Plans to double sales, increase profit 75% outlined for Wall St.

8/8/2004

Wall Street analysts visiting Toledo last week got a peek at the new chief executive's vision for Owens-Illinois Inc. In a word, it's big.

Executives, led by Chief Executive Steven McCracken, foresee a company that will nearly double in size to $10 billion in annual sales by 2014, according to a copy of the presentation posted on the firm's Web site.

Other particulars: In the next six years, a 25 percent boost in annual revenues, a 75 percent increase in profit, a 25 percent reduction in debt, and a tripling of O-I's share price.

If the goals are achieved, the 101-year-old glass packaging manufacturer, now Toledo's second-largest company, could reclaim its position as the city's biggest firm from Dana Corp., an auto parts producer.

"It is a monumental challenge," commented one industry insider. The company has $6.7 billion in debt and pays about $200 million yearly to settle asbestos liability claims.

And people familiar with the Toledo-based bottle and jar manufacturer caution that it is by no means a certainty that executives will carry off their plans.

Still, after listening to the CEO, JP Morgan analysts Amanda Tepper and Angela Levy boosted their rating on the firm's stock to positive from neutral.

In explaining the decision, they didn't mention long-term goals set by executives but rather improvements already under way. For one, executives are likely to achieve $140 million in savings - double initial forecasts - from its purchase of European bottle-making giant BSN Glasspack SA, of France.

"As in any corporate turnaround, there is no lack of risks for O-I," the JP Morgan analysts cautioned, citing the possibility that a bottle plant to be opened by the firm next year in Colorado could create a supply glut that would drive down prices.

In large companies like O-I, which has 30,000 employees, major change seldom escapes some resistance, they added.

But top executives insist the goals can be achieved by paying closer attention to cash flow, reducing debt, increasing market share in emerging markets like China and Russia, and ending a corporate mentality that valued overseas subsidiaries' independence over their cooperation.

"We're going to promote teamwork not intramural competition," Jim Weber, director of investor relations, said in an interview.

In presentations last week to three analysts who cover O-I, executives vowed to shift the company from one that is "inertia-based" to one that is "transformational."

"We're going to define our future and put the pieces in place to get there rather than putting the pieces in place and, through inertia, see where they lead us," the investor relations director explained.

The company's goals, according to the presentation to analysts, are to be "ambitious, ingenious, and grounded."

Already, the firm has struck a deal to sell a plastic-bottle making unit that accounted for nearly a third of sales but just 21 percent of pre-tax profit. Revenues from the sale, expected to be $1 billion, will be used to reduce debt.

Ben Miyares, a trade group executive who edits a packaging industry newsletter, is skeptical about the company's ability to reach $10 billion in sales, which would require growth of 7 percent a year.

Shipments of glass bottles in the United States are flat to declining, with brewers accounting for more than half of purchases, he noted.

The most likely route to the lofty sales goal is not through increasing sales to existing customers but by snapping up competitors, Mr. Miyares said.

But, he added, because O-I is already such a key player domestically and overseas, it could encounter anti-trust difficulties from regulators if it tries to buy rivals.

Company officials counter that they supply just $5.6 billion in bottles annually to a world market estimated at $42 billion. And although the firm is China's top producer, it controls just 7 percent of sales. It has no sales in Russia.

O-I's worldwide sales were $6.2 billion in 2003. Through the first six months of this year, the firm recorded a profit of $131 million on sales of $3.3 billion.

Timothy Burns has followed O-I for years as a stockbroker and now president of the Cleveland-based inves tment firm Cranial Capital LLC. He calls O-I "one of the finest operating companies in all of industrial America." He said that although he regards the goal of $10 billion in annual sales as "a stretch," it is not unreachable.

Contact Gary Pakulski at: gpakulski@theblade.com or 419-724-6082.