Net Sales Increase 14% for O-I in 2016 Second Quarter
Owens-Illinois, Inc. (O-I) recently reported financial results for the second quarter ended June 30, 2016.
Owens-Illinois, Inc. (O-I) recently reported financial results for the second quarter ended June 30, 2016. Net sales in the second quarter of 2016 were $1.8 billion, up $217 million (or 14%) from the prior year’s second quarter. The company’s investment in non-organic growth is driving the top line higher; the acquired business generated $234 million in net sales, representing 13% of global net sales, due to strong shipments within Mexico and to the U.S. Unfavorable currency translation adversely impacted net sales by $31 million, or 2%.
Management efforts to drive revenue stability are reportedly taking hold. The 1% increase in legacy shipments on a global basis was in line with management expectations. Shipments in Europe increased 3%, driven by mid-single-digit gains in beer and wine. In North America, legacy volumes were on par with the prior year, as higher spirits and non-alcoholic beverage shipments mostly offset the decline in beer. Second quarter shipments for legacy Latin America declined, as weakness in Brazil was partially offset by double-digit increases in the rest of the region. Asia-Pacific reported a 2% increase in volumes, due to higher beer and wine shipments in the region’s mature markets.
“We are very pleased with the solid progress on the execution of our strategy,” said Andres Lopez, CEO. “Our meaningful performance improvement is the result of significant focus on improving our efficiency, stabilizing both revenue and operating performance, and continued success with the integration of the Mexico acquisition. In addition, we are gaining momentum by enhancing customer service, implementing a more robust end-to-end global supply chain, and transforming our organization to deliver improved quality, agility, speed, flexibility and innovation, all at a competitive price. We have been delivering steady improvement, which has resulted in margin expansion and a year-over-year increase in earnings. Looking ahead, we remain committed to our earnings and cash flow guidance.”
In the quarter, the acquired business contributed approximately $44 million to segment operating profit, continuing on the path to exceed management’s initial expectations of $140-145 million for the year. Strong domestic sales, the successful ramp-up of the new furnace in Monterrey, and cost synergies all contributed to its strong performance.
Europe reported a $9 million improvement in segment operating profit compared to prior year. Operating performance significantly improved in the second quarter, buoyed by the efforts of the plant improvement teams in the region, and more broad-based improvement in productivity and quality. As expected, average selling prices in Europe were modestly lower than the prior year. Price-cost spread was modestly negative, as lower selling prices were not fully offset by energy deflation.
Segment operating profit for North America was $10 million higher than the prior year’s second quarter, driven by the acquired business. The legacy business continued operating well and reported solid results in line with the prior year.
Latin America’s segment operating profit improved $30 million, more than doubling the prior year’s second quarter profit. This is due to the successful integration of the acquired business, which contributed $33 million of segment operating profit. Currency translation was a $2 million headwind compared with the second quarter of the prior year. The legacy business delivered a very solid performance despite the challenging economic situation in Brazil. The management team continues to focus on controlling costs.
In Asia-Pacific, higher sales volume and price increases together contributed $5 million to segment operating profit. However, this was more than offset by higher planned production downtime. A modest year-on-year improvement in segment operating profit is expected in the second half of the year.
O-I continues to expect earnings from continuing operations attributable to the company (diluted) for the full year 2016 to be in the range of $2.18-$2.29 per share. Excluding certain items management considers not representative of ongoing operations, this equates to adjusted earnings per share for the full year of 2016 in the range of $2.25-$2.35, which affirms prior guidance. The earnings guidance ranges reflect uncertainty in macroeconomic conditions and currency rates, among other factors. Reflecting the aforementioned assumptions, the company expects cash provided by continuing operating activities for 2016 to be approximately $750 million. After deducting additions to property, plant, and equipment of approximately $450 million, free cash flow for 2016 is expected to approximate $300 million, which is consistent with prior guidance.
For more information, visit www.o-i.com.