Following the recent insider buy from GuruFocus, one among the meaningful insider buy is from Owens Illinois (OI, Financial). The chairman of the board and CEO of the company, Albert Stroucken just recently bought more than 120,000 shares at the price of around $16.5, making the total value of his purchase nearly $2 million.
OI is one of the largest manufacturers of glass containers in the world, based on revenues, with leading positions in Europe, North America, South America and Asia Pacific. It produces glass containers for beer, ready-to-drink low alcohol refreshers, spirits, wine, food, tea, juice and pharmaceuticals. It also produces glass containers for soft drinks and other non-alcoholic beverages, including returnable/refillable glass containers, principally outside the U.S. Besides, OI is active in new product development and glass container innovation.
More than a month ago, OI's executive team held a conference call to discuss the operating performance of second quarter 2011 for the company. Albert mentioned the disappointing results. Adjusted earning per share were down from $0.84 last year to $0.59 this year. Earnings are expected to be in line with the prior year despite evaluated cost inflation.
However, OI has incurred significantly higher manufacturing costs, which more than offset the benefit of higher shipments globally. Particularly in North America, poor operating performance resulted in manufacturing inefficiencies and supply chain issues. That led to higher production and logistics costs. The demand was lower in Australia and New Zealand. That is why the executive team of OI has been trying to reduce the production to meet the lower demand of these markets. It went through the restructuring to refocus its operations, to restore the inventories to sustainable levels and improve production efficiencies.
Second quarter 2011 segment sales increased nearly 17% to more than $1.9 billion. The revenue has been boosted by $97 million, due to substantial currency translation in its favor. The operating profit was $225 million compared to $271 million last year. In this quarter, OI experienced higher volumes, but the higher cost inflation and North American production issue, along with unabsorbed and unforeseen fixed costs in Australia and New Zealand has dragged the bottom line down.
Maybe the main reason for the decline in the share price from around $27 to $16 within just a month is because of declining results compared to the same period of last year. The share price of $16 is equal to the share price dated back in 2002 and a little bit higher than in the price at the end of February 2009.
With the fluctuations of the earnings over the years, OI has kept its operating cash flow positive and only experienced two years with negative free cash flows over the last 10 years.
The average FCF over the last 10 years (including two negative years) stayed at $125 million and the average CFO was $550 million. So at the market cap of $2.7 billion, the company is trading at 21.6 times FCF and 5 times CFO.
The company got highly leverage with only around 20% of total assets in equity, with nearly 40% of total assets in long-term debt of nearly $4 billion. That even pushes the enterprise to three times higher from $2.7 billion to $6.8 billion.
Even the move of its chairman and CEO to buy back stocks at total value of nearly $2 million, I personally do not think the stock is undervalued at this current price. However, comparing to its valuation for the last four years regarding multiples valuation of cash flows and earnings, it is historically cheap.
This is the subjective viewpoint of the author, and it is not the recommendation to buy, hold or sell the stocks mentioned in this analysis. Anyone who wishes to buy, hold or sell the stocks has to do his/her own analysis at his/her own risk.
OI is one of the largest manufacturers of glass containers in the world, based on revenues, with leading positions in Europe, North America, South America and Asia Pacific. It produces glass containers for beer, ready-to-drink low alcohol refreshers, spirits, wine, food, tea, juice and pharmaceuticals. It also produces glass containers for soft drinks and other non-alcoholic beverages, including returnable/refillable glass containers, principally outside the U.S. Besides, OI is active in new product development and glass container innovation.
More than a month ago, OI's executive team held a conference call to discuss the operating performance of second quarter 2011 for the company. Albert mentioned the disappointing results. Adjusted earning per share were down from $0.84 last year to $0.59 this year. Earnings are expected to be in line with the prior year despite evaluated cost inflation.
However, OI has incurred significantly higher manufacturing costs, which more than offset the benefit of higher shipments globally. Particularly in North America, poor operating performance resulted in manufacturing inefficiencies and supply chain issues. That led to higher production and logistics costs. The demand was lower in Australia and New Zealand. That is why the executive team of OI has been trying to reduce the production to meet the lower demand of these markets. It went through the restructuring to refocus its operations, to restore the inventories to sustainable levels and improve production efficiencies.
Second quarter 2011 segment sales increased nearly 17% to more than $1.9 billion. The revenue has been boosted by $97 million, due to substantial currency translation in its favor. The operating profit was $225 million compared to $271 million last year. In this quarter, OI experienced higher volumes, but the higher cost inflation and North American production issue, along with unabsorbed and unforeseen fixed costs in Australia and New Zealand has dragged the bottom line down.
Maybe the main reason for the decline in the share price from around $27 to $16 within just a month is because of declining results compared to the same period of last year. The share price of $16 is equal to the share price dated back in 2002 and a little bit higher than in the price at the end of February 2009.
With the fluctuations of the earnings over the years, OI has kept its operating cash flow positive and only experienced two years with negative free cash flows over the last 10 years.
| USD mil | 2001 | 2002 | 2003 | 2004 | 2005 | 2006 | 2007 | 2008 | 2009 | 2010 |
| CFO | 538.1 | 603.1 | 353.1 | 609.9 | 503.8 | 150.3 | 636.4 | 707.6 | 800 | 592 |
| FCF | 6.2 | 107.1 | -78.4 | 148.1 | 99.7 | -170 | 320.6 | 345.9 | 372.4 | 95 |
The average FCF over the last 10 years (including two negative years) stayed at $125 million and the average CFO was $550 million. So at the market cap of $2.7 billion, the company is trading at 21.6 times FCF and 5 times CFO.
The company got highly leverage with only around 20% of total assets in equity, with nearly 40% of total assets in long-term debt of nearly $4 billion. That even pushes the enterprise to three times higher from $2.7 billion to $6.8 billion.
Even the move of its chairman and CEO to buy back stocks at total value of nearly $2 million, I personally do not think the stock is undervalued at this current price. However, comparing to its valuation for the last four years regarding multiples valuation of cash flows and earnings, it is historically cheap.
This is the subjective viewpoint of the author, and it is not the recommendation to buy, hold or sell the stocks mentioned in this analysis. Anyone who wishes to buy, hold or sell the stocks has to do his/her own analysis at his/her own risk.
