In a conference call to discuss the results,Al Stroucken, CEO, and Steve Bramlage, CFO, O-I, said sales volume, in terms of tonnes shipped, declined in three of the company's four regions, leading to a global volume decrease of 3%.
Volume in South America increased 15%, driven by gains in all countries, with beer outpacing other categories and shipments in Europe were down 1%, reflecting market weakness across all segments.
“We were disappointed with the performance of the North American business where results were impacted by several external and internal factors,” said Stroucken.
“Sales volumes were down approximately 3% largely driven by a mid-single digit decline in the mega beer brands while major domestic beer volume has been declining for several years we were not initially as strongly impacted by the slow down because of the strength of our craft beer sales and the introduction of our premium blue and black glass products.
“North America’s productivity suffered considerably in the quarter primarily due to operational challenges that included a furnace leak at one plant and product loss at another. Both of these specific issues have been addressed and steps have been taken to provide greater operational stability.”
He added South America performed well in the quarter on higher sales and better productivity, leading to a 45% increase in profitability year-over-year.
Europe also turned in strong results, despite a decline in shipments which is attributed largely to savings generated through its European asset optimization program.
In Australia, continued weak demand in domestic beer and in wine exports suppressed sales and production volume. The company responded by modestly reducing capacity to improve financial returns.
“In Asia Pacific, we adjusted our capacity in Australia to better match reduced levels of wine exports,” said Stroucken.
“North America was clearly impacted by the continued volume decline of major domestic beer brands. This was exacerbated by lower productivity at our North American facilities, which we are addressing with great focus."
Third quarter 2014 earnings from continuing operations attributable to the firm were $0.37 per share (diluted), compared with $0.79 per share in the same period of 2013. Excluding certain items management considers not representative of ongoing operations, adjusted earnings were $0.75 per share compared with $0.79 per share in the same period of 2013.
Net sales in the third quarter of 2014 were $1.7bn, down 2% from the prior year third quarter. Price was up approximately 1% on a global basis.
The company realized price increases in all regions except Europe, which was expected given competitive pressures. Unfavorable foreign exchange rates weighed on reported sales, especially in South America and Europe.
Smaller footprint in China
Volume in Asia Pacific contracted 24% due primarily to the company's smaller footprint in China, as well as ongoing weak beer and wine demand in Australia.
"There are strong indications of market uncertainty across the globe. Despite this, we expect higher operating profit in Europe and South America, driven by increased productivity and cost savings in the quarter,” added Stroucken.
“Profitability in Asia Pacific and North America, however, will remain muted in the face of lower sales and production volume. We remain confident in our ability to improve our operations, increase profitability and generate cash flow.
“As we approach an inflection point in our capital allocation priorities, we intend to commit a larger share of capital to our shareholders. In 2015, we will repurchase at least $100m in shares.
“This is part of a three-year $500m share repurchase program recently authorized by our Board of Directors."