Glass packager Owens-Illinois will extend its joint venture with Constellation Brands in Mexico, after seeing its third-quarter sales grow by almost 5%.
Net sales increased to $1.8 billion thanks to favourable currency rates and gains in both Europe and Latin America, while operating profit was up 10% to $260 million.
O-I also cited a 1% increase in price on a global basis as a factor in the improved results, despite shipments being generally on par with the same period last year.
“We are seeing significant progress on O-I’s transformation to deliver increased sustainable shareholder value as we continue to execute on our strategy with focus, discipline and accountability,” said CEO Andres Lopez.
“Our rigorous approach is implemented by an entire organisation focused on maximising performance at the enterprise level and incentivised under a single set of metrics. In the quarter, O-I demonstrated its resiliency in the face of well-known, challenging external conditions in the Americas by delivering a seventh consecutive quarter of earnings results in line with, or exceeding, our guidance.”
The company has agreed to extend its 50-50 joint venture with Constellation Brands until at least 2034 – an extra ten years on the previous commitment – allowing for a fifth glass furnace at a production plant in Nava, northeastern Mexico used to supply beer bottles to Constellation’s adjacent brewery.
The joint venture had already provided for an expansion of the plant from one glass furnace initially to four by 2018. The initial expansion plans have been progressing as scheduled, O-I said, with three furnaces currently in operation and the fourth set to go live in the first half of next year.
O-I will now commit to a fifth furnace to meet rising demand from Constellation’s adjacent brewery expected to be operational by the end of 2019. According to O-I, that move will make Nava the largest glass container factory in the world.
The capacity expansion, estimated to cost approximately $140 million, will be financed by equal contributions from both partners.
O-I’s Andres Lopez continued: “We are excited about the growth that will be enabled through our continued and expanded relationship with Constellation. This investment will allow both companies to realise additional attractive opportunities in Mexican beer exports to the US, leveraging the success at the joint venture’s highly efficient factory in Nava, while bolstering O-I’s relationship with a key strategic customer.”
Latin America: sales volume increased 5% on the same period last year, mainly due to higher beer and spirits shipments, while operating profit of $84 million was 10% higher. Shipments in Mexico continue to increase at mid-single-digit rates and shipments in Brazil are up markedly, providing further evidence of recovery, O-I said.
Asia-Pacific: sales volume increased 5% in the third quarter, primarily due to higher beer shipments in Australia. Operating profit was $20 million, similar to the third quarter of 2016. The region benefited from increased sales volumes, while higher prices compensated for inflation in the quarter. To meet customers’ evolving demand, O-I’s Asia-Pacific business has been undertaking more intra-regional and cross-regional shipments, leading to higher supply chain costs.
Europe: sales volumes increased 1%, mainly due to favourable product mix as shipments were flat. Operating profit of $81 million represented a 27% increase on the prior-year period. Much of the increase was due to the receipt of an energy credit in the third quarter, as expected, which only came in the third quarter of 2016. Setting aside the energy credit, Europe is performing well, driven by a favourable sales mix, the benefits of strategic initiatives and the positive impact of currency translation, O-I said.
North America: consistent with ongoing trends, North America sales volume declined due to lower shipments, primarily in beer. Operating profit was $4 million lower at $75 million, with price essentially offsetting cost inflation during the quarter. The company continues to mitigate the impact of the ongoing decline in big beer in the US by positioning itself to benefit from the growing market of US beer imports through its joint venture with Constellation Brands and long-term sales contracts in Mexico.
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