Owens-Illinois Management Discusses Q2 2012 Results - Earnings Call Transcript

Owens-Illinois (OI)

Q2 2012 Earnings Call

July 26, 2012 8:30 am ET


John Haudrich - Vice President of Investor Relations

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

Stephen P. Bramlage - Chief Financial Officer


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

George L. Staphos - BofA Merrill Lynch, Research Division

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

Alton K. Stump - Longbow Research LLC

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

Deborah Jones - Deutsche Bank AG, Research Division

Albert T. Kabili - Crédit Suisse AG, Research Division

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

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

Scott Gaffner - Barclays Capital, Research Division

Todd Wenning - Morningstar Inc., Research Division

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



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 Second Quarter 2012 Earnings Conference Call. [Operator Instructions] I would now like to turn the call over to Mr. Jason Bissell, Director of Investor Relations. Please go ahead.

John Haudrich

Thank you, Angela. Good morning, and welcome everyone to O-I's Second Quarter 2012 Earnings Conference Call. I'm joined today by Al Stroucken, our Chairman and CEO; Steve Bramlage, 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 second quarter, and discuss future trends affecting our business in 2012. Following our prepared remarks, we will host a question-and-answer session. Presentation materials for this earnings call can be obtained from the company's 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 operation. 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.

Albert P. L. Stroucken

Thank you, Jason, and good morning. O-I posted strong results for the second quarter with earnings of $0.81 per share compared to adjusted earnings of $0.59 in the second quarter last year. We have made good progress regaining manufacturing and supply-chain efficiencies. This has been most evident in our North American region, which have the largest year-over-year improvement in the second quarter of any of our segments. On the other hand, macroeconomic conditions in Europe continue to generate uncertainties, and our business in that region has been impacted by slower sales this quarter. As a result, we have implemented production curtailments in Europe to balance capacity with customer demands and to ensure that we meet our cash flow targets.

I am pleased to introduce our new Chief Financial Officer, Steve Bramlage. We welcome Steve back to Perrysburg after serving 2 years in leadership roles in our Asia-Pacific region. And for those who do not know Steve, he joined O-I in 2006 as our Corporate Treasurer and then became our Finance Lead in Europe, followed by a term as our Corporate Controller. He moved to New Zealand in 2010 to lead our operations there, and subsequently became President of our Asia-Pacific region. Steve will now review our financial results, after which I will provide an overview of our regions performance in the quarter. Steve?

Stephen P. Bramlage

Thanks, Al. It's nice to be on the call this morning and I look forward to working with all of O-I's stakeholders in my new role. I would also like to take this opportunity to thank Ed White for his first many years of dedicated service and leadership to O-I, as well as for assisting me in the CFO transition over the past month.

Now let's move to Chart 2 and review the second quarter reconciliations for sales, operating profit and earnings per share. Second quarter 2012 segment sales were nearly $1.8 billion. Price and mix in the quarter were up $82 million or more than 4% from the prior year. As in prior quarters, cost pass-through provision had a small impact on sales. These provisions are in certain customer contracts and are principally for fluctuations in energy costs. Lower sales volumes decreased the top line by $95 million this quarter. This impact was primarily due to lower sales in Europe, which were partially offset by higher sales in the North and South American regions.

Finally, currency translation had the most significant impact on the top line, reducing it by $159 million in the quarter, primarily due to a 12% decline in the euro and a 25% decline in the Brazilian real from the prior year quarter.

Moving over one column to segment operating profit. The second quarter was $266 million, up $42 million from the same period last year. Globally, price/mix improvements stayed ahead of inflation by $30 million this quarter and this has helped recapture some of last year's unrecovered inflation. Lower sales volumes impacted segment profit by $26 million in the quarter. Manufacturing and delivery costs were $49 million lower than the second quarter of last year, and were the main drivers of higher segment profit.

The primary reason for this year-over-year improvement relates to our actions to regain manufacturing and supply-chain efficiencies, especially in our North American region. In addition, the permanent footprint adjustments that we have taken in Australia over the past year have reduced fixed costs, increased asset utilization and improved the competitive position of this business versus the prior year.

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