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O-I Glass (OI) Declines 21% YTD: What's Hurting the Stock?

Zacks Equity Research
·4 min read

O-I Glass, Inc. OI has been adversely impacted by production suspensions and reduced shipment levels on account of lower customer demand and imposition of governmental health mandates in certain markets amid the coronavirus pandemic. The company’s top line has also been bearing the brunt of continued decline of beer consumption in the domestic market over the past few years.

O-I Glass currently carries a Zacks Rank #5 (Strong Sell). Shares of this manufacturer of glass containers have lost 20.9% on a year-to-date basis compared with the S&P 500 and industry’s decline of 2.1% and 23%, respectively.

The Zacks Consensus Estimate for the company’s revenues is currently pegged at $6.06 billion, suggesting a decline of 9.4% from the $6.69 billion in 2019. The estimate for the company’s earnings per share for 2020 is pegged at $1.24, indicating a fall of 44% from the year-ago reported figure. Notably, the estimate has been revised downward by 4% over the past 30 days.

Factors Affecting O-I Glass

Impact of Coronavirus Pandemic on Demand: O-I Glass’ performance has been hurt by production suspensions and reduced shipment levels of late owing to lower customer demand and imposition of governmental health mandates in certain markets amid the coronavirus pandemic. The company continues to adjust production capacity to serve customers. It anticipates volumes in the current year to be down 5-10% from the last year. The company also continues to face supply chain issues and labor shortages.

Decline in Domestic Beer Consumption: O-I Glass’ revenues have been bearing the brunt of the continued decline of beer consumption in the domestic market since 2018. Notably, in 2019, North America beer demand declined 14% and was down 8% in first-quarter 2020.  The company is trying to counter the impact of mega-beer decline with new business in growing categories. While this new mix is positive from a volume and margin perspective in the long run, it is creating more operational complexity and costs are being impacted. Further, commissioning new capacity for future growth has added more cost than originally anticipated.

High Debt Level: O-I Glass’ total debt was $6.4 billion at Mar 31, 2020 compared with $5.5 billion at Dec 31, 2019. The total debt to total capital ratio stands at 0.99, higher than the industry’s 0.90 – which is concerning. As of Mar 31, 2020, O-I Glass had $1.7 billion of total committed liquidity, including nearly $900 million cash-on-hand as well as undrawn availability on committed lines of credit. As a proactive measure, in March, the company borrowed approximately $600 million on its $1.5 billion revolving credit facility. It has no debt maturities until March 2021. To preserve cash, the company has announced that it is suspending the payment of dividend and putting share repurchases on hold for the time being.

Additionally, O-I Glass’ return on equity of 62% is lower than the industry’s 81%. This highlights the company’s inability to utilize shareholders’ funds.

We believe that such potential headwinds are likely to hurt growth prospects going forward.

Stocks to Consider

Some better-ranked stocks in the Industrial Products sector are Lakeland Industries, Inc. LAKE, Energous Corporation WATT and TPI Composites, Inc. TPIC. While Lakeland Industries sports a Zacks Rank #1 (Strong Buy), Energous Corporation and TPI Composites carry a Zacks Rank of 2 (Buy), at present. You can see the complete list of today’s Zacks #1 Rank stocks here.

Lakeland Industries has a projected earnings growth rate of 418% for this fiscal year. So far this year, the company’s shares have appreciated 139%.

Energous Corporation has an expected earnings growth rate of 44% for 2020. The stock has gained 118% year-to-date.

TPI Composites has an estimated earnings growth rate of 197% for the ongoing year. The company’s shares have rallied 91% so far this year.

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OI Glass, Inc. (OI) : Free Stock Analysis Report
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Energous Corporation (WATT) : Free Stock Analysis Report
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