O-I Glass, Inc. — Form 10-Q Summary
Business context and reporting period
Quarter ended September 30, 2021; financial statements are unaudited. O-I manufactures glass containers, primarily for food and beverage customers. Comparisons are affected by the 2020 sale of its Australia and New Zealand businesses (ANZ) and the January 2021 sale of its Argentina plant.
Key financial metrics
| Metric | Q3 2021 | Q3 2020 | Nine months 2021 | Nine months 2020 |
|---|---|---|---|---|
| Net sales | $1.609B | $1.616B | $4.770B | $4.595B |
| Gross profit / margin | $302M / 18.8% | $277M / 17.1% | $854M / 17.9% | $708M / 15.4% |
| Continuing earnings attributable to O-I | $78M | $328M | $99M | $278M |
| Diluted continuing EPS | $0.48 | $2.06 | $0.61 | $1.76 |
| Net interest expense | $50M | $61M | $153M | $212M |
| Operating cash flow, continuing operations | Not provided for quarter | Not provided for quarter | $449M | $128M |
- Reportable segment operating profit was $243M in Q3, up $39M (19%); for nine months it was $650M, up $172M (36%). Management cited higher production, operating performance and margin initiatives.
- Nine-month consolidated net earnings were $123M, including a $7M discontinued-operations gain; earnings attributable to O-I were $106M.
- At September 30, cash was $628M, current assets $2.442B and current liabilities $1.738B. Debt was approximately $4.932B including current maturities; cash-adjusted debt was approximately $4.304B. Unused credit under the secured agreement was $1.489B.
- Nine-month capital expenditures were $268M. Cash used in investing activities was $202M and cash used in financing activities was $171M.
Material changes versus prior period
- Q3 sales decreased less than 1%, while reported segment profit improved. Excluding divestitures, shipments fell about 1% in the quarter; higher pricing added $57M to segment sales, partly offset by lower volume and divestitures.
- Nine-month sales increased 4%. Excluding divested businesses, shipments increased about 5%; higher pricing added $112M and favorable currency movements added $129M, while divestitures reduced sales by $297M.
- Reported pre-tax earnings fell $249M in Q3, largely because the prior-year period included a $280M ANZ sale gain. Nine-month pre-tax earnings fell $79M, reflecting the absent ANZ gain and a $154M Paddock-related charge, partly offset by improved segment results, a $69M Brazil tax credit gain and lower interest expense.
- Debt declined from approximately $5.375B at September 30, 2020. Cash from continuing operations rose year over year, principally because working-capital cash use was lower ($139M versus $402M).
Outlook, commentary and risks
- Management expected full-year 2021 shipment growth of at least 4% in tons versus 2020, excluding divestitures; continuing margin initiatives; approximately $660M of continuing operating cash flow; and approximately $400M of capital expenditures.
- For 2022–2024, planned capital expenditures total approximately $1.95B, including about $680M for added capacity; management expected 2022 spending of $650M–$700M. The company also planned about $575M of further divestitures and sale-leasebacks through 2024, with proceeds intended to fund investment and reduce debt.
- The Paddock Chapter 11 agreement in principle contemplated $610M to fund an asbestos trust and a channeling injunction protecting O-I and affiliates. The plan remained subject to final documentation, a vote of at least 75% of voting claimants, and court approvals. The recorded support-agreement liability was $625M at September 30. Failure or delay could raise costs or prevent the contemplated resolution.
- COVID-19 and supply-chain disruption remained risks. Severe February 2021 weather in the southern U.S. negatively affected Americas segment profit by an estimated $46M; approximately $11M remained accrued for related energy surcharges at September 30.
- The company reported compliance with debt covenants; the leverage-ratio limit tightened to 4.75x for Q3 2021 and 4.50x from Q4 2021 onward. The dividend remained suspended. O-I repurchased $30M of shares in the first nine months under an anti-dilutive program.
- Other notable items: the October 2021 Le Parfait sale commitment was expected to generate about €72M, subject to conditions; tax assessments in several jurisdictions could exceed reserves; and the filing identifies cybersecurity, foreign-exchange, inflation, energy, and other operating risks.
Investor verification points
- Reconcile operating performance with nonrecurring items—especially the 2020 ANZ gain, 2021 Paddock charge, Brazil tax credit and tax effects—when comparing earnings.
- Track whether the Paddock plan receives required claimant and court approvals, and whether the $625M liability and $610M proposed trust funding change.
- Check shipment growth, pricing versus cost inflation, production and margin improvements, and the effect of ongoing supply constraints and divestitures.
- Monitor operating cash flow, working-capital and factoring-program use, planned capital spending, divestiture proceeds, debt and covenant headroom.
- Assess the realization and timing of guidance, including the cash-flow target’s assumption that asbestos-related payments remain suspended, and the potential effects of COVID-19, energy costs and tax disputes.