US glass and plastic packaging major Owens-Illinois, Inc., reported on 20 April 2004 net earnings for the 1Q 2004 of USD 49.0 million, or USD 0.29 per share (diluted), an increase of USD 14.6 million,…
US glass and plastic packaging major Owens-Illinois, Inc., reported on 20 April 2004 net earnings for the 1Q 2004 of USD 49.0 million, or USD 0.29 per share (diluted), an increase of USD 14.6 million, or USD 0.09 per share, over 1Q 2003 net earnings of USD 34.4 million, or USD 0.20 per share (diluted). The company attributed the increase to higher unit shipments, increased selling prices, and improved manufacturing performance. In a press release, Chief Executive Officer Steven R. McCracken, who joined Owens-Illinois on 1 April 2004 said, “I“m gratified by these excellent 1Q results and excited about the potential for continued earnings growth. Our near-term imperative is completing the acquisition and successfully integrating BSN in addition to continuing to focus on liquidity improvement and debt reduction, all aimed at increasing investor value and ensuring our position as a leader in the global packaging industry.” Business Review Summary First quarter 2004 net sales were USD 1.545 billion compared with 1Q 2003 net sales of USD 1.386 billion. EBIT for the 1Q of 2004 was USD 189.4 million compared with USD 157.7 million in the 1Q of 2003. The main factors contributing to the higher 2004 EBIT were: an increase in worldwide glass volume; improved pricing and a more favorable product sales mix; productivity improvements and cost reductions, and favorable currency translation. Glass Containers Segment The Glass Containers segment reported 1Q 2004 net sales of USD 1,062.3 million compared with 1Q 2003 net sales of USD 930.6 million, an increase of 14.2%. EBIT for the 1Q of 2004 was USD 165.1 million, an increase of USD 38.7 million, or 30.6%, over the 1Q of 2003. EBIT margins of 15.5% in the 1Q of 2004 compare with EBIT margins of 13.6% in the 1Q of 2003. The positive effects of higher unit shipments (up 6.1%), increased selling prices, a more favorable product sales mix, higher capacity utilization, improved production efficiencies, and favorable currency translation have been partially offset by USD 6.4 million of lower pension income. Within the segment, North American glass container operations reported 1Q sales and EBIT improvements of approximately 3% and 9%, respectively, compared with the 1Q of 2003. The higher sales in 2004 were mainly due to increased selling prices and higher unit shipments. The increased EBIT in 2004 was mainly due to increased sales, higher capacity utilization, improved manufacturing efficiencies, lower maintenance and repair expense, and fixed cost savings resulting from two plant closures in the last half of 2003. These positive factors were partially offset by lower pension income. European glass container operations reported improved sales and EBIT of approximately 20% and 45%, respectively, for the 1Q of 2004 compared with the 1Q of 2003. These improved results were largely due to higher unit shipments and favorable currency translation rates, partially offset by modestly higher energy costs. During the 1Q, the company announced that it had entered into a definitive agreement to acquire BSN Glasspack, S.A., the second largest glass container manufacturer in Europe. Closing of the transaction is subject to the parties securing all regulatory approvals and is expected to take place during the 2Q of 2004. Asia Pacific glass container operations reported increased sales and EBIT of approximately 25% and 35%, respectively, for the 1Q of 2004 compared with the 1Q of 2003. The positive impact of higher unit shipments and favorable currency translation were partially offset by lost production time as a result of a casualty loss at the Penrith, Australia plant and a gas supply interruption at the Adelaide, Australia plant. In the South American glass operations, 1Q 2004 sales and EBIT increased by approximately 30% and 85%, respectively, compared with the 1Q of 2003. The improved sales and EBIT were largely due to increased unit shipments and higher capacity utilization reflecting the non-recurrence of the national strike in Venezuela that began in early December 2002 and continued into the 1Q of 2003. The strike caused energy supply curtailments that forced the company to temporarily suspend operations at its two plants in Venezuela during the 1Q of 2003. Plastics Packaging Segment For the 1Q of 2004, the Plastics Packaging segment reported net sales of USD 483.1 million compared with net sales of USD 455.8 million in the 1Q of 2003. The higher net sales in 2004 reflect a combination of higher unit shipments (up 9.8%), resin pass-through price increases of approximately USD 14 million, and favorable currency translation rates. Partially offsetting these positive factors were modestly lower selling prices in several of the segments“ product lines and the absence of sales from certain closures assets that were divested in the 4Q of 2003. Segment EBIT for the 1Q of 2004 was USD 55.9 million, an increase of USD 4.8 million, or 9.4%, over the 1Q of 2003. The principal factors contributing to the EBIT increase were higher sales and the absence of start-up costs for the deployment of new production machinery during 2003. Interest Expense Interest expense in the 1Q of 2004 was USD 114.4 million, an increase of USD 3.4 million compared with the 1Q of 2003. The higher interest expense was more than accounted for by the issue of USD 900 million of fixed-rate notes in May 2003, the proceeds of which were used to repay lower-cost variable rate debt borrowed under the company“s bank credit agreement. Partially offsetting the higher fixed-rate interest were savings from the December 2003 repricing of the Senior Secured Credit Agreement and approximately USD 5 million in interest savings as a result of the company“s fixed-to-floating interest rate swap on a portion of its fixed-rate debt. Consolidated debt at the end of the 1Q of 2004 was USD 5.509 billion compared with USD 5.426 billion at year-end 2003, representing a seasonal increase of USD 83 million compared with a USD 218 million increase in the 1Q of 2003. Capital Spending Capital spending for the 1Q of 2004 totaled USD 82.5 million, USD 36.9 million lower than the 1Q a year ago. Reduction of base capital spending through enhanced capital efficiency was identified as one of the company“s key liquidity improvement initiatives in 2003 and will remain so going forward. Effective Tax Rate The company“s effective tax rate in the 1Q of 2004 was 29.9% compared with 29.0% for the full year 2003 (excluding separately taxed items.) Asbestos Asbestos-related cash payments in the 1Q of 2004 were USD 50.4 million, a reduction of USD 4.7 million, or 8.5%, from the 1Q of 2003. New claim filings were approximately 30% lower than in the 1Q of 2003. As of 31 March 2004, the number of asbestos-related lawsuits and claims pending against the company was approximately 31,000, up from approximately 29,000 pending claims at 31 December 2003 due to a lower rate of claim disposition than in the comparable earlier period. Additionally, the company believes that a significant number of those pending cases have exposure dates after the company“s 1958 exit from the business; for this reason the company takes the position that it has no liability or the cases are subject to dismissal on account of their having been filed in improper forums. The company anticipates that cash flows from operations and other sources will be sufficient to meet its asbestos-related obligations on a short-term and long- term basis. The company expects to conduct its annual comprehensive review of its asbestos-related liabilities and costs in connection with finalizing and reporting its results for the full year.