Owens-Illinois, Inc. (NYSE: OI) today reported financial results for the first quarter ended March 31, 2019.
"Our first quarter results were in-line with our guidance as the Company commissioned new capacity to support future growth," said Andres Lopez, CEO. "In addition, we announced future expansion at our Gironcourt, France plant as well as a definitive agreement to acquire the Nueva Fanal[1] operations in Mexico from ABI. All of these actions support key strategic customers, align O-I to attractive premium segments and will drive future profitable growth."
"Segment profit and margins improved in both Europe and Asia Pacific compared to the prior year. Profits declined in the Americas reflecting foreign currency headwinds and incremental costs to commission new capacity which was concentrated in this region during the first quarter," added Lopez. "Our teams are aligned and energized like never before, executing growth with rigor and discipline. This, combined with our balanced capital allocation strategy, is expected to create significant value for our shareholders for years to come."
Highlights
- For the first quarter 2019, the Company recorded earnings from continuing operations of $0.51 per share (diluted), compared to $0.59 per share (diluted) in the same period of the prior year.
- Net sales were $1.6 billion, compared with $1.7 billion in the prior year. A continued favorable pricing environment was more than offset by a decline in shipments and unfavorable currency translation.
- Earnings from continuing operations before income taxes were $111 million, compared with $135 million in the prior year, reflecting $24 million of lower segment operating profit[2]. Europe and Asia Pacific reported higher segment operating profit year-over-year, while the Americas declined primarily due to currency headwinds as well as incremental costs to commission new capacity.
- The Company announced on April 1, 2019 the acquisition of Nueva Fabrica Nacional de Vidrio, S. de R.L. de C.V. ("Nueva Fanal") from Grupo Modelo for approximately
$188 million, subject to customary closing conditions, including competition authority approval, and is expected to close in the second half of 2019. In addition, the Company announced the future expansion at its Gironcourt, France plant. These strategic initiatives are supported by long-term customer supply agreements.
- On May 1, 2019, the Company's Board of Directors declared a quarterly cash dividend of $0.05 per share, payable on June 17, 2019, to stockholders of record as of the close of business on May 31, 2019.
- The Company maintains its adjusted earnings guidance of $3.00 per share in 2019, compared to recorded earnings from continuing operations of $0.89 per share (diluted) and adjusted earnings[3] of $2.72 per share in the prior year. Current foreign currency rates represent a $0.08 headwind to the assumptions included in this guidance. Higher earnings are supported by sales volume growth, improved pricing and cost performance augmented by strategic initiatives. Actual results will reflect the timing of key strategic actions, which are not fully within management control, as well as potential fluctuations in foreign currency translation.
- The Company continues to expect cash provided by continuing operating activities to be approximately $740 million for the year 2019, and adjusted free cash flow[4] to be approximately $400 million.
First Quarter 2019 Results
First quarter 2019 net sales were $1.6 billion, compared to $1.7 billion in the prior year, driven primarily by the stronger U.S. dollar. Average selling prices improved 2 percent on a global basis, mainly due to price adjustment formulas, while sales volumes declined 2.5 percent globally.
After adjusting for the planned shift in production from the U.S. to the strategic JV with CBI[5] (which would equate to approximately 1.5 percent of global sales volume), globally, sales volumes declined approximately 1 percent. In the Americas, organic sales increased after excluding the volume shift to the strategic JV. Brazil, Mexico and the Andean region reported broad-based gains in shipments, compared to the prior year, and U.S. beer sales volume stabilized. The Company continues to be well positioned to benefit from the growing popularity of Mexican beer across the world, as evidenced by strong volume growth in the joint venture with CBI and domestic sales in Mexico, as well as the recently-announced acquisition of Nueva Fanal. Europe and Asia pacific shipments declined compared to the prior year first quarter, as customers rebalanced their supply chain.
Segment operating profit was $200 million in the first quarter 2019, compared with $224 million in the prior year. The decline is largely driven by the stronger U.S. dollar, the aforementioned decline in sales volumes, and incremental costs to commission new capacity to support growth. Results included a net $3 million benefit from the recognition of an energy credit in Europe this quarter and the lack of miscellaneous gains recognized in the prior year.
- The Americas posted segment operating profit in the first quarter of 2019 of $113 million, which was $34 million lower than in the prior year period. The decrease in sales volume discussed above slightly reduced segment operating profit in the current year quarter. Selling prices were higher in the current year quarter compared to the prior year quarter. Operating costs were higher than the first quarter of 2018, mostly reflecting cost inflation as well as additional costs to commission new capacity for growth in Colombia and Brazil. The effects of foreign currency exchange rates decreased segment operating profit in the current year quarter, which included the impact from the highly-inflationary basis of accounting in the region's operation in Argentina.
- In Europe, segment operating profit in the first quarter of 2019 was $79 million, compared with $72 million in the first quarter of 2018, an increase of $7 million. The currency headwind was more than offset by recognition of an energy credit in the quarter. The favorable pricing environment and sales mix allowed Europe to outpace cost inflation while lower sales volumes adversely impacted profitability. Total System Cost efforts continue to contribute to improved profitability and more than offset the incremental costs related to capacity expansions.
- Asia Pacific segment operating profit in the first quarter of 2019 was $8 million compared with $5 million in the first quarter of 2018. As expected, operating costs improved year-over-year due to lower planned engineering activity in the current year quarter. This was partially offset by the impact of lower sales volumes, as well as cost inflation that outpaced price.
As expected and in-line with the Company's position to accelerate claims disposition, asbestos related payments totaled $71 million in the first quarter of 2019.
Consistent with the Company's approach to balanced capital allocation, O-I repurchased 2.1 million shares for approximately $38 million in the first quarter 2019. Overall, the Company's share repurchase program has retired 8.7 million shares over the past 12 months.
