Despite media reports that a growing number of North American craft brewers are reaching for cans, glass packaging giant O-I insists this isn’t a major trend, nor is it at the expense of glass bottles.
During a second quarter earnings conference call yesterday, O-I’s chairman, Al Stroucken, said: “In Q2, growth in the microbreweries was still 10% and we don’t really see a change in that trend. I would say some craft brewers are trying to go after variation and differentiation and that’s leading some of them to include cans in their portfolio, but I would not agree that it’s a significant underlying trend.”
Back to the bottle
And in Brazil, Stroucken reported that several of the large brewers were switching to returnable glass bottles for marketing initiatives.
“It’s logical because returnable glass bottles offer the lowest cost per transaction, which allows brewers to either reach customers more efficiently and economically or get higher margins. So we’re seeing a willingness and greater enthusiasm of brewers to go to glass.”
With its rapidly expanding glass container market, Brazil has become an increasingly important focus for O-I. Stroucken said Brazil had been “very encouraging” in Q2, with growth rates in “high single digits”.
North America, having ironed out the manufacturing and supply chain inefficiencies experienced in 2011, also delivered a strong performance for O-I.
“We have made good progress regaining manufacturing and supply-chain efficiencies. This has been most evident in our North American region, which has the largest year-over-year improvement in the second quarter of any of our segments,” said Stroucken.
This performance led the company to net earnings of $134 million for Q2, up from $71 million a year earlier.
A tale of two continents...
Across the Atlantic, macroeconomic conditions in Europe continued to generate uncertainties, and O-I’s business in the region was impacted by slower sales this quarter. This was reflected in global net sales of $1.766 billion for Q2, down from $1.959 billion for the same quarter last year.
“We think 40% of our volume drop in Q2 was due to economic events. Another 40% was related to competitive pressure and the remaining 20% due to taking out production - we closed a furnace in Spain last year which has taken volume out of the equation.”
The competitive pressure he refers to is mainly coming from southern Europe, where a few small competitors are reportedly taking advantage of “volume opportunities” in wine bottles.
“As a result, we have implemented production curtailments in Europe to balance capacity with customer demands and to ensure that we meet our cash flow targets,” he said.
Measures have included temporary shutdowns to balance production with lower demand in the region.
Whilst insisting that these temporary closures would not become permanent, Stroucken did concede that there was an opportunity to take out 5-7% of capacity in Europe, and hinted that O-I would look to its central European operations for making these cutbacks, saying: “In central Europe we are contemplating some other steps going forward.”