O-I Glass, Inc. OI is well-poised to benefit from the growing consumer preference for glass as the healthy, premium and sustainable packaging option for food and beverage compared to other options. OI is stepping up investment to boost its capacity to capitalize on this demand. OI’s completed divestiture program, acquisitions and product innovations are key drivers. Cost-control actions, and efforts to improve productivity and efficiency are expected to aid margins.
Upbeat Outlook for 2022
For 2022, O-I Glass expects adjusted earnings per share (EPS) between $2.05 and $2.20. The midpoint of the guidance indicates 16% growth from the adjusted EPS of $1.83 reported in 2021. Earnings will benefit from a higher sales volume and selling prices as well as OI’s efforts to improve productivity and efficiency. Higher selling prices are likely to negate the impact of cost inflation. Benefits from margin expansion initiatives through ramped-up productivity, operating excellence and cost management will also drive the bottom line for the year.
Capacity Expansion to Meet Growing Demand
Banking on the increasing preference for glass over plastic as a healthy, premium and sustainable alternative option, O-I Glass is consistently investing in incremental capacity, joint ventures and acquisitions in the emerging geographies. OI is building new capacity that will come online in early 2023 to serve premium categories in the attractive, emerging markets.
O-I Glass is taking initiatives as part of its transformation plan for 2022 through 2024. OI expects its margin expansion initiative to generate annual benefits of $50 million between 2022 and 2024. It successfully completed its $1.5-billion portfolio optimization program, way ahead of its schedule in 2024.
OI had embarked on this initiative to re-align its business portfolio, improve the return on invested capital and fund organic growth. Proceeds from the portfolio rationalization move will be utilized to fund attractive expansion projects and improve its financial strength. O-I Glass intends to invest up to $630 million in new capacity expansion over the next three-year period to achieve volume growth and meet demand. Overall, these investments are expected to generate an average internal rate of return of 20%.
Innovations in Glass Packaging to Aid Growth
O-I Glass is firmly focused on driving innovation. Its glass melting technology, known as the MAGMA program, aids in reducing the amount of capital required to install, rebuild and operate OI’s furnaces. Its full-scale commercial MAGMA Gen 1 production line is operational and achieved critical milestones in 2021.
O-I Glass recently announced the first U.S MAGMA greenfield facility at BowlingGreen, KY, which should start by mid-2024. OI expects to complete the multi-generation MAGMA development plan over the next few years. The portfolio optimization program includes an addition of up to two MAGMA lines.
However, there are a few factors that might impact O-I Glass’s results.
OI is bearing the brunt of supply-chain challenges, which are likely to affect shipment levels. OI is witnessing higher freight and energy costs. Impacts of divestitures, incremental expenses to fund Paddock Trust and the unfavorable impact of foreign currency translation are likely to hurt bottom-line results in the current year. Higher retained corporate costs due to additional R&D and incentives will dampen earnings.
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Shares of O-I Glass have fallen 15.9% in a year compared with the industry’s decline of 30.6%.
Stocks to Consider
Some better-ranked stocks from the Industrial Products sector are Applied Industrial Technologies, Inc. AIT, Greif, Inc. GEF and Valmont Industries, Inc. VMI. While AIT sports a Zacks Rank #1 (Strong Buy), GEF and VMI carry a Zacks Rank #2 (Buy) at present. You can see the complete list of today’s Zacks #1 Rank stocks here.
AIT’s earnings estimates have increased 5.8% for fiscal 2023 (ending June 2023) in the past 60 days.
Applied Industrial pulled off a trailing four-quarter earnings surprise of 22.8%, on average. AIT’s shares have gained 20% in the past year.
Greif delivered a trailing four-quarter earnings surprise of 22.9%, on average.
GEF’s earnings estimates have increased 0.4% for fiscal 2022 (ending October 2022) in the past 60 days. Its shares have risen 1% in the past year.
Valmont’s earnings surprise in the last four quarters was 13.7%, on average.
In the past 60 days, VMI’s earnings estimates have increased 3.8% for 2022. The stock has rallied 10% in the past year.
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