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Why Is Owens-Illinois (OI) Down 2.4% Since Last Earnings Report?

Zacks Equity Research
Comtech Telecommunications (CMTL) closed the most recent trading day at $26.47, moving +1.26% from the previous trading session.

A month has gone by since the last earnings report for Owens-Illinois (OI). Shares have lost about 2.39 % in that time frame, underperforming the market.

Will the recent negative trend continue leading up to its next earnings release, or is Owens-Illinois due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important drivers.

Owens-Illinois Q2 Earnings Top, Revenues Miss Estimates

Owens-Illinois delivered second-quarter 2018 adjusted earnings of 77 cents per share, up 3% year over year. The reported figure came in ahead of management guidance as well as the Zacks Consensus Estimate, both of which were pegged at 75 cents.

 

Including one-time items, the company reported earnings of 31 cents per share in the reported quarter compared with 85 cents in the prior-year quarter.

 

Operational Update

 

Owens-Illinois’ net sales inched up 1% year over year to $1.77 billion. However, revenues missed the Zacks Consensus Estimate of $1.82 billion. Modestly lower shipments and weakening currencies in Latin America offset higher prices, reflecting cost inflation and sales mix, and impact of a stronger Euro.

 

Global sales shipments decreased 1% year over year in the second quarter. This decline largely resulted from the impact of external transportation strikes in Brazil and a raw material batch disruption in Mexico. The company’s JV with Constellation Brands, Inc.continues to perform well, reporting higher sales compared with prior year.

 

Cost of sales flared up 1.5% year over year to $1.43 billion. Gross profit remained flat year over year, at $346 million. Selling and administrative expenses rose 2.4% year over year to $126 million. Segment operating profit inched up 1% year over year to $255 million. Segment operating profit margin remained flat year over year at 14.5%.

 

Financial Update

 

Owens-Illinois had cash and cash equivalents of $365 million at the end of the second quarter, up from $335 million witnessed at the end of the year-ago quarter. The company used $150 million of cash in operating activities during the six-month period ended Jun 30, 2018, compared with cash usage of $156 million reported in the comparable period last year. Owens-Illinois’ long-term debt decreased to $5.4 billion as of Jun 30, 2018, compared with $5.5 billion as of Jun 30, 2017.

 

Owens-Illinois launched its $400-million share repurchase program during first-quarter 2018. The company repurchased 2.7 million shares in the second quarter for approximately $50 million.

 

Guidance

 

The company maintained adjusted earnings per share guidance range of $2.75-$2.85 for 2018. The mid-point of the range reflects year-over-year improvement of 6%. However, Owens-Illinois anticipates results to be on the lower end of the range due to negative impact of foreign currency exchange rates.

 

Cash provided by continuing operating activities is expected to be approximately $800 million, while adjusted free cash flow will likely be around $400 million.

 

For third-quarter 2018, Owens-Illinois projects adjusted earnings per share to be around 75 cents. The company’s performance will benefit from solid improvement in business operations. Nonetheless, currency headwinds and lack of the energy credit in Europe will dampen its performance.

 

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed a downward trend in fresh estimates.

VGM Scores

At this time, Owens-Illinois has a nice Growth Score of B, though it is lagging a bit on the momentum front with a C. However, the stock was also allocated a grade of A on the value side, putting it in the top quintile for this investment strategy.

Overall, the stock has an aggregate VGM Score of A. If you aren't focused on one strategy, this score is the one you should be interested in.

Based on our scores, the stock is primarily suitable for value investors while also being suitable for those looking for growth and to a lesser degree momentum.

Outlook

Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. Interestingly, OI has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.


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