O-I Sees Strong Results in 2017 Third Quarter, Expands JV
To meet rising demand from Constellation Brand’s adjacent brewery, the newly expanded joint venture provides for the addition of a fifth glass furnace.
Owens-Illinois, Inc. (O-I) recently reported financial results for the third quarter ended September 30, 2017. Net sales were $1.8 billion, an increase of almost 5% compared to the 2016 third quarter, primarily due to favorable currency translation. Price increased 1% on a global basis, while shipments were on par with the prior year. Earnings from continuing operations were $0.77 per share (diluted) in the 2017 third quarter, up 13% compared with $0.68 per share in the 2016 quarter, primarily driven by improved segment operating profit in Europe and Latin America, as well as lower interest and tax expense.
“We are seeing significant progress on O-I’s transformation to deliver increased sustainable shareholder value as we continue to execute on our strategy with focus, discipline and accountability,” said Andres Lopez, CEO. “Our rigorous approach is implemented by an entire organization focused on maximizing performance at the enterprise level and incentivized under a single set of metrics. In the quarter, O-I demonstrated its resiliency in the face of well-known, challenging external conditions in the Americas by delivering a seventh consecutive quarter of earnings results in line with, or exceeding, our guidance.”
In the Latin America segment, 2017 third quarter sales volumes increased 5% from the prior year mainly due to higher beer and spirits shipments. Shipments in Mexico continue to increase at mid-single-digit rates, and shipments in Brazil are up markedly, providing further evidence of recovery.
Sales volume in the Asia-Pacific segment increased 5% in the 2017 third quarter, primarily due to higher beer shipments in Australia. In Europe, sales volumes increased 1%, mainly due to favorable product mix, as shipments were flat. Consistent with ongoing trends, North America sales volume declined due to lower shipments, primarily in beer.
The company also announced that it has agreed to expand its 50-50 joint venture with Constellation Brands, Inc. The joint venture, established in 2014, operates a glass container production plant in Nava, Mexico. The plant provides bottles exclusively for Constellation’s adjacent brewery, which brews a leading portfolio of Mexican beer brands for export to the U.S., the fastest-growing beer category in the U.S.
The original joint venture agreement included the expansion of the glass production plant from one furnace to four by 2018. The initial expansion plans have been progressing as scheduled, with three furnaces currently in operation. The fourth furnace is expected to be operational in the first half of 2018.
To meet rising demand, the newly expanded relationship provides for the addition of a fifth furnace, which is expected to be operational by the end of 2019. This capacity expansion, which is estimated to cost approximately $140 million, will be financed by equal contributions from both partners. In recognition of the strong, value-add contributions from both partners, the term of the joint venture agreement was extended for 10 additional years, to 2034.
“We are excited about the growth that will be enabled through our continued and expanded relationship with Constellation,” said Lopez. “This investment will allow both companies to realize additional attractive opportunities in Mexican beer exports to the U.S., leveraging the success at the joint venture’s highly efficient factory in Nava, while bolstering O-I’s relationship with a key strategic customer.”