Business News

O-I Reports Third Quarter 2010 Results

Thursday 28. October 2010 - Beer in emerging markets, global wine and spirits volumes post gains

Owens-Illinois, Inc. (NYSE: OI) today reported financial results for the third quarter ended September 30, 2010.


Highlights:

Earnings: Reported net earnings were $0.84 per share (diluted) in the third quarter of 2010, compared to $0.74 per share in the prior year. Adjusted net earnings (non-GAAP) of $0.90 per share were down from $0.95 per share in the third quarter of 2009. Unfavorable currency translation affected earnings by $0.04 per share.
Volume: Global shipments were down 2.4 percent from the prior year third quarter, but the impact on earnings was mostly offset by a favorable regional sales mix. Excluding volume loss tied to contract renegotiations effective in 2010, total shipments were up slightly compared to the third quarter of last year.
End Market Trends: Year-to-date glass shipments for beer in emerging markets, and wine and spirits on a global basis were up between 5 and 13 percent. Beer in mature markets remained soft.
Costs: Manufacturing and delivery costs increased from the prior year third quarter primarily due to inflation.
Strategic Events: O-I purchased CIV (Companhia Industrial de Vidros), the largest glass container producer in northern Brazil, and increased production with two new furnaces in South America to serve fast-growing markets.
Capital Structure: O-I’s strong financial flexibility was further improved by a euro 500 million bond offering in the third quarter to fund the Company’s strategic growth.
Venezuela Plants: On October 26, 2010, the Venezuelan government decreed the expropriation of O-I’s operations in Venezuela. This business represents less than 5 percent of the Company’s global segment operating profit. O-I is pursuing a resolution of this matter that benefits its employees, customers, and shareholders.

Third-quarter net sales were $1.74 billion in 2010, down from $1.87 billion in the prior year, primarily due to unfavorable foreign currency translation effects.

Net earnings attributable to the Company in the third quarter of 2010 were $138.7 million, or $0.84 per share (diluted), compared to $126.7 million, or $0.74 per share (diluted), in the prior year. Excluding items management considers not representative of ongoing operations, adjusted net earnings were $148.1 million, or $0.90 per share (diluted), compared to third quarter 2009 adjusted net earnings of $162.7 million, or $0.95 per share (diluted). A description of items that management considers not representative of ongoing operations and a reconciliation of the GAAP to non-GAAP earnings and earnings per share can be found in Note 1 provided below and in the charts on the Company’s Web site, www.o-i.com/investorrelations.

Commenting on the Company’s third quarter, Chairman and Chief Executive Officer Al Stroucken said, “Our financial results reflected the varying pace of economic recovery in the regions we serve. In the emerging markets, glass demand improved in all end-use categories. Globally, demand was up across the wine, food and spirits categories, while beer demand remained sluggish in the more mature markets. We continued to execute on our long-term growth strategy. During the quarter, we acquired CIV in northern Brazil and opened new furnaces in Peru and Argentina. These initiatives build on acquisitions earlier this year in Argentina, China, Malaysia and Vietnam, as we expand our business in attractive and growing markets.”

Operational highlights: New furnaces and realignment activities will enhance future profitability

O-I reported third-quarter 2010 segment operating profit of $299 million, down from $317 million in the prior year. Unfavorable foreign currency translation impacted operating profit by $9 million.

Price and product mix were consistent with the third quarter of 2009. Global shipments, in tonnes, were down 2.4 percent from the prior year. However, the earnings impact from lower volume was mostly offset by a favorable regional sales mix due to strong growth of higher margin business in South America. The decline in O-I’s global shipments reflected lower volumes following the renegotiation of contracts that went into effect in 2010. Excluding this impact, third quarter shipments were up slightly from 2009 levels.

Year-to-date glass shipment trends have varied by end-use category. While beer in mature markets remained soft, shipments for beer in emerging markets, as well as wine and spirits on a global basis, were up between 5 and 13 percent.

Manufacturing and delivery costs increased $21 million from the prior year, mostly due to inflation. During the third quarter, O-I completed its footprint realignment initiative and began production at new furnaces in Argentina and Peru. While impacting third quarter results, these activities will benefit earnings going forward.

Corporate costs increased from the prior year, primarily due to higher pension expense, which was partially offset by cost reduction efforts.

Financial highlights: Eurobond offering to fund future strategic growth investments

At September 30, 2010, O-I reported total debt of $4.345 billion and cash of $700 million. Net debt was $3.645 billion, up $826 million from the second quarter of 2010. The increase in net debt reflected the funding of two acquisitions and an unfavorable foreign currency translation of $138 million, partially offset by $75 million of positive free cash flow. During the quarter, the Company completed a highly successful bond offering, issuing euro 500 million of 6.75 percent senior notes due in 2020 to fund the Company’s strategic growth. Available liquidity on September 30 was $724 million under the Company’s global revolving credit facility, which does not mature until June 2012.

Asbestos-related cash payments during the third quarter of 2010 were $36 million, down from $38 million during the third quarter of 2009. New lawsuits and claims filed during the first three quarters of 2010 were approximately 24 percent lower than the same period last year. The number of pending asbestos-related lawsuits and claims was approximately 6,500 as of September 30, 2010, down from 6,900 at the end of 2009.

Business outlook

Commenting on the Company’s outlook for the fourth quarter of 2010, Stroucken said, “Although the situation remains uncertain, the recent governmental decree for the expropriation of our Venezuelan operations will likely negatively impact fourth quarter results. In terms of global glass trends for the remainder of the year, we anticipate prices will remain stable and volume growth in the emerging markets will continue to be strong. Our recent expansion in these markets will further benefit earnings in the future. However, shipments in the mature markets will likely remain inconsistent until beer demand recovers. Overall, operating rates should be higher than in the fourth quarter of last year. Our financial position remains strong and we are well positioned to pursue additional strategic acquisitions to further increase shareholder value.”