Owens-Illinois Tops, Earnings Fall – Analyst Blog

Owens-Illinois Inc.’s (OI) first quarter earnings of 50 cents a share beat the Zacks Consensus estimate by 3 cents, or 6.4%.

 

Since there were no non-recurring items in the last quarter, earnings are comparable to the adjusted earnings of 55 cents in the year-ago quarter. Accordingly, there was a 5 cent decline from the year-ago quarter, attributable to lower interest income and higher interest expenses, partially offset by a much lower tax rate.

 

 

Total revenue of $1.57 billion was up 4.7%, helped by mid-single digit increase in shipments across all regions except North America, stronger prices and favorable currency impact. These positives were partially offset by an unfavorable mix of regional sales.

 

Europe remained the largest market for Owens in the last quarter, with a 42% revenue share. North America followed with 28%, South America was third with 13%, while the remaining 16% came from the Asia-Pacific region.

 

Since the nature of the glass packaging markets calls for proximity of manufacturing locations to points of sale, the company reports revenue according to geographical segments. Therefore, the revenues by geography are also revenues by segment.

 

The highlight of the revenue performance in the last quarter was the 37.6% increase in the fast-growing Asia-Pacific segment, where the company operates in just four countries and is the market leader in all. The biggest segment, Europe, grew 9.0%, which is encouraging considering its share of total revenue. However, both the Americas declined, with North America down 10.2% and South America down 1.4%. The softness in North America was due to weaker demand for beer, which tends to be seasonally soft in the fourth and first quarters of the calendar year.

 

 

The corporate gross margin was flattish at around 19.6%, since input costs did not change much.

 

Operating profit dollars increased 3.3% from the March 2009 quarter, helped by much-improved results in European and Asian operations, offset by very weak results in South America and flattish performance in North America.

 

Operating margin in the Europe segment, which typically generates very low margins, increased 123 basis points (bps) from the year-ago quarter, helped by foreign exchange gains.

 

Manufacturing costs were spread over fewer units in North America, as the company cut production to shed excess inventory. However, it appears that Owens saw stronger pricing in the region, which enabled it to expand operating margins by 145 bps in the last quarter.

 

The highest-margin South America segment saw operating margins drop 826 bps, more than mitigating the increases in the other three segments.

 

The operating margin in the Asia-Pacific segment increased 95 bps, driven by much stronger volumes.

 

 

The cash and investments balance at quarter-end went down from around $813 million to around $522 million. The company generated just $24.5 million in cash from operations and spent $96.8 million on capex, $25.8 million on acquisitions net of cash acquired, $53.5 million to pay down its debt and $144.2 million on share repurchases in the last quarter.

 

DSOs were around 60 days, up from around 57 days in the year-ago quarter. Inventory management was also good, as inventories were flattish sequentially and down 13.7% from the year-ago quarter. Inventory turns of 5.6X improved from 4.7X in the prior-year quarter.

 

 

Management did not provide guidance for the upcoming quarter or the fiscal year. However, results are expected to improve as restructuring actions in North America are completed by mid-year and seasonal demand returns in the second and third quarters. These effects will be partially offset by production headwinds and negative currency impact from Venezuelan operations.