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Chinese sales slump hits O-I but cost-cutting reaps rewards

By Ben Bouckley , 26-Apr-2012

Owens-Illinois (O-I) chairman Al Stroucken says the company is ‘encouraged’ by its start to 2012, but said that overall global shipments by volume fell due to lower sales in China.

The world’s largest glass container producer reported Q1 sales of $1.739bn (€1.31bn) in 2012 ($1.719bn: Q1 2011) today for Q1 2012 ending March 31, while adjusted net earnings rose from $89m to $122m.

Shipments in tonnes to Europe, North American and South America were “flat to slightly up” during Q1 – single-digit declines in Europe, single-digit hikes in North and South America – O-I reported, but global shipments fell nearly 2% on Q1 2011 due to lower shipment levels in Asia Pacific.

O-I attributed this to lower sales in China as a result of several furnace rebuilds and the residual impact from the prior closure of the company’s facility in Guangzhou (acquired in Q4 2010).

Chinese issues aside, O-I said that global sales would have been flat compared with Q1 2011; higher sales prices in the quarter also allowed it realise a $13m benefit that offset inflation.

Strong manufacturing performance

O-I attributed a further $22m benefit to “strong manufacturing performance” – namely higher fixed cost absorption and cost-control initiatives.

Flooding in Australia during Q1 2011 cost the company $9m, and O-I noted that it had not had to absorb this cost during the latest quarter.

Chairman and CEO Al Stroucken said: “We are encouraged by our start in 2012. To better serve the seasonally stronger second quarter, especially in Europe and North America, we increased production and inventory levels in the first quarter.

“We also saw generally good results from our pricing strategy and cost-cutting initiatives in all regions.”

Looking ahead to Q2 2012, Stroucken said O-I was looking to its pricing strategy and operational efficiencies to drive improved performance, especially in North America, and that financial outlook for H2 2012 was tracking in line with H2 2011.

O-I also had to remain flexible to match capacity with demand, O-I said, primarily in Europe where demand uncertainty was greatest.

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