Q4 2024 O-I Glass Inc Earnings Call
Background music playing
Bailey: Hello and welcome to today's OI Glass fall year and fourth quarter 2024 earnings conference call. My name is Bailey and I will be the moderator for today.
Bailey: All lines will be muted during the presentation portion of the call with an opportunity for questions and answers at the end. If you would like to ask a question, please press star followed by one on your telephone keypad. I'd now like to pass the conference over to Chris Manuel, Vice President of Investor Relations. Please go ahead when you're ready.
Speaker Change: 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 Hardie, and our CFO, John Haudrich. Following prepared remarks, we will host a Q&A session.
Speaker Change: 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.
Gordon Hardie: 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 OI GLASP.
Gordon Hardie: 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.
Gordon Hardie: 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.
Gordon Hardie: 2024 was a challenging year for Hawaii, as sluggish market demand and macro conditions impacted our performance.
Gordon Hardie: Full-year adjusted earnings were $0.81 per share, slightly exceeding our most recent guidance range, but down from historically high performance in 2023.
Gordon Hardie: For the fourth quarter, we reported an adjusted loss of $0.05 per share compared to the adjusted earnings of $0.12 per share in the same period last year.
Gordon Hardie: These results reflected tough market conditions with sluggish demand, high in-home spirits inventories, especially in the U.S., overcapacity in certain European markets, impacting net price. We also took aggressive inventory management actions in the second half of the year.
Gordon Hardie: While market conditions remain soft, demand has stabilised in recent months, and our fourth quarter costs and operating performance were better than anticipated, reflecting actions taken. This stabilisation gives us confidence as we move forward.
Gordon Hardie: 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.
Gordon Hardie: We believe these actions and the way of operating will significantly improve future earnings and cash flow.
Gordon Hardie: While our commercial outlook remains cautious until macroeconomic conditions improve and consumer confidence increases, we expect solid earnings improvement in 2025, driven by the benefits of our strategic initiatives.
Gordon Hardie: 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.
Gordon Hardie: 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 over to John to provide a review of the 2024 results.
John Haudrich: 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.
John Haudrich: 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.
John Haudrich: Adjusted EBITDA was also lower given market headwinds, which led to additional temporary production curtailment in 2024 to align supply with software demand and reduce our inventory levels in the second half of the year.
John Haudrich: The impact of curtailment was partially offset by lower corporate retained expense.
John Haudrich: 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.
John Haudrich: Free cash flow was a $128 million use of cash, reflecting lower earnings along with elevated restructuring, interest, and tax payments.
John Haudrich: However, free cash flow was slightly favorable to our guidance range due to good working capital management, despite CapEx being above guidance.
John Haudrich: We were able to accelerate some in-flight capital projects, what set the stage for substantially lower CapEx spending in 2025, which we will review a bit later.
John Haudrich: While debt remained fairly stable, the leverage ratio increased at 3.9 times, reflecting lower adjusted EBITDA.
John Haudrich: Finally, our economic spread was WAC minus 2% versus plus 2% in 2023, which was in line with our previous communications and reflected software earnings.
John Haudrich: 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 5.
John Haudrich: OI reported an adjusted loss of $0.05 per share in the fourth quarter, down from adjusted earnings of $0.12 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.
John Haudrich: 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.
John Haudrich: 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.
John Haudrich: 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 6.
Gordon Hardie: 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.
Gordon Hardie: The chart on the right illustrates our quarterly shipment patterns over the past three years.
Gordon Hardie: Challenges began to surface in late 2022. However, after several quarters of unfavorable demand trends, shipments stabilized in the latter half of 2024. Notably, fourth quarter shipments remained flat compared to the previous year.
Gordon Hardie: 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.
Gordon Hardie: Conversely, shipments in Europe declined by approximately 5% with the beer category experiencing notable softness. Wine and spirits also remained soft in Southwest Europe.
Gordon Hardie: As we enter 2025, we continue to maintain a cautious commercial outlook.
Gordon Hardie: There is still some way to go to align consumer real income with the inflation experienced over the past few years and to see de-stocking moderate across the value chain to pre-COVID levels, particularly in the spirits category.
Gordon Hardie: Fortunately, the year is starting off pretty well with January sales volumes up below single digit from the prior year in both Europe and the Americas coupled with disciplined cost management.
Let's now turn to page 7.
Gordon Hardie: While near-term performance is under pressure given sluggish market conditions, we are rapidly implementing our fit-to-win priorities to boost performance.
Gordon Hardie: 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.
Gordon Hardie: 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.
Gordon Hardie: We are working with urgency. During the fourth quarter, activity primarily focused on reshaping SG&A, driving productivity, and reducing excess inventory.
Gordon Hardie: With regard to organizational restructuring, we have made considerable progress de-layering the structure.
shifting
shifting accountability to local markets and reducing central operating costs.
Gordon Hardie: Completed actions should yield targeted savings of $100 million in 2025.
Gordon Hardie: 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.
Gordon Hardie: 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-2025.
Gordon Hardie: 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.
Gordon Hardie: 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.
Gordon Hardie: 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.
Gordon Hardie: Efforts will also include end-to-end supply chain efficiencies, procurement productivity, operational improvements, and more disciplined sales force management.
Gordon Hardie: 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 Tijuana, Virginia.
Gordon Hardie: to be our first plant to go live in North America. We are very pleased by the early progress that has been achieved there thus far.
Gordon Hardie: 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.
Gordon Hardie: 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.
Gordon Hardie: 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%.
Gordon Hardie: We will provide more details on our long-term strategic plan next month at our Investor Day.
Gordon Hardie: Now let's move to page 8 and review our guidance for 2025.
Gordon Hardie: 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.
Gordon Hardie: 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.
Gordon Hardie: 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 profits.
Gordon Hardie: Net price will likely be a headwind as flat gross price is more than offset by low single-digit cost inflation.
Gordon Hardie: 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.
Gordon Hardie: Costs should decrease across the system, reflecting our strategic initiatives, as well as higher production network utilization based on current commercial assumptions.
Gordon Hardie: 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.
Gordon Hardie: 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.
Gordon Hardie: 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 9.
Gordon Hardie: 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.
Gordon Hardie: 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.
Gordon Hardie: 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.
Gordon Hardie: 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.
Gordon Hardie: We remain determined and dedicated to delivering value to our shareholders through disciplined execution of our business turnaround plan.
Gordon Hardie: 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.
Gordon Hardie: 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.
Gordon Hardie: Our first question today comes from the line of Ganshan Banjabi from Baird. Please go ahead, your line is now open.
Speaker Change: 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 charted to see signs of, you know, early stability, if you will, and also, you know,
Gordon Hardie: Just given the controversy around alcohol and the 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
Speaker Change: Yeah, in terms of alcohol in the portfolio, Gansheem, 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,
Speaker Change: It really is a story of two hemispheres. So in the Americas, we see, you know, volume growth particularly in Brazil and Mexico
Speaker Change: 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, you know, soft consumer.
Speaker Change: consumer demand. And we also see, you know, the impact of, you know, consumption decline in China with exports down of things like higher end wines and cognacs and spirits to China out of Europe.
Speaker Change: So really it's a story of two hemispheres, growth in the Americas and then you know sluggish to slight decline in Europe.
Speaker Change: Got it and then in terms of your confidence level as relates to the pricing component in 2025 I know there's always uncertainty on European pricing, especially
Speaker Change: You know, this part of the year, just in terms of.
Speaker Change: Maybe some broader comments as it relates to the competitive backdrop in Europe this year versus over the last couple of years. Thank you.
Yeah.
Speaker Change: Again, it's a story of the two hemispheres, you know, in.
Speaker Change: In the Americas, we see that growth coupled with sort of tighter capacity utilization in oil markets.
Speaker Change: and there's, you know, less if no pricing pressure and some pricing growth actually.
Speaker Change: And then in Europe, particularly in Southwest Europe, where there is 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.
Speaker Change: I can add a little bit of color on that one too, Gansham.
Gansham: You know, about 55% of our global portfolio is under long-term contracts with price adjustment formulas that play out every year, so that area is pretty stable in that regard.
Gansham: The other 45% tends to be local business that gets renegotiated on an annual basis.
Gansham: And as you referenced, the key area is over in Europe where there's a lot of smaller wineries and smaller customers that negotiate every year.
Gansham: We're about, you know, 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.
Gansham: and should be fairly stabilized except for the remaining negotiations which are rather minor given the full portfolio.
Very helpful. Thank you.
Speaker Change: The next question today comes from the line of George Staffels from Bank of America. Please go ahead, your line is now open.
George Staffels: Thanks so much. Hi, everybody. Good morning. Thanks for all the details. My questions...
Speaker Change: How you doing? I know it's impossible to peg with precision.
Speaker Change: But had there been a 25% tariff to the extent that you spoke with your customers and and studied it What effect would that have had on your volume? During 2025 again, if you know, let's say it stayed on for a quarter or two
time it however you want. Relatedly in that question...
How volume-dependent are you are?
Speaker Change: fit to win performance improvements you know I guess in some regard they're going to be relatively unaffected but at some point volume affects everything so how much of a shock absorber do you have to get those savings to the bottom line relative to the volume outlook and that a quick follow-on
Yeah, well.
George Staffels: Thanks, thanks for that, George. You know, as we said from the outset in July, you know, our Fit2Win program, you know, is not volume dependent.
George Staffels: Okay, and I think that thesis is still intact. The self-help levers that we have, you know, they're 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 for 2027.
George Staffels: But specifically with regard to to tariffs, you know, there's a lot of uncertainty and like everybody else we've we've spent a lot of time thinking it over the last number of weeks and
George Staffels: 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...
you know, from Mexico.
George Staffels: You can land in different places depending on what assumptions, because if there are declines in volumes into the U.S.
George Staffels: You know, given consumer demands, that volume is going to be picked up by domestic beer, and we have the largest network in the U.S., and therefore...
George Staffels: you know, we would see positive exposure to growth in domestic brines.
Yeah.
George Staffels: 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,
George Staffels: We, we, you know, we're talking probably exposure somewhere between, you know, 10 and 15 million.
George Staffels: 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.
George Staffels: We have a number of scenarios planned, but that's kind of where we landed.
George Staffels: The only thing I would add to that one is the only tariff, George, that we do know about right now is China.
George Staffels: 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.
Speaker Change: Okay, thanks, John. My follow-on is just a point of clarification. If we go to slide seven.
George Staffels: And we look at the network optimization savings for 25, and it says $75 to $100 million.
And then I look.
George Staffels: at the right-hand bullet, the lower of the two in that section, it says,
George Staffels: Evaluating for the opportunity yield total savings of $75 to $100 million.
which is that?
Speaker Change: basically addressing the 75 to 100, or that means there could be an incremental 75 to 100 million from efforts you discuss, evaluate, and talk to us about in March. Thank you.
Thank you.
Speaker Change: 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.
Very good. Thank you so much.
Thank you.
Speaker Change: Our next question today comes from the line of Anthony Petromari from City. Please go ahead, your line is now open.
Good morning.
Thank you.
Thank you.
Speaker Change: 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.
Speaker Change: 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,
Speaker Change: You know, from the outset, I think we've laid out that we need to reframe, you know, when in our own business, you know, competition, and it's not just glass, but
Speaker Change: We, you know, have a clear drive to get much more competitive with Cairns. And, you know, from the analysis that we've done over the years,
There's a clear...
Speaker Change: sort of pattern that when glass gets to within about 15% of the cost of cans, then you see a quite measurable flow from from cans back into glass.
Speaker Change: History is a great teacher, and I think if you look back at the history of OI in the U.S. and Cannes, probably did not frame that competition sufficiently.
Speaker Change: and focus on really, you know, getting the cost base and the cost competitiveness right.
Speaker Change: So, you know, armed with that knowledge, you know, we're taking the business forward with a view to getting competitive with Cairns in any market in which we compete with Cairns. So I think that's our approach.
You know, it's
Speaker Change: When you look at food and beverage packaging, we'll 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.
Speaker Change: 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
Speaker Change: you know, glass back in their portfolios in a greater proportion.
Speaker Change: One thing I'll flag up is just before Christmas, you know, 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.
Speaker Change: And that opens up opportunities for glass volume growth in a category that's growing in, you know, 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.
Speaker Change: 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.
Thank you for joining us.
Okay, that's helpful. I'll turn it over.
Thank you.
Speaker Change: Thank you. The next question today comes from the line of Joshua Spector from UBS. Please go ahead, your line is now open.
Speaker Change: 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.
Speaker Change: 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?
Thank you.
Speaker Change: 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.
Gordon Hardie: commercially, procurement energy, as well as Fit2Win and the, you know, the initiatives we're doing there, that has landed the $1.45 billion and the other numbers that Gordon referenced earlier. So, as we look to the future, you know, we have already identified over $300 million of benefits in Fit2Win. We're already $175 to $200 million of that to be realized in 2025 alone.
Gordon Hardie: be 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.
Gordon Hardie: 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.
Gordon Hardie: I think in the past we probably had a fragmented approach to energy.
Gordon Hardie: 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
Gordon Hardie: 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.
Gordon Hardie: 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.
Gordon Hardie: I think also just kind of a final, as we reconfigure the network, you know, going forward, you know, we will have lower energy costs.
Speaker Change: 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?
Speaker Change: Yeah, so one thing I would say, yeah, we're going to get, you know, 50 to 100 million dollars of favorable working capital through the inventory reduction. For the same token, we are taking out and reducing the scope of our operating network, which
Speaker Change: You know, it 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.
Speaker Change: 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, you know, 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.
Young.
Young: And just as an addition to that, that whole working capital inventory management piece is a focus of the Fit2Win program.
the footprint, you know, logistics footprint around those plants and
Young: You know, there's no particular reason why other plants can't get there, so that that really is a massive focus for us in 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.
Speaker Change: The next question today comes from the line of Aaron Vishwanathan from RBC. Please go ahead, your line is now open.
Aaron Vishwanathan: Great, thanks for taking my question. Congrats on the progress thus far in the transformation.
Aaron Vishwanathan: 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.
Aaron Vishwanathan: You know, 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.
Aaron Vishwanathan: And we see that as the path over the next two to three years to boost the value of the business.
Aaron Vishwanathan: 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.
Aaron Vishwanathan: 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 up with it, we will be doing that.
Aaron Vishwanathan: 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.
Aaron Vishwanathan: 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 for that this year.
Aaron Vishwanathan: And it may well be, you know, as we take out volume, we may have slightly less volume, you know, at the end of the year, but that will be because of deliberate decision making around economic profit.
Speaker Change: 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
You know, there's a possibility that some of those
You would have some price deterioration.
Speaker Change: 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...
Speaker Change: Rolling back some of that pricing that you were able to achieve in the 22-23 period.
Speaker Change: Yeah, look, I think the equation, in terms of how we look at the business is...
is revenue minus our target EBIT equals our cost base.
Right
Speaker Change: So we've got a number to deliver and we'll obviously look to manage our margins.
Speaker Change: But, you know, if if there is excessive, you know, price activity, then we will adjust the cost base. Yeah. So, as John said, you know, where we're 80 to 90% through the season, you know, a lot of our, the majority of our, our contracts.
Speaker Change: is contracted for the year. And, you know, we are where we thought we would be in, um, in, in October. Uh, you know, there may be some skirmishing throughout the year, but, you know, we'll, we'll, we'll, we'll manage that through, through effective cost management and, uh,
Yeah, the one thing I would add on that.
Speaker Change: One thing I'd add, keep in mind, we're looking at, after a number of years of positive price improvement earlier in the decade,
Speaker Change: You know, 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 point. Keep in mind the negative net price is because we're seeing inflation starting to normalize, or assuming that in this marketplace.
Speaker Change: and with more than half of our business being under long-term contracts.
Speaker Change: 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.
Speaker Change: Okay, that's helpful. And just lastly, if I may, I'm just on the CapEx, so it's nice to see that come down a little bit.
Speaker Change: Unfortunately, it appears we have lost the speaker team. We'll be back with you momentarily. Thank you for your patience.
Andres Lopez: Andres Lopez, Christopher Manuel, Gordon Hardie, Tim Butts Brian Outerspoot. Six Cohen's and a refrigerator one drop to pop and sleepover.
Andres Lopez: Can't help but drink them like my dad, It tastes better in a glass Same record record, turns right a staple, New generation, same bottle label Ice cold and goes down fast, It tastes better in a glass Somebody told me, over a cold drink, Some of the best things are made from the same thing Hold the memories on a roll, you and your granddad
pied putter pitted putter stitched up Acrylic paint
Speaker Change: Hello. This is the OI team. We had a little bit of a technical glitch there, but we are back online. Sorry about that.
Speaker Change: Just to close out on your question, you know, as we go forward, you know, productivity is the cornerstone of how we're running the business.
Speaker Change: And, you know, as we drive, you know, further productivity through the business.
Speaker Change: We would expect to be less dependent on, you know, pricing to cover inflation, yeah? And then we will price for value in terms of what we deliver to the customer.
Speaker Change: So that really is how we're thinking about the model as we go forward. So really accelerate productivity year-on-year to eat inflation, and then we price for value where we bring innovation and bring extra services to the customer.
Okay, thanks. I'll turn it over.
Thank you.
Speaker Change: Thank you. Our next question today comes from the line of Gabe Hudgey from Wells Fargo. Please go ahead, your line is now open.
Gordon, good morning.
Speaker Change: I appreciate it's a little bit of a moving target with plant closures, meaning you're not able to realize the fixed cost savings and improved overhead absorption.
Speaker Change: But I think you guys were kind of carrying 170 maybe 180 million dollars of under-absorbed fixed overhead
Speaker Change: In slide 8, you call out, I think, $50 million of higher production, but you're also talking about, obviously, still whittling down some inventory. So I'm just curious, maybe your best estimate of how much underabsorbed fixed overhead or production is still stuck in the system.
That can be unlocked, I guess, in 2627.
Yeah, sure. I'll be right back.
Speaker Change: Yeah, I can touch base on that one and let me kind of just get the bigger picture here. So we had about 13% capacity curtailment.
and 2024.
Speaker Change: So the absolute level of fixed-cost absorption was about $250 million, okay?
Speaker Change: So, you know, that ramped up over a two-year period of time. We had about a $70 million impact calendar year in 2023, and about a $180 million impact in 2024 for that cumulative two-fifths.
Speaker Change: So, as we move forward into 2025, we expect that to be halved. Okay, so go from $250 million down to about $125 million in the calendar year. We expect that to improve.
Speaker Change: The biggest driver is because we're taking out, as we referred to before, $75 to $100 million from permanent closures.
Speaker Change: and something like $25 to $50 million through requiring less inventory management as we go through 2025 itself.
Speaker Change: And ideally fully reduce in due time that overhead absorption there. Hopefully that gives you the context you're looking for.
Speaker Change: Okay, and it's one of two things, right? It's either volumes start to start to recover or they're more permanent closures, which I know you guys have alluded to.
Speaker Change: Yeah, correct. And right now we're working off of our assumption of kind of flattish or we may ultimately exit some business. So we're not, we're not, we're being, you know, cautious on the commercial side. So, you know, we continue to look at the capacity optimization. And keep in mind, you know, as we, as Gordon referenced, you know, the phase B of what we're doing on Fit2Win is, is much more through our total organization effectiveness about optimizing our capacity, which will allow us to get more capacity out of our current network that will allow further network.
Thank you.
Speaker Change: Yep. Okay. I wanted to kind of go to phase B a little bit. You're calling out again in slide 8, $120 to $150 million of cash restructuring.
I guess as you as you evaluate phase B.
Speaker Change: Is that equally as cash-intensive, or would some of those improvements be more maybe system-dependent, that you'd have to install new systems, or is it process-oriented that is less capital-intensive? And I guess maybe even on Phase A,
Speaker Change: As we look into 26 and think about cash restructuring, knowing what we know today, would we expect that midpoint restructuring spend of $135 million? Where would it go in 26?
Speaker Change: Yeah, what I would say is we would probably will have a fair amount of restructuring activity going on in 25 and some level Into 26. Okay, it will carry over there. I mean, you know at 125 120 to 150 million dollars in 2025 that's covering the phase a Activities in the beginning of some of the phase phase B So we're trying to capture our best estimate right now is a cumulative effect of that It could shift around a little bit But then as you go into 2026, it will be mostly that the phase the phase
It'll probably be peak restructuring in 2025.
Speaker Change: Got it. Okay. And then shifting gears a little bit, aluminum is already up. Aluminum premiums have moved quite a bit higher.
Speaker Change: and Anticipation of some of these trade discrepancies. And then obviously the Ray I is depreciated against the dollar. So does that influence or impact how you guys are thinking about the summer sell season for 25-26? I appreciate it.
Speaker Change: in February right now, but I think those customers kind of tend to hedge out nine to 12 months. So maybe that presents a better opportunity.
in Brazil.
Speaker Change: I think, overall, anything that closes the gap in cost between glass and cans is helpful to us.
Speaker Change: You know, when glass gets within, and particularly our glass gets within 15% of the cost of cans, we see a growth in glass volumes.
Speaker Change: on the elements that we control in driving that competitiveness to chance. And, you know, so anything that closes that gap, obviously, would be as advantageous as glass here.
Got it. Thank you.
Speaker Change: The next question today comes from the line of Nico Puccini from Tura Securities. Please go ahead, your line is now open.
Thank you.
Nico Puccini: Yeah, hi guys, thanks for taking my questions. I guess just to start off...
It looks like Arben and Wes, he...
Nico Puccini: They're impaired, they've been weak for a while, and that might continue. And one of your customers there recently announced a restructuring in workforce action. I'm just wondering if you can comment on
Nico Puccini: Owen Greene and how that's operating given it's right in the middle of bourbon country And if there's any concerns about about filling the line or maybe reorienting mix going forward
Nico Puccini: Nico, can you can you repeat the first part of that question? It was a little garbled on it or and we didn't hear.
Speaker Change: Sorry about that. It looks like whiskey and bourbon could be impaired for a while longer and one of your customers announced some layoffs and restructuring. So can you comment on Bowling Green and how that plant's operating and if there's any concerns fill in the line.
Speaker Change: Yeah, I'll take that. So, with regard to Bowling Green, you know, as we said, we've got two objectives there this year. One is to have the plant operate at industrial scale efficiently, and then to fit it with the right mix.
Speaker Change: We know the core magmatology is working so it's about ramp-up and filling with the right mix of volume.
Speaker Change: We have a book of business that's building, and it's building in the right mix.
Um...
Speaker Change: And, you know, it's very much towards the premium and super premium end of the market.
Speaker Change: And as we look forward this year, we see opportunities to put the right mix in place. Remember, this plant's capacity is somewhere around 30,000 to 40,000 at full tilt.
Speaker Change: So it's not as if you know, it's a it's a hundred thousand ton kind of furnace to fill so You know where where that's what we're focused on and and that's what the commercial teams are driving to
Understood. Thank you.
Speaker Change: Going back to the question we've asked before on the difference between your margins in Europe and your competitors over there, there's maybe like a 6 or 7% difference on average.
Speaker Change: I wonder, Gordon, now that you've been in the seat for nine months, what you think is driving that, and if you have, with fit2win, an idea of how much of that differential could be made up.
Speaker Change: Yeah, you know, it's largely cost and and footprint, you know, many of our competitors have
Same volume, so they're
Speaker Change: There's a cost advantage there, and yes, you know, Fit2Win is designed to get us.
Speaker Change: as competitive and probably more competitive than competitors through the cycle. That's what we're setting out to achieve.
Speaker Change: That's the focus. Less about margins and mix of business, I would say. And in many cases, we may actually have a better mix. When we look, we...
Speaker Change: We probably have more premium business than any other player, so you know fit to win is designed to address the reality that our cost base has been too high. And so we intend to close that gap.
Hello?
Speaker Change: All right, Bailey, I think we're ready for the next question.
Speaker Change: Thank you. Our next question today comes from the line of George Staffos from Bank of America. Please go ahead, your line is now open.
Speaker Change: Thanks. Hi, guys. Thanks for taking the follow-on. I want to take a bit of a different tact. So we fully appreciate that Fit2Win is designed to correct what you see as gaps between your performance, your costs, versus your peers, both glass and elsewhere in rigid.
Speaker Change: When you've done the work on the other end, you know, talking to your customers about their field work,
what you've done to study this.
Speaker Change: And I recognize you're going to be biased, you should be, positively towards Glass, but what are you finding in terms of customers' willingness
Speaker Change: to use glass based on what the consumer is telling them.
because you can become very competitive, improve your margins, but
Speaker Change: if the consumer has moved away or your customer has moved away from it in terms of their mix.
Speaker Change: it will be less helpful. So what are you finding on the field in marketing in terms of that outlook right now? Thank you guys, good luck in the quarter.
Yeah, thanks George.
Speaker Change: So, you know, I spend a lot of time out with customers and I've just come back from an extensive sort of customer trip. I mean, the one thing is clear, and we laid this out next month, is the power of glass, you know, in the mines and in the...
and in the taste of consumers.
Speaker Change: You know, glass is the preferred mode of packaging. You know, consumers consistently say across any market that the product tastes better from glass. And nothing can beat, you know, the holding of the package, you know, the glass package.
Speaker Change: Many of our customers have said to us look we we actually think you know there's not enough glass in our portfolio and if you if you see the you know the rising concerns around plastics microplastics
You know, you're, we're seeing a fairly significant.
Speaker Change: switch in food brands into glass. And in fact, across all the markets, I'd say, you know, food is the standout.
I'm seeing some quite...
Speaker Change: significant growth in food, particularly in Latin America where food is, you know, in the last quarter, for example, was up 15 percent. So from a consumer point of view, from a health point of view, and from a portfolio point of view, because there tends to, you know,
Speaker Change: with Glass, you know, more opportunity to strengthen the equity of Brands.
Speaker Change: But what we are hearing is that we need to get more competitive with cancer, right? And that's what we're doing, we're addressing that. The other thing I think that gives us confidence is that
Speaker Change: All of our customers, when you talk to them in bulk,
Fit to win.
Speaker Change: And we explained that us getting fit benefits them because it will allow us to, you know, invest more in their business and and help them get more efficient, help them grow, help them differentiate and help them get more sustainable. And there are the four elements we focus on with customers.
Speaker Change: And that you look at their plans over the next, you know, three to four years, they all have growth plans and it all includes glass. I was in Latin America recently. I'm one of our largest customers.
Speaker Change: was talking to us about their plans for their portfolio and their glass demand, looking anywhere between 10 and 25% increases depending on the market. So the growth is there, George, and this has been a foundation part of the hypothesis. The growth is there.
Speaker Change: We need to be competitive to access all of us. Yeah, and that's the path we're on. So I'm not concerned about
Speaker Change: consumers and their attitudes to glass, quite the opposite, that that reinforces our hypothesis and reinforces our drive to make glass more competitive so we can get it into the hands of more people.
Speaker Change: Look, from some of the work that we've done on new products, you've actually seen a pick up in glass as well, so we would concur. I'm sorry, John, go ahead.
Speaker Change: No, no, finish your thought. I just wanted to correct a data point that I gave some bum information to Gordon earlier. Our portfolio is about 62% alcohol.
Speaker Change: related, and the balance is non-alcoholic beverages and food, I think, earlier referenced 75%. And actually, maybe a little bit of this conversation, we've actually seen a shift in the non-alcoholic categories and things like that, and Glass has done well in a number of these categories, too. So, I think it feeds a little bit into the discussion. Yeah, and we see the, you know,
Speaker Change: Non-alcoholic beverages across all markets is growing, either non-alcoholic beers, particularly in Europe, or in the Americas, and particularly North America, water.
Thank you.
Speaker Change: Thank you. This concludes today's question and answer session. I'd like to pass back over to Christopher Manuel for any closing remarks.
Speaker Change: Thank you, Bailey, for being so nimble with us. And that concludes our earnings call. Please note that our first quarter 2025 earnings call is currently scheduled for Wednesday, April 30th.
Speaker Change: Additionally, as we noted earlier, please mark your calendars. We'd love to see you at our I-Day on March 14th at the New York Stock Exchange.
Speaker Change: And in conclusion, remember to make it a memorable moment by choosing safe, healthy, sustainable glass. Thank you.
Speaker Change: This concludes today's call. Thank you all for your participation. You may now disconnect your lines.