O-I Sees Net Sales Climb 9% in 2016 Third Quarter
O-I recently reported financial results for the third quarter which ended September 30, 2016.
Owens-Illinois, Inc. (O-I) recently reported financial results for the third quarter which ended September 30, 2016. Earnings from continuing operations were $0.68 per diluted share, which was in line with management’s guidance of $0.65-0.70 per share. This compares favorably with earnings from continuing operations in the third quarter of 2015.
Net sales in the 2016 third quarter were $1.7 billion, up 9% from the prior year’s third quarter, due to the incremental third quarter net sales from the company’s acquisition of Vitro’s food and beverage business. Excluding the impact of the acquired business, shipments were 2% below the prior year period. Higher shipments in North America were more than offset by lower volumes in Latin America, mainly due to the challenging economic environment in Brazil and Ecuador.
Earnings from continuing operations before income taxes were $153 million in the quarter. Segment operating profit of reportable segments was $237 million, an increase of $38 million or 19%, compared with 2015. The increase was largely attributable to $37 million of incremental segment operating profit from the acquired business. All regions except Europe posted higher segment operating profit compared with prior year.
Strategic initiatives are on track to deliver on the 2016 targets. In the quarter, these initiatives contributed approximately $15 million to segment operating profit. With respect to full year guidance, the company is narrowing its range for earnings while maintaining the midpoint of the range, and reaffirming its target for cash flow.
“I’m pleased with our performance during the quarter and the progress we’re making against our strategic initiatives,” said Andres Lopez, CEO. “The steady, year-on-year improvement we’ve achieved despite difficult market conditions reflects the strength of our team, our plan and our solid operational performance. For the full year, we’re still expecting a double-digit increase in earnings and continued deleveraging driven by strong cash flow.”
The company’s investment in non-organic growth continued to drive the top line higher. The acquired business generated an incremental $162 million in net sales due to strong shipments within Mexico and to the U.S. Price was up $19 million on a global basis, primarily driven by price adjustments that reflect cost inflation.
Excluding the acquired business, sales volumes declined approximately 2% compared to the third quarter of 2015. As expected, shipments in Europe were comparable to the prior year quarter; gains in wine were essentially offset by lower beer shipments. In North America, legacy volumes were modestly up compared to the prior year, due to higher beer shipments—primarily related to contracted volumes to Constellation Brands, Inc.—and higher non-alcoholic beverage shipments. Third quarter shipments for legacy Latin America declined nearly 15%, mainly due to economic weakness in Brazil and Ecuador. Asia-Pacific reported a 5% decrease in shipments. In mature markets, sales volumes were similar to the prior year, while in-country production volumes were lower due to planned engineering activity. Sales volumes in mature markets were supported by intra-regional shipments; in turn, domestic sales in emerging markets declined.
Earnings from continuing operations before income taxes were $153 million in the quarter, an increase of $95 million compared with the prior year. This was mainly driven by higher segment operating profit and lower costs for items not considered representative of ongoing operations. These were partially offset by higher retained corporate costs. Segment operating profit was $237 million in the third quarter, $38 million higher than the prior year’s third quarter.
In the 2016 third quarter, the acquired business contributed $37 million of incremental segment operating profit. Strong domestic sales, the incremental impact of the new furnace in Monterrey, cost synergies, and higher productivity all contributed to its strong performance. The acquired business is still on target to exceed management’s initial expectations of $140-145 million in segment operating profit for the full year.
Europe reported segment operating profit of $64 million, which was $4 million below the prior year, yet flat year-on-year on a constant currency basis. Europe faced a $4 million currency headwind, mainly due to the British pound. Operating performance continued to improve in the third quarter, buoyed by efforts across the region. These gains were essentially offset by the impact of higher engineering activity and the negative price-cost spread.
Segment operating profit for North America was $79 million in the quarter. This was $18 million ( 30%) higher than the third quarter of 2015. Approximately two-thirds of the increase was due to the acquired business. The legacy business benefited from higher sales volumes and further contributions from strategic initiatives.
Latin America’s segment operating profit reached $74 million, up 45% compared with the prior year’s third quarter. The very successful integration of the acquired business contributed an incremental $25 million of segment operating profit. The legacy business delivered a very solid performance despite the challenging economic situation in Brazil and Ecuador. The management team continues to focus on controlling costs and monetizing minor non-strategic assets.
Asia-Pacific reported segment operating profit of $20 million, up 5% compared with the third quarter of 2015. Lower sales volumes did not adversely impact segment operating profit due to the geographic mix of sales. The favorable impact from currency was partially offset by lower production volume and the costs for intra-regional shipments, which were necessitated by planned engineering activity.
Retained corporate and other costs amounted to $18 million, which compares with $10 million in the prior year’s third quarter. The change from the prior year mainly relates to higher non-service pension costs and the impact of foreign currency hedges.
Net interest expense in the quarter was $66 million, compared with $67 million for the third quarter of 2015. Interest expense in the third quarter of 2015 included $14 million principally due to note repurchase premiums and the write-off of finance fees related to debt redeemed in the quarter. Exclusive of these items, net interest expense increased $13 million from the third quarter of the prior year primarily due to acquisition-related interest expense. The company continues to benefit from low variable interest rates.
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