O-I Glass, Inc. provided a business update in light of the rapid developments related to COVID-19.
Andres Lopez, CEO, said, “O-I’s operating performance was solid during the first quarter of 2020, reflecting the positive impact of the company’s turnaround initiatives. While demand was stable for most of the quarter, shipment and production levels did decline in several markets in late March reflecting the impact of COVID-19. Importantly, glass packaging has been considered an essential element of the food and beverage value chain in most jurisdictions and end-use categories that O-I serves. As a result, the majority of our plants are operating with minimal interruption.
“However, we have temporarily curtailed some capacity to adapt to revised customer demand and comply with governmental public health decrees in certain countries. We continue to work constructively with customers, suppliers and governments during these challenging times. While our business will be temporarily impacted by COVID-19, I am encouraged by our progress on various initiatives to improve operating performance and I am confident we will emerge stronger as current market headwinds abate. I am proud of how O-I employees have responded given the challenges imposed by COVID-19 and the speed and efficiency at which they are coordinating effective actions around the world.”
Business update comments:
- Employee health and safety is a top priority: O-I continues to implement measures to protect the health and safety of all employees in alignment with the recommendations put forth by the World Health Organization, U.S. Centers for Disease Control and Prevention, or other local authorities based on location.
- Solid operating performance: the company’s operating performance was solid through the first quarter of 2020. Compared to the prior year period, O-I benefited from improved price and mix as well as its cost transformation initiatives. Total sales volume for the first quarter of 2020 (in tons) was down 0.8 percent from the same period last year and compared to original guidance of flat to up 2 percent. Demand did decline from prior year levels by approximately 7 percent during the last two weeks of March, most notably in Southern Europe and Latin America reflecting the impacts of COVID-19.
- Most plants operating with minimal interruption: many governments have implemented new rules and guidelines to combat the virus across the markets that O-I serves. While these requirements can restrict business activity, glass containers have been viewed as a critical infrastructure industry given its support for the important food and beverage value chain. Notably, the specific food and beverage categories deemed as critical infrastructure do vary by market. Currently, approximately 85 – 90 percent of O-I’s production capacity is operating uninterrupted. However, some capacity has been curtailed primarily in Europe and Latin America given market and work force disruptions from COVID-19 as well as government public health decrees in some countries. The situation remains fluid and the company anticipates further capacity adjustments are likely over the next several weeks.
- Expect first quarter results in-line with guidance range: the company expects that first quarter 2020 results will be at the lower-end of management’s previously reported guidance range for adjusted earnings per share. While operating performance was solid, earnings were negatively impacted by unfavourable foreign currency translation and a higher than expected effective tax rate given changes in regional earnings mix and tax regulations.
- Favorable cash flows compared to prior year: while the first quarter is typically a seasonal use of cash for the business, cash flows from operating activities in the first quarter of 2020 compared favourably with the prior year period due to improved working capital levels and the staying of all asbestos related payments as a result of Paddock Enterprise filing for bankruptcy in early January.
- Strong liquidity: O-I has strong liquidity and no debt maturities due until March 2021. Total committed liquidity at the end of the first quarter of 2020 was strong and approximated 1.7 billion USD including nearly 900 million USD cash-on-hand as well as undrawn availability on committed lines of credit.
- Withdraw 2020 guidance: due to rapidly changing market conditions related to COVID-19, the company is withdrawing its full year 2020 guidance, which did not consider the effects from the pandemic. O-I is taking swift actions to manage this dynamic situation with a significant focus on cash generation including cost containment measures as well as reduced capital expenditures and working capital. Management will provide more information on its first quarter 2020 earnings call April 29, 2020.