O-I Glass, Inc. (OI), a leading global manufacturer of glass containers, has reported its financial results for the first quarter of 2024. The company faced temporary headwinds during the quarter, with net sales declining 13% year-over-year to $1,593 million. However, O-I remains focused on executing its long-term strategy and positioning the business for future success.
Financials
In the first quarter of 2024, O-I reported net earnings attributable to the company of $72 million, or $0.45 per share (diluted), compared to $206 million, or $1.29 per share (diluted), in the same period of the prior year. The decrease in earnings was primarily due to lower segment operating profit and higher interest expense, partially offset by lower retained corporate and other costs.
Segment operating profit of the reportable segments, which includes an allocation of some corporate expenses, was $235 million in the first quarter of 2024, compared to $398 million in the first quarter of 2023, a decrease of $163 million or approximately 41%. This decline was primarily driven by lower shipments, lower net prices, and higher operating costs due to temporary production curtailments to balance supply with softer demand.
Americas Segment
The company's Americas segment reported operating profit of $102 million, down from $176 million in the prior year period. The decrease was primarily due to a 15% decline in glass container shipments, which resulted in a $35 million reduction in segment operating profit. Operating costs in the region were also $40 million higher, driven by lower production volumes and temporary curtailments, partially offset by benefits from margin expansion initiatives.
Europe Segment
In Europe, segment operating profit was $133 million, down from $222 million in the first quarter of 2023. The 10% decline in glass container shipments in the region decreased segment operating profit by approximately $17 million. Operating costs were $60 million higher, impacted by lower production volumes, lower earnings from joint ventures, and the non-recurrence of energy subsidies received in the prior year period.
Other Financial Metrics
Net interest expense in the first quarter of 2024 was $78 million, compared to $68 million in the same period of the prior year, primarily due to higher interest rates. The company's effective tax rate from operations for the first quarter of 2024 was 35%, compared to 22.2% in the first quarter of 2023, due to a change in the mix of geographic earnings.
Outlook
For the full year 2024, the company now expects adjusted earnings to approximate $1.50 to $2.00 per share, compared to its prior outlook of $2.25 to $2.55 per share. This revised guidance reflects a slower than anticipated recovery in consumer consumption patterns, which has led to a longer destocking process and softer demand. To help mitigate the impact of slower sales growth, O-I has increased its full-year margin expansion initiative target to at least $175 million.
Free cash flow for 2024 is expected to range between $100 million to $150 million, reflecting lower earnings, partially offset by other favorable cash levers, including moderately lower capital expenditures. The company intends to maintain a healthy balance sheet position, with leverage expected to be in the low 3x range by the end of the year.
Business Overview
Despite the current market challenges, O-I remains focused on executing its long-term strategy. The company continues to make progress on its key priorities, including advancing its margin expansion initiatives, expanding its business through the MAGMA program, and maintaining a strong balance sheet.
The MAGMA program, which reimagines the entire glass-making process, is a critical component of O-I's long-term strategy. The company is nearing the start-up of its first MAGMA greenfield plant in Bowling Green, Kentucky, which is expected to commence operations in either late July or early August 2024. MAGMA's increased flexibility, scalability, and rapid deployment capabilities are designed to enable O-I to better serve the evolving needs of the glass packaging market.
In addition to MAGMA, the company is also advancing its ULTRA line of lighter-weight glass containers to support increasing customer demand for more sustainable packaging solutions. Together, MAGMA and ULTRA are expected to increase O-I's addressable market by over 30%.
Risks and Challenges
While the current market environment remains challenging, O-I is taking the necessary steps to position the company for long-term success. The company is aligning supply with lower demand through temporary production curtailments, accelerating its margin expansion initiatives, and continuing to invest in strategic projects that will enhance its competitive position.
Conclusion
Looking ahead, O-I remains confident in the long-term positive trajectory of glass packaging demand, which is expected to benefit from key megatrends such as premiumization, health and wellness, and sustainability. As markets recover, the company believes it is well-positioned to capitalize on the rebound and deliver improved financial performance over time.
In conclusion, O-I Glass, Inc. is navigating temporary headwinds in the current market environment, but the company's focus on executing its long-term strategy, advancing innovative technologies, and maintaining a strong financial position positions it well for future success.