O-I Glass Outlines New Risk Factor Amid Pending Paddock Settlement

O-I Glass (OI) is an American multinational company that manufactures glass containers such as bottles and jars. It operates 72 plants in 20 countries, powered by a workforce of more than 25,000 people. The company is currently undertaking a portfolio optimization program designed to enhance shareholder value. (See Insiders’ Hot Stocks on TipRanks)

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Let’s take a look at the company’s latest financial performance, corporate updates, and risk factors.

Q3 Financial Results

O-I Glass reported revenue of $1.61 billion for Q3 2021. That decreased from $1.62 billion in the same quarter last year and fell short of the consensus estimate of $1.62 billion. The company attributed the revenue decline to recent divestitures. It posted adjusted EPS of $0.58. That increased from $0.41 in the same quarter last year, exceeded the internal guidance range of $0.47 to $0.52, and beat the consensus estimate of $0.52.

The company ended Q3 with $2.1 billion in liquidity and $4.9 billion in debt. (See O-I Glass stock charts on TipRanks).

For Q4, O-I Glass anticipates adjusted EPS in the band of $0.30 to $0.35. The company raised its 2021 full-year adjusted EPS outlook to a range of $1.77 to 1.82 from $1.70 to $1.75 previously. It is aiming to generate $260 million in free cash flow during the year.

Corporate updates

O-I Glass has entered into an agreement to sell its Le Parfait business to a unit of Berlin Packaging for about 72 million euros. Le Parfait is a French jar brand available in more than 20 countries. In connection with the sale agreement, O-I Glass also secured a supply deal where it will continue to manufacture Le Parfait jars for the Berlin Packaging unit. The company expects to close the transaction in Q4 2021.

O-I Glass has launched a portfolio optimization program as it seeks to capitalize on favorable market trends and increase value for shareholders. The optimization involves the divestiture of certain operations, such as the sale of the Le Parfait jar business. The company aims to generate $1.5 billion through the optimization program by 2024.

O-I Glass plans to invest $680 million to increase its manufacturing capacity. The investment will include the additional manufacturing lines of the MAGMA glass production solution.

O-I Glass’ Paddock Enterprises subsidiary reached an agreement to resolve its legacy asbestos liabilities. The company expects to conclude the settlement of the Paddock issues in 2022.

Risk Factors

O-I Glass carries a total of 28 risk factors, according to the new TipRanks Risk Factors tool. Since Q4 2020, the company has updated its risk profile with one new risk factor under the Legal and Regulatory category.

O-I Glass is counting on the successful resolution of the Paddock liabilities and portfolio rebalancing to improve its financial flexibility. But the company cautions that while Paddock has agreed to resolve the legacy asbestos liabilities, all may not go as expected. For example, some parties in the case may reject the resolution plan, or there may be delays in completing the settlement. Disputes over the plan and delays in the settlement could increase O-I Glass’ costs of resolving the Paddock issues. The resolution plan that Paddock agreed to calls for $610 million to fund a trust.

The majority of O-I Glass’ risk factors fall under the Finance and Corporate category, with 21% of the total risks. That is below the sector average of 43%. O-I Glass’ stock price has gained about 8% year-to-date.

Analysts’ Take

Barclays analyst Michael Leithead yesterday reiterated a Hold rating on O-I Glass stock but lowered the price target to $16 from $17. Leithead’s new price target suggests 25% upside potential.

Consensus among analysts is a Hold based on 4 Buys, 5 Holds, and 2 Sells. The average O-I Glass price target of $16.91 implies 32.11% upside potential to current levels.