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O-I Glass Withdraws '20 Guidance on Coronavirus Concerns

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Zacks Equity Research
·5 min read
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O-I Glass, Inc. OI recently provided an update regarding first-quarter performance. The company stated that it expects first-quarter results to come in line with guidance range despite the impact of the coronavirus outbreak. However, it revoked fiscal 2020 guidance on account of uncertainty related to the pandemic.

First-Quarter Performance Update

The company anticipates first-quarter 2020 results to come in at the lower-end of its previous guidance range for adjusted earnings per share of 40 to 45 cents. O-Glass stated that operating performance was solid reflecting the positive impact of its turnaround initiatives. Compared with the prior year period, the company benefited from improved price and mix and cost transformation initiatives.

Total sales volume for first-quarter 2020 was down 0.8% year over year. The company had guided volumes to be flat to up 2% for the quarter. While demand was stable for most of the quarter, it declined 7% during the last two weeks of March from the prior-year levels, primarily in Southern Europe and Latin America reflecting the impact of COVID-19. Shipment and production levels fell in several markets in late March as well.

However, earnings were negatively impacted by unfavorable foreign currency translation and a higher-than-expected effective tax rate given changes in regional earnings mix and tax regulations. The Zacks Consensus Estimate for revenues for the quarter is at $1.65 billion, suggesting year-over-year growth of 0.5%. The estimate for earnings is currently pegged at 42 cents, indicating a decline of 17.7% from the prior-year quarter. The company will release its first-quarter fiscal 2020 results on Apr 29, 2020.

Withdraws 2020 guidance

The company is withdrawing full-year 2020 guidance, which did not consider the effects from the pandemic.  Notably, during fourth-quarter results, the company had provided adjusted earnings per guidance of $2.10 to $2.25 for 2020. This now stands withdrawn thanks to the rapidly changing market conditions related to COVID-19. In these uncertain times, the company is focusing on cash generation including cost containment measures, and reduced capital expenditures and working capital.

Efforts to Improve Operating Performance

Glass packaging has been considered critical for the food and beverage value chain in most jurisdictions and end-use categories that O-I Glass serves. Currently, around 85-90% of O-I Glass’ production capacity remains operational.  However, some capacity has been curtailed mainly in Europe and Latin America, due to work force disruptions from COVID-19 and government mandates in some countries. The company anticipates further capacity adjustments over the next few weeks given the uncertainty of the situation.

Despite the uncertainty associated with the COVID-19, O-I Glass continues to progress on its efforts to improve operating performance. Meanwhile, it continues to implement measures to protect the health and safety of all employees as per recommendations of the World Health Organization, U.S. Centers for Disease Control and Prevention, and other local authorities.

Over the past year, shares of O-I Glass have fallen 61.6% compared with the industry’s decline of 59.7%.

O-I Glass joins the bandwagon of industry players including Caterpillar Inc. CAT, Terex Corporation TEX, Manitowoc and Pentair, which have withdrawn their guidance lately citing the uncertainty related to the impact of COVID-19.

The coronavirus outbreak has dealt a further blow to the industrial sector, which was already reeling under the protracted U.S.-China trade tensions and waning global demand. The U.S Purchasing Managers’ Index (PMI) released by the Institute for Supply Management had been below 50 (indicating contraction) for five consecutive months till December 2019. Even though the index had climbed to 50.9 in January and 50.1 in February, it dipped to 49.1% again in March. The manufacturing sector has clearly been impacted by the coronavirus pandemic and energy market volatility.

Factory closures across the globe, the impact of the restrictions imposed by different governments, supply-chain disruptions, low demand for goods, availability of employees and workers, logistic costs, among others are likely to impact the sector.

Zacks Rank & a Stock to Consider

O-I Glass currently carries a Zacks Rank #3 (Hold).

A better-ranked stock in the Industrial Products sector is Sharps Compliance Corp SMED , which currently sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today's Zacks #1 Rank stocks here.

Sharps Compliance has an estimated earnings growth rate of 800% for 2020. In a year, the company’s shares have gained 119%.

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