O-I Outlines Progress on Strategic Initiatives
Owens-Illinois, Inc. (O-I) recently announced several developments in strategic initiatives.
Owens-Illinois, Inc. (O-I) recently announced several developments in strategic initiatives. The initial phase of the project outlined to shareholders reportedly has been focused on enhancing financial flexibility through proactive liability management and stabilizing and improving top and bottom line business performance.
The company has improved its debt profile through the recent issuance of a €5 billion (~ $5.3 billion), eight-year, fixed-rate bond with a coupon of 3.125%. This transaction met all key objectives: increase the composition of fixed-rate debt to nearly two-thirds; augment the natural hedge to foreign currency exposure; repay higher-cost floating-rate debt; and extend the company’s debt maturity profile.
The company reportedly also continues to de-risk its pension plans. It recently settled approximately $200 million in pension obligations of the Owens-Illinois Hourly Retirement Plan This transaction occurred via the purchase of a group annuity contract with The Prudential Insurance Co. of America, a subsidiary of Prudential Financial, Inc., using plan assets that will transfer payment responsibility for retirement benefits owed to approximately 7,500 U.S. retirees and their beneficiaries. This settlement will reduce the plan’s pension obligations by 10-15%.
The company is continuing to reduce its asbestos-related liabilities. O-I reported a total asbestos-related liability of $817 million on its balance sheet at the end of 2015. During 2016, asbestos payments of approximately $125 million reportedly reduced this liability to less than $700 million. The company has preliminarily concluded that there will be no adjustment to the asbestos-related liability for 2016. Next year, expected payments of approximately $115 million will further decrease the liability.
The company’s strategic initiatives, particularly those related to manufacturing, reportedly remain a strong contributor to year-on-year operating profit gains. O-I continues to pivot toward the benefits of the supply chain and commercial initiatives that will drive incremental improvements in the next phase of the project. The company will launch its account management effort to positively impact relationships with customers by adopting service levels and integrating company resources aligned to the needs of key clients. O-I has reportedly renewed global agreements with several strategic customers, which fortifies management’s confidence in volume growth in 2017.
“We are very pleased with the progress we are making in achieving our short- and long-term financial goals,” said Jan Bertsch, chief financial officer (CFO). “As we wrap up 2016, we expect to be solidly within our guidance range for adjusted earnings. And, excluding asbestos payments, which relate to a legacy liability and not to the ongoing glass container operations, our adjusted free cash flow for full year 2016 would be approximately $425 million. This provides a better view of the cash generation potential of our business segments. Looking into next year and even into 2018, we anticipate the company’s financial performance will be entirely consistent with the key investor day metrics: continued margin expansion, 10% compound annual growth rate (CAGR) in adjusted earnings, and solid cash flow generation.”
For more information, visit www.o-i.com.