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|O-I REPORTS FULL YEAR AND FOURTH QUARTER 2014 RESULTS: O-I generates second highest free cash flow in the Company's history|
FOR IMMEDIATE RELEASE
O-I REPORTS FULL YEAR AND FOURTH QUARTER 2014 RESULTS
PERRYSBURG, Ohio (February 2, 2015) - Owens-Illinois, Inc. (NYSE: OI) today reported financial results for the full year and fourth quarter ending December 31, 2014.
Commenting on the Company's 2014 results, Chairman and Chief Executive Officer Al Stroucken said, "We successfully generated significant free cash flow, despite strong currency headwinds that intensified in the fourth quarter. Our European asset optimization program has strengthened financial performance in our largest region, and volume growth in South America allowed us to reach our margin target of 20 percent in that region. We are confident that our concentrated efforts to optimize our operations will improve financial performance, particularly in North America and Asia Pacific, where we experienced challenges in 2014.
"We successfully drove financial improvement by reducing our pension obligations and refinancing $600 million in debt. We will distribute benefits derived from our value-added actions to our shareholders through a $500 million share repurchase program. O-I is the world's leading glass container maker, and we are well-positioned to generate sustainable, long-term value for our shareholders."
Fourth Quarter 2014
Sales volume declined by 4 percent. Volume in Europe increased 1 percent, driven by higher beer sales. Shipments in South America were down 4 percent. Volume in the Andean countries was on par with the prior year, while shipments in Brazil were down mid-single digits, as expected.
Volume in North America fell approximately 4 percent. Whereas sales volumes in most categories in the region were flat with prior year, volumes in beer were lower, consistent with the ongoing decline in major domestic beer sales. Shipments in Asia Pacific declined nearly 20 percent, due primarily to the deliberate retrenchment in China and lower sales in Australia.
Fourth quarter segment operating profit was $180 million, down $15 million compared with the prior year fourth quarter. Europe reported a nearly 40 percent increase in operating profit, primarily due to benefits from the asset optimization program and cost containment measures. South America's operating profit was on par with prior year, driven by improved productivity and a geographic sales mix that offset lower shipments and currency headwinds in the quarter. North America's profit contracted significantly year on year, due to sales volume declines and deeper production curtailments to control inventory. Asia Pacific reported lower profit due to lower sales and production volumes.
Corporate and other costs improved by $6 million compared with prior year, primarily driven by lower pension expense.
In the fourth quarter of 2014, the Company recorded several significant non-cash charges to reported results as presented in the table entitled Reconciliation to Adjusted Earnings. Management considers these charges not representative of ongoing operations.
Full Year 2014
Although sales volume fell nearly 2 percent for the year, shipments were on par with prior year when excluding the Company's planned retrenchment in China. South America reported strong sales volumes on growth of 4 percent, led by record volumes in Brazil and recovery in the Andean region. Shipments in Europe increased 2 percent, driven by wine and beer gains.
Volume in North America was dampened by the ongoing decline in major domestic beer brands. Shipments in Asia Pacific were down 20 percent, primarily due to China, as well as the decline in beer and wine demand in Australia.
Segment operating profit was $908 million in 2014, compared with $947 million in the prior year. In Europe, operating profit increased 16 percent, driven by the asset optimization program, as well as sales volume gains. South America also achieved a double-digit expansion in operating profit due to productivity improvement and higher sales volumes.
North America and Asia Pacific reported lower operating profit in 2014. In North America, operating profit was dampened by reduced sales and production volumes, as well as lower productivity. In Asia Pacific, the Company responded to lower wine volumes in Australia by modestly reducing capacity to improve financial returns.
The Company entered into two promising agreements with Constellation Brands to supply glass containers for CBI's growing Mexican beer export business to the United States. O-I and Constellation Brands created a joint venture to operate and expand a glass container plant adjacent to CBI's brewery in Nava, Mexico. Separately, O-I will supply additional containers from North America under a long-term supply contract with Constellation Brands. These transactions are expected to be accretive to earnings in 2016 and allow the Company to benefit from the fast-growing Mexican beer import market in the United States.
Full year 2014 earnings from continuing operations attributable to the Company were $1.01 per share (diluted), compared with $1.22 per share in full year 2013. Excluding certain items management considers not representative of ongoing operations, adjusted earnings were $2.63 per share compared with $2.72 per share in the prior year.
Cash payments and new claims filed related to asbestos continued to decline. In 2014, payments were $148 million, down $10 million from 2013. In the fourth quarter, the Company conducted its annual comprehensive review of asbestos-related liabilities and recorded a charge of $135 million, as presented in the table entitled Reconciliation to Adjusted Earnings.
The Company continued its strong focus on cash generation in 2014. Despite lower segment operating profits, cash provided by continuing operations in 2014 was $698 million, similar to the strong performance in the prior year. The Company generated $329 million of free cash flow in 2014, the second highest in the Company's history. This includes the nearly $40 million adverse impact of currency exchange rates.
The Company successfully refinanced $600 million in debt in the fourth quarter as part of its ongoing efforts to enhance financial flexibility. The new bonds extended the Company's debt maturity profile. Net debt declined by $236 million for the year, aided by foreign exchange rates, resulting in an improved leverage ratio of 2.4 at year end 2014.
The Company's ongoing efforts to reduce the cost and risk associated with its pension plans has resulted in a reduction of approximately $600 million in pension obligations in 2014.
In line with stated capital allocation priorities for free cash flow in 2014, the Company repurchased 1.1 million shares worth $32 million, funded the initial $115 million investment in the joint venture with Constellation Brands, and reduced net debt.
Reflecting unfavorable currency translation, O-I expects adjusted earnings for full year 2015 to be in the range of $2.20 to $2.60. Assuming constant currency (at 2014 currency rates), comparable adjusted earnings for full year 2015 are expected to be in the range of $2.60 to $3.00. The midpoint of the range using constant currency is higher than prior year adjusted earnings due to an anticipated improvement in operating results.
O-I's Glass Is Life(TM) movement promotes the widespread benefits of glass packaging in key markets around the globe. Learn more about the reasons to choose glass and join the movement at glassislife.com.
The Company routinely posts important information on its website - www.o-i.com/investors.
Forward looking statements
Conference call scheduled for February 3, 2015
The conference call also may be accessed by dialing 888-733-1701 (U.S. and Canada) or 706-634-4943 (international) by 7:50 a.m., Eastern Time, on February 3. Ask for the O-I conference call. A replay of the call will be available on the O-I website, www.o-i.com/investors, for a year following the call.
Contact: Sasha Sekpeh, 567-336-5128 - O-I Investor Relations
O-I news releases are available on the O-I website at www.o-i.com.
O-I's first quarter 2015 earnings conference call is currently scheduled for Wednesday, April 29, 2015, at 8:00 a.m., Eastern Time.
 Adjusted earnings refers to earnings from continuing operations attributable to the Company, excluding items management does not consider representative of ongoing operations, as cited in the table entitled Reconciliation to Adjusted Earnings in this release.
 Free cash flow is calculated as cash provided by continuing operating activities less additions to property, plant and equipment as presented in the appendix of the Company's fourth quarter and full year 2014 earnings presentation.
 The leverage ratio is calculated as total debt, less cash, divided by adjusted EBITDA as presented in the appendix of the Company's fourth quarter and full year 2014 earnings presentation.