Owens-Illinois, Inc. reported financial results for the first quarter ended 31 March 2018 on 23 April.
"This quarter marks the company's ninth consecutive quarter of higher earnings year-over-year," said Andres Lopez, CEO. "We delivered strong performance in-line with our guidance, while executing the planned, finite investments in asset stability. This reflects our focus and commitment to delivering on our strategic initiatives, including programmes aimed at improving the customer experience, shifting to higher-value segments, becoming more cost-competitive, leveraging technology and simplifying our organization."
"Our European and Americas regions delivered particularly strong sales and margin expansion in the first quarter. We continue to be positive about our 2018 outlook," said Lopez. "Our teams are aligned and energized like never before, executing with rigor and discipline. This, combined with our balanced capital allocation strategy, is expected to create significant value for our shareholders for years to come."
For the first quarter 2018, the company recorded earnings from continuing operations of USD 0.59 per share (diluted). This was on the upper end of management guidance of USD 0.55 to USD 0.60 per share.
Net sales were USD 1.7 billion, an increase of nearly 8% compared to the prior year, due to higher prices and favourable currency translation. Total glass container shipments in the first quarter of 2018 were comparable to the prior year quarter, with low-single-digit gains reported in the Americas.
Earnings from continuing operations before income taxes were USD 135 million, compared with USD 73 million in the prior year, driven by solid operational performance and non-recurrence of certain expenses in the prior year.
Segment operating profit of reportable segments for the first quarter 2018 was USD 224 million, an increase of 3% compared with prior year. Solid gains were reported in the Americas and Europe. As expected, Asia Pacific reported lower segment operating profit, mainly reflecting temporary higher costs associated with asset improvements.
Strategic initiatives in commercial programmes and end-to-end supply chain management generated benefits as planned. Total systems cost improvements were broad based across key cost categories.
The company repurchased 2 million shares in the quarter. The impact on earnings per share in the quarter was de minimis because most of the shares were repurchased near quarter end. The company is on track to repurchase approximately USD 100 million in shares for the full year 2018.
The company is maintaining its full year guidance. In 2018, the company expects to deliver higher earnings from continuing operations mainly driven by higher segment operating profit. Earnings from continuing operations, and adjusted earnings, are expected to be in the range of USD 2.75 to USD 2.85 per share, which compares favorably with adjusted earnings of USD 2.65 per share in 2017. Cash provided by continuing operating activities is expected to be approximately USD 800 million, whereas adjusted free cash flow for the year 2018 is expected to be approximately USD 400 million.
The company consolidated the North America and Latin America segments into one segment, named the Americas, to better leverage critical resources and competencies across a larger geography, to replicate best practices and to reduce costs.
First quarter 2018 net sales were USD 1.7 billion, up USD 121 million from prior year, an increase of nearly 8%. Prices were 2% higher on a global basis, mainly due to price adjustment formulas and a constructive environment in Europe.
Favourable foreign currency translation benefited net sales by USD 99 million, primarily due to a stronger Euro. In line with guidance for the quarter, total glass container shipments were comparable with the prior year.
In the Americas, shipments increased nearly 2% compared to the prior year period, driven primarily by higher shipments to food and alcoholic beverage customers. Consistent with the past several quarters, year-over-year shipments in Brazil recovered strongly. However, in the US, solid growth in food and non-alcoholic beverages were more than offset by a decline in alcoholic beverages, which is largely due to ongoing trends in megabeer. The Company is well positioned to benefit, however, from US beer imports, as evidenced by strong volume growth in the joint venture with CBI, which has successfully ramped up its fourth furnace.
In Europe, sales volumes continue to be robust. Shipments in first quarter 2018 were essentially on par with the strong comparable in the prior year and are 4% higher than 2016. Asia Pacific shipments declined, partially driven by the timing of returnable float replenishment in Southeast Asia.
Segment operating profit was USD 224 million in the first quarter 2018, compared with USD 218 million in the prior year, an improvement of 3%, and the ratio of earnings from continuing operations before income taxes to net sales increased substantially.
The Americas posted segment operating profit of USD 147 million, up 6% compared with prior year, and segment operating profit margins expanded 20 basis points. The aforementioned increase in sales volume contributed to the gain. Selling prices were modestly higher than cost inflation, largely driven by a catch up in prior year inflationary pressures. The region continues to benefit from Total Systems Cost efforts.
In Europe, segment operating profit was USD 72 million, up more than 20%, and segment operating profit margins improved a healthy 60 basis points. Favourable price-cost spread, cost savings from the closure of a plant in the Netherlands in 2017, the stronger Euro, and on-going benefits of Total Systems Cost efforts were the primary drivers.
Since the fourth quarter of 2017, Asia Pacific has been executing planned asset improvements to upgrade the reliability and flexibility of its footprint to meet rising customer demand. Due to lower production volume, higher maintenance and supply chain costs, Asia Pacific reported segment operating profit of USD 5 million in the first quarter of 2018, which was substantially below the prior year. As these discrete asset improvement projects finish, the region's cost structure is expected to substantially improve in the second half of 2018 and beyond.
Consistent with management guidance for the first quarter 2018, non-operational costs partially offset improved operating performance.
Retained corporate and other costs were essentially on par with prior year.
Net interest expense in the quarter was USD 62 million compared with USD 78 million for the first quarter 2017. Excluding the USD 17 million charge in the first quarter of 2017 related to debt redeemed prior to its maturity, net interest expense was USD 61 million in the prior year. The Company has benefited from deleveraging and a solid proportion of exposure to Euribor, which has been stable, relative to rising Libor rates in the US.
The company has successfully launched its USD 400 million share repurchase programme. In the first quarter of 2018, the company repurchased 2 million shares for approximately USD 45 million. The company anticipates repurchasing approximately USD 100 million in shares in 2018.
The company is maintaining its annual guidance for earnings and cash flow.
The company expects earnings from continuing operations, and adjusted earnings, for the full year 2018 to be in the range of USD 2.75 to USD 2.85 per share, which compares favorably with adjusted earnings of USD 2.65 per share in 2017. The midpoint of this range represents more than a 10% compounded annual growth rate in adjusted earnings per share since 2015.
The company expects earnings from continuing operations, and adjusted earnings, for the second quarter of 2018 to be approximately USD 0.75 per share. Solid improvement in on-going business operations are expected to be essentially offset by investments in assets and, new technology developments as well as a higher tax expense, compared with prior year.
The company expects cash provided by continuing operating activities for 2018 to be approximately USD 800 million and adjusted free cash flow to be approximately USD 400 million.
The earnings and cash flow guidance ranges are consistent with targets conveyed by senior management during Investor Day in early 2016. The earnings and cash flow guidance ranges may not fully reflect uncertainty in macroeconomic conditions and currency rates, among other factors.
On 22 December 2017, the Tax Cuts and Jobs Act ("the Act") was enacted in the US. The Act reduces the US federal corporate tax rate from 35% to 21%, and requires companies to pay a one-time transition tax on earnings of certain foreign subsidiaries that were previously tax deferred and creates new taxes on certain foreign sourced earnings. Presently, no substantive impact on the company's adjusted earnings or cash taxes is expected in 2018 as a result of the Act.
