O-I Glass, Inc. provided a business update in advance of the company’s attendance at the Deutsche Bank 2020 Global Industrials and Materials Summit on June 9, 2020.
“O-I continues to take actions to safely supply our customers while actively managing our business in response to the evolving dynamics caused by the Covid-19 pandemic. As expected, the second quarter has been negatively impacted by temporarily lower shipment levels and production curtailment as we balance supply with demand and comply with governmental health decrees in certain markets. While quarter-to-date shipments were consistently down through mid-May, volume trends have gradually improved over the past few weeks as markets have begun to reopen. Amid a challenging backdrop and elevated curtailment levels, the actions we have taken under our turnaround initiatives have enabled high operating efficiency levels across most of our manufacturing footprint and helped accelerate cost reduction. In addition to these efforts, we have implemented a number of specific measures to partially mitigate the financial impact of the pandemic. As a result, we have delivered positive segment operating results for the quarter through May and cash flows remained comparable to the prior year. Likewise, liquidity remains very strong and May’s refinancing activities have improved O-I’s financial flexibility and balance sheet health. As the company navigates these challenging times, O-I remains committed to its strategy focused on optimizing its structure, turning around performance and revolutionizing glass,” said Andres Lopez, CEO.
Second quarter 2020 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.
- Shipment levels gradually improving as markets begin to reopen: globally, O-I’s daily shipments in tons were down approximately 18 percent quarter-to-date through May compared to the prior year period, principally due to the pandemic. Starting in mid-May, sales volume trends have improved as many markets gradually start to reopen while Mexico and the Andean countries have just begun to reopen. Excluding Mexico and the Andean countries, daily shipment levels were down low double digits since mid-May. Following the initial onset of the pandemic, O-I has taken swift action to balance supply with lower demand which has resulted in capacity curtailment during the second quarter consistent with lower demand. Over time, the company is shifting curtailment from primarily line closures to more indefinite furnace and plant downtime to reduce the cost absorption related to curtailment. O-I remains agile and will adjust capacity to serve its customers as markets recover. While the situation remains fluid, O-I continues to expect full year 2020 volumes will decline in a range of 5 – 10 percent compared to the prior year.
- Continued action to mitigate business impact of COVID-19: as expected, the pandemic has negatively impacted O-I’s financial results given the rapid reduction in sales and production volumes. Despite these temporary challenges, the company’s actions to manage costs and proactively align capacity have resulted in segment operating results which were modestly profitable quarter-to-date through May. The company’s turnaround initiatives initiated in 2019 have progressed well and both safety performance and plant quality and efficiency have been at the highest levels in over a year with strong improvement at the eight focus factories. O-I has taken pre-emptive actions to partially mitigate the impact of the pandemic as it continues to align supply with evolving demand trends, accelerate cost reduction, reduce capital expenditures and manage working capital levels. The company has implemented its previously announced temporary salary reduction program for certain executives and directors as well as a wage deferral program for other salaried employees. The company recently conducted a reduction-in-force program as part of its enhanced SG&A reduction initiative which will help simplify the organization and improve decision making. Furthermore, O-I has suspended its dividend and share repurchase programs amid Covid-19 to focus cash flows on debt reduction.
- Cash flows remain consistent with the prior year and liquidity remains strong: O-I’s cash flows quarter-to-date through May were comparable to the same period in 2019 despite the challenges of the pandemic reflecting lower capital expenditures and the suspension of asbestos-related claims payments. Additionally, liquidity remained strong and stable. Following recent refinancing activities, the company has improved its financial flexibility with no significant bond maturities until 2023.