O-I driven to broaden world reach

As the leader of the Toledo area's largest corporation since 2006, Chief Executive Officer Al Stroucken of Owens-Illinois has set a bold course of a significant number of mergers and acquisitions worldwide as the glass-bottle manufacturer has a sales goal of $9 billion by 2012.

jetta fraser / toledo blade

It's been a trying year for the glass-bottle manufacturer, which lost two plants in Venezuela to a government takeover in October and has struggled as the recession hurt demand for beer and other products packaged in its bottles.

But Chief Executive Officer Al Stroucken is confident the Perrysburg firm's rapid expansion into worldwide markets -- primarily Asia and Latin America -- are positioning the Toledo area's largest firm for increased profitability and record sales.

"The growth of glass containers was clearly going to be influenced by those regions much more than the growth in the traditional regions in which we have been established," Mr. Stroucken, 63, told The Blade in a one-on-one interview inside his corner office at O-I's headquarters next to I-475 and to the Levis Commons shopping, office, and housing development.

The Fortune 500 firm steers through a turbulent economic time at home and abroad.

O-I has set an ambitious goal of reaching worldwide sales of $9 billion in 2012, compared to $7.1 billion last year.

Toward that target, the company has made 10 international deals this year, such as buying four glass plants in China, forming a joint venture in May with Thailand's Berli Jucker Public Co. Ltd., and acquiring Brazilian glassmaker Companhia Industrial de Vidros in September.

And more are coming. Mr. Stroucken said O-I has a "significant" pipeline of mergers and acquisitions planned worldwide.

Today, about 70 percent of the company's profits come from outside North America. With limited room for growth in the North American and western European markets, Mr. Stroucken said, the company is pushing forward with a globalization strategy that O-I has concentrated on since he took the helm in 2006. "I think we are seeing already … some very considerable benefits from that decision," he said.

O-I has adopted a bolder approach to international expansion in recent years, said Jack Paquette, a retired O-I vice president and author of The Glassmakers, Revisited, a book about its history. "O-I now is really emphasizing its global posture and rightfully is very proud of it," said Mr. Paquette, who spent 33 years with the firm.

The OI chief likes to set high goals, including his revenue target for the year after next. "I think it's important for an organization to have an objective … and to drive the company with all its resources to the achievement of that target without always having the assurance that it's really going to be possible to get there," Mr. Stroucken said.

Since coming to O-I in 2006, he has positioned the multinational firm for stronger financial performance, Albert Kabili, an analyst with Macquarie Capital Inc., said. While the firm historically has relied on building sales volume to generate revenue, Mr. Stroucken has emphasized creating higher profit margins for the firm's products.

"What Al is trying to do is improve the growth profile of Owens-Illinois," Mr. Kabili said.

Part of that process included raising O-I's prices, which initially caused a loss in sales volume, the analyst said. But he notes that larger profits "more than offset" the decrease in sales of bottles used for beer and other beverages.

Within a month of taking office, Mr. Stroucken put O-I's plastic-container manufacturing division up for sale. Rexam PLC of London bought it in 2006 for $1.8 billion, which was used to pay off some debt. Afterward, O-I strengthened its glass division and created additional cash flow, which has helped to fund O-I's overseas acquisitions, Mr. Kablili said.

Those decisions helped O-I through the economic downturn, Mr. Stroucken noted. Revenue dropped more than 10 percent last year from $7.9 billion in 2008. Profits fell 35 percent to $162 million in 2009, down from $252 million in '08.

"We brought our finances in order just before the recession and the financial crisis hit, which in relative terms made it easier to navigate through that period of time," he said.

Mr. Stroucken's leadership has placed the firm in a position for bigger returns as the economy recovers, according to Ghansham Panjabi, senior research analyst with Robert W. Baird & Co. Inc. "You should see a pretty nice improvement in the earnings trajectory of the company, better than the path the company historically has been on," he said.

That company has had troubles along the way. O-I closed all or portions of three U.S. plants in Charlotte, Mich.; Clarion, Pa., and Oakland, Calif., this year as it worked to adjust to decreased demand for bottled beer and other products.

"People have become much more careful in how they spend money, what they spend money on, and it's had an impact on the consumption of the products that get packaged in our containers," the chief of the Perrysburg company said.

The cuts affected about 800 of O-I's 24,000 employees worldwide; about 60 percent were transferred to other O-I plants. The firm has about 850 workers at its northern Wood County world headquarters and nearby research buildings.

Mr. Stroucken said the closures were in the best interest of the company, but difficult to make nonetheless.

"It's never an easy decision because you're really dealing with employees that our company is a focus of their lives," he said. "In many cases, we're the largest, if not the only, employer in a community, and it's heartbreaking to make those decisions."

The expropriation in October of O-I's profitable Venezuelan plants has made it tougher to reach sales targets, Mr. Stroucken admitted. Last week, O-I said it would write those plants off as "discontinued operations," resulting in a one-time, $335 million charge in fourth-quarter earnings.

Venezuela's forced acquisition of O-I's facilities placed the company in an unexpected position of losing more than 1,000 employees and, by analyst estimates, 20 to 25 percent of the company's South American sales. In a Securities and Exchange Commission filing last week, the company said the Venezuelan loss would cut its South American sales this year by $129 million, and reduce its operating profits for that region by $40 million.

O-I's South American president, Andres Lopez, called Mr. Stroucken at home just after midnight on Oct. 25 to tell him that Venezuelan President Hugo Chavez had announced plans on a TV show to expropriate Owens-Illinois de Venezuela CA. He stayed awake most of the night talking on the phone and e-mailing with executives in Perrysburg and South America to determine what the next steps should be.

As Venezuelan National Guard troops lined up outside of the O-I buildings and workers protested the takeover, Mr. Stroucken said, his firm focused on protecting its employees while safely handing over control of its complicated glass-making processes to government officials.

"You don't want people making decisions that are just not aware of the potential dangers," he said.

O-I has spoken with law firms and other entities versed in dealing with Venezuelan expropriations, and is trying to negotiate fair compensation for the two facilities, he said.

Thomas Mullarkey, an analyst with of Morningstar Inc. in Chicago, said the countries in which O-I is expanding its business typically are more politically stable than Venezuela. "It would be a little bit of a fluke," he said. "But you never know when countries start repatriating."

Mr. Kabili of Macquarie Capital said O-I runs a slight risk of running into similar political concerns as the firm buys and opens more facilities worldwide. However, the benefits of tapping into those emerging consumer markets likely outweigh the potential liabilities. For instance, R.W. Baird expects that the China beer market could be two times larger than the U.S. beer market by 2015. "They tend to be riskier geographies, but the required rates of return in those markets tend to be higher, which supports higher profitability," Mr. Kabili said.

Both Mr. Kabili and Mr. Panjabi said Asia and Latin America offer higher returns because they include markets that favor reusable bottles. While bottles in the United States are recycled after one use, reuseable bottles are cleaned and refilled with products several times over. This means production costs are cheaper over time compared to plastic, aluminum, and single-use glass packaging. Beverage and food firms in those regions also tend to be successful, meaning their business likely will boost profits for O-I, Mr. Kabili said.

"Everybody's making more money over there, and not just the bottle makers," he said.

Contact Sheena Harrison at: sharrison@theblade.com or 419-724-6103.