October 28, 2021

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O-I Glass (OI) Down 26.3% Since Last Earnings Report: Can It Rebound?

A month has gone by since the last earnings report for O-I Glass (OI). Shares have lost about 26.3% in that time frame, underperforming the S&P 500.

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

O-I Glass’ Earnings & Revenues Trump Estimates in Q4

O-I Glass reported fourth-quarter 2019 adjusted earnings of 50 cents per share, surpassing the Zacks Consensus Estimate of 47 cents. Results came in at the higher end of the company’s guided range of 45 cents to 50 cents. Earnings reflected elevated selling prices and higher shipments which more than offset soaring operating costs. However, the bottom line declined 18% from the prior-year quarter figure of 61 cents.

Including one-time items, the company recorded earnings per share of 20 cents in the reported quarter, as against a loss of 79 cents per share reported in the prior-year quarter.

Operational Update

Net sales edged down 0.4% year over year to $1,628 million. Sales volumes reflected the benefit of the Nueva Fanal acquisition, which was partly muted by decline in organic sales volumes and unfavorable foreign-currency translation impact. Also, shipments and mix changes marred top-line growth. Nevertheless, the revenue figure outpaced the Zacks Consensus Estimate of $1,619 million. Cost of sales was up 0.8% year over year to $1,352 million. Gross profit declined 6.1% year over year to $276 million. Selling and administrative expenses dropped 14.6% year over year to $99 million. Total operating profit was $200 million in the reported quarter, down from the prior-year quarter’s $211 million.

Segmental Performance

Net sales in the Americas segment grew 3.4% year over year to $890 million in the final quarter of 2019. Operating profit declined 9.4% year over year to $115 million.

Net sales in the Europe segment were $553 million in the quarter, down 1.2% year over year. The segment’s operating profit increased 23.2% year over year to $69 million.

Net sales in the Asia Pacific region dipped 2.7% year over year to $179 million in the reported quarter. Operating profit slumped 75% year over year to $16 million.

Financial Update

O-I Glass had cash and cash equivalents of $551 million at the end of 2019, up from $512 million at the end of 2018. The company generated $408 million of cash flow from operating activities in 2019 compared with the $793 million recorded in the prior-year period. Its long-term debt rose to $5.4 billion as of Dec 31, 2019, from $5.2 billion as of Dec 31, 2018.

Other Updates

O-I Glass continues to advance the tactical and strategic portfolio review in order to boost the company’s competitive position and create shareholder value. This includes the evaluation of alternatives for its Australia and New Zealand (“ANZ”) operation. Moreover, the first commercial-quality products were delivered, using the MAGMA technology. Further, the company announced the expansion of MAGMA at Holzminden, Germany, which will begin production in the second half of 2020. In December 2019, the company completed a corporate modernization effort, which resulted in the creation of O-I Glass, the new public entity.

2019 Results

O-I Glass reported adjusted earnings per share of $2.24 in 2019, down 17.6% from the prior year’s $2.72. However, earnings beat the Zacks Consensus Estimate of $2.21.

Sales declined 2.7% year over year to $6.7 billion from the $6.8 billion generated in 2018. The top-line figure, however, beat the Zacks Consensus Estimate of $6.6 billion.

Outlook

The company now expects adjusted earnings per guidance for 2020 in the band of $2.10 to $2.25. The guidance reflects higher selling prices and sales volumes will be flat to up 2% supported by capacity expansion initiatives and Nueva Fanal acquisition. O-I Glass also expects improved operating costs, reflecting several turnaround initiatives as well as footprint adjustments in North America. These factors will boost the current year’s results. Cash provided by continuing operating activities for this year is expected to exceed $650 million. Capital expenditure is expected between $350 million and $375 million. The guidance also assumes the negative impact of foreign-currency translation.

The company is focused on improving operating performance with major turnaround initiatives including revenue optimization, factory performance and cost transformation. It has identified more than $150 million of benefits over the next three years, and is targeting between $35 million and $50 million of net benefits in the current year.

How Have Estimates Been Moving Since Then?

It turns out, estimates review have trended downward during the past month.

VGM Scores

At this time, O-I Glass has a nice Growth Score of B, though it is lagging a bit on the Momentum Score front with a C. However, the stock was allocated a grade of A on the value side, putting it in the top 20% 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.

Outlook

Estimates have been broadly trending downward for the stock, and the magnitude of this revision has been net zero. Notably, O-I Glass has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.

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