O-I (Owens-Illinois Inc.), the world“s biggest manufacturer of glass bottles, has lowered its forecast for second-quarter profit margin due to higher costs and weaker demand in Australia, where it ma…
O-I (Owens-Illinois Inc.), the world“s biggest manufacturer of glass bottles, has lowered its forecast for second-quarter profit margin due to higher costs and weaker demand in Australia, where it may shut down a glass furnace. Operating profit margins in the quarter ending 30 June will be 3-6 percentage points less than a year earlier, according to CFO Ed White. The company had predicted operating margins would match last year“s quarter. Sales of glass bottles have decreased in Australia and New Zealand because strong currencies have made wine exports less competitive and rising interest rates have damped consumer demand, hurting domestic beer consumption, White said. “Wine exports out of Australia are exceeding their historic price points,” he said. “We sort of go up or down based on our customers“ success. They“re struggling and we“re struggling.” O-I is maintaining its annual forecast of 5-10% growth in shipments and free cash flow of USD 300 million as growth in South America and the US makes up for the slump in the Asia Pacific region, White said. However, the cash forecast may have to be adjusted as the company contemplates idling a glass furnace in Australia to make up for lower demand, White added. “If we“re going to do some capacity realignment, there could be some pressure on that,” he said, referring to the free cash flow forecast. Higher demand in the US is contributing to the lower profit margin, White said. Costs increased as O-I restarted production at two idle glass furnaces, in Atlanta and Oakland, California, he said. Expenses also rose because the company had to ship products across regions to meet customers“ needs, he added. “We“ve been hit with operating issues that are truly short-term but have suppressed our outlook in the quarter,” he said. “We saw the volume coming, but it was the ramp-up on the factory floor across our network that added extra cost.” Restarting the two US furnaces will add about 4% to the company“s domestic glass capacity, White said. O-I may decide to build a USD 70 million glass factory in Brazil that could begin operations by the end of 2012 to meet higher demand, he said.