Owens-Illinois, Inc. (O-I) has reported financial results for the third quarter ending 30 September 2012, with strong free cash flow generation drives deleveraging and share repurchases; European asset optimization continues.
O-I reported third-quarter 2012 earnings from continuing operations attributable to the company of USD 0.55 per share (diluted), compared to USD 0.72 per share (diluted) in the same period last year. Adjusted net earnings (non-GAAP) were USD 0.69 per share, compared to USD 0.84 per share in the third quarter of 2011.
As expected, lower demand in Europe – and the company’s corresponding actions to balance production – led to lower operating profit in the third quarter, yet improved working capital. These results were partially offset by higher operating profit in all of the company’s other regions.
Year-over-year price and product mix were up more than 4%, which allowed for continued recovery of some of the margin erosion experienced in the prior year.
The company remains confident that it will generate at least USD 250 million of free cash flow in 2012. In the third quarter, the company generated USD 171 million of free cash flow, repaid USD 189 million of gross debt and repurchased USD 14 million of the company’s outstanding shares.
To improve asset efficiency and capabilities, the company continues to better align its European footprint with market and customer needs.
Net earnings from continuing operations attributable to the company in the third quarter of 2012 were USD 92 million, or USD 0.55 per share (diluted), compared with USD 119 million, or USD 0.72 per share (diluted), in the same period of the prior year. Exclusive of the items not representative of ongoing operations listed in Note 1, third quarter 2012 adjusted net earnings (non-GAAP) were USD 115 million, or USD 0.69 per share (diluted), compared with USD 139 million, or USD 0.84 per share (diluted), in the same period of the prior year.
Commenting on the company’s third quarter results, Chairman and Chief Executive Officer Al Stroucken said, “On balance, our operations performed well this quarter, boosted by higher demand in the Americas and cost reductions across the company. As planned, our actions to balance European production with lower demand resulted in a decline in operating profit. More importantly, our focused efforts generated more cash this quarter, enabling further deleveraging and share repurchases.”
Third quarter net sales were USD 1.747 billion in 2012, down from USD 1.862 billion in the prior year third quarter, primarily due to unfavourable foreign currency translation. The company achieved more than a 4% gain in price and product mix, which was mostly offset by a 5% (in tonnes) decline in sales volume. Higher shipments in the Americas were more than offset by lower demand in Europe due to slower macroeconomic conditions in that region.
Segment operating profit was USD 245 million in the quarter, down from USD 268 million in the third quarter of 2011. Higher sales prices offset the impact of cost inflation and lower global shipments. This was more than offset by higher manufacturing and delivery costs, primarily due to the company’s actions to curtail production in Europe.
The company reported total debt of USD 3.893 billion and cash of USD 336 million at 30 September 2012. Net debt was USD 3.557 billion, a decrease of USD 126 million from the second quarter of 2012 and USD 275 million lower than the third quarter of 2011. The sequential decrease in net debt was primarily due to USD 171 million of free cash flow, partially offset by USD 50 million of unfavourable foreign currency translation. In the third quarter, the company repaid USD 189 million in gross debt and repurchased USD 14 million of the company’s outstanding shares. At the end of the third quarter, O-I’s leverage ratio (net debt to EBITDA) was 2.8 times, down from 3.0 times at the end of the prior year third quarter.
Asbestos-related cash payments during the third quarter and first nine months of 2012 were USD 28 million and USD 86 million, respectively, compared to USD 34 million and USD 102 million in the same periods last year.
Commenting on the company’s business outlook for the fourth quarter of 2012, Stroucken said, “We are expecting higher year-over-year profit in South America due to stronger demand and efficiencies driven by our newly constructed furnace in southern Brazil. However, we will continue to balance production with lower demand in Europe, and this will likely lead to lower fourth quarter 2012 adjusted earnings for O-I. We are confident in our ability to generate at least USD 250 million of free cash flow this year and to maintain our focus on debt reduction.”
Stroucken continued, “During the next several years, we will be increasing the efficiency and capability of our European operations to better align our footprint with market and customer needs through investments and by addressing assets with higher cost structures. We will execute in such a way to ensure that the phasing of these actions does not impede our ability to grow O-I’s free cash flow.”