THE world's leading glass packaging supplier, Owens-Illinois, could again be forced to shrink its Australia operations, leading to potential job losses, as the US manufacturing giant cites a sluggish local beer and wine market and protracted major customer and union contracts for the uncertainty hanging over its business.
Addressing investors in the US last week on the release of its second-quarter earnings, Owens-Illinois chairman and CEO Albert Stroucken said that despite improved profitability at its Australian arm thanks to a $25 million restructure last year, the company would still face headwinds from Australia's gloomy consumer confidence.
"We expect lower consumer confidence or low consumer confidence and high personal savings rates will continue to weigh down the wine and beer markets in Australia and New Zealand," Mr Stroucken told US investors.
Mr Stroucken, who late last year used the term "recession" to describe the mood of local shoppers, said local profitability had improved following a $25 million restructure that cut jobs and shut down excess capacity, but the shipment levels in the Asia-Pacific operations were down nearly 6 per cent in the second quarter.
Despite the Asia-Pacific operating profit nearly doubling from $US9 million ($8.58 million) in the quarter to $US16 million, a protracted slowdown in sales of beer and wine in Australia meant Owens-Illinois might have to revisit redundancies and plant closures soon. Incomplete sales contracts with large customers, presumably leading brewers Foster's, Lion Nathan and wine groups, together with union deals, were also weighing on the company.
"Given the continued sluggishness of the Australian wine and beer markets, as well as the fact that we are still negotiating major customer and union contracts, further capacity actions may be necessary.
"To date, we have spent $25 million of the anticipated $50 million restructuring program in Australia. Additional activity to complete this program will be managed to ensure that further spending is offset by cost savings so that our cash-flow goals are achieved."
The pullback in consumer spending has hurt local retailers, including beverage companies, with a trend to bottle local wine offshore to take advantage of the stronger Australian dollar also hurting bottle makers such as Owens-Illinois.
The potential job losses could prove another serious blow for Australia's already trembling manufacturing base. Only last week it was announced a Qantas engineering joint venture would close in September with the loss of 164 skilled jobs in Tullamarine. This came on top of 450 jobs lost at Ford, 112 at CMI (a Ford supplier) and 500 jobs announced by Qantas a few months ago.
Owens-Illinois, which has Asia-Pacific regional headquarters in Melbourne as well as sites in South Australia, Queensland and New South Wales, has already shut down two blast furnaces because of the downturn in the beverage sector.
It is unclear at this stage how many Australian jobs could be at risk if Owens-Illinois is forced to spend a further $25 million on restructuring its local business. A spokeswoman for Owens-Illinois did not return phone calls to BusinessDay.
But Mr Stroucken said the company should see improved earnings from its recent fixed-cost savings measures and that overall he expected the Asia-Pacific's operating profit in the third quarter to be up slightly from the prior year quarter.