Owens-Illinois Hits 52-Week Low on Weak Q3 & Guidance Cut
Shares of Owens-Illinois, Inc. OI have been losing momentum following its disappointing third-quarter 2015 results reported on Oct 27, 2015 and hit a 52-week low of $18.62 yesterday. Since its earnings release, Owens-Illinois’ shares dropped 16% closing at $19.02 yesterday with a negative year-to-date return of roughly 29.5%.
What Led to the Drop?
The largest manufacturer of glass containers in the world reported poor third-quarter results, witnessing a year-over-year slump of 24% in third-quarter earnings. Sales also declined 10% year over year in the quarter. Currency headwinds had a negative impact of approximately $240 million on sales. Higher prices in Latin America were largely offset by lower prices in North America and Europe, resulting in flat global pricing.
Owens-Illinois reduced its adjusted earnings per share guidance for 2015 to $2.00 from the prior range of $2.00 to $2.20 due to unfavorable foreign exchange rates. As the U.S. dollar continues to strengthen, particularly against the euro, the impact of adverse currency translation will intensify.
Notably, Owens-Illinois expects current economic and industry trends, including currency headwinds, to hamper fourth-quarter results. In the fourth quarter, operating profit in Europe is projected to be modestly down while sales volume would likely be flat with the prior-year quarter. The ongoing price declines experienced in the second and third quarters of 2015 will continue but with less year-on-year impact. Owens-Illinois’ asset optimization program will wind down and focus will shift to improving productivity at its lower-performing plants. Price will continue to be a headwind in the fourth quarter.
In Latin America, while the Vitro acquisition will provide significant benefits to segment profit in the fourth quarter, the legacy business will continue to be under pressure, especially given macro challenges. In Brazil, the company anticipates modestly lower production volume.
Moreover, price increases may not completely cover persistently high costs of inflation linked to the strong US dollar. Overall, Latin America's operating profit should be flat with the prior year, taking into account currency headwinds and the legacy business’ performance, which will offset the benefits from acquisitions.
Additionally, most of the estimates for this Zacks Rank #3 (Hold) company moved south following the weak guidance. In the past 30 days, the Zacks Consensus Estimate for 2015 decreased 1.5% to $2.01 per share and for 2016 the same reduced 2.8% to $2.44 per share.
Stocks to Consider
Some better-ranked stocks in the same sector include Albany International Corp. AIN, Berry Plastics Group, Inc. BERY and Codexis, Inc. CDXS. All these stocks sport a Zacks Rank #1 (Strong Buy).
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