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|O-I REPORTS FULL YEAR AND FOURTH QUARTER 2017 RESULTS; Company delivers strong financial performance for 2017 and expects higher earnings and cash flow generation in 2018|
FOR IMMEDIATE RELEASE
PERRYSBURG, Ohio (February 6, 2018) - Owens-Illinois, Inc. (NYSE: OI) today reported financial results for the full year and fourth quarter ended Dec. 31, 2017.
"In 2017, we delivered strong earnings and cash flow generation, in line with the commitments we made at Investor Day in early 2016. We have been building capabilities in the commercial, manufacturing and supply chain space that are demonstrably adding to the top line - through higher shipments year-on-year - and the bottom line - through the tangible benefits of our Total Systems Cost approach," said Andres Lopez, CEO. "We are working together in a new way, as one enterprise, enhancing the customer experience, executing on our initiatives and deleveraging the balance sheet that together support our conviction to deliver rising earnings and cash flow in 2018. Even as we continue to invest in new capabilities and explore non-organic growth opportunities in the industry, we have begun to pivot towards a more balanced approach to capital allocation that we anticipate will include share buybacks in 2018."
Full Year 2017 Results
Full year net sales were $6.9 billion, up $167 million from 2016, an increase of nearly 3 percent. Prices were 1 percent higher on a global basis, mainly due to price adjustments resulting from cost inflation. Global shipments increased approximately 1 percent in 2017. From a geographic perspective, key contributors to shipment growth were Italy, Mexico and Brazil. Favorable foreign currency translation also benefited net sales by $106 million.
Shipments in Europe increased 1 percent, primarily due to favorable beer, spirits and wine volumes. In North America, sales volumes declined 3 percent compared to the prior year period, mainly due to lower shipments of beer. Full year shipments for Latin America rose 4 percent, primarily due to higher shipments of beer and spirits. Overall, Asia Pacific shipments declined 1 percent as higher shipments to food customers were more than offset by lower shipments to beer and non-alcoholic beverage customers. In mature markets within Asia Pacific, sales volumes increased approximately 1 percent, primarily due to higher beer shipments. Sales volumes in China declined for the full year because, during the first half of 2017, domestic production was exported to support sales elsewhere in the region.
Retained corporate and other costs were $104 million in 2017 compared with $98 million for 2016. These corporate costs were higher in 2017 because equity earnings related to the Company's joint venture with Constellation Brands began to be reported in the North America region in 2017, whereas they were previously recorded in retained corporate.
The Company's effective tax rate from continuing operations for 2017 was approximately 25 percent, compared with approximately 33 percent for 2016. The lower rate in 2017 was primarily due to the resolution of a tax matter that resulted in approximately $26 million of tax accruals being reversed in 2017. The effective tax rate on adjusted earnings was approximately 21 percent for 2017 and 24 percent for 2016.
In both 2016 and 2017, 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. The most significant charges in 2017 include $218 million of non-cash pension settlement charges related to the continued de-risking of the Company's pension plans, as well as $77 million for restructuring, asset impairment, and other charges. Charges in 2016 included restructuring and impairment charges of $129 million, primarily driven by restructuring activity in Europe, Latin America and at corporate, as well as $98 million of non-cash pension settlement charges.
Cash provided by continuing operating activities was $724 million for 2017. After deducting cash payments for property, plant and equipment, and adding back asbestos-related payments, adjusted free cash flow was $393 million, exceeding management guidance of approximately $365 million.
Fourth Quarter 2017 Results
Net sales in the fourth quarter of 2017 were $1.7 billion, an increase of 4 percent compared to the prior year fourth quarter. On a global basis, the improvement in net sales was due to a 1 percent increase in price and favorable currency translation.
Global sales volumes were on par with the prior year fourth quarter. Shipments in Latin America increased 2 percent, mainly due to gains in beer and non-alcoholic beverages. The largest increase in Latin America's fourth quarter shipments was reported in Brazil, providing further evidence of recovery in that country. In Europe, shipments increased 1 percent, primarily in wine and beer. North America volumes were similar to the prior year with higher food shipments offsetting lower beer volumes. In Asia Pacific, shipments were 2 percent below the same period of 2016, with higher food volumes more than offset by lower shipments of beer.
The Company continues to realize benefits from successfully executing its strategic initiatives. The Company's focus on Total Systems Cost contributed approximately $13 million in cost savings in the fourth quarter, leading to a full year total of $39 million. The contribution of the total systems costs approach was partially masked by higher spending associated with higher asset repair and production downtime experienced in Asia Pacific, consistent with Company plans to revitalize and enhance production in the region.
In all, segment operating profit was $212 million in the fourth quarter, 5 percent higher than the prior year fourth quarter.
Excluding certain items management considers not representative of ongoing operations, adjusted earnings were $0.55 per share. Adjusted earnings increased 12 percent, or $10 million, compared with prior year primarily reflecting the benefits of the Company's global focus on reducing Total Systems Cost.
The Company expects earnings from continuing operations, and adjusted earnings, for the full year 2018 to be in the range of $2.75 to $2.85 per share, which compares favorably with adjusted earnings of $2.65 per share in 2017. The midpoint of this range represents more than a 10 percent compounded annual growth rate in adjusted earnings per share since 2015. The Company expects cash provided by continuing operating activities for 2018 to be approximately $800 million and adjusted free cash flow to be approximately $400 million.
The earnings and cash flow guidance ranges are consistent with targets conveyed by senior management during Investor Day in early 2016. The earnings and cash flow guidance ranges may not fully reflect uncertainty in macroeconomic conditions and currency rates, among other factors.
On December 22, 2017, the Tax Cuts and Jobs Act ("the Act") was enacted in the U.S. The Act reduces the U.S. federal corporate tax rate from 35 percent to 21 percent, and requires companies to pay a one-time transition tax on earnings of certain foreign subsidiaries that were previously tax deferred and creates new taxes on certain foreign sourced earnings. Presently, no substantive impact on the Company's adjusted earnings or cash taxes is expected in 2018 as a result of the Act.
Conference Call Scheduled for Feb. 7, 2018
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. 7. 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 2018 earnings conference call is currently scheduled for Tuesday, April 24, 2018, 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 $6.9 billion in 2017 and employs more than 26,500 people at 78 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), and before 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 principal business activity. Since a significant majority of the Company's asbestos-related claims are expected to be received in the next ten years, adjusted free cash flow may help investors to evaluate the long-term cash generation ability of the Company's principal business activity as these asbestos-related payments decline. 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) foreign currency fluctuations relative to the U.S. dollar, (2) changes in capital availability or cost, including interest rate fluctuations and the ability of the Company to refinance debt at favorable terms, (3) 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 the supply chain, competitive pricing pressures, inflation or deflation, and changes in tax rates and laws, (4) the Company's ability to generate sufficient future cash flows to ensure the Company's goodwill is not impaired, (5) consumer preferences for alternative forms of packaging, (6) cost and availability of raw materials, labor, energy and transportation, (7) the Company's ability to manage its cost structure, including its success in implementing restructuring plans and achieving cost savings, (8) consolidation among competitors and customers, (9) the Company's ability to acquire businesses and expand plants, integrate operations of acquired businesses and achieve expected synergies, (10) unanticipated expenditures with respect to environmental, safety and health laws, (11) unanticipated operational disruptions, including higher capital spending, (12) the Company's ability to further develop its sales, marketing and product development capabilities, (13) the failure of the Company's joint venture partners to meet their obligations or commit additional capital to the joint venture, (14) the Company's ability to prevent and detect cybersecurity threats against its information technology systems, (15) the Company's ability to accurately estimate its total asbestos-related liability or to control the timing and occurrence of events related to asbestos-related claims, (16) changes in U.S. trade policies, (17) the Company's ability to achieve its strategic plan, and the other risk factors discussed in the Annual Report on Form 10-K for the year ended December 31, 2016 and any subsequently filed Annual Report on Form 10-K, Quarterly Report on Form 10-Q or the Company's other filings with the Securities and Exchange Commission. 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 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.
 Segment operating profit of reportable segments ("segment operating profit") is a non-GAAP financial measure. See tables included in this release for a reconciliation to the most directly comparable GAAP measures.
 See table entitled Reconciliation to Adjusted Earnings and Constant Currency.