019 compared to $0.61 per share
in the prior year period. These results were at the high-end of the
company’s most recent guidance range of $0.45 to $0.50. Compared to
the prior year, earnings reflected higher selling prices (net of
cost inflation) and higher shipments which more than offset
elevated operating costs. However, results were negatively impacted
by a number of other factors. Temporary items that benefited
2018 did not repeat in 2019. Likewise, the fourth quarter tax
rate was elevated compared to the prior year due to a change in
regional earnings mix and discrete tax items that benefited 2018
but did not repeat in 2019.
Segment operating profit was $200 million in the
fourth quarter, compared to $211 million in the prior year fourth
quarter.
- Americas: Segment profit in the Americas was $115 million
in 2019 compared to $127 million in the prior year. The benefit
from higher selling prices (net of cost inflation) and higher sales
volumes partially offset the impact of elevated operating costs.
Total shipments in tonnes were up approximately 3.5 percent as
organic volumes were about flat net of Nueva Fanal. Operating costs
were elevated reflecting market-related downtime to rebalance
supply with lower demand earlier in the year including two furnaces
stopped during the fourth quarter. Earnings benefited from
favorable foreign currency translation which mostly offset the
unfavorable impact of temporary items that benefited 2018 but did
not repeat in 2019.
- Europe: Segment profit in Europe was $69 million in 2019
compared to $56 million in the prior year. Higher earnings
reflected improved selling prices (net of cost inflation) which
more than offset a modest decline in shipments. Sales volume
in tonnes declined 1.8 percent as the region continued to focus on
mix improvement. Earnings were also unfavorably impacted by foreign
currency translation and temporary items that benefited 2018 but
did not repeat in 2019.
- Asia Pacific: Segment profit in Asia Pacific was
$16 million in 2019 compared to $28 million in the prior year.
Lower earnings reflected elevated operating costs and incremental
cost inflation while selling prices remained flat. These factors
were partially offset by a slight increase in shipments. Sales
volume in tonnes increased 1.1 percent and elevated costs reflected
market-related downtime to align supply with weaker than expected
demand in China linked to macroeconomic pressures. Earnings also
reflected unfavorable foreign currency translation.
2020 Outlook
O-I expects full year 2020 adjusted earnings
will be in the range of $2.10 to $2.25 per share. This
outlook assumes higher selling prices (net of cost inflation) as
well as sales volumes that will be flat to up 2 percent supported
by capacity expansion initiatives and a full year of Nueva
Fanal. Likewise, the company expects improved operating costs
reflecting several turnaround initiatives as well as footprint
adjustments in North America that were taken in 2019 to address
unfavorable trends in the beer category. While these factors should
boost results in 2020, comparisons to 2019 will be impacted by
temporary items that benefited 2019 but will not repeat in 2020,
resetting management incentives and the loss of income from the
recently divested soda ash joint venture.
Cash provided by continuing operating activities
is expected to exceed $650 million in 2020. The outlook
assumes capital expenditures of approximately $350 to $375 million
and the suspension of all asbestos-related claims payments, pending
final resolution. The Company anticipates 2020 free cash flow
of approximately $300 million or higher.
This outlook assumes foreign currency rates as
of the end of January 2020. The earnings and cash flow guidance
ranges may not fully reflect uncertainty in macroeconomic
conditions and currency rates, among other factors.
Conference Call Scheduled for February 5,
2020
O-I CEO Andres Lopez and CFO John Haudrich will
conduct a conference call to discuss the company’s latest results
on Wednesday, February 5, 2020, 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 February 5, 2020. 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 first quarter 2020 earnings conference
call is currently scheduled for Wednesday, April 29, 2020, at 8:00
a.m. EST.
About O-I Glass
At O-I Glass, 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 and 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 27,500 people at 78 plants in 23
countries, O-I has a global impact, achieving revenues of $6.7
billion in 2019. 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, net debt, free cash flow 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. Net Debt is
defined as gross debt less cash. Management uses adjusted
earnings, adjusted earnings per share, segment operating profit,
segment operating profit margin and net debt 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, segment operating
profit margin and net debt 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, free cash flow relates to cash provided
by continuing operating activities less additions to property,
plant and equipment. Adjusted free cash flow relates to cash
provided by continuing operating activities less additions to
property, plant and equipment plus asbestos-related payments.
Management has historically used adjusted free cash flow to
evaluate its period-over-period cash generation performance because
it believes this has provided a useful supplemental measure related
to its principal business activity. Free cash flow and
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. It should not be
inferred that the entire free cash flow or 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 press release contains “forward-looking”
statements related to O-I Glass, Inc. (“O-I Glass” or the
“company”) 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 that the company’s future
financial performance may differ from expectations due to a variety
of factors including, but not limited to the following: (1) the
company’s ability to obtain the benefits it anticipates from the
Corporate Modernization, (2) risks inherent in, and potentially
adverse developments related to, the Chapter 11 bankruptcy
proceeding involving the company’s wholly owned subsidiary Paddock
Enterprises, LLC (“Paddock”), that could adversely affect the
company and the company’s liquidity or results of operations,
including risks from asbestos-related claimant representatives
asserting claims against the company and potential for litigation
and payment demands against us by such representatives and other
third parties, (3) 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 the company’s obligations to
make payments to resolve such claims under the terms of its support
agreement with Paddock, (4) the company’s ability to manage its
cost structure, including its success in implementing restructuring
or other plans aimed at improving the company’s operating
efficiency and working capital management, achieving cost savings,
and remaining well-positioned to address the company’s legacy
liabilities, (5) the company’s ability to acquire or divest
businesses, acquire and expand plants, integrate operations of
acquired businesses and achieve expected benefits from
acquisitions, divestitures or expansions, (6) the company’s ability
to achieve its strategic plan, (7) foreign currency fluctuations
relative to the U.S. dollar, (8) changes in capital availability or
cost, including interest rate fluctuations and the ability of the
company to refinance debt at favorable terms, (9) 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, (10) the company’s
ability to generate sufficient future cash flows to ensure the
company’s goodwill is not impaired, (11) consumer preferences for
alternative forms of packaging, (12) cost and availability of raw
materials, labor, energy and transportation, (13) consolidation
among competitors and customers, (14) unanticipated expenditures
with respect to data privacy, environmental, safety and health
laws, (15) unanticipated operational disruptions, including higher
capital spending, (16) the company’s ability to further develop its
sales, marketing and product development capabilities, (17) the
failure of the company’s joint venture partners to meet their
obligations or commit additional capital to the joint venture, (18)
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, (19)
changes in U.S. trade policies, 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 Annual Report on
Form 10-K, Quarterly Reports 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 or
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, adjusted free cash flow, free
cash flow and segment operating profit are each non-GAAP financial
measures. See tables included in this release for reconciliations
to the most directly comparable GAAP measures.
1 Adjusted earnings per share, adjusted free cash flow, free
cash flow and segment operating profit are each non-GAAP financial
measures. See tables included in this release for reconciliations
to the most directly comparable GAAP measures.
2 Net Debt is defined as Total Debt less Cash. See tables
included in this release for reconciliations to the most directly
comparable GAAP measures.
3 See table entitled Reconciliation to Adjusted Earnings.
- 4Q 2019 O-I Earnings Presentation
- 4Q 2019 O-I Earnings Release
For more information, contact:
Chris Manuel
Vice President of Investor Relations
567-336-2600
Chris.Manuel@o-i.com
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