Balanced View on Owens-Illinois - Analyst Blog

On Apr 1, 2014, we issued an updated research report on Owens-Illinois Group, Inc. OI. This manufacturer of glass containers reported a 28% year-over-year improvement in its fourth-quarter 2013 adjusted earnings per share to 51 cents, driven by higher sales, increased production and cost savings. The reported figure was, however, a penny short of the Zacks Consensus Estimate.

For the full year 2014, Owens-Illinois expects adjusted earnings to range from $2.80 to $3.20 per share, on the assumption of steady foreign exchange rates. Moreover, given the improving employment scenario, volumes are expected to rise in the near term.

Owens-Illinois will also continue to benefit from lower outstanding debt levels owing to its consistent deleveraging endeavors. Over the past two years, the company used around 90% of the $629 million of free cash flow toward debt repayment while the remainder was spent in anti-dilutive share repurchases. During 2013, the company repaid nearly $300 million of debt. Additionally, the company anticipates 2014 free cash flow to be about $350 million, continuing the positive year-over-year trend and remains on track toward the 2015 target of generating more than $400 million of free cash flow.

Furthermore, Owens-Illinois has initiated a multi-year asset optimization program in Europe, which includes vending of underperforming assets and reduction of idle capacity. It outlines investment in low-cost additional capacity and enhancement in quality, speed and flexibility. The asset optimization efforts are also on track and yielding about $40 million per year in savings on a run-rate basis.

However, the company expects sales volumes in Europe to be flat in 2014 as compared with the previous year. While initially, Europe volumes were guided to be modestly up for 2014, the company experienced sluggish sales in December, which is a concern. Product demand in the Asia Pacific also remained low. Additionally, further plant closures in China will reduce sales volumes as well.

In South America, Owens-Illinois anticipates low single-digit volume growth in 2014. The trend of softness in beer in the Andean countries is likely to continue. The present situation suggests that volumes in Brazil may be flat or could modestly rise as compared with the previous year. Moreover, uncertain macroeconomic conditions and intense competition will hurt growth.

Owens currently carries a Zacks Rank #3 (Hold).

Key Picks from the Sector

Some better-ranked stocks worth considering at the moment include Packaging Corporation of America PKG, Ball Corporation BLL and Kimberly-Clark Corporation KMB. While Packaging Corporation of America sports a Zacks Rank #1 (Strong Buy), Ball Corporation and Kimberly-Clark carry a Zacks Rank #2 (Buy).