O-I REPORTS SECOND QUARTER 2019 RESULTS
FOR IMMEDIATE RELEASE
O-I REPORTS SECOND QUARTER 2019 RESULTS
"The Company has been on a transformational journey and has made meaningful progress over the past three years. However, the second quarter was a challenging period for O-I. Earnings fell short of management's guidance as sales volumes were essentially flat with last year compared to our expectation of modest growth. Despite encouraging demand trends in April and May, June shipments were softer than anticipated including the impact of extreme weather conditions in
For the second quarter 2019, earnings from continuing operations were
$0.42per share (diluted), compared with $0.31per share (diluted) in 2018. Excluding certain items management considers not representative of ongoing operations, adjusted earnings were $0.69per share, compared with $0.77per share in 2018.
Net sales were
$1.8 billion, essentially flat with the prior year second quarter. Higher prices were offset by unfavorable foreign currency translation while sales volumes were essentially flat with the prior year.
Earnings from continuing operations before income taxes were
$98 million, compared to $78 millionin the second quarter of 2018. This improvement reflects lower restructuring charges in the second quarter of 2019 than in the prior year.
Segment operating profit1 was
$236 millionwhich compares to $255 millionin the second quarter of 2018. While the benefit of higher selling prices more than offset cost inflation, operating costs were higher than the prior year. Increased costs reflected additional costs related to the commissioning of a furnace at a joint venture, unexpected weather related downtime and timing of an energy credit.
Despite a challenging second quarter, O-I recently achieved key milestones across a number of strategic priorities:
Sales volume growth was strong in the markets where O-I recently commissioned new capacity including
Brazil, Colombiaand China.
Production of commercial ware at the Company's first MAGMA line started in early July.
The acquisition of Nueva Fábrica Nacional de Vidrio,
S. de R.L. de C.V.("Nueva Fanal") was completed at the end of June and is supported by a long-term customer supply agreement. Nueva Fanal is expected to be immediately accretive to earnings.
The Company refinanced its Bank Credit Agreement to improve financial flexibility and reduce future interest expense.
July 31, 2019, the Company's Board of Directors declared a quarterly cash dividend of $0.05per share, payable on September 16, 2019, to stockholders of record as of the close of business on August 30, 2019.
O-I has revised its full year 2019 earnings guidance and now expects 2019 adjusted earnings of approximately
$2.40- $2.55per share. The Company also now expects its cash provided by continuing operating activities for 2019 to be in the range of $550to $575 millionand adjusted free cash flow of at least $260 millionfor 2019.
Second Quarter 2019 Results
Net sales in the second quarter of 2019 were
Global sales shipments were flat with the prior year and below management's expectation of 2.5 percent growth. While volume growth and trends were favorable in April and May, June demand fell short of the prior year mostly reflecting the impact of extreme weather conditions in
Segment operating profit was
Segment operating profit in the
Americaswas $144 million, $8 millionlower than the prior year. Foreign currency translation was slightly favorable on a year-over-year basis. Overall, the benefit of higher price and volume was more than offset by increased operating costs. The contribution from higher average selling prices exceeded cost inflation as sales volumes increased by approximately 1 percent from the prior year. Demand growth was strong in Brazil, Colombiaand Mexicowhile softer demand continued in the U.S.across the beer category. The Company incurred additional costs related to challenges commissioning a furnace at a joint venture as well as unexpected weather-related downtime. Furthermore, a continued shift in product mix from mega-beer to other growing categories has increased production complexity.
Europe, segment operating profit was $90 million, $11 millionlower than the prior year. Foreign currency translation was a modest headwind on a year-over-year basis. The benefit of higher average selling prices was more than offset by lower sales volume and elevated operating costs. Higher average selling prices more than offset cost inflation while sales volumes declined nearly 2 percent from the prior year. Most of the volume decline pertained to lower alcoholic beverage shipments in June as consumption patterns were interrupted by extreme weather conditions. As expected, operating costs were higher year-over-year partially due to the timing of an energy credit that was earned in the second quarter of 2018, compared to the first quarter of 2019.
Segment operating profit in
Asia Pacificwas $2 million, flat with the prior year. Foreign currency translation was a slight headwind on a year-over-year basis. The impact of lower average selling prices was offset by higher sales volumes while operating costs were on par with the prior year. Higher selling prices were more than offset by cost inflation as the region's contracted annual price adjustments typically do not begin until mid-year. Sales volumes increased 7 percent from the prior year and improved across nearly all end-use categories. More broadly, the region benefitted from improved operating costs as a result of increased productivity, but this was offset by the acceleration of planned maintenance and a furnace rebuild.
Retained corporate and other costs were
During the second quarter, the Company re-negotiated its Bank Credit Agreement ("BCA") to improve financial flexibility and reduce interest expense. Net interest expense was
The Company completed the acquisition of Nueva Fanal, which includes a one plant operation near
The Company expects third quarter 2019 adjusted earnings of approximately
O-I now expects 2019 adjusted earnings of approximately
The earnings and cash flow guidance ranges may not fully reflect uncertainty in macroeconomic conditions and currency rates, among other factors.
As the Company remains focused on enabling its strategy to create long-term shareholder value, specific actions are underway to accelerate performance. In addition to the Company's highly successful Total Systems Cost initiative, an accelerated cost reduction initiative is being launched to help advance productivity and cost take-out across the enterprise and will be supported by a leading third party consulting organization. And, the Company continues its strategic review of its business portfolio in order to focus on core operations best aligned with the interests of the Company and its strategic customers. This review is in addition to O-I's current tactical divestiture program and is supported through the Company's ongoing engagement with Goldman Sachs.
Conference Call Scheduled for
The conference call also may be accessed by dialing 888-733-1701 (
O-I news releases are available on the O-I website at www.o-i.com.
O-I's third quarter 2019 earnings conference call is currently scheduled for
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
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 as well as certain retained corporate cost. 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 five to seven 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
10-K for the year ended
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 segment operating profit of reportable segments ("segment operating profit") are non-GAAP financial measures. See tables included in this release for reconciliations to the most directly comparable GAAP measures.
 The Company is unable to present a quantitative reconciliation of its forward-looking non-GAAP measure, EBITDA, to its most directly comparable GAAP financial measure, Net Earnings, because management cannot reliably predict all of the necessary components of this GAAP financial measure without unreasonable efforts. Net Earnings includes several significant items, such as restructuring, asset impairment and other charges, charges for the write-off of finance fees, and the income tax effect on such items. The decisions and events that typically lead to the recognition of these and other similar items are inherently unpredictable. Accordingly, the Company is unable to provide a reconciliation of EBITDA to Net Earnings or address the probable significance of the unavailable information, which could be material to the Company's future financial results.
The issuer of this announcement warrants that they are solely responsible for the content, accuracy and originality of the information contained therein.