Owens-Illinois, Inc. today reported financial results for the second quarter ended June 30, 2018.
“O-I’s second quarter results exceed management’s guidance, again demonstrating resilience in the face of well-known headwinds arising during the quarter, such as transportation strikes in Brazil and the stronger US dollar,” said Andres Lopez, CEO. “Global shipments were solid, taking into account the strong performance of our joint venture with CBI. We continue to benefit from favorable pricing dynamics and a concerted effort to improve sales mix. And, Asia Pacific is nearing successful completion of its asset advancement project. Building on a secure foundation, we expect continued growth in sales, margins, earnings and cash flow in 2019 and beyond.”
Second Quarter 2018 Results
Net sales in the second quarter of 2018 were 1.8 billion USD, which was 1 percent higher than prior year second quarter. Prices were up approximately 2 percent, reflecting cost inflation and sales mix. The overall impact of currency was favourable on net sales, with an increase reported in Europe and a decline in the Americas.
Global sales shipments were down 1 percent compared with prior year. The decline is largely attributed to the impact of external transportation strikes in Brazil and a raw material batch disruption in Mexico. Both incidents, now resolved, limited product available for sale in the quarter. The Company’s joint venture with Constellation Brands, Inc., continues to perform well, reporting higher sales compared with prior year.
Segment operating profit was 255 USD million in the quarter, compared with 252 USD million in the same period of 2017.
– Segment operating profit in the Americas in the second quarter of 2018 was 152 million USD, 9 million USD lower than prior year. Favorable pricing was largely offset by higher operating costs. These costs were primarily driven by aforementioned challenges in Brazil and Mexico, as well as higher-than-anticipated cost inflation, which was impacted by the strong U.S. dollar on raw material purchases in Latin America and high transportation costs in the U.S.
The Americas continues to focus on Total Systems Cost efforts to mitigate inflationary pressures. The Americas is undertaking steps to adjust its manufacturing footprint to better align with ongoing customer needs. The Company announced during the quarter its plans to shut down a plant in the U.S. that primarily produces megabeer and is progressing with plans to expand capacity in Brazil to support customer needs.
– In Europe, segment operating profit continues to expand year-on-year. In the second quarter of 2018, segment operating profit was 101 million USD, up more than 25 percent compared with 80 million USD in the second quarter of 2017. This increase was driven by favorable foreign currency exchange rates, price increases, continued benefits from Total Systems Cost, and the recognition of an energy credit.
– Segment operating profit in Asia Pacific in the second quarter of 2018 was 2 million USD. While lower than prior year, the magnitude of the year-on-year decline was less than that reported in the first quarter of 2018. As planned, asset improvement projects underway in the region drove operating costs higher. As most of the projects in the region are now substantially complete, improving production volume and lower manufacturing expense will drive higher margins sequentially in Asia Pacific the rest of 2018.
Consistent with management guidance for the second quarter 2018, non-operational costs partially offset positive operating performance.
– Retained corporate and other costs were essentially in line with prior year.
– Net interest expense in the quarter was 74 million USD. The Company re-negotiated its bank credit agreement in the quarter to lower interest expense, reduce financial risk, and reduce complexity. Excluding the 11 million USD charge related to deferred finance fees written off in the quarter, net interest expense was 63 million USD, which is on par with 62 million USD for the second quarter 2017.
The Company launched its 400 million USD share repurchase program during the first quarter of 2018. In the second quarter of 2018, the Company repurchased 2.7 million shares for approximately 50 million USD. Year-to-date, the Company has repurchased 4.7 million shares for 95 million USD.