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|O-I REPORTS FULL YEAR AND FOURTH QUARTER 2016 RESULTS; Entering next phase of transformational journey as Company delivers strong financial performance for 2016|
FOR IMMEDIATE RELEASE
O-I REPORTS FULL YEAR AND FOURTH QUARTER 2016 RESULTS
PERRYSBURG, Ohio (Feb. 1, 2017) - Owens-Illinois, Inc. (NYSE: OI) today reported financial results for the full year and fourth quarter ended Dec. 31, 2016.
CEO Andres Lopez stated, "Our multi-year transformation is off to a strong start - we achieved the key financial targets that we outlined at investor day in early 2016. Margins expanded more than 100 basis points, due to the benefits of our strategic initiatives and the acquired business. We are executing on our strategy, overcoming visible external challenges from Brazil macros, the Brexit vote and the strengthening U.S. dollar.
"Looking ahead, we expect continued improvement in our top-line and bottom-line results as we advance to the next stage in our transformational journey - from stability to agility. We will augment our ability to adapt to market changes and invest in new capabilities. In all, we are one enterprise solely executing on one plan with focus, rigor and discipline everywhere to further enhance shareholder value."
Fourth Quarter 2016 Results
For the fourth quarter 2016, the Company recorded a loss from continuing operations of $0.43 per share (diluted), which compares with earnings from continuing operations (diluted) of $0.04 per share in the same period of 2015. Loss from continuing operations before income taxes was $39 million in the quarter, which was unfavorable by $87 million compared with the same period in prior year. These figures include significant items that management considers not representative of ongoing operations. In the fourth quarter, the Company incurred restructuring and impairment charges of $110 million, primarily driven by anticipated restructuring activity in Europe, Latin America and at corporate, as well as a settlement charge of $98 million related to actions to de-risk pension liabilities.
Excluding certain items management considers not representative of ongoing operations, adjusted earnings were $0.50 per share. Adjusted earnings increased 25 percent, or $17 million compared with prior year, a great achievement in light of ongoing currency headwinds and recognizing that both periods reflected results from the acquired business.
Net sales in the fourth quarter of 2016 were $1.6 billion, up 1 percent from the prior year fourth quarter. Price was up $27 million on a global basis, primarily driven by price adjustments that reflect cost inflation. Currency translation adversely impacted net sales by $16 million, or 1 percent.
Global sales volumes increased 1 percent compared to the fourth quarter of 2015. Shipments in Europe increased 3 percent, mainly due to gains in beer and food shipments. In Latin America, shipments increased nearly 3 percent with higher shipments in all product categories except wine, which was down slightly. North America volumes were similar to the prior year with higher non-alcoholic beverage and spirits shipments offsetting lower food and beer shipments. Fourth quarter shipments in Asia Pacific were 6 percent below the same period of 2015. In the mature markets of Asia Pacific, sales volumes were similar to prior year, despite lower in-country production volumes due to planned engineering activity. Sales volumes in mature markets in Asia Pacific were supported by shipments from China; in turn, domestic sales there declined.
Segment operating profit was $201 million in the fourth quarter, 8 percent higher than prior year fourth quarter.
Full Year 2016 Results
Full year net sales were $6.7 billion, up $546 million from 2015. The acquired business contributed $608 million in incremental sales (excluding organic growth from September through December 2016) which was partially offset by $108 million in adverse currency translation. Prices were 1 percent higher on a global basis, mainly due to price adjustments resulting from cost inflation. Global shipments increased 9 percent in 2016. Key contributors to growth were the acquired business, Europe, legacy North America, as well as Australia and New Zealand.
Shipments in Europe increased nearly 2 percent, primarily due to favorable beer and wine volumes. In North America, sales volumes improved nearly 7 percent compared to the prior year period, mainly due to the acquired business, and higher shipments in all major end uses except beer which was on par with the prior year. Full year shipments for Latin America rose 41 percent, primarily due to the acquired business and growth in Colombia and Peru which was partially offset by the negative impact of economic weakness in Brazil and Ecuador. Overall, Asia Pacific shipments declined low single digits. In mature markets in Asia Pacific, sales volumes increased approximately 3 percent, primarily due to beer and wine. Sales volumes in China declined as domestic production was exported to support sales elsewhere in the region.
Retained corporate and other costs were $98 million in 2016, which is in line with the past five-year average.
Net interest expense in 2016 was $272 million, higher than the prior year primarily due to acquisition-related interest expense.
The Company's effective tax rate from continuing operations for 2016 was approximately 33 percent, compared with almost 40 percent for 2015. The effective tax rate on adjusted earnings was approximately 24 percent for 2016 which is similar to approximately 25 percent in 2015.
In 2016 and 2015, the Company recorded several significant items impacting reported results as presented in the table entitled Reconciliation to Adjusted Earnings and Constant Currency. Management considers these items not representative of ongoing operations. Charges in 2016 include restructuring and impairment charges of $129 million, primarily driven by restructuring activity in Europe, Latin America and at corporate.
Cash provided by continuing operating activities was $758 million for 2016. After deducting additions to property, plant and equipment of $454 million, and adding back asbestos-related payments of $125 million, adjusted free cash flow was $429 million, in line with management guidance of $425 million.
The Company expects earnings from continuing operations, and adjusted earnings, for the full year 2017 to be in the range of $2.40 to $2.50 per share. The midpoint of this range represents a 10 percent compounded annual growth rate in adjusted earnings per share since 2015. The Company expects cash provided by continuing operating activities for 2017 to be approximately $730 million and adjusted free cash flow to be approximately $365 million. As previously communicated, the decline in adjusted free cash flow from 2016 is mainly related to the non-recurrence of a VAT refund of approximately $130 million, partially offset by higher segment operating profit and stronger contributions from working capital.
Despite the significant strengthening of the U.S. dollar, the earnings and cash flow guidance ranges are entirely consistent with targets conveyed by senior management during investor day in early 2016. The earnings and cash flow guidance ranges reflect uncertainty in macroeconomic conditions and currency rates, among other factors.
Conference Call Scheduled for Feb. 2, 2017
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. EST, on Feb. 2. 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 2017 earnings conference call is currently scheduled for Tuesday, April 25, 2017, at 8:00 a.m. EST.
Owens-Illinois, Inc. (NYSE: OI) is the world's largest glass container manufacturer and preferred partner for many of the world's leading food and beverage brands. The Company had revenues of $6.7 billion in 2016 and employs more than 27,000 people at 79 plants in 23 countries. With global headquarters in Perrysburg, Ohio, O-I delivers safe, sustainable, pure, iconic, brand-building glass packaging to a growing global marketplace. For more information, visit o-i.com.
Non-GAAP Financial Measures
The Company uses certain non-GAAP financial measures, which are measures of its historical or future financial performance that are not calculated and presented in accordance with GAAP, within the meaning of applicable SEC rules. Management believes that its presentation and use of certain non-GAAP financial measures, including adjusted earnings, adjusted earnings per share, segment operating profit, segment operating profit margin and adjusted free cash flow, provide relevant and useful supplemental financial information, which is widely used by analysts and investors, as well as by management in assessing both consolidated and business unit performance. These non-GAAP measures are reconciled to the most directly comparable GAAP measures and should be considered supplemental in nature and should not be considered in isolation or be construed as being more important than comparable GAAP measures.
Adjusted earnings relates to net earnings from continuing operations attributable to the Company, exclusive of items management considers not representative of ongoing operations because such items are not reflective of the Company's principal business activity, which is glass container production. Adjusted earnings are divided by weighted average shares outstanding (diluted) to derive adjusted earnings per share. Segment operating profit relates to earnings from continuing operations before interest expense (net), provision for income taxes and is also exclusive of items management considers not representative of ongoing operations. Segment operating profit margin is segment operating profit divided by segment net sales. Management uses adjusted earnings, adjusted earnings per share, segment operating profit and segment operating profit margin to evaluate its period-over-period operating performance because it believes this provides a useful supplemental measure of the results of operations of its principal business activity by excluding items that are not reflective of such operations. Adjusted earnings, adjusted earnings per share, segment operating profit and segment operating profit margin may be useful to investors in evaluating the underlying operating performance of the Company's business as these measures eliminate items that are not reflective of its principal business activity.
Further, adjusted free cash flow relates to cash provided by continuing operating activities less additions to property, plant and equipment plus asbestos-related payments. Management uses adjusted free cash flow to evaluate its period-over-period cash generation performance because it believes this provides a useful supplemental measure related to its principal business activity. Adjusted free cash flow may be useful to investors to assist in understanding the comparability of cash flows generated by the Company's principle business activity. It should not be inferred that the entire adjusted free cash flow amount is available for discretionary expenditures, since the Company has mandatory debt service requirements and other non-discretionary expenditures that are not deducted from the measure. Management uses non-GAAP information principally for internal reporting, forecasting, budgeting and calculating compensation payments.
The Company routinely posts important information on its website - www.o-i.com/investors.
This document contains "forward-looking" statements within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended (the "Exchange Act") and Section 27A of the Securities Act of 1933. Forward-looking statements reflect the Company's current expectations and projections about future events at the time, and thus involve uncertainty and risk. The words "believe," "expect," "anticipate," "will," "could," "would," "should," "may," "plan," "estimate," "intend," "predict," "potential," "continue," and the negatives of these words and other similar expressions generally identify forward-looking statements. It is possible the Company's future financial performance may differ from expectations due to a variety of factors including, but not limited to the following: (1) the Company's ability to integrate the Vitro Business in a timely and cost effective manner, and to realize expected growth opportunities, cost savings and synergies from the Vitro Acquisition, (2) foreign currency fluctuations relative to the U.S. dollar, (3) changes in capital availability or cost, including interest rate fluctuations and the ability of the Company to refinance debt at favorable terms, (4) the general political, economic and competitive conditions in markets and countries where the Company has operations, including uncertainties related to economic and social conditions, disruptions in capital markets, disruptions in the supply chain, competitive pricing pressures, inflation or deflation, and changes in tax rates and laws, (5) the Company's ability to generate sufficient future cash flows to ensure the Company's goodwill is not impaired, (6) consumer preferences for alternative forms of packaging, (7) cost and availability of raw materials, labor, energy and transportation, (8) the Company's ability to manage its cost structure, including its success in implementing restructuring plans and achieving cost savings, (9) consolidation among competitors and customers, (10) the Company's ability to acquire businesses and expand plants, integrate operations of acquired businesses and achieve expected synergies, (11) unanticipated expenditures with respect to environmental, safety and health laws, (12) the Company's ability to further develop its sales, marketing and product development capabilities, (13) the Company's ability to prevent and detect cybersecurity threats against its information technology systems, (14) the Company's ability to accurately estimate its total asbestos-related liability or to control the timing and occurrence of events relates to asbestos-related claims, (15) changes in U.S. trade policies, (16) the Company's ability to achieve its strategic plan, and the other risk factors associated with the business described in the Company's annual report on Form 10-K, quarterly reports on Form 10-Q and current reports on Form 8-K filed with the SEC. It is not possible to foresee or identify all such factors. Any forward-looking statements in this document are based on certain assumptions and analyses made by the Company in light of its experience and perception of historical trends, current conditions, expected future developments, and other factors it believes are appropriate in the circumstances. Forward-looking statements are not a guarantee of future performance and actual results or developments may differ materially from expectations. While the Company continually reviews trends and uncertainties affecting the Company's results of operations and financial condition, the Company does not assume any obligation to update or supplement any particular forward-looking statements contained in this document.
 Adjusted earnings per share, segment operating profit of reportable segments ("segment operating profit") and adjusted free cash flow are each non-GAAP financial measures. See tables included in this release for reconciliations to the most directly comparable GAAP measures.
 Refers to segment operating profit margin. See tables included in this release for reconciliations to the most directly comparable GAAP measures.
 See table entitled Reconciliation to Adjusted Earnings and Constant Currency.