Owens Illinois Inc. Earnings Cheat Sheet: Margins Shrink as Net Income Drops

Rising costs hurt S&P 500 (NYSE:SPY) component Owens Illinois Inc. (NYSE:OI) in the second quarter as profit dropped from a year earlier. Owens-Illinois, Inc. manufactures glass containers primarily for the food and beverage industries in Europe, North America, South America and Asia Pacific.

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Owens Illinois Earnings Cheat Sheet for the Second Quarter

Results: Net income for Owens Illinois Inc. fell to $73 million (43 cents per share) vs. $140 million (84 cents per share) a year earlier. This is a decline of 47.9% from the year earlier quarter.

Revenue: Rose 14.5% to $1.96 billion from the year earlier quarter.

Actual vs. Wall St. Expectations: OI reported adjusted net income of 59 cents per share. By that measure, the company fell short of mean estimate of 62 cents per share. It beat the average revenue estimate of $1.89 billion.

Quoting Management: Commenting on the Company’s outlook, Stroucken said, “We remain committed to our key strategic priorities of operational excellence, strategic and profitable growth, marketing glass, and innovation and technology. While all of these strategies are essential to our future success, we are refocusing our attention on operational excellence for the immediate future in light of recent challenges. We fully expect the actions we are taking in North America and Asia Pacific will strengthen our operating performance in those markets. As we focus on our core operations, we anticipate little additional acquisition activity during the second half of 2011.”

Stroucken continued, “Looking to the third quarter of 2011, earnings should benefit from higher shipment levels. Likewise, manufacturing costs are expected to improve over the course of the quarter as we address the challenges in North America and Asia Pacific. We expect third quarter 2011 adjusted earnings per share will improve from second quarter results, but earnings will likely lag prior year third quarter adjusted earnings as we focus on fully restoring operating performance levels. We are adjusting our previous 2011 free cash flow target of $300 million given potential restructuring costs in Australia, the need to rebuild inventory levels in North America to avoid future supply chain issues, and capital investments to expand capacity in South America. We now expect full year 2011 free cash flow of between $200 and $250 million.”

Key Stats:

Gross margin shrank 5.1 percentage points to 18.1%. The contraction appeared to be driven by increased costs, which rose 22.1% from the year earlier quarter while revenue rose 14.5%.

The company fell short of estimates last quarter after beating the mark the quarter before with net income of 47 cents versus a mean estimate of net income of 45 cents per share.

The company’s revenue has now risen for two straight quarters. In the first quarter, revenue increased 8.6% to $1.72 billion from the year earlier quarter.

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(Source: Xignite Financials)