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Owens-Illinois Closes Mexican Glass Packaging Facility Deal

Zacks Equity Research

Owens-Illinois, Inc. OI recently completed the acquisition of Mexico-based glass packaging facility — Nueva Fanal — from Grupo Modelo, a wholly-owned affiliate of Anheuser-Busch InBev SA/NV, for $188 million.

At present, the Nueva Fanal plant has four furnaces with the capacity to produce and supply 300,000 tons of glass containers per year for Grupo Modelo brands such as Modelo Especial, Corona and Pacifico for the local and global export markets.

This business will likely contribute around $140 million of revenues and $40 million EBITDA, annually. Moreover, following the deal’s closure, Owens-Illinois is expected to achieve financial and operational synergies. Further, Owens-Illinois has entered into a long-term agreement to keep supplying glass containers to Grupo Modelo.

On Apr 2, Owens-Illinois entered into an agreement to acquire Nueva Fanal. The buyout is in line with Owens-Illinois’ strategy to invest in the sustainable growth of glass packaging, especially in premium brands, like Corona, which is one of the fastest growing and most popular beer brands, globally.
 
Acquisitions: A Key Growth Strategy

On Nov 12, 2018, Owens-Illinois acquired 50% interest in Empresas Comegua S.A., for $119 million. Empresas caters to Owens-Illinois’ global strategic customers and various segments, including food, soft drinks, beer, spirits and pharmaceuticals. The buyout will help Owens-Illinois expand its presence in new and growing glass markets in Central America, as well as in the Caribbean markets.

Moreover, on Mar, 11, the company made a $60-million investment plan to build a new furnace at its Gironcourt, France plant, which is slated to complete in early 2020. The expansion at Gironcourt will mainly focus on the growing premium beer segment which is highly differentiated and uses unique bottle shapes to build strong, premium brand equity. These investments, along with the Nueva Fanal glass-plant acquisition, will open up near-term growth opportunities for Owens-Illinois.

Collaboration with Constellation Brands Drives Growth

Owens-Illinois’ joint venture (JV) plant with Constellation Brands, Inc. STZ has exceeded expectations so far — productivity has been higher than anticipated, capital costs were considerably lesser than initially expected and earnings have been growing every year.

Owens-Illinois has built four furnaces at this JV plant in just four years, and is currently building the fifth one which is expected to come on line by the end of this year. The fifth furnace will help cater to the rising demand from Constellation’s adjacent brewery. With the installation of the latest furnace, the Nava plant will be the largest glass-container factory in the world, equipped with all the latest facilities.

Robust End Markets to Sustain Growth

The glass container market in Europe is healthy and continues to grow at a rate of about 1% per year. The company’s efforts to add capacity in Europe, supply-chain performance, focus on growing strategic relationships and footprint optimization poise it well for improving volumes and expanding margins in the region.

Considering the rising market demand in Mexico and Brazil, the company is boosting its capacity. In the United States, demand for glass is shooting up, on the back of favorable consumer trends and increased preference of customers for glass packaging. Non-beer categories in the nation continue to grow in low-single digits.

Consequently, the company has been focusing on these categories by improving customer relationships, commercial and design capabilities, and converting almost 20% of its beer capacity into flexible capacity to meet non-beer customer demand. Overall, the Americas are expected to generate higher sales, profit and margin in 2020.

Owens-Illinois, Inc. Price and Consensus

Owens-Illinois, Inc. Price and Consensus

Owens-Illinois, Inc. price-consensus-chart | Owens-Illinois, Inc. Quote

Stocks to Consider

A few better-ranked stocks in the Industrial Products sector are AptarGroup, Inc. ATR and Roper Technologies, Inc. ROP, each sporting a Zacks Rank #1 (Strong Buy), at present. You can see the complete list of today’s Zacks #1 Rank stocks here.

AptarGroup has an estimated earnings growth rate of 8.7% for the ongoing year. The company’s shares have gained 34% in the past year.

Roper Technologies has an expected earnings growth rate of 9.4% for the current year. The stock has appreciated 37.7% in a year’s time.

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