Morningstar | Owens-Illinois' Positive Guidance on Asia-Pacific Prospects Reassures Markets; $21 FVE Unchanged. See Updated Analyst Note from 24 Jul 2018
Although segment performance was mixed during the second quarter, Owens-Illinois' firmwide results were in line with our expectations. The Americas segment posted underwhelming top- and bottom-line growth versus the prior year, but performance in Europe remained solid, with adjusted segment operating margins up roughly 1% versus the prior year. We maintained our $21 fair value estimate and narrow moat rating.Americas adjusted segment margins narrowed roughly 0.8% during the second quarter, which management attributed to increased freight costs in North America and weaker operating rates in Brazil as a transportation strike weighed on volume. This explanation was surprising as the same Brazilian strikes did not affect peer Crown's results. However, we expect volume growth to recover in the medium term as the one-time shift from reusable to one-way glass bottles continues. In the long run, after this shift has occurred and volume growth begins to slow, we expect Latin American operators to cut prices, which will weigh on margins.
In Europe, operating profit looked especially strong at $101 million in the quarter, lifted by a $9 million energy credit that won't recur in the coming quarters. Even after backing out that benefit, margins rose 1% from the prior year. We remain impressed by OI's ability to widen margins in the near term, despite essentially flat volume. However, we forecast profitability to wane in the long run as the company will eventually run out of levers to pull to offset the gradual shift away from glass, primarily in beverages.
Guidance of 15% operating margins in Asia-Pacific in the fourth quarter appears to have reassured the markets about management's ability to boost margins through restructuring. Though we would caution investors that the fourth quarter has long been the most profitable for Asia-Pacific, the segment is on track to meet our full-year expectations of 11%-12% operating margins in 2019 and beyond.
Owens-Illinois is a manufacturer of glass containers. The company has three reportable segments based on its geographic locations: Americas, Europe, and Asia Pacific. The company produces glass containers for alcoholic beverages, including beer, flavored malt beverages, spirits and wine. The company also produces glass packaging for a variety of food items, soft drinks, teas, juices and pharmaceuticals. The company manufactures glass containers in a range of sizes, shapes and colors. The company also provides engineering support for its glass manufacturing operations through facilities located in the U.S., Australia, France, Poland and Peru.
Morningstar, Inc. is a leading provider of independent investment research in North America, Europe, Australia, and Asia. The company offer an extensive line of products and services for individual investors, financial advisors, asset managers, and retirement plan providers and sponsors.
Morningstar provides data on approximately 530,000 investment offerings, including stocks, mutual funds, and similar vehicles, along with real-time global market data on more than 18 million equities, indexes, futures, options, commodities, and precious metals, in addition to foreign exchange and Treasury markets. Morningstar also offers investment management services through its investment advisory subsidiaries and had approximately $185 billion in assets under advisement and management as of June 30, 2016.
We have operations in 27 countries.
Unfortunately, this report is not available for the investor type or country you selected.
Browse all ResearchPool reportsReport is subscription only.
Thank you, your report is ready.
Thank you, your report is ready.