FOR IMMEDIATE
RELEASE
O-I REPORTS SECOND
QUARTER 2017 RESULTS
Continued strong business performance and
favorable non-operational
tailwinds drive 2017 earnings guidance higher
PERRYSBURG, Ohio (July 31,
2017) - Owens-Illinois, Inc. (NYSE: OI) today reported
financial results for the second quarter ended June 30, 2017.
-
For the second quarter, earnings from continuing
operations were $0.85 per share (diluted), compared with $0.65 per
share in 2016, primarily driven by improved segment operating
profit and lower interest and tax expense.
-
Excluding certain items management considers not
representative of ongoing operations, adjusted earnings[1] were $0.75
per share, up 15 percent compared with prior year. This exceeded
management's second quarter guidance of $0.63 to $0.68 per share,
largely due to a four cent per share benefit from a tax audit
settled late in the quarter.
-
Net sales were $1.8 billion, on par with prior
year second quarter. Price increased 1 percent on a global basis,
which was offset by modestly lower sales volume and adverse
currency translation. For the year-to-date period, net sales
increased more than 50 basis points compared to 2016.
-
Earnings from continuing operations before
income taxes were $152 million for the second quarter compared with
$141 million for the same period in 2016, an increase of 8
percent.
-
Segment operating profit of reportable
segments1 for the
second quarter of 2017 was $252 million, an increase of 8 percent
compared with prior year. More than half of the increase was
generated in Latin America which benefited from sales gains and the
early adoption of a total systems cost approach to managing
structural costs. The 10 percent improvement in Europe was
primarily driven by higher production volume and continued success
in improving total systems costs.
-
The Company continues to successfully execute on
its strategic initiatives in commercial activities, end-to-end
supply chain management and working capital reduction. The focus on
total systems cost improvement is on track to yield $35 million to
$45 million in segment operating profit for the full year.
Successful program execution will allow the closure of the plant in
the Netherlands earlier than anticipated.
-
Interest expense was down 7 percent due to
on-going efforts to deleverage, as well as refinancings undertaken
over the past year.
-
The Company is raising its annual earnings
guidance to reflect continued solid operating performance,
favorable currency translation and a lower tax rate. The Company is
confirming its cash flow guidance.
"O-I has delivered a strong first half, reflecting
strong business performance from higher shipments and the benefits
of our total systems cost approach. We continue to focus on our
transformation efforts and reach performance levels that position
us for another year of improved financial results," said Andres
Lopez, CEO. "Our teams are driving sales volume in line with our
expectations, continued operating stability, and lower total
systems cost. The results of this can be seen in our significant
margin improvement. We have set the foundation for change and
expect additional investments and capability-building in
innovation, integration and organizational simplification to
accelerate our turnaround.
"With half of the year behind us, expected strong
business performance through the second half and favorable
non-operational tailwinds, we are raising our guidance on our
full-year earnings performance."
Second Quarter 2017
Results
Net sales in the second quarter of 2017 were $1.8
billion, similar to the prior year second quarter. On a global
basis, the 1 percent increase in price was offset by modestly lower
sales volume and adverse currency translation.
For the first half of 2017, the net sales increase
of more than 50 basis points reflects a stronger first quarter and
softer second quarter which was partly due to higher shipping days
in the first quarter.
In the second quarter, in Latin America, sales
volumes increased low single digits mainly due to higher spirits
and beer shipments. Growth was concentrated in Mexico, which
reported record sales. Another positive sign was reported in Brazil
where low single-digit growth in shipments in the quarter was
driven by gains in June. In Europe, shipments were nearly on par
with prior year, as expected. Sales volume in Asia Pacific declined
primarily due to lower domestic sales in China, as production was
exported to support sales to mature markets.
North America sales volume declined due to lower shipments and the
ongoing unfavorable mix seen in prior quarters. Shipments declined
primarily due to a fewer number of shipping days in the quarter and
lower sales of returnable bottles in Canada.
The Company is mitigating the impact of the
ongoing decline in megabeer in the U.S. by positioning itself to
benefit from the growing market of U.S. beer imports through its
joint venture with Constellation Brands and long-term sales
contracts in Mexico. In the first half of 2017, shipments in beer
for North America, plus Mexico and the JV with CBI are up
mid-single digits.
The Company continues to make solid progress on
executing its strategic initiatives. Commercial efforts continue to
ramp up, supporting market-plus volume growth through the first
half of the year. The Company's focus on end-to-end supply chain
cost reductions contributed approximately $18 million in cost
savings in the first half of 2017. And, lower levels of inventory
at the end of the second quarter, in terms of days sales, suggest
good progress towards the Company's full year target.
Segment operating profit was $252 million in the
second quarter, 8 percent higher than prior year second
quarter.
-
Europe reported segment operating profit of $80
million, which was $7 million, or 10 percent higher than the prior
year quarter. As expected, the change in price essentially matched
the change in cost inflation during the quarter, a significant
improvement from the price-cost headwind reported in the first
quarter of 2017. In the second quarter, the benefits from a total
systems cost approach led to lower manufacturing spending and
higher production, which together generated the very strong results
for the quarter.
-
Segment operating profit for North America was
$92 million in the quarter, on par with the second quarter of 2016.
The North American business has been quite resilient in light of
ongoing pressure from domestic beer market demand. The region has
benefited from its well positioned exposure to beer imports from
Mexico, progress on improving logistics costs and minor sales of
non-strategic assets. The region continues to invest in flexibility
and reliability of manufacturing assets so as to improve its
alignment with market needs and deliver long-term
profitability.
-
Latin America reported segment operating profit
of $69 million, exceeding the prior year quarter by $12 million or
21 percent. The region benefitted from the aforementioned increase
in sales volumes. Cost inflation continued to impact performance in
the second quarter, even as price increases are being adopted.
Separately, the region has performed well due to its early adoption
of a total systems cost approach to structural cost
reductions.
-
Segment operating profit in Asia Pacific was $11
million, in line with the second quarter of the prior year. Sales
volume declined due to fewer shipping days and also to lower
domestic sales in China as production there was exported to support
sales in Australia and New Zealand. This was essentially offset by
the combined benefits of higher production volume and cost
containment.
Retained corporate and other costs were $28
million in the second quarter, modestly higher than prior year due
to lower equity earnings.
Net interest expense in the quarter was $62
million, down $5 million from the second quarter of 2016, primarily
due to deleveraging and refinancing actions taken in the last 12
months.
The provision for income taxes was $9 million, a
decrease of $21 million from the prior year. The Company settled a
non-U.S. tax audit late in the second quarter of 2017, in which the
Company paid $6 million in cash during the quarter, and reduced an
accrual for potential tax exposure by approximately $20 million.
Management considers this benefit not representative of ongoing
operations, similar to its treatment when the accrual was
established in years past. In light of the settlement, the Company
also reversed $7 million of certain deferred tax liabilities, which
benefited adjusted EPS by about 4 cents.
Adjusted net earnings[2] were $0.75
per share in the second quarter, up 15 percent compared with prior
year. This continues the trend of rising year-on-year adjusted
earnings reported by the Company.
Outlook
Today, a European subsidiary of the Company sold
to a third party its right, title and interest in amounts due under
its arbitration award against Venezuela. As consideration, the
subsidiary received a cash payment of $115 million, and retains a
modest potential upside depending upon recovery of the award. In
the event the award is partially or completely annulled, the
subsidiary may be required to repay up to the entire amount of the
cash payment to the third party. Consistent with the current
emphasis on deleveraging, the Company intends to use the after-tax
proceeds of the cash payments to reduce outstanding borrowings
under its revolving line of credit.
The Company is increasing its annual guidance for
earnings and confirming its annual guidance for cash flow.
The Company now expects earnings from continuing
operations attributable to the company (diluted) for the full year
2017 to be in the range of $2.37 to $2.47 per share. Excluding
certain items from the first half of 2017 that management considers
not representative of ongoing operations, this equates to adjusted
earnings per share[3] for full
year 2017 in the range of $2.55 to $2.65. The Company expects cash
provided by continuing operating activities for 2017 to be
approximately $750 million and adjusted free cash flow[4] to be
approximately $365 million. The earnings and cash flow guidance
ranges reflect uncertainty in macroeconomic conditions and currency
rates, among other external factors.
Conference Call Scheduled for
Aug. 1, 2017
O-I CEO Andres Lopez and CFO Jan Bertsch will conduct a conference
call to discuss the Company's latest results on Tuesday, Aug. 1,
2017, 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 Aug. 1. 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 third quarter 2017 earnings conference call
is currently scheduled for Tuesday, October 24, 2017, at 8:00 a.m.
EDT.
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 $6.7 billion in 2016 and employs more than 27,000
people at 79 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), provision for 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) the Company's ability to realize
expected growth opportunities, cost savings and synergies from the
Vitro Acquisition, (2) foreign currency fluctuations relative to
the U.S. dollar, (3) changes in capital availability or cost,
including interest rate fluctuations and the ability of the Company
to refinance debt at favorable terms, (4) 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 capital markets,
disruptions in the supply chain, competitive pricing pressures,
inflation or deflation, and changes in tax rates and laws, (5) the
Company's ability to generate sufficient future cash flows to
ensure the Company's goodwill is not impaired, (6) consumer
preferences for alternative forms of packaging, (7) cost and
availability of raw materials, labor, energy and transportation,
(8) the Company's ability to manage its cost structure, including
its success in implementing restructuring plans and achieving cost
savings, (9) consolidation among competitors and customers, (10)
the Company's ability to acquire businesses and expand plants,
integrate operations of acquired businesses and achieve expected
synergies, (11) unanticipated expenditures with respect to
environmental, safety and health laws, (12) the Company's ability
to further develop its sales, marketing and product development
capabilities, (13) the Company's ability to prevent and detect
cybersecurity threats against its information technology systems,
(14) the Company's ability to accurately estimate its total
asbestos-related liability or to control the timing and occurrence
of events relates to asbestos-related claims, (15) changes in U.S.
trade policies, (16) the Company's ability to achieve its strategic
plan, and the other risk factors associated with the business
described in the Company's annual report on Form 10-K, quarterly
reports on Form 10-Q and current reports on Form 8-K filed with the
SEC. 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] See table
entitled Reconciliation to Adjusted Earnings and Constant
Currency.
[3] See table
entitled Reconciliation to Expected Adjusted Earnings - FY17
Forecast.
[4] Adjusted
free cash flow is a non-GAAP financial measure defined as cash
provided by continuing operating activities less additions to
property, plant and equipment plus asbestos-related payments (all
components as determined in accordance with GAAP). See table
entitled Reconciliation to Adjusted Free Cash Flow.
2Q 2017 Earnings Release
O-I Logo
2Q 2017 Earnings Presentation
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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