O-I Glass, Inc.
OI
is gaining from increasing global preference for glass as the healthy, premium and sustainable packaging option for food and beverage. The company’s continuous investment in incremental capacity to capitalize on this trend is fueling growth. OI’s ongoing divestiture program, acquisitions and product innovations are key growth drivers. Cost-control actions, efforts to improve productivity and efficiency are aiding growth.
Last month, O-I Glass released fourth-quarter 2021 results, with earnings and sales beating the respective Zacks Consensus Estimates. While earnings declined, sales increased on a year-over-year basis. The company has a trailing four quarters earnings surprise of 15.9%, on average.
Investments to Expand Glass Packaging
O-I Glass is poised well to gain from growing demand for glass on consumer preference for healthy, premium and sustainable products for food and beverage. The company is thus investing in incremental capacity, joint ventures and acquisitions in emerging geographies to capitalize on this trend. The company is building new capacity that will come online in early 2023 to serve premium categories in attractive, emerging markets.
O-I Glass is undertaking initiatives as part of its transformation plan for 2022 through 2024. The company expects its margin expansion initiative will likely generate annual benefits of $50 million over 2022 to 2024. Per the company’s portfolio optimization Program, it intends to invest up to $680 million in new capacity expansion over the next three years period, in order to achieve volume growth and meet demand. The plan includes an addition of up to 11 MAGMA lines. These investments will expand the company’s franchise foothold in high growth and high-value markets in Latin America and the oversold spirits category in the United States and the U.K.
Innovations in Glass Packaging Will Aid Growth
The company is focused on driving innovation. Its glass melting technology, known as the MAGMA program, intends to reduce the amount of capital required to install, rebuild and operate the company’s furnaces. Its full-scale commercial MAGMA Gen 1 production line is operational and the company achieved critical milestones in 2021. This new technology is also focused on the ability of these assets to be more easily turned on and off or adjusted based on seasonality and customer demand. It’s Gen 2 MAGMA line in Streator, IL, is currently in the testing phase. The company continues to make solid progress in developing Gen 3. O-I Glass expects to complete the multi-generation MAGMA development plan over the next few years. The company is working on a R&D Light-Weighting program called Ultra, targeting significant container weight reductions to improve the convenience and sustainability profile of glass. These innovations will lead to new opportunities.
Europe & United States Glass Markets Riding on Strong Demand
Glass packaging in Western Europe has been growing for the last few years. Premium products in Europe are growing significantly faster than the overall market. The company’s efforts to add capacity in Europe, brownfield expansion, supply chain performance, focusing on growing strategic relationships and footprint optimization poises it well for growing volumes in the region. In the United States, demand for glass is growing on the back of favorable consumer trends and increased preference of customers for glass packaging.
For 2022, O-I Glass expects adjusted earnings per share (EPS) between $1.85 and $2.00. The midpoint of the guidance indicates growth of 5% from the adjusted EPS of $1.83 in 2021. Earnings will benefit from higher sales volume and continued strong demand for healthy and sustainable glass containers.
However, there are few factors that might impact the company’s results.
OI is bearing the brunt of supply chain challenges, which are likely to impact shipment levels. It expects higher selling prices will partially offset elevated cost inflation (freight and energy) pending further price recovery in 2022. Impacts of divestitures, incremental expenses to fund Paddock Trust and the unfavorable impact of foreign currency translation are likely to affect bottom-line results in the current year.
Apart from O-I Glass, some other companies in the
Industrial Products
sector like
Sealed Air Corporation
SEE
,
Crown Holdings Inc.
CCK
and
Apogee Enterprises
APOG
are also witnessing an unprecedented surge in material costs.
Limited availability of certain raw materials and global transportation disruptions have impacted Sealed Air’s supply chain throughout 2021. Even though Sealed Air implemented price increases throughout the year, the associated timing lag on these increases and formula-based pricing have dented margins.
Crown Holdings is bearing the brunt of supply chain headwinds along with inflated costs for freight services. Even though the company has periodically adjusted its selling prices to reflect the movements in raw material prices, It may not be able to pass through the rise in raw materials costs to its customers without suffering a loss in unit volume, revenues and operating income.
Apogee expects inflationary pressures will continue to dent the company’s results. Supply-chain disruptions, labor constraints at some of its facilities are remain headwinds and might impact its production levels.
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