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Owens-Illinois CEO Discusses Q3 2010 Results - Earnings Call Transcript

Owens-Illinois CEO Discusses Q3 2010 Results - Earnings Call Transcript

Owens-Illinois, Inc. (

OI

)

Q3 2010 Earnings Call Transcript

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October 28, 2010 8:30 am ET

Executives

Ed White – SVP and CFO

Al Stroucken – Chairman and CEO

Analysts

Tim Thein – Citigroup

George Staphos – Bank of America-Merrill Lynch

Ghansham Panjabi – Robert W. Baird

Al Kabili – Macquarie

Chip Dillon – Credit Suisse

Rich Skidmore – Goldman Sachs

Peter Ruschmeier – Barclays

Alton Stump – Longbow Research

Chris Manuel – KeyBanc

Philip Ng – Jefferies

Mark Wilde – Deutsche Bank

Presentation

Operator

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Previous Statements by OI
» Owens-Illinois, Inc. Q2 2010 Earnings Call Transcript
» Owens-Illinois, Inc. Q4 2009 Earnings Call Transcript
» Owen-Illinois, Inc. Q3 2009 Earnings Call Transcript
» Owen-Illinois, Inc. Q2 2009 Earnings Call Transcript

Good morning. My name is Angela and I will be your conference operator. At this time I would like to welcome everyone to the O-I third quarter 2010 earnings conference call. All lines have been placed on mute to prevent any background noise. After the speakers’ remarks, there will be a question-and-answer session. (Operator instructions)

I would now like to turn the call over to Mr. Ed White, Senior Vice President and Chief Financial Officer. Please go ahead, sir.

Ed White

Thank you, Angela. Good morning and welcome everyone to O-I’s Third Quarter 2010 Earnings Conference Call. I am joined today by Al Stroucken, our Chairman and CEO; John Haudrich, Vice President of Finance and several other members of our senior management team.

Today, we will discuss key business developments in the quarter, review our financial results, and discuss future trends affecting our business. Following our prepared remarks, we’ll host a question-and-answer session. Presentation materials for this earnings call are also being simulcast from the company’s Web site at o-i.com.

Please review the Safe Harbor comments and disclosure of our use of non-GAAP financial measures included in those materials. Unless otherwise noted, the financial results we are presenting today relate to adjusted net earnings, which exclude certain items that management considers not representative of ongoing operations. A reconciliation of GAAP to non-GAAP earnings can be found in our earnings press release and in the appendix to this presentation.

I will now turn the call over to Al, who will start on chart two.

Al Stroucken

Thank you, Ed and good morning. Before I discuss the results of the third quarter, I would like to spend a few minutes on the recent developments with our operations in Venezuela. On Monday, President Hugo Chavez announced his intents to expropriate O-I’s facilities in Venezuela. Subsequently, a formal decree was issued by the Venezuelan government.

First, I want to personally thank all our employees in Venezuela for their continued dedication to O-I during these difficult and uncertain times. Glass making is a highly specialized and complex industry, and plants require a great deal of expertise to run safely and effectively.

We have been in constant contact with our facility managers to ensure a safe operating environment for all of our employees, and we continue to operate the facilities to ensure we service our customers whose products meet the food and beverage needs of the Venezuelan people.

This is a very fluid situation with many uncertainties. Clearly, we are very disappointed with these developments after successfully operating in Venezuela for over 50 years.

We are working diligently to protect the interests of our employees, customers and shareholders, and we will provide timely updates as we gain a better understanding of the situation and can articulate our next steps. Ed will review a few of the financial matters associated with this situation shortly.

Now, turning to third quarter results, earnings were $0.90 per share in the third quarter of 2010. Excluding the impact of currency translation, O-I earned $0.94 per share. So, on a currency neutral basis, earnings were basically in line with prior year results.

Business conditions in the third quarter were consistent with those in the first half of 2010. Strong growth continued in the emerging markets, especially in South America and we capitalized on strategic opportunities to expand on those attractive regions.

Glass demand by the brewers remained sluggish in the mature markets, but we saw a positive growth in the beer across the emerging markets as well as in food, wine, and spirit and juice categories on a worldwide basis.

Globally, our shipments were down 2.4% from the prior year. Those mainly reflected lower volumes resulting from contract renegotiations that went into effect in 2010. If you adjust for the impact of those contracts, shipments were up 1% from last year which is more indicative of consumer demand trends.

Like last quarter, a favorable regional sales mix in our fast growing and profitable South American operations mostly offset the earnings impact of lower global shipments. While cost inflation was negligible in the first half of 2010, we did incur a higher input costs in the third quarter.

In addition, manufacturing costs in the quarter increased due to the start-up of two new furnaces in South America and the completion of our realignment activities in North America. These activities impacted third quarter results, but the operational improvements will of course benefit future earnings.

Free cash flow in the quarter was $75 million, which reflects seasonal working capital trends in our industry. We made additional progress on the execution of our strategic priorities this quarter.

We further expanded our presence in South America through our acquisition of CIV, the leading glassmaker in Northern Brazil. This acquisition added three plants in one of Brazil’s fastest growing regions.

Yesterday, we also announced the acquisition of a single plant operation near Guangdong, China and this is consistent with our strategy to grow in one of the world’s largest consumer markets.

We successfully completed a Eurobond offering in the quarter to help ensure that we maintain the financial flexibility we need to pursue additional strategic activities.

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