Owens-Illinois' CEO Discusses Q1 2012 Results - Earnings Call Transcript

Owens-Illinois (OI)

Q1 2012 Earnings Call

April 26, 2012 8:30 am ET

Executives

John Haudrich - Vice President of Investor Relations

Albert P. L. Stroucken - Executive Chairman, Chief Executive Officer, President and Member of Risk Oversight Committee

Edward C. White - Chief Financial Officer, Principal Accounting Officer and Senior Vice President

Jason Bissell -

Analysts

George L. Staphos - BofA Merrill Lynch, Research Division

Scott Gaffner - Barclays Capital, Research Division

Ghansham Panjabi - Robert W. Baird & Co. Incorporated, Research Division

Christopher D. Manuel - Wells Fargo Securities, LLC, Research Division

Adam J. Josephson - KeyBanc Capital Markets Inc., Research Division

Phil M. Gresh - JP Morgan Chase & Co, Research Division

Debbie Jones - Deutsche Bank AG, Research Division

Albert T. Kabili - Crédit Suisse AG, Research Division

Timothy Thein - Citigroup Inc, Research Division

Philip Ng - Jefferies & Company, Inc., Research Division

Alex Ovshey Ovshey - Goldman Sachs Group Inc., Research Division

Chip A. Dillon - Crédit Suisse AG, Research Division

Alton K. Stump - Longbow Research LLC

Todd Wenning - Morningstar Inc., Research Division

Presentation

Operator

Good morning. My name is Angela, and I will be your conference operator today. At this time, I would like to welcome everyone to the O-I First Quarter 2012 Earnings Conference Call. [Operator Instructions] I would now like to turn the call over to Mr. Jason Bissell, Director of Investor Relations. You may begin now.

John Haudrich

Thank you, Angela. Good morning, and welcome, everyone, to O-I's First Quarter 2012 Earnings Conference Call. I am joined today by Al Stroucken, our Chairman and CEO; Ed White, our Chief Financial Officer; and several other members of our senior management team.

Today we will discuss key business development, review our financial results for the first quarter, and discuss future trends affecting our business in 2012. 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 new website 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. And reconciliation of GAAP to non-GAAP earnings can be found in our earnings press release and in the appendix to this presentation. I'll now turn the call over to Al, who will start on Chart 2.

Albert P. L. Stroucken

Thank you, Jason, and good morning. Our adjusted net earnings were $0.73 per share in the first quarter of 2012 compared to $0.53 last year. As we announced in the first quarter update 2 weeks ago, our manufacturing operations performed very well this quarter. Cost control measures implemented last year and high operating rates in most regions resulted in very good performance as we enter the stronger upcoming shipping season.

We also benefited in the first quarter this year from the nonrecurrence of significant flooding in Australia that impacted prior year results. Global sales volumes vary by region. Shipments were flat in Europe, up slightly in South America and up a little bit more in North America however, Asia Pacific sales volumes were down compared to the prior year quarter.

This was largely driven by lower shipment levels in China as a result of several furnace rebuilds and the residual impact from the 2010 closure of our Guangzhou facility. Overall, global volumes were down almost 2% but excluding the impact of China, our volumes would have been flat in the first quarter. While our selling prices were up and covered this year's inflation, their average impact was somewhat muted in the first quarter because increases went into effect at different times over the course of the first 3 months.

Looking to the second quarter, we expect that stronger year-over-year financial results will be led by improved operating performance in North America. We expect global shipments will, again, be slightly down on a year-over-year basis, primarily from lower volumes in Europe and Asia Pacific. Our price negotiations are now largely complete for 2012 so we should see a stronger price inflation spread.

Moving to the remainder of the year, our visibility of demand trends in the second half remains limited, especially in Europe. As a result, at this time, we expect the financial results of the second half of 2012 to track in line with the second half of 2011, which includes the improvements achieved in the back half of last year.

Let me review our operating performance beginning with Chart 3. Here, we show the first quarter segment operating profit for each of our 4 regions. Total operating profit was $260 million in the first quarter, up from $208 million last year. As you can see on the chart, 3 regions were well ahead of the prior year.

Our European operating profit was $108 million, up $32 million from the first quarter of 2011. The primary driver of improved results in Europe was good manufacturing performance of the plants, which operated at higher production rates in prior year and this helped us build inventory to support the seasonality for the wine, beer and food markets. In addition to strong operations, profit in the region benefited from higher prices that covered inflation in the quarter and also allowed for the recovery of some of the margin erosion that we experienced last year.

Overall, price and manufacturing performance were the key factors that drove improvement while shipment levels for the quarter were flat compared to the first quarter 2011. Year-over-year sales volumes varied considerably by country, end market and by month through the quarter. The quarter started out strong likely due to customer purchases in advance of price increases, but volumes weakened as the quarter progressed and then ended, again, on a somewhat stronger note.

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