8/10/2019 Owen Illinois
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Two weeks ago, Owens-Illinois (ticker:OI) surprised investors by
cutting its earnings
guidance for the third quarter.
Owens, the world's largest maker of glass containers, expects
earnings per share to fall 5%
from the year-ago period, down from previous guidance, which
called for a 10% increase.
Softer beer sales in North America were cited as the main
culprit. Owens will reportearnings on Oct. 28.
Since the announcement, the stock has dropped 15% to close
Tuesday at $26.05, just
above a 52-week low of $26 reached earlier in the day.
The setback looks temporary, however. And investors should view
the selloff as an
opportunity. Owens has an attractive global franchise, with high
barriers to entry. The
company is also in the middle of an aggressive restructuring
program, which could drive
earnings growth in the next year.
At a Glance
Owens-Illinois (OI)
Price: $26.05
52-Week Range:$35.98 -$26.00
Market Value: $4.4 billion
Est. 2014 Revenue: $6.9 billion
Est. 2014 EPS: $2.79
Est. 2015 EPS: $3.22
Enterprise Value to Est. 2015Ebitda:
5.9
Free Cash Flow Yield: 8%
Source: Thomson Reuters
At an enterprise value of 5.9 times estimated 2015 Ebitda
(earnings before interest, taxes,
depreciation and amortization), the shares look inexpensive, and
they sport an attractive 8%
free cash flow yield.
http://quotes.barrons.com/OIhttp://quotes.barrons.com/OIhttp://quotes.barrons.com/OIhttp://quotes.barrons.com/OI
8/10/2019 Owen Illinois
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In the next 18 months, the shares could rise 30% or more.
Owens makes glass containers for beer, wine, hard liquor, teas,
juices and
pharmaceuticals, operating 77 plants in 21 countries. The
company derives about 70% of its
sales outside of North America.
Customers include leading beverage companies, such as
Anheuser-Busch InBev,
Carlsberg, Diageo, Heineken, PepsiCo, and SABMiller.
This year, Owens could earn $443 million, or $2.79 a share, on
revenue of $6.9 billion. In
2015, earnings could jump 15% to $3.22 a share, on flat
revenues, reflecting the company's
restructuring efforts.
While Owens has seen some weakness in its businesses in Europe
and Asia, North
America has presented the most trouble. The business is heavily
reliant on the large beer
makers, whose volumes have been hurt by fewer beer drinkers.
Craft beer and wine
demand, by contrast, has been growing, but not enough to offset
the reduced beer volumes.
Owens' North American volumes could fall about 2% in the
quarter, which ended in
September, compared to a year ago. For the full year, North
American volumes are likely to
remain flat.
Owens recently appointed Andres Lopez, the president of South
American operations,
where the company has racked up good results, to also head the
North American unit.
Lopez may work to transition some beer production to wine, which
would improveperformance.
Owens is making solid progress on its multiyear restructuring
program. The company has
been updating its plants to improve efficiency, making headcount
reductions, and keeping a
tighter lid on expenditures. Management is on track to realize
its target of $155 million in
costs savings by 2015.
According to Christopher Manuel, an analyst at Wells Fargo, the
restructuring could drive
operating margins from 11.9% in 2013 to 13.8% in 2016.
The actions are expected to lift free cash flow by about 15% to
$400 million in 2015.
Management has been using most of its free cash to pay down
debt, but given the
company's improved balance sheet, it intends to direct more
toward share buybacks.
