What happened
Shares of glass-packaging company O-I Glass (OI 1.48%) were climbing higher on Thursday morning after a report that it's divesting a business unit for over $650 million. Additionally, the company's sales improved in June, encouraging investors.
As of 11:30 a.m. EDT, O-I Glass stock was up 11% for the day.
Image source: Getty Images.
So what
O-I Glass is headquartered in Ohio, but operates around the world. Its business unit in Australia and New Zealand generated about $750 million in Australian dollars in 2019. Today, the company announced it's selling this unit to Visy Industries for AUD $947 million -- 1.3 times 2019 sales. The sale resulted from decisions made during a strategic review.
O-I Glass also announced sales trends improved big-time in June. The stock fell 14% on June 9, after the company gave an update to the second quarter that showed declining demand for its products. For this reason it expected revenue to fall 5% to 10% in 2020.
Preliminary Q2 results today show quarterly revenue did indeed fall -- sales volume was down 15% year over year. However, sales volume in June was down just 3%. This marked improvement in the last month of the quarter was enough to encourage investors, which is why the stock is up today. But it's still trailing the market considerably over the past year.
Now what
O-I Glass expects the net proceeds of its divested business unit to be around $620 million. This cash will be used to reduce the company's heavy debt load. It had about $6.1 billion in long-term debt as of the first quarter. Therefore, its debt could be reduced by a little over 10%.
While that helps, it still leaves the company with over $5 billion in long-term debt to deal with -- quite a bit for a mid-cap stock. Perhaps management will provide more debt reduction plans when the company reports earnings. It's expected to report official Q2 results on Aug. 5 before the market opens.
