Solid Demand & Innovation to Drive Growth for O-I Glass (OI)
O-I Glass, Inc. OI is well-poised to benefit from the surge in demand for glass as the preferred choice for customers as a healthy, premium and sustainable packaging option for food and beverage. The company is thus investing to boost its capacity to capitalize on this demand.
OI’s cost-control actions and efforts to improve productivity and efficiency will also boost margins. Acquisitions and product innovations will drive growth as well.
Upbeat Outlook for 2022 & 2023
For 2022, O-I Glass expects adjusted earnings per share (EPS) between $2.20 and $2.25. The midpoint of the guidance indicates 22% growth from the adjusted EPS of $1.83 reported in 2021. The guidance reflects the upbeat results so far this year and the ongoing momentum in the fourth quarter. Volumes are expected to be up 1% in 2022.
Higher selling prices are likely to negate the impact of cost inflation. Benefits from its margin expansion initiatives, through improving productivity, operating performance and cost management, will also drive bottom-line growth for the year.
For 2023, OI expects earnings to be in line, or likely up from 2022, benefiting from strong net price realization. Sales volume will likely be flat or up in the low single digits as it begins to commission new capacity.
Capacity Expansion to Meet Growing Demand
Glass is increasingly becoming the preferred packaging choice for customers, given its endless recyclability without any loss in quality. O-I Glass is thus consistently investing in incremental capacity, joint ventures and acquisitions that will help in meeting this demand.
The company is taking initiatives as part of its transformation plans. OI expects its margin expansion initiative to generate annual benefits of $50 million between 2022 and 2024. It has successfully completed its $1.5-billion portfolio optimization program, way ahead of its schedule in 2024. Proceeds from the portfolio optimization program have been utilized to repay debt, fund attractive expansion projects and improve 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 return rate of 20%.
Innovations 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. O-I Glass recently announced the commencement of the first U.S MAGMA greenfield facility at Bowling Green, KY, by mid-2024.
The company has been working on an R&D Light-Weighting program called Ultra, targeting significant container weight reductions to improve the convenience and sustainability profile of glass. Full-scale market trials are expected in the fourth quarter of this year.
Price Performance
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Shares of O-I Glass have gained 39.6% in a year compared with the industry’s decline of 0.5%.
Stocks to Consider
OI currently carries a Zacks Rank #2 (Buy).
Some other top-ranked stocks from the Industrial Products sector are Hubbell HUBB, W.W. Grainger GWW and Deere DE. HUBB sports a Zacks Rank #1 (Strong Buy), while DE and GWW hold Zacks Rank #2 at present. You can see the complete list of today's Zacks #1 Rank stocks here.
Hubbell’s earnings surprise in the last four quarters was 10.6%, on average. In the past 60 days, its earnings estimates have increased 6.1% for 2022. For the ongoing year, the bottom line is estimated to be $10.40, suggesting growth of 29.3% from the previous-year’s level. The HUBB stock has gained 20.3% in the past year.
W.W. Grainger delivered a trailing four-quarter earnings surprise of 10.1%, on average. Current-year earnings are estimated to be $29.31 per share at present, suggesting an estimated growth of 161.1% from the year-ago reported figure. The estimates went upward by 4.4% in the last 60 days. GWW shares have risen 17.3% in the past year.
Deere has an estimated year-over-year earnings growth rate of 17.2% for the current fiscal year. The earnings estimate is currently pegged at $27.28. The estimates have been revised 3% north in the last 60 days. DE has an average trailing four-quarter earnings surprise of 7.1%. Its shares have gained 23.3% over the past year.
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OI Glass, Inc. (OI) : Free Stock Analysis Report
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