Q2 2023 O-I Glass Inc Earnings Call
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<unk>.
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Good morning, and welcome to city I Eyeglass second quarter 2023 earnings Conference call. My name is call out on a video creator of todays call if you'd like to register a question for the Q&A portion of today's call. Please press star followed by one on your telephone keypad when asking a question. Please ensure your tongue.
<unk> is a muted locally turbo quick question. He compressed thoughtful if I take I will now hand, the Kuwait virtual hoist, Chris Manuel Vice President of Investor Relations to begin. Please go ahead when you're ready.
Thank you Carla and welcome everyone to the O I glass second quarter 2023 earnings conference call. Our discussion today will be led by Andres Lopez, our CEO and John <unk> our CFO .
They will discuss key business developments and review our financial results. Following prepared remarks, we will host a Q&A session.
Patient materials for this call are available on the company's website. Please review the safe Harbor comments and disclosure of our use of non-GAAP financial measures included in those materials.
Now I'd like to turn the call over to Andre who will start on slide three.
Good morning, everyone and thanks for your interest.
We are pleased to announce a strong second quarter results, despite more challenging macro conditions.
Last night <unk> reported adjusted earnings of 88 cents per share, which exceeded our guidance range and represented a 20% increase from prior year results.
Adjusted earnings benefited from favorable net price elsewhere in our solid operating performance.
Ongoing margin expansion initiatives.
As expected sales volume was down primarily due to slower consumer consumption and customer inventory stocking.
Likewise, we didnt cure some additional cost for temporary downtime to balance supply with demand as well as planned project activity.
In addition to our strong results, we continue to advance our strategies by more challenging microbes.
Or am I getting preliminary efforts are well ahead of plan and all of our initiatives remain on track, including our expansion plans developing a breakthrough technology and deleveraging effort.
Reflecting very good year to date performance, we have tightened our full year guidance and now expect adjusted earnings will range between $3 <unk> and $3 25 per share.
We have also provided third quarter adjusted earnings guidance of 68 to 73 cents per share, which represents a solid increase from third quarter last year.
John will expand on our financial performance and outlook will be later.
Let's move to slide four and discuss recent save strengths starting with the chart on the left.
Segment sales increased 7% from the prior year as the benefit of higher selling prices more than offset lower sales volume, which was consistent with our expectation heading into a quarter.
Price was up 13% from last year, primarily reflecting a structural increases like annual price adjustment formulas and contract renegotiations as well as the annualized benefit of prior year pricing actions.
Holly current year open market increases are offsetting the incremental cost inflation, we are incurring this year.
On the order hand sales volume was down 9% from the prior year period, which is on the high end of our most recent guidance.
We had <unk> about half of this decline to lower consumer consumption, while customer inventory stocking on our internal constraints accounted for the balance of this shift.
Shipments were down about the same across both of the Americas and Europe .
But our decline was concentrated in certain categories and geographies.
Around 30% of our decline was in the wine category, which was more pronounced in southern Europe , and primarily reflects a record low inventory levels.
Beer accounted for a little over a quarter of our volume drop most not only in northern Europe , reflecting softer local consumption as well as lower global demand as many of those brands are exported around the world.
Additionally, inventory destocking led to lower shipments of beer bottles across Latin America, despite solid consumption trends.
Finally, the spirits also represented about a quarter of our decline.
With a noticeable drop in Mexico Tequila as a strong consumption activity has moderated recently.
As illustrated on the right Nielsen data indicates mixed consumer consumption trends importantly.
These data oddly reflects retail demand and we believe on premise consumption has been robust.
On a year to date basis from a consumer retail purchases declined the most in U S wine and European beer, while beer in Mexico on the U S was down modestly.
On the Orhan, a number of markets continued to grow including in both beer in both Brazil, and Columbia as well as experience in the U S.
As noted consumer consumption did show some initial signs of improvement in certain categories in June and July .
Our July sales volume was down, but a bit better than we saw in the second quarter.
At this point, we anticipate third quarter achievements will be down mid to high single digits with further improvement in the fourth quarter.
Overall, we expect volume trends will remain choppy for a while as we exit the stocking face on our customers calibrate to mixed and evolving consumer patterns.
And as these costs long term glass growth range. So on slide five.
Over the past several years, we have seen some of the strongest glass fundamentals in decades, reflecting mega trends that benefit glass, including Premier mutation health and wellness and sustainability.
Really at home dining picked up during <unk> and remains our pre pandemic levels.
While ice volumes were under pressure in the past our achievements, including <unk> increased about one 5% a year on average during the 2016 to 2022 period, reflecting these favorable trends.
Illustrated on the right there have been many appetite downs during this period.
Given significant ongoing market volatility.
<unk> were disrupted by the pandemic and rebounded as call it subsided and customers prioritize security of supply yet.
Yet again, the current economic downturn has disrupted demand certainly we will contend with some short term challenges. However, we expect shipments will be up in 2024 aided by our expansion projects, which are supported by long term contracts.
Currently it is unclear EBIT improvement will be robust or more moderate which will depend on the timing and shape of the broader market recovery.
Over time, we expect demand will grow between 1% and 3% a year across the markets that we serve which is consistent with third party projections and the long term trend we have seen since 2016 in.
In summary, we remain encouraged by favorable Mega trends, our future expansion plans on our customers' continued a strong interest in growing their business and premium brand building and sustainable glass containers.
Let's discuss the status of our 2023 year strategic objectives on slide six.
Overall, our key initiatives are progressing well.
Quarter segment operating profit margins approximated 17, 5%, which was a strong improvement from the prior year.
Net price is more than double our annual target on our margin expansion initiatives are on pace to exceed our 2023 gold.
Our plans for profit our growth we remain on target.
Includes current year expansion plans and new projects set for next year, including our first magma Greenfield, which should be commissioned by mid 2024.
Importantly, <unk> development is progressing well and we successfully completed market testing and initial qualification of our first ultra <unk>, which often split or to broader deployment of these new light weighting technologies.
Finally, our ESG and glass advocacy efforts are progressing nicely and net debt leverage should end the year comfortably below three times.
I am highly confident these efforts will advance our strategy as we continue to transform Oi.
Now I'll turn it over to John to review financial matters is starting on phase III. Thanks, Andrew and good morning, everyone. Oi reported second quarter adjusted earnings of 88 per share, which exceeded both prior year results and guidance as noted on the left we have posted year over year improvement across all key financial measures.
Segment operating profit was up in Europe , and about stable in the Americas as global segment operating profit totaled $326 million.
Representing a 27% improvement from last year as onerous noted margins approximated 17, 5% up 270 basis points from the prior year.
As you can see on the right segment operating profit benefited from structural price improvements as well as very good operating performance and our margin expansion initiatives.
These benefits more than offset lower sales volume and higher operating cost due to unfavorable inventory revaluation and planned asset project activity. Likewise, we did curtail some production to balance supply with lower demand.
The Americas reported segment operating profit of $126 million, which was in line with the prior year earnings benefited from good commercial contract execution and solid operating performance, while sales volume was down as Andrew noted.
Higher cost reflected planned project activity temporary production curtailment and unfavorable inventory revaluation and.
In Europe segment operating profit was $200 million up significantly from the prior year higher earnings reflected favorable net price, which more than offset lower sales volume. Furthermore, solid operating performance and margin expansion initiatives substantially offset the impact of some temporary production curtailments.
The chart provides additional details on non operating items, which were pretty stable except for higher interest expense yet again, the company delivered strong earnings and margin improvement despite a highly volatile macro environment.
Let's move to page eight and discuss our business outlook, we have tightened our 2023 full year guidance range, reflecting very good year to date performance. We now expect sales will be up substantially this year and adjusted earnings will approximate $3 10 to $3 25 per share which represents a significant increase.
From prior year results and the initial outlook, we provided at the start of the year, we expect free cash flow will approximate $175 million, which is also an increase from our initial guidance keep in mind. This outlook does account for some potential variability in sales volume and working capital trends over the second half of 2023.
Looking at the balance of the year, we expect third quarter adjusted earnings will approximate 68 to <unk> 73 per share, which represents a solid increase from prior year results.
We are setting initial fourth quarter guidance at 25% to 35 per share, which is down compared to 38 cents in the prior year, primarily due to a higher tax rate, which we estimate could be in <unk> year over year headwind.
Why is our outlook remains conservative given elevated macro uncertainty.
The chart provides additional details on full year and quarterly guidance.
As we have seen over the past three years. The company continues to manage well through elevated volatility while volume trends remain uncertain, we intend to manage the leverage under our control and deliver on our business outlook. Overall, we remain optimistic and expect strong performance in 2023 and believe performance will continue to improve in 2024.
Moving to page nine certainly our year to date performance is very strong which builds on consistent progress over the last several years. This trend reflects a comprehensive approach to enable sustainable earnings and cash flow performance improvement across a number of key operating levers that top line is up segment operating profit in March.
<unk> are strong we have improved our business portfolio and our balance sheet is in the best place in over a decade. As a result, we have either met or exceeded street expectations for 12 consecutive quarters. Importantly, we are confident our efforts will enable sustained earnings margins and cash flow improvement in 2024 and into the future.
Let me wrap up by covering our capital allocation priorities I'm on page 10, improving our capital structure remains our top priority as noted the balance sheet should end the year below three times Levered and we expect to attain our target of two five times leverage sometime next year.
Our second priority is to fund profitable growth, including our current $630 million expansion program.
Returning value to our shareholders as our final priority. In addition to our ongoing anti dilutive share repurchase program. We may consider reinstating a dividend <unk> additional share repurchases as we get closer to our leverage target next year now back to Anders for concluding remarks on page 11.
<unk>.
In conclusion, we are pleased with our second quarter adjusted earnings which were up 20% from last year and exceeded guidance, despite a more challenging macro environment.
We are delivering on our commitments, which demonstrates improved agility resilience and strong execution.
In addition to very good performance, we continue to advance our strategy.
With a strong first half many of our key initiatives are tracking favorably to plan.
Likewise, we have tightened our full year guidance and expect adjusted earnings will be up a robust 35% to 40% this year.
In fact, we are well on our way to delivering our best performance in the past 15 years.
Importantly, we anticipate future earnings will continue to improve as we leverage a strong foundation established over the past several years. Finally, I believe <unk> represents an attractive investment opportunity as we further strengthen our financial profile successfully execute that leverage our transformation program enabled.
Turn profit our growth at <unk>.
Vance breakthrough innovations like <unk>, and ultra and further leverage our sustainability policies and to win in the new Green economy.
We are confident this strategy will create value for all our stakeholders and support future shareholder friendly capital allocation.
Thank you and we are ready to address your questions.
If you would like to ask a question you may do so by pressing star followed by one on your telephone keypad sure. Thank you a question. Please press star followed by today.
Preparing for your question please ensure you're fine.
Please limit yourself to one question and one follow up question. If you have any additional questions you may rejoin the question Keith.
Our question comes from Ghansham Panjabi from Baird. Your line is now open. Please go ahead.
Yes, Hey, good morning, everybody.
Good morning, Ghansham from inventory apart from inventory Destocking a lot of your major customers are calling that point of sale weakness on the volume side in a variety of categories.
DRG early this week on the spirit side.
Clearly 2023 is a big reset year for you from a volume perspective as inventories adjust along the supply chain, but at this point are you anticipating volume improvement in 2024, and if so in which categories.
Yes, Tim So we cherish.
Some details during the opening remarks about demand, but I would like to emphasize a couple of things.
The first one is there is a general pattern across markets.
With softer consumer consumption as well as supply chain destocking, so that applies everywhere.
Now I would like to highlight two markets with Europe .
He is the one with the largest drop in volume year on year, but he's doing primarily by low inventories in Oi, which last year, we had OE level to serve incremental demand on this year, we want so that creates some favorable year on year comparison. However, this market is quite healthy and wind, which is a very important segment over there is.
<unk> quite as strong.
And the auto market is the <unk>.
Market is way does Brazil, where OLED consumer consumption is good the challenge there is that because of the supply chain constraints over the last two years customers imported a large amount of empty glass and now they are using Douglas reusing the demand for the local supply which is a very temporary situation.
<unk>. So the market is good in fact, just as an example in Brazil.
He is growing year to 84, 4%.
As ahead of every one of their subsidiary so are pretty healthy.
The market there.
There are growing just through a temporary adjustment now.
The overall, let's say it's volume obviously is choppy is difficult to predict.
However, we saw some improvement in July .
Now if we look at the ASP information available today, we're seeing improvement in the second half in 80% of the markets we serve.
Now so markets will improve along.
Second half, we will start to improve in Q4 that this improvement is going to carry into 2024.
So I think we're going through a temporary adjustment while we're seeing some signs of studying some recovery and move up as we go later into the year on April 24.
And building on that Ghansham is we do have our expansion programs coming online substantially next year, we have our first two projects. This year, one in Colombia and one in Canada.
They are coming on and that will be in full swing next year and then we have additional expansion underway in Peru, and Brazil, Scotland, and as well as <unk>.
In Kentucky with their first Magna facility mid 2024, so all of those.
Take a look at that Thats embedded probably about 3% plus or minus type of growth on a year on year basis of just additional volumes coming through them and as we've said many times in the past that that brings and once they are fully in scope on an annualized basis about $115 million to $120 million of profit for the business. So that'll be a good shot in the arm on top of the recovery that Andrew was talking about.
Next year.
Okay terrific and then in terms of the curtailment curtailment impact on operating profit what was that number in <unk> and I'm sorry, if I missed that if you give that out what do you also embedding for the back half of the year and I am just trying to get a sense as to why <unk> EPS.
Just based on what you've guided to would be the lowest since the mid two thousands.
Yes, just one thing just on that last part on the fourth quarter keep in mind I put it in the prepared.
Comments is we will have a fairly high tax rate in the fourth quarter.
And the probably the mid <unk>, it's just a matter of.
The timing of.
Various elements withholding taxes in regional earnings mix. So that's about <unk> <unk> impact on the fourth quarter. If you normalize for that operating profit is going to be pretty consistent with last years, just to give you a sense in that regard. So so keep in mind is a little bit of an aberration there, but if we take a look at the curtailment costs, we had about $25 million plus of group.
<unk> costs.
<unk>.
In the second quarter, it was skewed to the Americas and that's why you would see some of the.
The higher operating costs hit there in the second quarter.
Just as a sense of.
Sensitivity on curtailment every 1% that we adjust our production levels to correspond with sales volume adjustments is anywhere from a three.
$3 million to $7 million impact on EBIT on a quarterly basis, and it really depends whether youre, taking lines down or cold furnaces and things like that but as we take a look in the back half you probably to rebalance the inventories.
From that started to build up to the first half of the year and also to address some of that.
Sales volume pressure that we see in the back half of the year Youre looking at anywhere from call it $30 million.
In the third quarter that will be absorbed and that is absorbed in our outlook and then we might have a similar level in the fourth quarter. That's also absorbed in our outlook, but I'd say again, there could be some swing factors as we get in get a better understanding of the sales volume in the back half of the year. So so despite.
Obviously absorbing that sales volume as well as the liquor.
On the curtailment costs were actually posting pretty good numbers in the back half of the year.
Thanks Ghansham. Our next question comes from George Staphos from Bank of America. Your line is now open. Please go ahead.
Yes.
Hi, Thanks for the details.
Uh huh.
I hope you're all having a good morning, I guess, if we go to slide four.
And.
And as you talked about.
Some of the curtailments excuse me some of the constraints that you had.
Is there a way by.
Within wine in Europe , and you mentioned also in South America.
What the effect of constraints were in some of your most important markets.
You had it in total.
For example, the.
2%, you said overall, but how did that breakdown in terms of some of your more important categories and again to <unk> question should we expect that that reverses next year.
Yes.
You know that the Andean market as with Brazil are very important for us and.
While we are seeing in both markets is a pretty healthy demand so.
Now.
You would imagine the importance of empty glass were quite substantial because of how tight the supply chain was over the last two years. So that got a we consume and it's being consumed at this point now we're seeing.
Recovery for example in the Andean countries.
Coming back to supply the key products that are growing that market in the premium segment.
Again, we expect this to normalize over the next two to three months, so that market to contribute well.
Brazil tool solid with Europe , once we get into more favorable comps we won't see these drop that we're seeing at this point in time.
North America market, it's been.
Doing fairly well and I think in part because we've been diversifying.
Away from beer into our growth categories and even the.
The.
Mega a year.
<unk> is being flat is being lowered.
<unk> on the hiring on premise fully offset any charter.
So we see a strength in the markets I think we are in a transition point right now.
And as we go into the second half we should start seeing this.
These important markets starting to rebound and then continue all of that into the fourth quarter and.
2024.
And to build on.
I guess, John I would say that.
2% negative from capacity and inventory constraints for.
Total can you give us a number for some of the bigger end markets or regions. That's kind of what I was getting out there. It was almost all wine and southwest and southeast Europe , Okay, basically southern Europe , that's where we had our constraints. It was a record low inventory specifically in those markets. If you go back to the first quarter, we had issues.
And the West coast of the U S because of the weather and strikes down in civil unrest down in Peru, and things like that that did not translate over into the <unk>.
Into the second quarter. So our issue from a constraint standpoint was specifically in wine in Europe , Okay, what I would say with some with some of the softness that we're seeing right now we are able to catch up on some of the lower inventories and as a result, I think that we're being a much better position in the second half of the year to serve wine and then to your other question into.
Next year I think we again should be in much better position.
Thanks, Joe Our next question comes from Anthony Petrone from Citi. Your line is now open. Please go ahead.
Good morning.
Just following up on Hey, just following up on Ghansham question, and I guess, George just a little bit.
On the previous earnings call you talked about.
Continued improvement in 24 in earnings and free cash flow.
Three months later.
Some things have changed and there's some puts and takes I'm. Just wondering if you could talk about level of confidence about year over year earnings growth in 2024.
And maybe what could get you to sort of the higher end of earnings growth or what could cause earnings to maybe not grow next year.
Yes, yes, sure Anthony I think there's three primary levers as we look into next year two of which I think that we believe are more or less in our control and we have good confidence around the other one is a little bit more macro.
The first one is on sales volume.
Back to our expectation next year, we feel pretty confident about the growth of the new expansion capital, which let's say plus or minus 3%. So that's something in our control its contracted business with our customers and things like that.
Not to mention what is the shape of the recovery right I mean at this point in time, we don't know whether it will be as we said in the comments.
Shaped recovery, which would have a robust recovery in the overall volumes next year because of the expansion plus.
The recovery or whether it would be more moderate with the expansion of driven by the expansion of our business and a slower macro recovery. So that's a little bit of a swing factor I think between whether it is a moderate or a robust benefit to the performance next year. The next area again within our control is our margin expansion initiatives.
We've done really good on those.
Ultimately would suggest maybe higher net price, but let's just call it even because there might be some softness in the open market.
Business with the softer volumes against too early to tell her that it that that comes together more later in the year, but those are the three the three variables. We look at two in our control and we're pretty confident about being able to deliver those in the next year and the other one a little bit more macro driven.
Okay that that's very helpful. And then maybe just one quick follow up.
Two to three per cent headwind from customer Destocking is it possible to just to give a sense of how much inventories you think customers may be carrying it just sort of like a one quarter impact or two.
Two quarter impact and just trying to get a sense of customer inventory levels.
I think what I'd say is that we serve many different and use categories all of which have different approaches an inventory you go to beer and there's only a few weeks and generally speaking of finished goods and the chain and that tends to correct pretty quickly you talking into you know foods may be a little bit more moderate spirits and other categories a little bit longer.
So.
Some of the ones that that ship internationally ended up having much longer you know.
The value chains and different levels of inventory. So I don't know if there's a simple answer to that but we believe that at this point in time, we're starting to see a transition.
Kind of shifting out of the Destocking phase and translating into what probably as much more associated with fundamental consumer consumption patterns, which we think is you see with the Nielsen data and whatever is down a few percent fundamentally yeah.
And looking at the Andean countries.
That inventory has been pretty much consumed when we look at Brazil.
Which should help finalize consuming that in the third quarter CNA positive impact into Florida.
Thanks, Anthony our next question comes from like <unk>. The line is now I 10. Please go ahead.
Mmm.
Thank you Ah Andreas John Chris Congrats on a on a good core despite the backdrop. Thanks. Thanks, Thanks to my home.
I just wanted to follow up on some of these questions about the Destocking can you talk about the cadence of destocking into queue. It sounds like it started in January volume declined sequentially through April I think you saw some improvement in bay for a call correctly from the last call and then started smoking again in June . So can you talk about what happened during two Q itself.
And you mentioned in July is improved how much is what did he call to fight that improvement in terms of destocking on a sequential basis as well.
One thing I would say, it's difficult for us to quantify in a month to month, the destocking cadence per se I mean, what we saw in her overall volumes.
Is that April was a tough month, probably down you know low double digits, we saw.
May kind of bounce back to kind of minus six minus 7% and then you saw.
June down that high single digits and things like that so.
It's been really choppy and that's that's what makes it a little bit difficult to read through everything, but I'll tell you what destocking tends to be a pretty you know.
Choppy environment, especially want us at the tail end and people are starting to calibrate from destocking over to fundamental demand patterns. So that kind of gives us some sense that we're probably in the later stages of the Destocking face and as we mentioned before we're seeing about 80% of the market squeezer showing some for.
Multi employment at this point some of them starting in Q3 some of them paying Q4 I'm for sure going into 24.
Got it thank you for that and just one quick follow up on the other 2024 outlook. John appreciate the call you gave in terms of your control out of your control if I tried to quantify it so price cause possibly some neutral maybe put some some tailwinds there.
You get incremental EBITDA growth through your expansion projects called at $115 million to $120 million and then you get the benefits of 100 $100 million is that the right way to be thinking about you.
Sequential improvement in EBITDA.
Hi, Mike I.
Yeah, I don't want to get into specific numbers, we haven't really provided 2024 guidance per se what what I would say is is if you take a look at on.
On the expansion projects, it's a total of about $120 million over the life of it on a run rate basis I don't know if we're going to get all of that next year. Because we had some this year will have some next year and then we'll have a follow into 2025, I think you're probably right about the margin expansion initiative I think we're looking at a robust number there and then.
Then it's a little early to call them that price and like I said at this point in time, we're just assuming it's neutral.
Thanks, Mike. Our next question comes from on the sign up <unk>. Your line is now I tend. Please go ahead.
Great. Thanks for taking my question.
Uhm I just wanted to ask about the demand environment you know I.
During the quarter you guys did note some some confidence in certain markets and maybe some of the higher velocity first time, the lower velocity uhm interference markets and some other areas, where you <unk> could you just give us an update maybe what you're seeing Ross some of your major categories and we expect.
The rest of the year.
Yeah, so the when we look at categories.
The largest.
In fact that we've seen so parties and wine and as we mentioned before is closely related to low inventories. So he's not as much the market itself is those inventories, which it makes it makes it very temporary.
We have seen a.
Decreasing beer in North Central Europe and.
That's been primarily.
Three of them by lower consumption.
And we've seen some impacting spirit in particular in Mexico.
Call me from a slower growth of that the killer categories still growing but not as fast as he was growing before.
Thanks Aaron.
<unk> comes from Gabe H for Awhile Hawkeye security your.
Your line is now a pen he's got a hat.
<unk> good morning.
Hey, Gabe.
<unk> I'm trying to your left the door open a little bit so I want I'm trying to ask a question in terms of.
The more open market business that you referenced obviously outside of the 55% that sort of on a longterm contract.
You may be break it out by geography sort of what your exposure there is.
And then just sort of thinking about the supply demand dynamics in the different regions.
You know we have some capacity come out of the market here in North America, So I feel like that market should be relatively snug.
Comment in Brazil, but different it's growing so you know she'll be pretty tight there Europe is the one area, where I think a lot of people are focused it sounds like you do have some capacity coming back online and then yourself and some others are adding some.
I think the stuff that's coming back on line is trying to more localized production, but just sort of high you're thinking about I guess the potential apply.
Apply demand dynamics going in and 24, and then like I said, you're kind of exposure to that open market business.
Yeah, Okay. So just to start with a mix of our contract base. Okay again.
Again, 55% of our business globally is under long term agreements that half price adjustment formulas and 45% is open market that tends to be one year type of agreements that get reset generally between November and February of each year and in most cases.
So if you take a look at that regionally in Europe , we have about 30% fixed and 70% open market. It's this one school to the open markets. Thanks, I think a lot of wineries right in a smaller customers in that regard.
Over in North America, 90, 95% or whatever it is under long term agreements multiyear contracts.
With with very small amount into the open market and if you get an down into Latin America.
That area, it's probably 50 50 may be skewed a little bit more towards contracted business.
And then I think there's just a natural process of working through price with the open market activities given the history of inflation in that region.
So that's kind of the mix of that category.
On on I'll make some initial comments on capacity in the sea of Andras wants to jump in on that too.
But on the capacity site, if you take a look globally.
That we operate in Europe , and the Americas, which is about a $40 million ton demand system, that's about 40 million tons of classes consumed each.
Each year.
Over the next three years to our understanding of there's about 2 million tons of announced new capacity coming on line.
And this split all over the all over the different markets.
But that's calling it one to two 2% wanted to have a 2% of new capacity coming online on an annual basis, if you're just kind of straight line it across the period of time.
And that's kind of in line with the overall fundamental growth position of the marketplace and so yes, some new capacity is coming line, where where about a third of that.
And and some of us actually replacing outmoded capacity. So it's not necessarily all incremental expansion, but if we take a look at that over the longer arc of multiple years, we think that it's a very responsible level of <unk>.
Pass the relative to the expected growth profile of the market.
Perhaps the compliment.
Regards slew of new capacity coming in line at the end of the second half I mean 24 Port Hawaii.
Part of that capacity to using the Andean countries with a strong.
Consumer demand is field and the premium category growing really well so that's a pretty pretty good investment over there in Brazil, I mentioned before the glasses off tier 284, 4%.
Premium beer, which is or index still glass is up 15.5. So these marketing is pretty solid and we'll have some capacity coming up in 24 order the oil capacity goes through the UK preserve b a scotch market.
We have a fax city that is right up the center of the region. So very well located with very good long term prospects for growth.
The best Man in Kenna is under contract for Localisation of a volume that he was already there so is pretty low risk and the other one you think Kentucky to serve the growing U S. Local market on export market in dispute its business. So we.
We already make it was a very good place from a new capacity coming up <unk>.
Thank you both for that.
The second one was that I wanted to dig in a little bit on ultra night and I feel like this is maybe I don't know the topic, that's that's misunderstood or or sort of glossed over we had an opportunity to talk about it in the second quarter, but it looks like you're qualified some of that those bottles down in Columbia here during the second quarter.
Can you just talk about what you guys are doing there and then maybe the opportunity to leverage that across your system. It seems like it's a little bit less capital intensive than the magma. So I just wanted to maybe how quickly you can deploy something like that across some of your other factories and things like that.
Yeah. So we've been very successful qualifying ultra.
In Columbia, which is where we ate it.
Recently.
We are planning on it investments or in this case in Europe , where there is a strong interest in that <unk>.
You mentioned the capital intensity of that.
The investment you slow so that's that's that's quite good and.
Today, what we have is quite <unk> that is the early horizons was bad remembered that we are planning to go as high as 30% with reaction, which will have a very positive impact on sustainability. So we're gonna be fairly soon talking about further investments in ultra.
Which will will help the <unk> the last one painter.
A lot of stronger from Michelle's paying now at least give some pointing at a huge.
And gave to your point I think the good good aspect of of ultra as it can be scaled up quicker at lower capital intensity. So as we as we work on magma, which we think is the ultimate ultimate tool to address the marketplace.
Bringing in ultra and a medium term will really be able to give us a boost as.
As we as we really laid the foundation for for broader mango deployment down the road, which will also include ultra Ah. The good news about all true as it can be retrofitted to our current base as well as being able to you used in mango going forward. So it's a great tool.
Thanks, Gabe as a reminder, if you would like to ask a question. Please pissed off on it by one on your telephone keypad.
Next question comes from George Staffer combine cause I'm <unk>. Your line is now they attend please go ahead.
Thanks, very much just a quick follow on in terms of the $59 million or so.
Cost $56 million in the Americas segment, you said $25 million I think or so was curtailment can you parse the rest by by category and then just a quick follow on on the commentary about the importance of glass I think he said Andre Andre into the Andean region all of.
That class from your vantage point would be one way glass doors anybody importing returnable glass and then if so how do we think about that relative what youre demand should be for for next year. Thank you.
Uh-huh.
So so George on your first question the end of the breakdown of the 50, some odd million dollars and unfavorable or higher costs in the Americas $20 million of it was inventory revaluation, which I think we.
Identified during the previous call about $10 million was was elevated cost for asset project activity again that was something that I think that was included in her guidance before and the other $20 million or thereabouts is associated with.
The temporary curtailment downtime that's the one thing that was not in our original guidance, obviously that was additive in the quarter.
And the efforts of last your just primarily one way, but there is a lot of new product development activity. Both in one way in return normally $90 as well as seen Brazil.
If we look at Brazil, we thought our glasses, but only three 3.5%, 3.1% a year or two eight.
And piece viewing going into premium products, which.
It's it's fairly new so it's supporting the growth of premium.
So it's.
We're seeing growth in both the imports are primarily related to one way.
We have nice all the questions with that I will now how 'bout, Chris mind, you ask finding vermox.
Thank you Carla that concludes our earnings conference call. Please note that our third quarter call is currently scheduled for November 1st and remember make it a memorable moment by choosing safe sustainable glass. Thank you.
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