Ceramic Industry

O-I Reports Improved Segment Operating Profit in 3rd Qtr (posted 11/10/09)

November 10, 2009

Owens-Illinois Inc. (O-I) recently reported its financial results for the third quarter ended September 30, 2009. Third quarter net sales were $1.9 billion in 2009, down from $2.0 billion in the prior year’s third quarter. Improved price and mix were more than offset by lower shipments and unfavorable foreign currency translation effects. Earnings from continuing operations in the third quarter of 2009 were $126.7 million, or $0.74 per share (diluted), compared with $78.6 million, or $0.46 per share (diluted), in the prior year.

“I am pleased with our third quarter results amid challenging economic conditions, underscoring our ability to adapt to a rapidly changing marketplace,” said Al Stroucken, chairman and CEO. “We posted improved year-over-year earnings for the first time since the recession began to impact our business in the third quarter of last year. Furthermore, we generated significant free cash flow, which improved our already strong financial position. Glass shipments in most regions were down modestly from the prior year and now more closely reflect consumer consumption patterns.”

O-I reported third quarter 2009 segment operating profit of $316.6 million, up from $287.6 million in the prior year and $291.9 million in the second quarter. Glass container shipments, in metric tons, declined 7% from the third quarter of 2008. Excluding South America, shipments were down 5%. Lower volumes in that region largely reflect the temporary trend of extending the useful life of refillable bottles, which happens in times of economic contraction. However, shipment trends in South America improved during the quarter. Total company shipments were essentially flat on a sequential basis, as gradually improving market demand offset the typical seasonal shipment decline between the second and third quarters.

Unabsorbed fixed costs, primarily due to temporary production curtailments, were $61 million higher than the third quarter of last year. The company's proactive asset management efforts reduced inventory at the end of the third quarter, as measured in metric tons, by more than 9% on a year-over-year basis. Net sales benefited by more than 4% from the prior year due to improved price and mix. Higher operating profits reflected the price improvement; reduced warehouse, delivery and production costs; and net deflation driven by lower energy costs.

The company continued to implement its strategic footprint alignment initiative, focused on optimizing global assets. O-I has permanently ceased production or closed a total of 18 furnaces since the program's inception in 2007, including three furnaces during the third quarter. As a result of these efforts, the company reduced fixed costs by $34 million in the third quarter and $104 million year-to-date, compared to the prior year periods. In addition, O-I is extending the strategic footprint initiative to its South American region to serve customers in a more cost-effective manner. During the third quarter, O-I recorded a restructuring charge of $57.5 million ($36.0 million after-tax amount attributable to O-I), principally for these actions in South America.

“Typical seasonal volume trends and temporary production curtailments to reduce inventories will likely lead to lower earnings compared with the third quarter,” said Stroucken. “Although we expect modestly lower shipments, our segment operating profit should exceed the prior-year fourth quarter. However, on a year-over-year basis, net earnings will be negatively impacted by several non-operating items, such as higher corporate costs, taxes and net interest expense. Overall, we remain well-positioned for growth and expect our profitability to increase as market conditions recover.”

For more information, visit www.o-i.com.