Strong U.S. Dollar Negatively Impacts O-I’s 2015 Second Quarter Sales
Owens-Illinois, Inc. (O-I) recently reported net sales in the second quarter of $1.5 billion, down $254 million from the prior year second quarter. Adverse currency translation caused by the strength of the U.S. dollar accounted for approximately $240 million of the decline in net sales. On a constant currency basis, the decline in net sales was approximately 1%. Pricing was essentially flat on a global basis, with lower prices in Europe and North America largely offset by higher prices in South America.
Global sales volume declined by approximately 1% year-over-year. Shipments in Europe were consistent with the prior year’s second quarter. Volume in North America increased nearly 2%, where a modest decline in beer shipments was more than offset by higher shipments in all other categories. Volume in the Asia-Pacific region contracted 3%, partly due to the waning impact of plant shutdowns in China in 2014. While wine demand trends suggest sequential stabilization in Australia, shipments there were still modestly lower than the prior year. Sales volume in South America contracted 10%. The decline was most pronounced in Brazil, albeit from record sales in the comparable 2014 period. Excluding beer, shipments in Brazil were flat compared to prior year.
Segment operating profit was $187 million in the second quarter, down $75 million compared with the prior year’s quarter. On a constant currency basis, segment operating profit was down $39 million.
Excluding the impact of foreign currency, segment operating profit in North America and Asia-Pacific were similar to the prior year’s second quarter. Europe’s operating profit declined $45 million, with more than 40% of the decrease related to the devaluation of the euro. Similar to the trend experienced in the first quarter, average selling prices in Europe were approximately 1% lower year-on-year due to competitive pressures, primarily in Southern Europe. As expected, Europe reported more production downtime than in the prior year due to planned furnace rebuilds and engineering activities associated with the asset optimization program. Europe results were also dampened by the timing of a sizeable energy credit. In 2014, the credit was recognized in the second quarter, whereas in 2015, Europe is expecting that energy credit in the third quarter.
In South America, operating profit declined $26 million, of which more than 40% was caused by currency translation, primarily due to the weakening Brazilian real and the Colombian peso. The aforementioned lower sales volumes contributed to lower profits. Price gains from annual price adjustment formulas and intensified commercial activity offset almost all of the rising raw material and electricity costs in the region. The prior year period benefited from approximately $6 million of non-strategic asset sales, which did not repeat in the current year.
In May 2015, O-I announced the proposed acquisition of Vitro, S.A.B. de C.V.’s food and beverage glass container business. The transaction provides O-I with a competitive position in the growing glass segment of the packaging market in Mexico. The deal is expected to be accretive to cash flow and earnings per share in the first year after closing and is currently expected to close in the second half of 2015.
“We have begun to see the stabilization of market and demand trends,” said Al Stroucken, chairman and CEO. “North American manufacturing operations are expected to continue to improve, and Asia-Pacific volumes will benefit from a major new beer contract in Australia. Lower volumes in South America, especially Brazil, are likely to continue weighing on the region’s profitability. European results in the quarter will be dampened by the carryover of production downtime from engineering projects and lower prices. The company will continue to benefit from lower pension and interest expense. On balance, earnings should be similar to prior year results on a constant currency basis.”
For more information, visit www.o-i.com.