O-I Glass, Inc.

Thank you, Bailey, and welcome everyone to the OI Glass full year and fourth quarter 2024 earnings call. Our discussion today will be led by our CEO, Gordon Hardy, and our CFO, John Hodrick. Following prepared remarks, we will host a Q&A session. Presentation materials for this call are available on the company's website. Please review the safe harbor comments and the disclosure of our use of non-GAAP financial measures included in those materials. Now, I'd like to turn the call over to Gordon, who will begin on slide three.

Thanks, Chris. Good morning, everyone, and thank you for your interest in OIGlass. Today, we will walk you through our 2024 performance, our recent market trends, and our strategic initiatives, which we believe will drive solid recovery this year. But first, I would like to take the opportunity to thank all my colleagues at OI across the world for their efforts in 2024 and for their agility and focus in driving the changes needed to turn OI around. 2024 was a challenging year for OI. A sluggish market demand and macro conditions impacted our performance. Full year adjusted earnings were 81 cents per share, slightly exceeding our most recent guidance range, but down from historically high performance in 2023. For the fourth quarter, we reported an adjusted loss of 5 cents per share, compared to the adjusted earnings of 12 cents per share in the same period last year. These results reflected tough market conditions with sluggish demand, high in-home spirits inventories, especially in the US, overcapacity in certain European markets impacting net price. We also took aggressive inventory management actions in the second half of the year. While market conditions remain soft, demand has stabilized in recent months, and our fourth quarter costs and operating performance were better than anticipated, reflecting actions taken. This stabilization gives us confidence as we move forward. We are rapidly implementing our fit to win way of working, which is designed to improve our overall competitiveness by reducing our total cost of doing business, which will enable future sustainable growth. We believe these actions and the way of operating will significantly improve future earnings and cash flow. While our commercial outlook remains cautious until macro economic conditions improve and consumer confidence increases, we expect solid earnings improvement in 2025, driven by the benefits of our strategic initiatives. Specifically, we anticipate 2025 adjusted EPS to be in the range of 120 to 150 per share, representing a 50 to 85% increase from 2024 levels. Additionally, We expect free cash flow will be between $150 and $200 million, a substantial improvement from previous year's cash use. Now I will turn it over to John to provide a review of the 2024 results.

Thanks, Gordon, and good morning, everyone. As mentioned, 2024 was a tough year that impacted most of our key performance measures, as you can see on the chart. Yet it was also a year marked by critical decisions and decisive actions to set the business up for future performance improvement and value creation. Net sales were down from the prior year due to a 2% decline in selling prices and 4% lower sales volume, reflecting the market factors Gordon discussed. Adjusted EBITDA was also lower given market headwinds, which led to additional temporary production curtailment in 2024 to align supply with softer demand and reduce our inventory levels in the second half of the year. The impact of curtailment was partially offset by lower corporate retained expense. Higher interest expense and tax rate also weighed on our full-year EPS. However, adjusted earnings of 81 cents per share was slightly higher than our most recent guidance, thanks to better operating and cost performance later in the year. Free cash flow was a $128 million use of cash, reflecting lower earnings along with elevated restructuring, interest, and tax payments. However, free cash flow was slightly favorable to our guidance range due to good working capital management, despite CapEx being above guidance. we were able to accelerate some in-flight capital projects, which set the stage for substantially lower CapEx spending in 2025, which we will review a bit later. While debt remained fairly stable, the leverage ratio increased at 3.9 times, reflecting lower adjusted EBITDA. Finally, our economic spread was WAC minus 2% versus plus 2% in 2023, which was in line with our previous communications and reflected softer earnings. The appendix includes more information on 2024 trends. We expect most of our key performance measures to improve significantly in 2025 as we implement our strategic initiatives. Let's review our fourth quarter 2024 performance on page five. OI reported adjusted loss of five cents per share in the fourth quarter down from adjusted earnings of 12 cents in the same period last year. Net price was a headwind, although much less so than in the third quarter, and global sales volume was about flat as anticipated. Commercial headwinds were mostly offset by lower operating and corporate costs, thanks to early benefits from our cost reduction efforts. Consistent with the prior year, we temporarily curtailed about 17% of capacity in the fourth quarter to align supply with lower demand and rebalance inventories. Lower earnings also reflected an elevated tax rate due to a shift in regional earnings mix and minimum withholding tax requirements. Let's shift to segment profit as illustrated on the right. Segment operating profit in the Americas was $96 million compared to $93 million in the fourth quarter of 2023. Earnings benefited from a 5% growth in sales volume and lower operating costs, which was partially offset by unfavorable net price. Segment operating profit in Europe was $40 million, down from $75 million in the fourth quarter of 2023. This decline was due to unfavorable net price, a 5% decrease in sales volume, while operating costs were modestly favorable. Now I'll turn it back to Gordon, who will discuss market conditions on page six.

Thanks, John. As illustrated on the left of the slide, our shipment trend over the past few years reflected the broader business cycle that emerged during and after the pandemic. For background, we have shown consolidated volume with and without our strategic JVs. The chart on the right illustrates our quarterly shipment patterns over the past three years. Challenges began to surface in late 2022. However, after several quarters of untradeable demand trends, shipment stabilized in the latter half of 2024. Notably, fourth quarter shipments remained flat compared to the previous year. During the fourth quarter, our shipments in the Americas increased by 5%, with all markets showing year-over-year growth. The strongest rebound was in Mexico and in Brazil. Conversely, shipments in Europe declined by approximately 5%, with the beer category experiencing notable softness. Wine and spirits also remained soft in Southwest Europe. As we enter 2025, we continue to maintain a cautious commercial outlook. There is still some way to go to align consumer real income with the inflation experienced over the past few years and to see destocking moderate across the value chain to pre-COVID levels, particularly in the spirits category. Fortunately, the year is starting off pretty well with January sales volumes up low single digit from the prior year in both Europe and the Americas, coupled with disciplined cost management. Let's now turn to page seven. While near-term performance is under pressure given sluggish market conditions, we are rapidly implementing our fit to win priorities to boost performance. As previously discussed, this program will be implemented in two phases. In phase A, we are streamlining the organizational structure. In phase B, we are optimizing the supply chain. Both phases will boost competitiveness to allow us to access growth. We expect phase A will generate savings in excess of 300 million over the next three years. We are making rapid progress and have achieved 25 million of savings in the fourth quarter of 2024 and have increased our savings target to between 175 and 200 million in 2025. We are working with urgency. During the fourth quarter, activity primarily focused on reshaping SG&A, driving productivity, and reducing excess inventory. With regard to organizational restructuring, we have made considerable progress de-layering the structure shifting accountability to local markets and reducing central operating costs. Completed actions should yield targeted savings of 100 million in 2025. After reducing SG&A as a percentage of sales from 9 to 8 last year, we should land between 7 and 7.5% in 2025. More effort is underway as we aim to lower costs to less than 5% of sales on a run rate basis by 2026, representing an annualized savings of 200 million compared to 2024. As part of our initial network optimization efforts, we've either completed or announced the closure of 7% of capacity, which should be finalized by mid-25. We continue to evaluate further opportunities to optimize the network and will provide an updated ID. As a result, we are increasing our targeted savings to between 75 and 100 million in 2025. With regard to reducing inventory, we cut inventory by 108 million in 2024 from the prior year levels. There is more work to be done, and we expect further inventory reductions by an additional 50 to 100 million in 2025. As we execute phase A, we have commenced phase B. During this next stage of activity, we expect to generate value through total supply chain optimization by driving productivity across the fleet, closing high-cost operations, and transferring profitable volume into our remaining network. Efforts will also include end-to-end supply chain efficiencies, procurement productivity, operational improvements, and more disciplined sales force management. The cornerstone of phase B is our total organization effectiveness program, which aims to optimize capacity utilization and productivity across the network. We have chosen Tawana, Virginia to be our first plan to go live in North America. We are very pleased by the early progress that has been achieved there thus far. These new ways of working should deliver further savings and higher margins, helping us achieve our 2027 performance targets. They should also streamline how we work with customers and suppliers, helping both parts of the value chain to be more efficient. With regard to magma, we continue to ramp up production at our first greenfield line in Bowling Green, Kentucky. The achievement of key operating and financial milestones at this site over the course of 2025 will be critical as we chart the future of the magma program. As we focus on these milestones at Bowling Green, we have paused the development of Generation 3, As with any capital project, magma will be required to generate returns of at least WAC plus 2%. We will provide more details on our long-term strategic plan next month at our investor day. Now let's move to page eight and review our guidance for 2025. While our commercial outlook remains cautious until macroeconomic conditions improve further and uncertainty around tariffs abates, we expect solid financial improvement in 2025 driven by the benefits of our strategic initiatives. As previously noted, we anticipate a 50 to 85% increase in adjusted EPS, driven by adjusted EBITDA of 1.15 to 1.2 billion, up from 1.1 billion in 2024. Sales volume is expected to be flat or down slightly. While we foresee a gradual recovery in the overall market, we may intentionally exit some unprofitable business as we optimize our network and drive higher economic profit. Net price will likely be a headwind as flat gross price is more than offset by low single digit cost inflation. While prices should rise slightly in the Americas, we anticipate pricing pressure in certain areas across Europe due to lower demand and overcapacity in certain markets. Costs should decrease across the system, reflecting our strategic initiatives, as well as higher production network utilization based on current commercial assumptions. However, please note that currency translation would be a clear headwind, assuming prevailing rates at the end of January, given a stronger dollar. Cash flow is expected to rebound to between 150 and 200 million, reflecting higher earnings and lower capex, as previously discussed. The outlook does embed higher restructuring costs totaling 120 million as we optimize our network and organization structure. More details are provided on the slide. Please note that this outlook does not include the potential impact of recently announced tariffs, which remain uncertain at this early stage. Let's now turn to page nine. In conclusion, 2024 presented significant challenges for OI but also significant opportunities to initiate a program of self-help to improve the competitive position and earnings power of the business over the next three years. Markets also began to stabilize in the second half of the year. Our fit to win initiative is already yielding very positive results and should drive substantial improvement in operational efficiencies and financial performance in 2025. We are implementing our value creation roadmap across three horizons, which is illustrated on the right. We remain confident in our 2027 targets, which include achieving at least 1.45 billion in sustainable EBITDA, free cash flow of at least 5% of revenue, and an economic spread exceeding 2% of our cost of capital. Our commitment to optimizing our supply chain, working with suppliers and customers, enhancing productivity, and driving total enterprise costs positions us well for future success. We remain determined and dedicated to delivering value to our shareholders through disciplined execution of our business turnaround plan. Thank you for your continued support and confidence in OI. We look forward to a promising 25 and to your attendance at our next Investor Day on March 14th as we further outline our roadmap to restore value in OI. We are now ready to take your questions.

Thank you. If you would like to ask a question on today's call, please press star followed by one on your telephone keypad. If for any reason you would like to remove that question, please press star followed by two. Again, to ask a question, please press star followed by one. We politely request that you keep to one question and one follow up before returning to the queue if you have any further questions. As a reminder, if you are using a speakerphone, please remember to pick up your handset before asking your question and please do ensure that you are unmuted locally. Our first question today comes from the line of Ganshan Banjabi from Baird. Please go ahead. Your line is now open.

Thank you. Good morning, everybody. You know, Gordon, can you just expand on the comment on signs of volume stability? Which end markets have you started to see signs of early stability, if you will? And also, just given the controversy around alcohol and sort of the media crusade slash narrative, just give us a sense as to how big alcohol is for you specifically. And as you kind of think about the various verticals within alcohol, what sort of trends are you seeing at this point?

Thanks. Yeah, in terms of alcohol in the portfolio, Gancham, it's around 75% of the portfolio and about 25% in non-alcoholic beverages and food. In response to the first part of the question, it really is a story of two hemispheres. So in the Americas, we see, you know, volume growth. particularly in Brazil and Mexico and in Colombia. And we are starting to see early signs of growth in North America. Europe, we're seeing, as we pointed out, a 5% decline in sales. And we see choppy, soft consumer demand. And we also see the impact of consumption decline in China with exports down of, things like higher end wines and cognacs and spirits to China out of Europe. So really it's a story of two hemispheres, growth in the Americas and then sluggish to slight decline in Europe.

Got it. And then in terms of your confidence level as it relates to the pricing component in 2025, I know there's always uncertainty on European pricing, especially you know, this part of the year, just in terms of the broader, maybe some broader comments as it relates to the competitive backdrop in Europe, you know, this year versus over the last couple of years. Thank you.

Yeah. Again, it's a story of the two hemispheres. You know, in the Americas, we see that growth coupled with sort of tighter capacity utilization in all markets. And there's less, if no pricing pressure and some pricing growth actually. And then in Europe, particularly in Southwest Europe, where there's overcapacity, we are seeing some price pressure. But if we look at where we are in the cycle, and if we look at where we said we would be in October, I think we're landing just where we thought we would be.

I can add a little bit of color on that one too, Gansham. Michael Prast- You know about 55% of our global portfolio is under long term contracts with with price adjustment formulas that play out every year, so that that area is pretty stable in that regard. Michael Prast- The other 45% is tends to be local business that gets renegotiated on an annual basis. Michael Prast- And, as you referenced that the key area is is over in Europe, where there's a lot of smaller wineries and smaller customers that that negotiate every year. We're about between 65% and 70% done in that effort over in Europe. So if you take a look at the whole overall portfolio, we're probably 80% to 90% landed on our prices for 2025. So that gives us the confidence building off of what Gordon says, that things are coming in line with what we expect and should be fairly stabilized except for the remaining negotiations, which are rather minor given the full portfolio.

Very helpful. Thank you.

The next question today comes from the line of George Staffos from Bank of America. Please go ahead. Your line is now open.

Thanks so much. Hi, everybody. Good morning. Thanks for all the details. My question is, how are you doing? I know it's impossible to peg with precision, but had there been a 25% tariff, to the extent that you spoke with your customers and studied it, What effect would that have had on your volume during 2025? Again, let's say it stayed on for a quarter or two, time it however you want. Relatedly in that question, how volume dependent are your fit to win performance improvements? I guess in some regards, they're going to be relatively unaffected, but at some point, volume affects everything. How much of a shock absorber do you have to get those savings to the bottom line relative to the volume outlook? And then a quick follow-on.

Yeah, well, thanks for that, George. You know, as we said from the outset in July, you know, our fit-to-win program, you know, is not volume-dependent, okay? And I think that thesis is still intact. The self-help levers that we have, you know, they are largely with costs that we control and not dependent on volume. And we assumed for the plan that we would have flat volume through the whole plan to 2027. But specifically with regard to tariffs, you know, there's a lot of uncertainty. And like everybody else, we've spent a lot of time thinking it over the last number of weeks and modeling things out. But if we look at our volume that crosses, we'd say the Mexican border, Canadian border, it's about 2% of empty bottles, put it that way. But then we also have exposure to customers that either export from Canada or export from Mexico. You can land in different places depending on what assumptions, because if there are declines in volumes into the US, given consumer demand, that volume is going to be picked up by domestic beer. And we have the largest network in the US and therefore, you know, we would see positive exposure to growth in domestic brands. Yeah. And we also expect, you know, talking to customers that, you know, should they have declines in one market, they're actively going to chase volume in other markets and look to deepen their penetration in markets in Latin America and in Europe, for example. So we... You know, we're talking probably exposure somewhere between, you know, 10 and 15 million number in that range, which, you know, by accelerating some of our initiatives, we would expect to cover. But there's a lot of uncertainty, as one could expect, and we have a number of scenarios planned. But that's kind of where we landed.

The only thing I would add to that one is the only tariff, George, that we do know about right now is China, and there's about 1.4 million tons of empty glass that comes into the United States from export markets. The majority does come in from China, and we should have an advantage on that piece of the pie, and we'll see where the other parts come in play.

Okay. Thanks, Sean. My follow-on is just a point of clarification. If we go to slide 7... And we look at the network optimization savings for 25, and it says $75 to $100 million. And then I look at the right-hand bullet, the lower of the two in that section. It says evaluating further opportunity yield total savings of $75 to $100 million. Is that basically addressing the $75 to $100, or that means there could be an incremental $75 to $100 million from, you know, efforts you discuss, evaluate, and talk to us about in March? Thank you.

Yeah, George, I can clarify that one. The first bullet point, the actions that we've done, the 7%, is about $75 million of benefit in 2025. We would anticipate potential actions bringing the cumulative number to 75 to 100, as we show kind of in the middle column. Those two numbers are not additive, okay? Got it. Very good. Thank you so much.

Thank you. Our next question today comes from the line of Anthony Petramari from Citi. Please go ahead. Your line is now open.

Good morning. One of the large can makers, I think recently suggested that glass to metal substitution had maybe kind of run its course in North American beer, but maybe not in Europe. And I think the can makers have had pretty strong volumes in Europe. I'm just wondering, as you look across your portfolio, Are there regions or categories where substrate substitution is either, you know, a meaningful headwind or tailwind in 2025? And just how you think about that dynamic?

Yeah, you know, you know, from the outset, I think we've laid out that we need to reframe, you know, within our own business, you know, competition, and it's not just glass, but we have a clear drive to get much more competitive with cans. And from the analysis that we've done over the years, there's a clear sort of pattern that when glass gets to within about 15% of the cost of cans, then you see a quite measurable flow from cans back into glass. And history is a great teacher. I think if you look back at the history of OI in the US and Cairns probably did not frame that competition sufficiently and focus on really, you know, getting the cost base and the cost competitiveness right. So, you know, armed with that knowledge, you know, we're taking the business forward, but if you do getting competitive with Cairns in any market in which we compete with Cairns, yeah. So I think that's our approach. You know, when you look at food and beverage packaging, we say over the last 10 years, there's been some sort of solid growth. But most of that growth has gone to cans and most of it has gone to cans because glass and particularly oil glass hasn't been competitive enough. And that's part of the rationale and the reason why we're embarking on the course. We're embarking to get competitive, not just with glass, but to get competitive with cans and to offer our customers again the opportunity to put glass back in their portfolios in a greater proportion. One thing I'll flag up is just before Christmas, we had the announcement that glass was now available for RTDs in 12 ounces, and that had not been the case for well over 20 years. And that opens up opportunities for glass volume growth in a category that's growing in mid-teens, mid-teen year on year, and has been for a number of years. And so we see opportunities there for glass to penetrate RTDs in a way it never did over the last 20 years. So I think where we're focused on is getting competitive, not just with other glass competitors, but getting more competitive with cans overall.

Okay, that's helpful. I'll turn it over.

Thank you. The next question today comes from the line of Joshua Spector from UBS. Please go ahead. Your line is now open.

Yeah. Good morning. I wanted to ask about your plan for your energy contracts or at least any update you can give as those start to come due in 2026. Just as we're trying to think about the bridging items to your fit to win plan, what's baked in for an assumption there in terms of that headwind? And are you doing anything now to potentially position yourself to offset that?

Yeah, so I can give you, I can, Josh, I can touch base on that to start with. You know, obviously, we don't want to get into 26 and out periods. I mean, we just gave guidance for 25. But I want to focus on, you know, what we are saying for 2027. You know, we have looked at the outlook for our business commercially, procurement energy, as well as fit to win and, you know, the initiatives we're doing there. That has landed the $1.45 billion and the other numbers that, you know, Gordon referenced earlier. So as we look to the future, you know, we have already identified over $300 million of benefits in Fit to Win. We're already $175 to $200 million of that should be realized in 2025 alone. We have all of Phase B in front of us. We'll lay that out during I-Day at next month at that event. And so that will provide additional benefits as we look to de-risking the future period and some of the commercial activities of the business that could include energy and other areas. So we'll lay that all out next month with the moving pieces. But that's all comprehended in the outlook that we have for that 2027 period.

And just as a build on that, from the outset, we laid out that Fit to Win is an end-to-end review of the business. And energy is included in that review. I think in the past we probably had a fragmented approach to energy, you know, either by region or by sub-region or even down to plant level. We now have an enterprise-wide program running where we're looking at energy across the business in a very standard way with a standard program for each plant now and how to reduce energy. backed up by state-of-the-art software going into all of the plants to track energy usage throughout the plants. And that hasn't been done before in the business, and we expect to yield usage savings from that. And that's part of our plan to offset any headwind that might arise as we move forward. I think also just as we reconfigure the network going forward, we'll have lower energy costs.

Okay, that makes sense. I'll follow up with you guys on that in a month or so. One question on 25 is just with your working capital guidance and your free cash flow, you said about flat, I think earlier in your slides, you said about a $50 to $100 million reduction in inventory. So I guess are there offsets and receivables or payables, or is that working capital assumption in the bridge for free cash flow a bit conservative?

Yeah. So one thing I would say, we're going to get $50 to $100 million of favorable working capital through the inventory reduction. But at the same token, we are taking out and reducing the scope of our operating network. which drives the efficiencies of the operations, but it also does result in a smaller AP balance because you just have a smaller population of plants. And so there's some effect of that. Now, that's kind of a one-time step down as you move those through. It's not indicative of working capital management. It's just pruning down to a smaller, more efficient base. So we're looking at that as the balancing act. I would like to think that we'll be able to do better than that with some additional decisions that we can make over the course of the year. But we'll update you as the year goes by.

Yeah. And just as an addition to that, that whole working capital inventory management piece is a focus of the Fit to Win program. You know, we landed sort of, you know, around the mid-50s day mark at the end of the year. And yet we have parts of our business that are down below 30. So, and you look at the shape of those businesses, the, you know, the customer spreads, you know, the footprint, you know, logistics footprint around those plants and, you know, there's no particular reason why other plants can't get there. So that really is a massive focus for us in managing the one element of the efficiency of the business going forward to you know, to push more cash out of the business.

Got it. Thank you.

The next question today comes from the line of Arun Viswanathan from RBC. Please go ahead. Your line is now open.

Great. Thanks for taking my question. Congrats on the progress thus far in the transformation. So I guess just on that point, you know, I guess you noted still sluggish volumes across many of the categories. So I think you said that the program isn't really volume dependent. But what if volumes are actually negative in 25? Do you still expect to realize the full extent of your fit to win benefits? And I guess I'm specifically thinking about would you have to take swifter action on some of the furnace closures and maybe you can just give your thoughts on some of those items. Thanks.

Yeah. You know, as we as we've mentioned, you know, our fit to win program is not sort of volume dependent as such. Right. Our biggest opportunity is to take the volume we have and make it more profitable and to get, you know, higher returns on the capital we have currently invested. And we see that as the path over the next two to three years to boost the value of the business. We know we have volume that is currently challenged on an EP level, and we are working through what we need to do on our side to make that more profitable. And if after those efforts, it's not profitable and we can't get to an agreement with a customer around the price increase, then we will be taking that volume out. And if there's capacity to come out with it, we will be doing that. So our whole focus is on really getting much better returns on the capital that we have currently in place by boosting the profitability of the volume we have. We're not actively chasing volume for volume's sake. So this really is about boosting the returns on the capital we invested by making the volume we currently have more profitable. And we see a line of sight to that this year. And it may well be, as we take out volume, we may have slightly less volume at the end of the year, but that would be because of deliberate decision-making around economic profits.

Okay, that's helpful. So it sounds like it's mostly on the cost side, but again, just going back to one of your earlier comments about oversupply in certain European countries, it sounds like there's a possibility that some of those, you would have some price deterioration. So again, in a similar vein, to the extent that you can take costs out, how do you expect to combat price competition and the possibility of rolling back some of that pricing that you were able to achieve in the 22-23 period?

Yeah, look, I think the equation in terms of how we look at the business is revenue minus our target EBIT equals our cost base, right? So we've got a number to deliver and we'll obviously look to manage our margins. Um, but you know, if, if there is excessive, you know, price activity, um, then we will adjust the cost base. Yeah. So, um, as, as John said, you know, where we're 80 to 90% through the season, you know, a lot of our, uh, the majority of our, our contracts or volume is contracted for the year. And, you know, we are where we thought we would be in, um, in, in October. There may be some skirmishing throughout the year, but we'll manage that through effective cost management.

One thing I would add, keep in mind, we're looking at, after a number of years of positive price improvement earlier in the decade, we're looking at flat prices this year on an absolute basis. Up a little bit in America is down in Europe with the pressure points. Keep in mind the negative net price is because we're seeing inflation starting to normalize, assuming that in this marketplace. And with more than half of our business being under long-term contracts, there's a timing issue there of recapturing that inflation, which probably becomes more of a 2020-26 element, right? So part of the negative price that you're seeing in our outlook is a little bit of a timing, at least on the contracted business. And so keep that in mind as you look at the texture of the outlook.

Okay, that's helpful. And just lastly, if I may, just on the CapEx, so it's nice to see that come down a little bit. What's kind of the longer-term CapEx thought? I know you're maybe moderating your magma spend, but what makes up the CapEx, and I guess what's the longer-term target next?

Unfortunately it appears we have lost the speaker team. We'll be back with you momentarily. Thank you for your patience.