CEO's 'fire and brimstone' sparks rally in O-I stock

2/2/2007

The new chief executive officer of Owens-Illinois Inc. gave a talk yesterday to analysts that sounded much like Gen. George Patton addressing his troops.

Albert Stroucken vowed to get O-I's earnings back on track and said the firm is immediately imposing a company-wide hiring freeze, will raise prices even at the expense of sales volume, will review possible plant closings before mid-year, and may even cut capital spending.

His conference call, a day after the firm reported its second straight yearly loss, was labeled "fire and brimstone" by one analyst.

But it played well on Wall Street. The firm's stock was up as much as 15 percent during the day, but closed 3 percent, or 74 cents, higher at $23 a share on the New York Stock Exchange. Trading volume, at 5.3 million shares, was about four times normal.

"We are the leader in our business, and we have to act like one," the chairman and CEO of the world's largest glass-container maker told analysts. "The company has a tremendous opportunity to perform at a much higher level."

One analyst, George Staphos, with Banc of America Securities in New York, said, "I have been waiting for an O-I [conference] call like this for 15 years."

He later e-mailed his clients: "We are extremely impressed with the message that Al Stroucken is relaying, throwing down the gauntlet to O-I to improve performance."

Mr. Stroucken, the leader of the Perrysburg Fortune 500 firm since Dec. 4, said he has spent the eight weeks getting a grip on O-I's "challenges and barriers."

The company's profit margins are lower than they were several years ago because of higher costs of energy, materials, health care, and transportation, he said.

"So far we have shielded customers from [the higher costs], but we can no longer afford to do that," he said.

Pricing is the company's top priority, he said. A global team is in charge of setting prices for its products, mostly glass bottles and jars. The firm will go for "margin before volume" and will tighten its customers' payment terms.

"We have no desire to be in the banking business," he said. "Payment terms are not a field for 'artistic expression.'•"

O-I reported a loss for 2006 of $27.5 million, or 32 cents a share, down from its 2005 loss of $558.6 million, or $3.85 a share. Both years' results were heavily burdened by potential asbestos-injury liability.

Within three months, the firm will decide whether to sell its remaining plastics-packaging business, which is largely prescription vials and plastic lids, the CEO said. That business accounted for $772 million of its revenue last year of $7.5 billion.

He said the firm either has to put massive capital into that segment or sell it and use the proceeds "to significantly reduce our debt load."

The company will "examine closely why we need to build more capacity," and may reduce capital expenditures, now about $450 million annually, he explained.

Mr. Stroucken said he has a low tolerance for business as usual.

Several analysts wished him good luck.

Of eight analysts following O-I, seven had a strong buy or a buy recommendation, and only one had a sell until this month, according to Thomson Financial Network. But one analyst yesterday lowered his rating from buy to neutral.

Contact Homer Brickey at:

homerbrickey@theblade.com

or 419-724-6129.