Bad weather impacts O-I sales - but Brazil remains strong

  

A delayed furnace start up and bad weather were to blame for a drop in sales earlier in the year, reported O-I.

The world’s largest container glassmaking company said sales were flat compared to its expectation for modest growth in Quarter 2 of this year.

In its Q2 2019 financial report, it blamed extreme weather conditions in Europe and higher than expected costs in the Americas related to the commissioning of a furnace at a joint venture plant.

It also incurred unplanned downtime across several locations due to flooding and other weather related issued in the US.

CEO Andreas Lopez said: “Speaking for the entire management team, we are disappointed with these results.

"We expect to perform better and are fully committed to taking all the necessary steps to improve performance.

"Importantly, I'm confident in our ability to deliver value to all stakeholders.”

Its operating profit in the second quarter of 2019 was $236 million compared to $255 million in the second quarter of 2018. Earnings before income tax were $98 million, compared to $78 million in the second quarter of 2018.

Milestones

Some of its milestones in the quarter included sales growth in countries where capacity had recently been commissioned including Brazil, Colombia and China. It also acquired the Nueva Fanal facility in Mexico at the end of June.

It also began to produce commercial quality glass from its first Modular Advanced Glass Manufactiuring Asset (MAGMA) technology operation. It is planning the next MAGMA line in Europe. In time, this technology will dramatically enhance its flexibility, it said.

Operating profit in the Americas was $144 million, $8 million lower than the prior year and said the benefit of higher price and volume was more than offset by increased operating costs.

The shift in product mix from mega-beer to other categories had increased production complexity. 

During an investor call, Mr Lopez said the company was changing the mix in the US in particular to partially offset the drop in volume as a result of the decline in mega-beer consumption.

In the same call, John A. Haudrich, O-I’s Senior VP and CFO, said structural issues had caused the delay of the furnace start up at the joint venture operation by a few weeks, which had led to increased costs.

In Asia Pacific, it said sales volumes were up 7% as a result of strong growth in China thanks to new capacity added in 2018 and 2019.

During the investor call, said over the past 18 months, 60% of its furnaces in the Asia Pacific had undergone maintenance.

“This is unusually high compared to maintenance activity that normally impacts less than 10% of furnaces in a given year.”

Demand remains solid overall in Latin America, with beer particularly strong in Brazil.

The company re-introduced new capacity earlier in the year and Mr Lopez said: “Solid demand continues. Beer is growing fast and there is no change in that position.”


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