Weak Europe Mars Owens Illinois' 4Q

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Owens-Illinois, Inc.’s (OI) fourth-quarter 2012 adjusted earnings per share (EPS) of 40 cents were down 17% from the year-ago adjusted earnings of 48 cents per share, but up 8% from the Zacks Consensus Estimate of 37 cents. Weak economic conditions in Europe mainly hurt the quarterly results. The company was able to raise prices but global shipments dropped and scaled-back production in Europe led to increased costs for manufacturing and delivery.

 
On a reported basis, including one time items, the company posted a loss of 99 cents per share, narrower than the year-ago loss of $4.71.
 
Net sales dipped 4% to $1.748 billion in the quarter, surpassing the Zacks Consensus Estimate of $1.733 billion. Volume dipped 7% mainly due to lower demand in Europe, which offset strong growth in South America.
 
Operational Update
 
Manufacturing, shipping and delivery expense decreased 3% year over year to $1.47 billion in the quarter. Selling and administrative expenses increased 12% to $145 million. Operating profit dropped 18% year over year to $164 million. The decline in operating profit was attributable to lower global shipments and higher manufacturing and delivery costs, primarily due to production curtailment in Europe, which offset the positive effects of higher sales prices.
 
Fiscal 2012 Performance
 
Owens-Illinois reported adjusted EPS of $2.64 in fiscal 2012, up 9% from $2.43 in fiscal 2011 and ahead of the Zacks Consensus Estimate of $2.60. Including one-time items, EPS in the reported fiscal stood at $1.12, as against a loss of $3.06 in the year-ago period.
 
Revenues stood at $7 billion, down 5% from $7.36 billion in 2011 as higher prices were offset by unfavorable currency translation and a decline in volume. Persistent sluggish macroeconomic conditions in Europe were mainly responsible for the decline in volume. 
 
Financial Update
 
Cash and cash equivalents were $431 million as of 2012 end compared with $400 million as of 2011 end. Long-term debt decreased to $3,454 million as of 2012 end from $3,627 million as of 2011 end. Cash flow from operating activities was $575 million during 2012 compared with $503 million in 2011. Free cash flow generated during the year was $290 million, up more than 30% year over year. 
 
Owens-Illinois expects free cash flow to increase to $300 million in 2013, driven by improved operating results, benefiting from cost efficiency and restructuring programs, particularly in the second half of the year. 
 
Guidance
 
The company expects strong contribution from the emerging regions and stable market conditions in North America to support growth while macroeconomic uncertainty in Europe will remain a deterring factor. The company expects overall modest volume growth in 2013, and higher prices that keep pace with higher materials costs. Its global cost reduction initiatives and European asset optimization program is expected to benefit free cash flow and earnings. Adjusted earnings are expected in the range of $2.60 to $3.00 per share.
 
Owens-Illinois Inc. with its subsidiaries, is presently the largest manufacturer of glass containers in the world, The company has an esteemed clientele in the liquor and the non-alcoholic beverage categories. Owens-Illinois retains a Zacks Rank #3 (Hold). 
 
Peer Performance
 
Silgan Holdings Inc. (SLGN) reported record adjusted EPS of $2.70 in fiscal 2012, up 3% from $2.63 in fiscal 2011 and a penny ahead of the Zacks Consensus Estimate. Crown Holdings Inc. (CCK) reported EPS of $2.81 in fiscal 2012, flat year over year, and missed the Zacks Consensus Estimate of $2.84. Ball Corporation (BLL) is yet to announce its fiscal 2012 results. The Zacks Consensus Estimate is at $3.08, projecting 12.7% year-over-year growth.
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