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Morningstar | Owens-Illinois Will Struggle With Waning Volume and Increased Competition From Aluminum Cans

Owens-Illinois is one of the world's largest glass container manufacturers, with furnaces in North America, South America, Europe, Australia, and Asia. The firm turns molten glass into beer, wine, spirits, and food containers using standard and custom molds for a wide variety of customers. Diverse end uses and popularity among craft brewers should help to protect volume amid a decline in the popularity of mainstream beers. Owens-Illinois' acquisition of Vitro broadens exposure to Latin America, one of the most profitable container regions in the world.After a decade of declining margins, CEO Andres Lopez has worked to introduce plant improvement teams made up of manufacturing experts from Owens-Illinois' best-run locations. These teams are moved around the furnace network to optimize operations where productivity is weaker. Plant manager pushback seems inevitable, but we believe that a renewed emphasis on profitability should boost margins in North America and Europe.Owens-Illinois' Americas segment boasts the company's highest operating margins at roughly 16% versus 11% in Europe and 9% in Asia-Pacific. Management attributes the elevated profitability to the South America's use of returnable glass containers, though we suspect oligopolistic pricing dynamics also play a role. The shift from multi-use to single-use containers in these regions is likely to weigh on margins over time, although the impact will be largely offset at the bottom line by the higher volume this transition entails.