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Owens-Illinois Inks $188M Deal to Buy Mexican Glass Facility

Zacks Equity Research

Owens-Illinois, Inc. OI has entered into an agreement to acquire Mexico-based glass packaging facility — Nueva Fanal — from Grupo Modelo, a wholly-owned partner of Anheuser-Busch InBev SA/NV.
 
At present, the Nueva Fanal plant has four furnaces that produce and supply 300,000 tons of glass containers per year for Grupo Modelo brands such as Modelo Especial, Corona and Pacifico.

The cash-transaction deal, valued at around $188 million, is expected to close this year. This business will likely contribute around $140 million of revenues and $40 million EBITDA, annually. Further, Owens-Illinois will sign a long-term agreement to continue supplying glass containers to Grupo Modelo.
 
The latest acquisition is in line with Owens-Illinois’ strategy to invest in the sustainable growth of glass packaging by aiding customers to enable their growth in premium brands, like Corona, which is one of the fastest growing and most popular beer brands, globally. Moreover, the acquisition helps expands the Owens-Illinois’ presence in Mexican market.

Acquisitions: A Key Catalyst
 
On Nov 12, 2018, Owens-Illinois acquired 50% interest in Empresas Comegua S.A., for $119 million. Empresas caters to Owens-Illinois’ global strategic customers and various segments, including food, soft drinks, beer, spirits and pharmaceuticals. The buyout will help Owens-Illinois expand its presence into new and growing glass markets in Central America, and extend the company’s market presence in the Caribbean as well.

Moreover, on Mar, 11, 2019, the company made a $60-million investment plan to build a new furnace at its Gironcourt, France plant, which is slated to complete in early 2020. The expansion at Gironcourt will mainly focus on the growing premium beer segment which is highly differentiated and uses unique bottle shapes to build strong, premium brand equity. These investments, along with the Nueva Fanal glass-plant acquisition, open up near-term growth prospects for Owens-Illinois.

Alliance with Constellation Brands Drives Growth

Owens-Illinois’ joint venture (JV) plant with Constellation Brands, Inc. STZ has exceeded expectations so far — productivity has been higher than anticipated, capital costs were considerably lesser than initially expected and earnings have been growing every year.

Owens-Illinois has built four furnaces at this JV plant in just four years, and is currently building the fifth one which is expected to come on line by the end of 2019. The fifth furnace will help cater to the rising demand from Constellation`s adjacent brewery. With the installation of the latest furnace, the Nava plant will be the largest glass-container factory in the world, equipped with all the latest facilities.

Robust End Markets to Sustain Growth

The glass container market in Europe is healthy and continues to grow at a rate of about 1% per year. The company’s efforts to add capacity in Europe, supply-chain performance, focus on growing strategic relationships and footprint optimization poise it well for improving volumes and expanding margins in the region.

Considering the rising market demand in Mexico and Brazil, the company is boosting its capacity. In the United States, demand for glass is shooting up, on the back of favorable consumer trends and increased preference of customers for glass packaging. Non-beer categories in the nation continue to grow in low-single digits.

Consequently, the company has been focusing on these categories by improving customer relationships, commercial and design capabilities, and converting almost 20% of its beer capacity into flexible capacity to meet non-beer customer demand. Overall, the Americas are expected to generate higher sales, profit and margin in the coming year.

Coming to the price performance, shares of this Zacks Rank #3 (Hold) company have lost 9.9% over the past year, compared with the industry’s decline of 10.7%.



Stocks to Consider

A few better-ranked stocks in the Industrial Products sector are Mueller Industries, Inc MLI and Albany International Corp. AIN, each sporting a Zacks Rank #1 (Strong Buy), at present. You can see the complete list of today’s Zacks #1 Rank stocks here.

Mueller Industries has an expected earnings growth rate of 2.2% for 2019. The company’s shares have rallied 21%, over the past year.

Albany International has an estimated earnings growth rate of 44.7% for the ongoing year. The company’s shares have gained 14%, in the past year.

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