The Zacks Glass Products industry faces challenges from weak demand, rising costs and labor shortages, dampening its near-term outlook. However, the growing preference for glass, driven by its recyclability and sustainability, supports its long-term potential in packaging and construction.
Apogee Enterprises APOG has navigated these headwinds effectively, achieving improved margins and earnings through cost reductions, strategic pricing and its Project Fortify initiative. Its focus on innovation and acquisitions positions it for continued growth, making it a stock worth watching.
In contrast, O-I Glass OI struggles with declining earnings due to weak demand and production cutbacks, warranting caution for investors.
About the Industry
The Zacks Glass Products industry comprises companies that manufacture and sell glass products. One company produces glass containers for packaging beverages, food and pharmaceuticals. Another player in the industry offers coated and high-performance glass used in customized window and wall systems. The same company caters to the construction industry, ranging from commercial and multi-family residential to institutional buildings. It also provides coated glass for picture framing, wall décor and display applications. One company offers smart glass windows using Artificial Intelligence to adjust and suitably increase access to natural light while minimizing heat and glare. Another company developed an electrokinetic technology that can be retrofitted on any glass, enabling buildings to cut energy consumption and save on heating and cooling costs, the need of the hour.
Major Trends Shaping the Future of the Glass Products Industry
Weak Demand, High Costs & Labor Shortage Act as Near-Term Headwinds: Glass suppliers to residential and non-residential construction markets have witnessed soft demand due to elevated interest rates and persistent inflation. Similarly, the packaging industry has been impacted by muted customer spending, which, in turn, dampened the demand for glass in packaging. Additionally, the industry has been grappling with rising costs for transportation, chemical and fuel as well as supply-chain headwinds. The companies are seeing labor shortages for some positions and incurring steep labor costs to meet demand.
Customer Awareness to Drive Glass Packaging Demand: Glass is increasingly becoming the packaging choice for customers, given its endless recyclability without a loss in quality. More than 80% of recycled bottles are used in making new bottles. This also helps negate the requirement for raw materials. As consumers become more aware of their environmental footprint, a sharp spike in demand has been noticed for refillable bottles, which offer the most sustainable and economical rigid packaging option. Manufacturers are focused on improving their products by reducing the weight of bottles for more convenient handling. Premium cosmetic and beverage brands are opting for glass to differentiate their products through packaging and ensure quality maintenance. Per Statista, the global market value of glass containers and bottles is expected to surge to $88.3 billion in 2032 from $55.5 billion in 2022.
Glass Gains Traction as a Sustainable Building Material: In recent years, the use of glass gained popularity in construction as a sustainable alternative to traditional building materials, including wood and bricks, owing to its cost-effectiveness, lightweight, immense strength and environmentally friendly factor. Glass increases the influx of natural light in the building, reduces energy consumption, minimizes carbon emissions and enhances the aesthetic appeal of structures. Rising construction activities across the residential, commercial and industrial sectors will fuel the glass products industry’s growth. Increasing investments in the renovation or modernization of the existing infrastructure will also drive the industry’s growth. Various governments are introducing favorable policies and granting incentives to promote green construction to minimize greenhouse emissions and energy consumption, which bode well for the industry.
Technological Innovation is the Key: Some players revolutionized the industry by bringing smart glass panels or smart windows to the market. These innovative products are designed to enable people to lead healthier and more productive lives by increasing access to daylight and views while minimizing glare and heat from the sun and keeping occupants comfortable. These products also help cut down on energy consumption from lighting and HVAC, thus reducing carbon emissions.
Zacks Industry Rank Indicates Dull Prospects
The Zacks Glass Products industry is a two-stock group within the broader Industrial Products sector. The industry currently carries a Zacks Industry Rank #237, which places it in the bottom 5% of the 251 Zacks industries.
The group’s Zacks Industry Rank, basically the average of the Zacks Rank of all the member stocks, indicates gloomy prospects in the near term. Our research shows that the top 50% of the Zacks-ranked industries outperform the bottom 50% by a factor of more than 2 to 1.
Despite bleak near-term prospects, we will present one Glass Products stock that you can consider for your portfolio, given its prospects. But it is worth looking at the industry’s shareholder returns and current valuation first.
Industry Versus S&P 500 & Sector
The Glass Products industry has underperformed the S&P 500 and the sector in the past year. The stocks in this industry have collectively lost 4.3% compared with the Industrial Products sector’s 17% growth. The S&P 500 composite has risen 29.2% during the said time frame.
Industry’s Current Valuation
Based on the trailing 12-month EV/EBITDA ratio, a commonly-used multiple for valuing Glass Products companies, we see that the industry is currently trading at 4.35X compared with the S&P 500’s 18.95X and the Industrial Products sector’s 17.57X. This is shown in the charts below.
Over the last five years, the industry traded as high as 9.42X and as low as 2.33X, the median being 5.90X.
One Glass Products Stock to Keep an Eye on & Another to Steer Clear From
Apogee: The company’s efforts to improve productivity and efficiency, strategic pricing actions and cost management have been driving improvement in earnings in the past few quarters despite weak demand weighing on revenues. In January 2024, it announced strategic actions (Project Fortify) to streamline its business operations, eliminate certain lower-margin product and service offerings, improve cost structure and better position the company for profitable growth. Project Fortify is expected to deliver annualized cost savings of $13-$14 million. APOG’s solid liquidity position and strong free cash flow place it well to invest in growth. It recently acquired UW Solutions, which complements the company’s portfolio, expanding offerings for non-residential construction and accelerating diversification in the Large-Scale Optical segment. The acquisition is expected to contribute more than $100 million of net sales, with an adjusted EBITDA margin of approximately 20% in fiscal 2026. Based on these developments, APOG’s shares have gained 44.5% year to date.
The Zacks Consensus Estimate for Apogee’s current-year earnings moved 4% north in the past 90 days. The consensus mark indicates year-over-year growth of 6%. This Minneapolis, MN-based company has a trailing four-quarter earnings surprise of 19.7%, on average. Apogee currently carries a Zacks Rank #3 (Hold).
You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
O-I Glass: The company had seen a decline in volumes from the second quarter of 2022 till the second quarter of 2024. This reflected inventory destocking efforts, subdued consumer demand in select markets and heightened macroeconomic pressures. Even though OI saw 2% volume growth in the third quarter of 2024, mainly attributed to a slight pickup in America, Europe remains weak. A recovery is not expected in the near term and O-I Glass anticipates volumes in 2024 to decline in low-to-mid-single digits. The company has heightened its production curtailment efforts to reduce inventory levels. OI lowered its earnings expectation for 2024 to 70-80 cents per share. The mid-point of the range implies a year-over-year plunge of 76%. Even though O-I Glass has undertaken efforts to eliminate unprofitable and redundant capacity to increase network utilization and boost productivity, the gains will not be realized before 2025. Reflecting the headwinds, OI stock has lost 31.9% year to date.
The Zacks Consensus Estimate for the Perrysburg, OH-based company’s fiscal 2024 earnings has moved down 33% in the past 90 days. The estimate of 76 cents indicates a year-over-year plunge of 75%. OI currently has a Zacks Rank #5 (Strong Sell).
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