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O-I reports second quarter 2017 results

Owens-Illinois, Inc. (O-I) has reported financial results for the second quarter

Continued strong business performance and favourable non-operational tailwinds drive 2017 earnings guidance higher.

Owens-Illinois, Inc. (O-I) has reported financial results for the second quarter ended 30 June 2017.
For the second quarter, earnings from continuing operations were USD 0.85 per share (diluted), compared with USD 0.65 per share in 2016, primarily driven by improved segment operating profit and lower interest and tax expense.
Excluding certain items management considers not representative of ongoing operations, adjusted earnings were USD 0.75 per share, up 15% compared with prior year. This exceeded management’s second quarter guidance of USD 0.63 to USD 0.68 per share, largely due to a four cent per share benefit from a tax audit settled late in the quarter.
Net sales were USD 1.8 billion, on par with prior year second quarter. Price increased 1% on a global basis, which was offset by modestly lower sales volume and adverse currency translation. For the year-to-date period, net sales increased more than 50 basis points compared to 2016.
Earnings from continuing operations before income taxes were USD 152 million for the second quarter compared with USD 141 million for the same period in 2016, an increase of 8%.
Segment operating profit of reportable segments1 for the second quarter of 2017 was USD 252 million, an increase of 8% compared with prior year. More than half of the increase was generated in Latin America which benefited from sales gains and the early adoption of a total systems cost approach to managing structural costs. The 10% improvement in Europe was primarily driven by higher production volume and continued success in improving total systems costs.
The company continues to successfully execute on its strategic initiatives in commercial activities, end-to-end supply chain management and working capital reduction. The focus on total systems cost improvement is on track to yield USD 35 million to USD 45 million in segment operating profit for the full year. Successful program execution will allow the closure of the plant in the Netherlands earlier than anticipated.
Interest expense was down 7% due to on-going efforts to deleverage, as well as refinancings undertaken over the past year.
The company is raising its annual earnings guidance to reflect continued solid operating performance, favourable currency translation and a lower tax rate. The company is confirming its cash flow guidance.
“O-I has delivered a strong first half, reflecting strong business performance from higher shipments and the benefits of our total systems cost approach. We continue to focus on our transformation efforts and reach performance levels that position us for another year of improved financial results,” said Andres Lopez, CEO. “Our teams are driving sales volume in line with our expectations, continued operating stability, and lower total systems cost. The results of this can be seen in our significant margin improvement. We have set the foundation for change and expect additional investments and capability-building in innovation, integration and organizational simplification to accelerate our turnaround.
“With half of the year behind us, expected strong business performance through the second half and favourable non-operational tailwinds, we are raising our guidance on our full-year earnings performance.”
On 30 July 2017, a European subsidiary of the company sold to a third party its right, title and interest in amounts due under its arbitration award against Venezuela. As consideration, the subsidiary received a cash payment of USD 115 million, and retains a modest potential upside depending upon recovery of the award. In the event the award is partially or completely annulled, the subsidiary may be required to repay up to the entire amount of the cash payment to the third party.
Consistent with the current emphasis on deleveraging, the company intends to use the after-tax proceeds of the cash payments to reduce outstanding borrowings under its revolving line of credit.
The company is increasing its annual guidance for earnings and confirming its annual guidance for cash flow.
The company now expects earnings from continuing operations attributable to the company (diluted) for the full year 2017 to be in the range of USD 2.37 to USD 2.47 per share. Excluding certain items from the first half of 2017 that management considers not representative of ongoing operations, this equates to adjusted earnings per share3 for full year 2017 in the range of USD 2.55 to USD 2.65. The company expects cash provided by continuing operating activities for 2017 to be approximately USD 750 million and adjusted free cash flow to be approximately USD 365 million. The earnings and cash flow guidance ranges reflect uncertainty in macroeconomic conditions and currency rates, among other external factors.

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