O-I Glass, Inc. — Q1 2023 Form 10-Q
Business and period: Unaudited results for the three months ended March 31, 2023, compared with Q1 2022. O-I makes glass containers and reports two operating segments: Americas and Europe.
Financial performance
| Metric | Q1 2023 | Q1 2022 |
|---|---|---|
| Net sales | $1.831 billion | $1.692 billion |
| Gross profit / gross margin | $484 million / 26.4% | $304 million / 18.0% |
| Earnings before income taxes | $270 million | $170 million |
| Net earnings attributable to O-I Glass | $206 million | $88 million |
| Diluted EPS | $1.29 | $0.55 |
| Segment operating profit (non-GAAP) | $398 million | $231 million |
| Operating cash flow | $(193) million | $(73) million |
| Capital expenditures | $95 million | $96 million |
Sales increased 8%, primarily from higher selling prices (+$301 million), partly offset by lower volume and mix (−$123 million), unfavorable foreign exchange (−$19 million), and divestitures (−$8 million). Glass-container shipments declined approximately 8%. Segment sales were $1.000 billion in the Americas and $799 million in Europe.
Segment operating profit rose 72%, with improvement in both regions: Americas $176 million versus $129 million; Europe $222 million versus $102 million. Management attributed the increase chiefly to price gains exceeding cost inflation, operating performance, margin initiatives, and a roughly $35 million inventory-revaluation benefit. Lower shipments, capacity-expansion activity, divestitures, and currency effects partly offset these gains.
Cash and cash equivalents were $480 million at March 31, 2023, down from $773 million at year-end 2022. Current assets were $2.752 billion and current liabilities $2.255 billion. Working capital used $536 million of cash, mainly reflecting higher inventories. Total assets were $9.425 billion and shareowners’ equity was $1.887 billion.
Balance-sheet short-term loans and debt due within one year were $345 million, with long-term debt of $4.422 billion. The debt note reports $4.723 billion of total long-term debt, including $301 million due within one year. The company reported $1.24 billion of unused credit availability; its credit-agreement borrowing rate averaged 6.33%. It was in compliance with its covenants, including the 2.50x maximum secured leverage ratio.
Changes, unusual items, and management commentary
- Net income and margins improved substantially year over year, while shipments fell. Q1 2022 included a $55 million pretax gain on the sale of the Cristar tableware business; that gain did not recur. Q1 2022 also included $18 million of debt-repurchase and refinancing-related interest charges. The 2022 divestiture gain and its non-controlling-interest effects complicate the reported earnings comparison.
- Net interest expense increased to $68 million from $66 million, primarily due to higher interest rates. The effective tax rate was 22.2%, compared with 28.2%, reflecting a change in geographic earnings mix.
- Management expects full-year 2023 shipments to decline modestly. It expects margin initiatives and higher selling prices to more than offset cost inflation, while expansion-project costs weigh on operating costs. Management expects strong first-half earnings but is deliberately cautious about the second half because of recession risk.
- 2023 operating cash flow is expected to be approximately $875 million, and capital expenditures approximately $700–$725 million. Management said it may refine cash-flow guidance as volume and working-capital trends become clearer. The first MAGMA greenfield plant in Kentucky remains on track to start in mid-2024.
- The company is reviewing its remaining Asia Pacific businesses; the review could lead to divestitures or other transactions and future restructuring, impairment, or disposal charges. European natural-gas costs and supply remain exposed to the Russia-Ukraine conflict and related sanctions or supply disruption.
- The confirmed Paddock asbestos plan created a trust funded with $610 million in 2022 and provided releases and an injunction channeling covered claims to the trust. Separately, the company accrued approximately $25 million for environmental remediation; ultimate costs could exceed the accrual. Tax assessments under challenge could also have a material effect if settled above reserves.
Investor items to verify
- Whether pricing and margin gains can continue to offset lower shipments, cost inflation, and expansion spending as the year progresses.
- Whether working capital—particularly inventories—releases cash sufficiently to support the $875 million operating-cash-flow outlook and planned capital spending.
- Debt maturities, interest-rate exposure, covenant headroom, and continued access to the $1.24 billion of unused credit.
- Developments in European energy supply and costs, the Asia Pacific strategic review, and the timing and economics of MAGMA deployment.
- Potential exposure beyond recorded environmental and tax reserves, and the extent to which receivables factoring supports reported cash flows. Receivables sold through factoring programs were $515 million at quarter-end.