FOR IMMEDIATE
RELEASE
O-I REPORTS FIRST
QUARTER 2016 RESULTS
Operations improve
Acquisition delivers
Results surpass expectations
Guidance for 2016 increases
PERRYSBURG, Ohio (May 2,
2016) - Owens-Illinois, Inc. (NYSE: OI) today reported
financial results for the first quarter ended March 31,
2016.
First Quarter Highlights
-
Earnings from continuing operations were $0.42
per share (diluted)
-
Earnings from continuing operations on an
adjusted basis[1] were $0.48
per share, which exceeded management's guidance of $0.37 to $0.42
per share, due to strong business performance
-
Record first quarter adjusted earnings in recent
history, on a constant currency basis; up 33 percent compared with
prior year
-
Net sales were $1.6 billion, up 12 percent from
the prior year first quarter
-
Sales volumes increased by 14 percent compared
with the first quarter of 2015
-
Excluding the acquisition of Vitro's food and
beverage business (the "acquired business"), sales volumes were on
par with prior year and in line with full year expectations
-
Segment operating profit margin expanded 150
basis points versus prior year, driven by stability and operational
performance of the business as well as the addition of the
acquisition
-
Segment operating profit improved across all
regions on a constant currency basis, increasing $54 million
year-over-year
-
Solid progress continues against the strategic
plan; improvements on track
-
The Company now expects adjusted earnings per
share for full year 2016 to be in the range of $2.25 to $2.35, up
from prior $2.10 to $2.25 guidance; free cash flow guidance
increased $20 million to approximately $300 million
-
The Company will amend its Annual Report on Form
10-K for the year ended
December 31, 2015 in order to record its total asbestos-related
liability in relevant prior periods
Commenting on the Company's first quarter results
and outlook, CEO Andres Lopez stated, "We delivered solid
improvement in our financials this quarter thanks to the hard and
disciplined work of our teams that are focused on stabilizing and
improving our operational performance. The momentum we are building
gives us confidence that our strategy - designed to generate
significant, long-term value across the company - is taking hold.
In fact, our expectations for strong business performance plus the
recent dollar weakening have favorably impacted our full year
guidance for both adjusted earnings per share and free cash flow
generation. We will continue our focus on execution to achieve our
financial commitments."
First Quarter 2016
Results
On a reported basis, the Company reported first
quarter 2016 earnings from continuing operations of $0.42 per share
(diluted). Excluding certain items management considers not
representative of ongoing operations, adjusted earnings were $0.48
per share, which compares favorably to management's guidance of
$0.37 to $0.42 per share due to strong business performance and
more favorable currency expectations.
Net sales in the first quarter of 2016 were $1.6
billion, up $167 million, or 12 percent, from the prior year first
quarter. In constant currency terms, net sales of the legacy
business (which excludes the acquired business) was up 1 percent;
unfavorable currency translation adversely impacted net sales by
$62 million, or 4 percent. Price was up about 1 percent on a global
basis, essentially offsetting cost inflation. In the quarter,
the acquired business generated $210 million in net sales, which is
13 percent of global net sales.
Global shipments were in line with management
expectations. Global sales volume increased by 14 percent
year-over-year. Including the acquired business, first quarter
sales volumes improved in North America by 9 percent and in Latin
America by 85 percent.
Excluding the acquired business, global shipments
were about flat to the prior year first quarter. Shipments in
Europe and Asia Pacific increased modestly, driven by higher beer
and non-alcoholic beverage shipments in Europe and by wine in Asia
Pacific. Sales volume for the North America legacy business was on
par with the prior year quarter as higher wine and food shipments
offset lower shipments in other categories. First quarter shipments
for the Latin America legacy business were down about 5 percent as
lower shipments in Brazil were partially offset by higher shipments
in the Andean region.
Segment operating profit was $211 million in the
first quarter, $43 million higher than prior year first quarter.
Adverse currency translation, primarily in Latin America, impacted
segment operating profit by $11 million compared with the first
quarter of prior year.
The outperformance was primarily driven by the
strong results of the acquired business and Europe, with all
regions reporting improvement on a constant currency basis.
-
The acquired business contributed approximately
$42 million of operating profit in the quarter. This puts it on
pace to exceed management expectations of $140 million to $145
million for the year. Strong domestic sales, the successful ramp up
of the new furnace in Monterrey and cost synergies all contributed
to performance.
-
Europe reported a $6 million improvement in
segment operating profit, a much better result than initial
guidance suggested. Operating performance significantly improved in
the first quarter; Europe had improved asset stability from prior
year investments and this resulted in less production downtime. The
region also benefited from reduced discretionary spending. Average
selling prices in Europe were comparable year-over-year. However,
there is a continuation of pricing dynamics that will impact the
remainder of 2016, although less severe than prior year. Price-cost
spread was almost flat, partially due to energy
deflation.
-
Segment operating profit for North America was
$5 million higher than the prior year first quarter. The
improvement was driven by the acquired business. The legacy
business continued operating well and reported solid results in
line with prior year.
-
Latin America's segment operating profit
improved $33 million, more than doubling the prior year profit. The
acquired business contributed $37 million of operating profit.
Currency translation was a $9 million headwind compared with the
first quarter of prior year. The legacy business delivered a very
solid performance, offsetting more than half of the currency
headwind - despite the well-known challenging economic situation in
Brazil. Positive performance of the Andean countries clearly
contributed to the strong results for the region. The management
team undertook actions to improve operating results by reducing
discretionary spending and right-sizing production, particularly in
Brazil. This led to year on year margin improvement for the legacy
business.
-
In Asia Pacific, segment operating profit,
excluding the impact of foreign currency, increased $1 million year
over year due to higher sales and production volumes.
Retained corporate and other costs increased by
$11 million compared with the prior year quarter. While the
business results were favorably impacted by the weakening U.S.
dollar late in the quarter, the effect of foreign currency hedges,
which are mainly reflected in corporate costs, adversely impacted
costs compared with prior year. Additionally, higher management
incentive accruals driven by higher full year projections also
increased corporate and other costs.
Net interest expense in the quarter was $66
million, up $19 million from the first quarter of the prior year,
entirely due to acquisition-related interest expense. The Company
continues to benefit from low variable interest rates.
The effective tax rate on adjusted earnings was
approximately 27 percent. The effective tax rate was higher than
the first quarter of 2015, mainly reflecting the geographic mix of
earnings and the Mexican statutory tax rate of 30 percent.
Outlook
The Company now expects adjusted earnings per
share for full year 2016 to be in the range of $2.25 to $2.35 which
is higher than prior guidance of $2.10 to $2.25. The updated range
reflects multiple factors, including strong business performance,
favorable currency assumptions, and a tax rate on the low end of
the guidance range of 26 to 28 percent. The adjusted EPS range also
reflects uncertainty in macroeconomic conditions. Reflecting the
aforementioned assumptions, the Company expects free cash flow for
2016 to be approximately $300 million which exceeds the prior
guidance of approximately $280 million.
Amendment of 2015 Form 10-K;
Asbestos-related Liabilities
Since June 2015 the Company has been engaged in an
ongoing dialogue with the staff of the Securities and Exchange
Commission ("SEC staff") concerning how the Company estimates
its asbestos-related liability. Beginning in 2003, the
Company has estimated its asbestos-related liability based on an
annual analysis of how far in the future it could reasonably
estimate the number of claims it expected to receive.
Subsequent to the filing of its Annual Report on Form 10-K for the
year ended December 31, 2015 ("2015 Annual Report"), the Company
was informed by the SEC staff that they believe that, under the
applicable accounting pronouncement, the Company should consider
all claims without limitation to a specific time period. In light
of these discussions, the Company has concluded that its method for
estimating its future asbestos-related liability was not consistent
with the applicable accounting pronouncement. With the assistance
of an external consultant, and utilizing a model with actuarial
inputs, the Company has developed a new method for reasonably
estimating its total asbestos-related liability. Using the new
model, the Company's total asbestos-related liability, without
limitation to a specific time period, is expected to be $806
million as of March 31, 2016. This is $295 million higher than the
estimation method used previously that used a four year future
period.
In light of the foregoing, the Company will amend
its 2015 Annual Report to restate the financial statements
contained therein to reflect the effects of its new method for
estimating its total asbestos-related liability and to make certain
corresponding disclosures related thereto. The Company is still
considering the effects of the restatement of prior period
financial statements for this correction. The Company believes that
these corrections will have no impact on the Company's future
asbestos payments or free cash flow. In addition, the Company
expects its asbestos-related payments to continue declining year
after year.
While the Company believes the new method
reasonably estimates its total asbestos-related liability, the
Company expects that, due to the uncertainties inherent in the
estimation process, future reviews of this liability may result in
additional adjustments to its total asbestos-related liability.
Conference Call Scheduled for May
3, 2016
O-I CEO Andres Lopez and CFO Jan Bertsch will conduct a conference
call to discuss the Company's latest results on Tuesday, May 3,
2016, 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 Presentations & Webcast
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 May 3. 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 second quarter 2016 earnings conference call
is currently scheduled for Thursday, July 28, 2016, 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 $6.2 billion in 2015 and employs 27,000 people at 80
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.
Regulation G
The information presented above regarding adjusted
EPS relates to net earnings from continuing operations attributable
to the Company (exclusive of items management considers not
representative of ongoing operations) divided by weighted average
shares outstanding (diluted) and does not conform to U.S. generally
accepted accounting principles (GAAP). Management has included this
non-GAAP measure to assist in understanding the comparability of
results of ongoing operations. Further, the information presented
above regarding free cash flow does not conform to GAAP. Management
defines free cash flow as cash provided by continuing operating
activities less capital spending (both as determined in accordance
with GAAP) and has included this non-GAAP information to assist in
understanding the comparability of cash flows. Management uses
non-GAAP information principally for internal reporting,
forecasting, budgeting and calculating compensation payments.
Management believes that the non-GAAP presentation allows the board
of directors, management, investors and analysts to better
understand the Company's financial performance in relationship to
core operating results and the business outlook. These non-GAAP
financial measures are presented on a forward-looking basis and
certain factors that could affect GAAP financial measures are not
accessible or estimable on a forward-looking basis. These factors
include items that may be material, such as future asbestos-related
charges and restructuring and asset impairment and other related
charges.
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 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 integrate the Vitro Business in a timely
and cost effective manner, to maintain on existing terms the
permits, licenses and other approvals required for the Vitro
Business to operate as currently operated, and to realize the
expected synergies from the Vitro Acquisition, (2) risks related to
the impact of integration of the Vitro Acquisition on earnings and
cash flow, (3) risks associated with the significant transaction
costs and additional indebtedness that the Company incurred in
financing the Vitro Acquisition, (4) the Company's ability to
realize expected growth opportunities and cost savings from the
Vitro Acquisition, (5) foreign currency fluctuations relative to
the U.S. dollar, specifically the Euro, Brazilian real, Mexican
peso, Colombian peso and Australian dollar, (6) changes in capital
availability or cost, including interest rate fluctuations and the
ability of the Company to refinance debt at favorable terms, (7)
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, (8) consumer preferences for alternative
forms of packaging, (9) cost and availability of raw materials,
labor, energy and transportation, (10) the Company's ability to
manage its cost structure, including its success in implementing
restructuring plans and achieving cost savings, (11) consolidation
among competitors and customers, (12) the ability of the Company to
acquire businesses and expand plants, integrate operations of
acquired businesses and achieve expected synergies, (13)
unanticipated expenditures with respect to environmental, safety
and health laws, (14) the Company's ability to further develop its
sales, marketing and product development capabilities, and (15) the
timing and occurrence of events which are beyond the control of the
Company, including any expropriation of the Company's operations,
floods and other natural disasters, events related to
asbestos-related claims, and the other risk factors discussed in
the Company's Annual Report on Form 10-K for the year ended
December 31, 2015, any subsequently filed Quarterly Report on Form
10-Q and the Company's other filings with the SEC. It is not
possible to foresee or identify all such factors. In addition, the
Company's management has not yet completed its assessment of the
error in the previously filed financial reports discussed in this
document. The actual amount of the Company's assessment of its
total asbestos-related liability at March 31, 2016 and the expected
impact of the restatement, including on the financial results for
the quarterly period ended March 31, 2016, could differ from the
discussion in this document. 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 refers to earnings from continuing operations attributable
to the Company, excluding items management does not consider
representative of ongoing operations. See the table entitled
Reconciliation to Adjusted Earnings and Constant Currency in this
release.
1Q16 Earnings Release
O-I Logo
1Q16 Earnings Presentation
This
announcement is distributed by NASDAQ OMX Corporate Solutions on
behalf of NASDAQ OMX 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
HUG#2009141
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