European pricing pressure hampers O-I profits

O-I’s operating profit declined in Q3 mainly due to pricing pressure in Europe.

The world’s largest container glassmaking company reported that segment operating profit declined $49 million, or $9 million on a constant currency basis.

But year-over-year volumes were up nearly 4% on a global basis during the quarter and it said there was an improved operational in Asia Pacific.

Chairman and Chief Executive Officer Al Stroucken said: “We had good underlying performance in the quarter, with increased profitability in Asia Pacific and Latin America in constant currency.

Operating results in Europe were in line with expectations, but impacted by the delay of a substantial energy credit. We accelerated engineering activity in North America to reduce long term costs, setting the stage for increased profitability in the future.

“We are pleased to have completed the acquisition of Vitro's food and beverage business earlier than expected and are making excellent progress with the integration.”

Net sales in the third quarter of 2015 were $1.6 billion, down $179 million from the prior year third quarter.

Shipments in Europe increased 2%, driven by higher beer sales while Asia Pacific shipments were equal to the prior year quarter.

Including the newly acquired Vitro business, volume in Latin America increased nearly 16%, and shipments in North America improved by 2%.

Excluding the impact of foreign currency, Asia Pacific's operating profit increased more than 35% compared to the prior year third quarter due to cost reduction efforts and the favorable impact of prior restructuring actions.

On a constant currency basis, Latin America's operating profit increased $9 million compared with prior year third quarter. The contribution of the acquired business in Mexico and Bolivia more than offset the adverse impact of lower shipments elsewhere in the region.

Europe’s operating profit declined $36 million, with nearly half of the decrease caused by devaluation of the Euro. Similar to the trend experienced in the first half of 2015, average selling prices in Europe were approximately 1% percent lower year on year due to competitive pressures, primarily in the south.

Europe reported more production downtime compared to the prior year due to engineering activities associated with ongoing asset optimisation. These investments also drove a year-on-year increase in depreciation.

Due to legislative delays, Europe did not receive an $8 million energy credit expected in the quarter.