Owens-Illinois (OI) Q2 Earnings Lag Estimates, View Cut

Owens-Illinois, Inc. OI reported second-quarter 2019 adjusted earnings of 69 cents per share, which missed the Zacks Consensus Estimate of 76 cents. The bottom line also declined 10% from the prior-year quarter figure of 77 cents.

Operational Update

Net sales declined 1% year over year to $1,756 million, as favorable pricing was offset by unfavorable currency translation. The top line lagged the Zacks Consensus Estimate of $1,759 million.

Adjusted cost of sales declined 0.6% year over year to $1,422 million. Gross profit decreased 2% year over year to $334 million. Adjusted selling and administrative expenses contracted 6% year over year to $118 million.

Owens-Illinois, Inc. Price, Consensus and EPS Surprise

Owens-Illinois, Inc. Price, Consensus and EPS Surprise

Owens-Illinois, Inc. price-consensus-eps-surprise-chart | Owens-Illinois, Inc. Quote

Segment operating profit1 was $236 million in the reported quarter, down from $255 million in the prior year quarter owing to higher operating costs. 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. Adjusted operating profit remained flat at $198 million.

Segmental Performance

Net sales at the Americas segment improved 0.4% year over year to $934 million during the second quarter of 2019. Operating profit declined 5% year over year to $144 million.

Net sales at the Europe segment were $650 million, down 4% year over year in the reported quarter. Segment operating profit increased 11% year over year to $90 million.

Net sales in the Asia Pacific region decreased 1% year over year to $152 million in the reported quarter. Operating profit remained flat at $2 million from the year-ago quarter.

Financial Update

Owens-Illinois had cash and cash equivalents of $371 million at the end of the second quarter of 2019, down from $512 million at the end of 2018. The company utilized $662 million of cash in operating activities during the first half of 2019, compared with an outflow of $150 million in the quarter last year. The company’s long-term debt rose to $6.2 billion as of Jun 30, 2019, compared with $5.2 billion as of Dec 31, 2018.

Other Updates

Owens-Illinois completed the previously announced acquisition of Nueva Fanal. This 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. It is expected to contribute approximately $140 million of revenue and $40 million of EBITDA on an annual basis. The company has entered into a long-term agreement to supply glass to Grupo Modelo.

Outlook

For third quarter 2019, Owens-Illinois guides adjusted earnings per share at 60-65 cents. In the prior-year quarter, the company had reported earnings of 75 cents which 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 are not expected to be repeated in 2019. The benefit of higher selling prices, sales volume and contribution from Nueva Fanal acquisition is anticipated to be offset by increased operating costs and higher effective tax rate related to shifts in regional earnings mix.

The company lowered adjusted earnings per guidance to $2.40-$2.55 from its prior expectation of $3.00. Owens-Illinois had reported earnings per share of $2.72 in 2018. Cash provided by continuing operating activities for 2019 is expected to be in the range of $550 to $575 million and adjusted free cash flow to be at least $260 million.

Share Price Performance

Owens-Illinois’ stock has plunged 34.4% in the past year, compared with the industry’s decline of 31.4%.

Zacks Rank & Stocks to Consider

Owens-Illinois currently carries a Zacks Rank #4 (Sell).

A few better-ranked stocks in the Industrial Products sector are Albany International Corporation AIN, Unifirst Corporation UNF, and Cintas Corporation CTAS. While Albany International and Unifirst sport a Zacks Rank #1 (Strong Buy), Cintas carries a Zacks Rank #2 (Buy) at present. You can see the complete list of today’s Zacks #1 Rank stocks here.

Albany International has an estimated earnings growth rate of 32.3% for the ongoing year. The company’s shares have gained 8% in the past year.

Unifirst has a projected earnings growth rate of 15.17% for the current year. The stock has gained 2% in a year’s time.

Cintas Corporation has an expected earnings growth rate of 11.15% for the current year. The stock has appreciated 19% in a year’s time.

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