Q2 2025 O-I Glass Inc Earnings Call

Speaker 1: cool ones in a refrigerator. One top to pop and say bye for later. Can't help but drink them like my dad. It tastes better in a glass. Same haggard record turns right.

Refrigerator 1, top the pop, and sleeping can't help but drink them like my dad.

Tastes better in a glass.

Same Haggard record turns, right?

Lucy: Hello everyone, and thank you for joining the O-I Glass second quarter 2025 earnings conference call. My name is Lucy, and I will be coordinating your call today. During the presentation, you can register a question by pressing star followed by one on your telephone keypad. If you change your mind, please press star followed by two. We kindly ask all participants to limit their questions to one main and one follow-up and re-queue for any further questions. It is now my pleasure to hand over to your host, Chris Manuel, Vice President of Investor Relations, to begin. Please go ahead.

Hello everyone, and thank you for joining the O-I Glass second quarter 2025 earnings conference call. My name is Lucy, and I'll be coordinating your call today.

During the presentation, you can register a question by pressing star, followed by 1 on your telephone keypad. If you change your mind, please press star followed by 2. We kindly ask all participants to limit their questions to 1 Main and 1, follow-up. And req, for any further questions, it is now my pleasure to hand over to your host, Chris manual, vice president of investor relations to begin. Please go ahead.

Chris Manuel: Thank you, Lucy, and welcome everyone to the O-I Glass second quarter 2025 earnings conference call. Our discussion today will be led by Gordon Hardie, our CEO, and John Haudrich, our CFO. Following prepared remarks, we will host a Q&A session. Presentation materials for this earnings 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 would like to turn the call over to Gordon, who will start in slide three.

Thank you, Lucy, and welcome everyone. To the oi glass second quarter 2025 earnings conference call. Our discussion today will be led by Gordon Hardy, our CEO and John hodrick Garcia. Pho following prepared remarks, we will host a Q&A session

Gordon Hardie: Good morning everyone, and thank you for your interest in O-I Glass. Today, we will walk you through our second quarter performance, key market dynamics, and our outlook for the remainder of the year. Let me begin by expressing my thanks to all our colleagues across O-I. Your dedication, agility, and focus are instrumental in driving the transformation we are undertaking. Last night, we reported second quarter adjusted earnings of $0.53 per share, exceeding our plans and outperforming the same period last year. This result reflects the meaningful progress we are making towards a leaner and more competitive company. We continue to navigate a complex environment, including softer consumer demand in certain markets and many macro uncertainties. While overall second quarter shipments declined approximately 3%, performance varied by region as volumes increased in the Americas but declined in Europe.

Presentation materials for this earnings 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 Gordon, who will start on slide 3.

Good morning everyone and thank you for your interest in oi glass.

Today we will walk you through our second quarter performance key market dynamics and our outlook for the remainder of the year.

Let me Begin by expressing my thanks to all our colleagues across Hawaii. Your dedication agility and focus or instrumental in driving the transformation. We are undertaking.

Last night, we reported second quarter adjusted earnings of 53 cents per share. Exceeding, our plans and outperforming the same period last year.

This result reflects the meaningful progress, we are making towards a leaner and more competitive company.

We continue to navigate a complex environment, including software consumer demand in certain markets, and many macro uncertainties.

Gordon Hardie: On a year-to-date basis, shipments were up nearly 1%, and we continue to expect full-year 2025 volumes will be stable with last year. Our Fit to Win program is delivering strong results. We achieved $84 million in savings this quarter, bringing our first half total to $145 million, well on track to meet or exceed our $250 million target for 2025. Fit to Win is foundational to renewed competitiveness by significantly reducing total enterprise costs to improve performance and enable future growth. We've had a strong start to the year in difficult market conditions and are effectively managing the factors within our control. As a result, we are raising our full-year guidance and now expect adjusted earnings to increase between 60% and 90% compared to 2024. John will provide more detail on our outlook and quarterly performance shortly.

While overall second-quarter shipments declined approximately 3%, performance varied by region as volumes increased in the Americas, but declined in Europe.

On a year-to-date basis shipments were up nearly 1% and we continue to expect full year. 2025 volumes will be stable with last year.

Our fit to win program is delivering strong results. We achieved 84 million dollars in savings. This quarter bringing our first half total to 145 million well on track to meet or exceed, our 250 million Target for 2025

Fit to win, is foundational to renewed, competitiveness. By significantly, reducing total Enterprise costs to improve performance and enable future growth.

Year in difficult market conditions and are effectively managing the factors within our control. As a result. We are raising our full year guidance.

And now expected just that earnings to increase between 60% and 90% compared to 2024, John will provide more detail on our Outlook and quarterly performance shortly.

Gordon Hardie: As announced last evening, following a comprehensive review, we have made the financially prudent decision to halt further Magma development and operations. While the earlier stages developed meaningful technical advancements, we have concluded the platform does not have the pathway to the operational or financial return requirements as most recently detailed at our March Investor Day. Through our best-at-both operations strategy, as outlined at our Investor Day, we expect to drive significantly higher premium output at lower operating costs and capital intensity than Magma would have realized in the coming years. This decision aligns on our focus on driving competitiveness and economic profit. Accordingly, we intend to reconfigure our Bowling Green facility into a best-cost premium-focused operation. We are confident this is the right path forward for our business, our customers, and our shareholders. Let us now turn to page four to review recent market trends.

As announced last evening, following a comprehensive review, we have made the financially prudent decision to Halt further, magma development and operations.

While the earlier stages, developed meaningful, technical advancements. We have concluded. The platform does not have the pathway to the operational or financial return requirements as most recently detailed at our March investor day.

Through our best at both operations strategy as outlined at our ID. We expect to drive significantly higher premium output at lower operating costs and capital intensity than magma would have realized in the coming years.

This decision aligns with our focus on driving competitiveness and economic profit.

Accordingly, we intend to reconfigure, our Bowling Green facility, into a best-cost premium focused operation.

We are confident, this is the right path forward for our business, our customers, and our shareholders.

Let's now turn to page 4 to review recent market trends.

Gordon Hardie: Overall, our shipments for the first half of 2025 are up nearly 1% compared to the prior year. Volumes increased mid-single digits in the first quarter but declined approximately 3% in the second quarter. Lower glass shipments are consistent with softer consumer offtake, which is down low to mid-single digits in mainly European markets amid ongoing macroeconomic uncertainty. Unseasonal weather this spring and summer across the Northern Hemisphere further impacted consumption patterns. Finally, we have started to exit some business with unfavorable economic profit, consistent with our disciplined approach. Despite recent softness, we have also had some notable wins as we leverage Fit to Win program to drive future profitable growth. Likewise, we have seen a 35% increase in our new product development pipeline as brand owners look to spur growth. As previously noted, we are navigating mixed market conditions.

Overall, our shipments for the first half of 2025, are up nearly 1% compared to the prior year.

Volumes increased mid single digits in the first quarter to decline the proximately 3% in the second quarter.

Lower glass shipments are consistent with software consumer offtake, which is down low to mid single digits in mainly European markets amid ongoing macroeconomic uncertainty on seasonal weather. This spring and summer across the northern hemisphere are further impacted consumption patterns.

Finally, we have started to exit some businesses with unfavorable economic profit, consistent with our disciplined approach.

Despite recent softness, we have also had some notable wins as we leverage fit to win to drive future profitable growth. Likewise we have seen a 35% increase in our new product development pipeline as brand owners. Look to Spur growth,

Gordon Hardie: Second quarter shipments increased in the Americas but softened in Europe. In the Americas, shipments were up approximately 4% in both the second quarter and year to date, driven by solid rebound in beer and spirits categories. Notably, both Andean and North American regions outperformed the segment average, with all geographies reporting positive growth despite continued soft consumption patterns, especially in the U.S. As we embed Fit to Win program, we see our competitiveness improving in key markets, especially in North America. In Europe, volumes were down 3% year to date and down nearly 9% in the second quarter, which we attribute to the following factors. About three percentage points were due to a supplier-related delay at a major plant reconfiguration project in Europe, which is now ramping up well.

as previously noted, we are navigating, mixed market conditions, second quarter shipments increased in the Americas with softened in Europe

In the Americas, shipments were up approximately 4% in both the second quarter and year-to-date, driven by a solid rebound in the beer and spirits categories.

Notably, both Andean and North American regions. Outperformed, the segment, average, would all C would all geographies reporting, Positive Growth, despite continued soft consumption patterns, especially in the US.

As we embed fit to win. We see our competitiveness improving. In key markets, especially in North America.

Gordon Hardie: We estimate another 3% of the decline was timing related as increased beer and wine sales in the first quarter, likely in response to trade policy uncertainty, negatively impacted Q2 shipments. Finally, the balance of the decline pertained to macroeconomic uncertainty and unfavorable weather conditions, which is in line or favorable to broader consumption trends. Despite these challenges, there were bright spots as non-alcoholic beverages and food categories posted low single-digit growth. To align supply with demand and manage inventory levels, temporary production containments remain in place across Europe with a continuing drag on our operating costs there. We remain engaged in consultations with European and local works councils on long-term network optimization initiatives aimed at addressing excess capacity in the fleet. These actions, when finalized, are expected to strengthen our competitive position and support sustainable profitable growth in Europe.

In Europe volumes were down, 3% year to date and down nearly 9% in the second quarter. Which we attribute to. The following factors. About 3 percentage points were due to a supplier related delay at a major plant, reconfiguration project in Europe, which is now ramping up. Well,

We estimate another. 3% of the decline was timing related as increased beer and wine sales in the first quarter, likely in response to trade policy. On certainly negatively impacted Q2 shipments.

And finally, the balance of the decline pertain to macroeconomic uncertainty an unfavorable weather conditions which is in line or favorable to broader consumption trends.

Despite these challenges, there were bright spots as non-alcoholic beverages and food categories hosted low single-digit growth.

To align Supply with demand and manage inventory levels, temporary production containments remain in place across Europe, with a continuing drag on our operating costs there.

We remain engaged in consultations with European and local works councils on long-term Network optimization, initiatives aimed at addressing excess capacity in the fleet.

Gordon Hardie: In July, our global shipments were down mid-single digits compared to July of last year, reflecting continued soft conditions plus the re-phasing of some specific customer order activity and the delayed ramp-up of a reconfiguration project at a European plant. We continue to expect full-year 2025 volumes to be in line with the prior year as shipment levels are projected to be stable across both the Americas and Europe. This outlook holds despite some intra-quarter fluctuations, which are primarily driven by comparisons to prior year performance. Let's now turn to page five and review the progress of our Fit to Win program, which is focused on significantly reducing total enterprise costs while optimizing our network and value chain to drive competitiveness and growth. In the second quarter, we delivered $84 million in savings, bringing our first half total to $145 million, surpassing our initial plan.

These actions went finalized our expected to strengthen our competitive position and support sustainable profitable growth in Europe.

We continue to expect fully for 2025 volumes to be in line with the prior year. Shipment levels are projected to be stable across both the Americas and Europe.

This Outlook calls despite some intra-quarter fluctuations, which are primarily driven by comparisons to Prior year performance.

Let's now turn to page 5 and review. The progress of our fit to win program which is focused on significantly reducing total Enterprise costs by up while optimizing our Network and value chain to drive competitiveness and growth.

Gordon Hardie: With momentum building, we remain confident in achieving our 2025 savings target of at least $250 million and at least $650 million cumulatively by 2027. Phase A centers on reshaping our SG&A structure and initial network optimization actions, and we remain on track to meet both our one-year and three-year goals. We have completed actions to secure our $100 million SG&A savings target for 2025, with more opportunity underway to drive additional savings next year. Importantly, our network optimization efforts continue to progress, including the recently announced actions in the Americas. We continue to expect initial network optimization activities will be completed by mid-2026. Phase B focuses on transforming costs across the value chain, including the rollout of our Total Organization Effectiveness program to optimize system-wide capacity. Following a successful pilot at the Tijuana plants, the first wave of 15 facilities is nearing completion of the same rigorous process.

In the second quarter, we delivered $84 million in savings, bringing our first half total to $145 million, surpassing our initial plans.

with momentum building. We remain confident in our 2025 savings Target of at least 250 million and at least 650 million cumulative free by 2027.

Phase a centers on reshaping your sgna structure and initial Network optimization actions and we remain on track to meet both our 1 year and 3 year goals.

We have completed actions to secure our 100 million sgna savings Target for 2025 with more opportunity. Under way to drive additional savings next year.

Importantly, our network optimization efforts continue to progress, including the recently announced actions in the Americas. We continue to expect initial network optimization activities will be completed by mid-2026.

Phase B focuses on transforming costs across the value chain, including the rollout of our total organization effectiveness program to optimize system-wide capacity.

Gordon Hardie: Results are meeting or exceeding our expectations. Additionally, our cost transformation team is making meaningful progress in procurement and energy reduction initiatives. These efforts are contributing significantly to our overall savings and enhancing operational resilience. We are making significant progress on the end-to-end value chain efficiencies with a number of significant agreements made with strategic suppliers to improve productivity and competitiveness over the next three years. In summary, momentum is building, and initial Fit to Win program benefits have exceeded our expectations. We are on track to meet or exceed our 2025 objectives and unlock further upside in the years ahead. Now I will turn it over to John Haudrich, who will walk you through the second quarter performance and updated 2025 outlook beginning on page six.

Following a successful pilot at the Tana plant. The first wave of 15 facilities is nearing completion of the same. Rigorous process results are meeting or exceeding. Our expectations

Additionally, our cost transformation team is making meaningful progress in procurement and energy reduction initiatives. These efforts are contributing significantly to our overall savings and enhancing operational resilience.

John Haudrich: Thanks, Gordon, and good morning everyone. O-I Glass reported second quarter adjusted earnings of $0.53 per share, exceeding both our expectations and prior year results. The performance was primarily driven by strong contributions from our Fit to Win program and improved competitiveness. As shown on the left, adjusted earnings surpassed last year's figures. We faced expected headwinds from lower net price, lower sales volumes, and temporary production curtailments. Yet these factors were more than offset by substantial Fit to Win savings and favorable below-the-line items, including a moderately better than expected tax rate supported by favorable regional earnings mix. Looking to the right, segment operating profit increased in the Americas but declined in Europe. In the Americas, segment operating profit improved significantly, reflecting notably lower costs due to Fit to Win benefits, higher shipments, and fairly stable net price amid tight capacity utilization.

We are making significant progress on the end-to-end value chain. Efficiencies, with a number of significant agreements made with strategic suppliers, are improving productivity and competitiveness. Over the next three years, in summary, momentum is building, and initial fit-to-win benefits have exceeded our expectations. We are on track to meet or exceed our 2025 objectives and unlock further upside in the years ahead. Now, I will turn it over to John, who will walk you through the second quarter performance and updated 2025 outlook, beginning on Page 6.

Thanks Gordon and good morning, everyone oi reported second quarter adjusted earnings of 53 cents per share exceeding, both our expectations and prior year results. The performance was primarily driven by strong contributions from our fit to win program and improved competitiveness. As shown on the left adjusted earnings surpassed last year's figures we faced expected headwinds from lower net, price lower sales, volumes and temporary production curtailment. Yet these factors were more than offset by substantial fit to win savings. And favorable below the line items, including a moderately better than expected tax rate supported by favorable Regional earnings mix.

Looking to the right segment, operating profit increase in the Americas but declined in Europe.

John Haudrich: In Europe, segment operating profit declined due to lower net price and softer sales volumes. Operating costs rose slightly due to the impact of ongoing production curtailments, but these were largely offset by Fit to Win savings. We expect performance in the region to improve progressively as our downtime decreases, network optimization actions deliver a better cost position, and our cost competitiveness improves. As part of our focus on economic profit, we've made meaningful progress in reducing inventories across the enterprise down approximately $160 million compared to the same period last year. We remain on track to meet or potentially beat our year-end 2025 target of fewer than 50 days of inventory supply. In summary, second quarter results exceeded both our plans and prior year levels, positioning us well for continued success through the rest of 2025. Now let's turn to page seven to review our business outlook.

In the America segment operating profit improved significantly reflecting notably lower cost due to fit to win benefits higher shipments. In Fairly stable net price amid tight capacity utilization in Europe. Segment, operating profit decline due to lower net, price and softer, sales volumes operating costs, Rose slightly due to the impact of ongoing production curtailment. But these were largely offset by fit to win savings. We expect performance in the region to improve progressively as our downtime decreases Network. Optimization actions. Deliver a better cost position and our cost competitiveness improves.

As part of our focus on economic profit, we've made meaningful progress in reducing inventories across the enterprise data. Approximately $160 million compared to the same period last year. We remain on track to meet or potentially beat our year-end 2025 target of fewer than 50 days of inventory supply.

In summary, second quarter results, exceeded both our plans and prior year levels, positioning as well for continued, success through the rest of 2025.

Now, let's turn to page 7 to review our business Outlook.

John Haudrich: Given our strong year-to-date performance and momentum of the Fit to Win program, we have raised our full-year 2025 guidance. We now expect adjusted earnings to range between $1.30 and $1.55 per share, representing a 60% to 90% improvement over fiscal year 2024. We also anticipate about a $300 million year-over-year improvement in free cash flow, driven by stronger operating results, reduced capital expenditures, and lower inventories, despite $140 million to $150 million in cash restructuring costs. Additionally, we've refined our expectations for the quarterly cadence of earnings throughout the year. As you can see, we expect the third quarter will be generally consistent with trends noted in the first half of the year. The fourth quarter will be softer due to the typical seasonality of our business and a tax impact of lower earnings levels.

Representing a 60% to 90% improvement over fiscal year 2024. We also anticipate about a $300 million year-over-year Improvement in free, cash flow driven by stronger, operating results reduce Capital expenditures and lower inventories despite 140 to 150 million in cash. Restructuring costs.

John Haudrich: Please note that our outlook may not fully account for potential volatility stemming from evolving global trade policies and other external factors. For more details, please refer to the appendix, which outlines the assumptions behind our updated guidance. Despite a soft macro environment, we are executing well, and our self-help efforts are exceeding original expectations. As such, we are increasing our full-year earnings guidance. Now I'll turn it back to Gordon to conclude on page eight.

Additionally, we've refined our expectations for the quarterly Cadence of earnings throughout the year. As you can see, we expect the third quarter will be generally consistent with Trends, noted in the first half of the Year, fourth quarter will be softer due to the typical seasonality of our business and the tax impact of lower earnings levels. Please note that our Outlook may not fully account for potential volatility stemming from evolving global trade policies and other external factors for more details, please refer to the appendix which outlines the assumptions behind our updated guidance.

Gordon Hardie: Thanks, John. In closing, O-I Glass is executing well and delivered a strong first half of 2025. Despite mixed market conditions and sluggish demand, we remain sharply focused on what we can control and are making excellent progress on all self-help fronts. We expect a meaningful rebound in performance, adjusted earnings, and cash flow this year, and have increased our full-year guidance accordingly. Executing Fit to Win program and our long-term value creation roadmap, as illustrated on the right and discussed in detail during our March Investor Day, positions us well for the future. Importantly, these initiatives are largely within our control. As we continue to execute our strategy, we are confident in our ability to meet our goals, including radically reducing the cost base, building a more premium business portfolio, and driving economic profit.

Despite a soft macro environment, we are executing well and our self-help efforts are exceeding original expectations. As such, we are increasing our full-year earnings guidance. Now, I'll turn it back to Gordon to conclude on page 8. Thanks, John. In closing, O-I is executing well and delivered a strong first half of 2025.

Despite mixed market conditions and sluggish demand, we remain sharply focused on what we can control and are making excellent progress on all self-help fronts.

We expect a meaningful rebound and performance adjusted earnings and cash flow this year and have increased our full year guidance. Accordingly, executing fit to win and our long-term value creation roadmap as Illustrated on the right and discussed in detail during our March investor day positions us. Well for the future importantly, these initiatives are largely within our control

Gordon Hardie: This should deliver strong financial results, including sustainably higher EBITDA and create long-term value for our shareholders. Thank you for your attention. We look forward to your questions.

As we continue to execute our strategy, we are confident in our ability to meet our goals, including radically reducing the cost base building. A more premium business portfolio and driving economic profit.

This should deliver strong financial results, including sustainably, higher evda, and create long-term value for our shareholders. Thank you for your attention. We look forward to your questions.

Lucy: To ask a question, please press star followed by one on your telephone keypad now. If you change your mind, please press star followed by two. When preparing to ask your question, please ensure your device is unmuted locally. We kindly ask all participants to limit their questions to one main and one follow-up question and re-queue for any further questions. The first comes from Ganshum Punjabi of Baird. Your line is now open. Please go ahead.

If you ask a question, please press star followed by 1 on your telephone keypad. Now, if you change your mind, please press star followed by 2. When preparing to ask your question, please ensure your device is unmuted locally.

We kindly ask all participants to limit their questions to 1 Main and 1. Follow-up question and req for any further questions

First comes from gum, Punjabi of bed. Your line is now open. Please go ahead.

Speaker 7: Hey guys, good morning. Congrats on all the cost out progress. I guess, first off, in terms of your volume assumptions for 2025, how does that break out by segment? I guess I'm just curious as to your confidence as it relates to being able to hit flat volumes, just given the uncertainty, et cetera, at this point.

Hey guys. Good morning. Congrats on all the, uh, cost out progress. Um, I guess, you know, first off, in terms of your volume assumptions for 2025,

How does that break out by segment? Um, you know, I guess I'm just curious as to your confidence as it relates to being able to hit flat volumes in in you know, just giving the uncertainty Etc at this point.

John Haudrich: Yeah, I can kick off on that one, Ganshum. Overall, if we take a look at our segments, as we indicated, we believe both Europe and the Americas will be generally stable year over year. So in the first half of the year, you saw a stronger Americas and a little bit softer Europe. We expect that to maybe kind of invert in the back half of the year, but it is only due to comps. Overall, what we are seeing over the course of the year is a generally stable environment, with maybe the exceptions of some disruption due to the capital project that Gordon Hardie talked about, as well as maybe some fluctuation we saw between the first and second quarter associated with tariff concerns or uncertainties and trying to buy ahead.

John Haudrich: Other than that, if you take out the noise of kind of prior year comps and things like that, you are looking at a pretty stable environment.

I I could kick off on that 1, um, gotcha. Uh, overall, if we take a look at our segments as we indicated, we believe both, uh, Europe and the Americas will be generally, stable year-over-year. Um, so in the first half of the year, you saw a stronger Americas in a little bit softer Europe. We expect that to maybe kind of invert in the back half of the year, but it's only due to comps overall. What, we're seeing over the course of the year, is it generally stable environment with maybe the exceptions of some disruption due to the capital project that Gordon talked about, uh, as well as maybe some fluctuation, we saw between first and second quarter associated with, um, tariff concerns or or uncertainties and trying to buy a head other than that, if you take out the noise of kind of Prior your comps and things like that, you're looking at a pretty stable environment.

Speaker 7: Okay, got it. My second question as it relates to the Bowling Green plant, what exactly is that going to be pivoted towards? What is the timeline associated with that? What is the cash cost, just rough cash cost as it relates to making that transition at that point?

Okay, got it. And then uh my second question as it relates to the bowling green plant. Um, what exactly is that going to be pivoted towards? What is the timeline associated with that? And what is the uh cash cost? Just rough cash cost as it relates to making that uh transition at that point.

Gordon Hardie: Yeah, so that facility is focused really on premium opportunities in spirits in the U.S. We still see a big opportunity in that category and those segments of the market. Magnum was conceived to deliver against premium. When we look at our best-at-both strategy, and we look at the cost we feel we would need to be at to really grow significantly our premium volume and the capital intensity we require to deliver the target economic profit, that was the right call for us. We see a path to being able to reconfigure that plan to get lower operational costs, lower capital intensity, and to really grow the premium business in the U.S. We're working on that reconfiguration as we speak. At the next earnings call, we'll give a further update on that, Ganshum. That's our focus for that facility right now.

Yeah. So um

that's,

John Haudrich: You know, on the cost side, Ganshum, the facility does have invested capital around the superstructure, around legacy assets, and things like that, which obviously can be utilized in this. But I think it's a little early to be able to give any specifics there.

For us and we see a path to being able to reconfigure that plan to get lower operational costs lower Capital intensity uh and to to really grow the premium business in in the US. Um we're we're we're working on that reconfiguration as we speak and you know at the next earnings call, we will give a further update on that Canon but um, that that's our Focus for for that facility right now.

Gordon Hardie: But Anojja Shah, as we've laid out in the past, every project we undertake will have to be able to deliver a WACC plus 2% minimum return for us going forward.

John Haudrich: One final point I want to reiterate that the outlook we provided during IDay about the outlook for the business, as well as the capital investment in the business, still holds. We are going to fit this in within that. We are not going to change at this point in time our CapEx outlook for the business.

Yeah, on the cost like that, the facility does have uh invested Capital around the super structure around Legacy assets and things like that, which obviously can be can be utilized in this, but I think it's a little early to be able to give, um, any specifics there. Yeah. But gone, you know, as we've laid out in the past, you know, every project we undertake will have to be able to deliver a, a whack plus to, uh, minimum return for us going forward. And in, in 1 final point, I wouldn't want to reiterate, uh, that, um, the outlet that we provided during I day about the outlook for the business as well as the capital investment in the business still holds. We're going to, we're going to fit this in within that we're not going to change at this point in time, our our capex outlook for the business

Speaker 7: Okay, perfect. Thanks so much.

Okay, perfect. Thanks so much.

Lucy: The next question comes from Arun Viswanathan of RBC Capital Markets. Your line is now open. Please go ahead.

The next question comes from Aaron, FIS 1 of them of RBC, your line is now open. Please go ahead.

Speaker 7: Great. Thanks for taking my question. I just wanted to ask about the Fit to Win program benefits. You were able to accelerate those from $61 million to $84 million in Q2. It looks like you are guiding to $250 million plus now and then $650 million plus in the long term. So, maybe you can just frame the upside opportunity there. Are you guys finding more as you peel back the layers a little bit more? Would those be mainly in SG&A? I guess related to this point, the corporate costs were also a little bit lower this quarter at, I think, $25 million. Is that the new level of corporate that we should kind of consider, or was there something unusual in there? Is that really reflective of those lower SG&A costs? Thanks.

Take my question. Um, just wanted to ask about the fit to win benefits. So, um, you were able to accelerate those from 61 to 84 million in Q2, um, looks like you are guiding to 250 million plus now and then 650 million plus, in long-term. So, uh, maybe you can just frame the upside opportunity. There are you guys finding more as you peel back. The layers, a little bit more and, um, with those be mainly in sgna and I guess related to this point, um, the corporate costs were also a little bit lower this quarter at, uh, I think 25 is that the new level of corporate that we should kind of consider or was there something, uh, unusual in there. Is that is that really reflective of those lower sgna costs? Thanks.

Gordon Hardie: I will take the first part of that question, Aaron. As we have laid out over the last year or so, the Fit to Win program is designed to review the cost base of the business across the entire value chain, from the back end of our suppliers right through to our customers' warehouse. We have been systematically working through the value chain and peeling back where all the costs are, where the waste is, what the inefficiencies are, and what is driving that. At every part of the chain, as we suspected and as our thesis held, there are opportunities to get more efficient and to strip out waste. That means us working differently with suppliers and with customers, and likewise, they are changing some of the ways we work.

Yeah, well I'll take the first part of that question Aaron. Um, you know, as as we've laid out over the last year or so, you know, fit to win is designed to review the cost base of the business across the entire value chain, you know, from, from the back end of our suppliers right through to, you know, our customers Warehouse. Um, and we've been systematically working through the value chain. Um, and, you know, peeling back, you know, we're all the costs are what?

Where the waste is where the inefficiencies, what's driving that? And, and at every part of the chain, as we

Gordon Hardie: We are making tremendous progress on that and have already signed a number of agreements with suppliers that drive much greater productivity and competitiveness for us. Within our own footprint, we shared the results of Tijuana on previous calls and made great progress there. We are now in the first wave of 15 plants being rolled out. That is about 60% to 65% through that program for those plants, and we are on or exceeding the targets we had set. So, very happy with how that is going. As we sit with customers and we look for ways to improve order forecast accuracy, logistics, and warehousing, again, we are working through all of that and finding opportunities.

Suspected and as a thesis held, um, there there's opportunities to, uh, to get more efficient and to strip out ways. That means, you know, us working differently with, uh, with suppliers and with customers. And, and likewise, they're changing some of the ways we work. But we're making tremendous progress on that. And I've already signed a number of agreements with suppliers that drive much greater productivity and competitiveness for for, for us, um, within the, you know, within our own footprint. Um, we um we share the results uh of of tuana on on previous calls and make great progress there. And we are now in the, you know, first wave of 15 plants being rolled out, uh, that's about 60, 65% through that program for those plants. Um, and we're, we're on our exceeding, the targets we had sent. So, so I'm very happy with with how that is going. And then as we sit with customers and we look for ways,

Gordon Hardie: As we set out at the beginning, this is an end-to-end review of the cost base of the business, stripping out the waste and inefficiencies, and then reinvesting some of that back into the business or using that to be more competitive in the market, which we are already seeing signs of, particularly in the Americas.

To improve, um, you know, order forecast, accuracy, uh, Logistics warehousing again working through all of that and, and finding opportunities. So as we as we set out uh, at the at the beginning, this is an end to end review of um the cost base of the business and and stripping out the um, the

John Haudrich: You know, to build on that and to answer your other corporate question, Arun Viswanathan, if you look at page five, the outperformance that we are seeing really is in the phase B area. To Gordon Hardie's point, you know, we are already above our full-year target for that area. Just building off of that and taking out those productivity and efficiency opportunities and actually jumping ahead of the actual full rollout of the Total Organization Effectiveness program project is driving the upside opportunities that we are seeing across the business. To that, the corporate levels we would expect to be a reasonable range is $100 million to $120 million a year is a logical place for the corporate cost.

Waste and inefficiencies, and then reinvesting, some of that back into the business or, um, using that to, you know, to be more competitive in the market, which, you know, we're already seeing signs of, you know, particularly in the Americas.

The business, and to that, the corporate levels we would expect to be a reasonable range, is $100 million to $120 million a year. This is a logical place for the corporate cost.

Speaker 7: Great, thanks. Then, as you look out into, I guess, the second half into next year, again, you are already at $145 for the first half. So, should we also assume that Fit to Win program benefits should continue to grow, or is the second half kind of, have you already kind of gotten what you, you know, more than 50% of the year's benefits, or do you still see continued sequential growth in those benefits?

Great, thanks. And then, if I could just ask a quick follow-up. So then, uh, as you, uh, look out into, I guess the second half and the next year, again, you're already at 1 145 for the first half. So, uh, should we also assume that, uh, fit to win benefits, should continue to grow, or is this the second half kind of, uh, have you already kind of gotten what you, uh, you know, more than 50% of the years benefits or or do you still see uh, continued, uh, sequential growth in those benefits?

John Haudrich: I think we will see sequential growth, but keep in mind in the fourth quarter, we will start to lap the early phases of the activities. As you can see on the chart on page five, we had $25 million of benefits already in the fourth quarter. While the core activity continues to drive momentum, there will be a little bit of a comp element to the fourth quarter.

Gordon Hardie: Yeah, I would say culturally as well, Arun Viswanathan, we are relentless on waste and inefficiency coming out of the business. So even if we hit a number, there is no satisfaction in that. We drive on as long as there is waste and efficiency to be had, we are going after it.

I think we'll we'll see, uh, sequential growth but keep in mind in the fourth quarter, we will start to lap the early phases of the activities. And as you can see on the chart on page 5, we had 25 million dollars of benefits already in the in, in the uh, fourth quarter. So while the the core activity continues to drive momentum, they'll be a little bit of a comp element to the fourth quarter. Yeah, I I would say culturally as well, you know, we are relentless on waste and inefficiency coming out of the business. So even if we hit a number, um, there's no satisfaction in that. Um, we we drive on as long as there's waste and efficiency, you know, to be had where where, where we're going after it

Speaker 7: Great, thanks a lot.

Great. Thanks a lot.

Lucy: The next question comes from Mike Roxland of Truist Securities. Your line is now open. Please go ahead.

The next question comes from Mike roxland of tourist Securities. Your line is now open. Please go ahead.

Speaker 7: Thank you, Gordon, John, Chris, for taking my questions and congrats on all the progress.

Gordon Hardie: Thank you, Mike.

Uh, yeah, thank you Gordon. John Chris for taking my questions and congrats on all the progress.

Thank you, Mike. Um,

Speaker 7: Gordon, you mentioned that in your comments that shipments were weaker in July and you cited re-phasing of order activity and a delayed ramp-up at a configurated plant. Do you have any sense for what your order books look like for August?

Gordon, you mentioned that in your comments that shipments were weaker in July and you cited rephasing of order activity in the delayed ramp up, uh, at a configuration plant. Give me a sense where your order books look like for for August.

Gordon Hardie: Yeah, look, we have line of sight. I think the Americas are looking pretty strong and we are seeing some comeback in places like Northern Europe and in the U.K. As John mentioned, we see Europe probably stabilizing in the second half of the year. There is still significant consumer weakness in all of the regions, probably except for Latin America. Whether it is wine or beer in Europe, spirits in Europe, still down compared to long-run averages in last year. Spirits and say wine is driven by the macroeconomic kind of trade issues. 85% of all Scotch produce is exported. 65% of all French red wine is exported. So the two major markets of the U.S. and China still not back to where they were historically. In the U.S., we see beer still sort of sluggish, even imported beer.

Um,

Yeah, look, we we have a line of sight. Um, you know, I I think the Americas are, are looking pretty strong and we're seeing some, some comeback in, you know, places like, um, you know, northern Europe, uh, and in the UK. Um, and as John mentioned, you know, we we see Europe probably stabilizing in the in the second half of the year. Um, there is still, you know, significant consumer weakness in in in all of the regions that probably except for Latin America. Um but you know whether it's it's wine or or or beer in in in Europe, uh, Spirits in Europe. Um, you know, still still down, you know, compared to the long run averages in last year, uh, driven, you know, spirits and and say, wines driven by, you know, the, the, the macroeconomic,

Gordon Hardie: Yet there are then pockets of growth in terms of non-alcoholic beverages, particularly waters. Food is on the back of trends like antimicrobial plastics, performing very well in most markets. Latin America is performing very well for us, particularly foods, non-alcoholic beverages, spirits, coming back strongly in Mexico. Beer is quite resilient. Going back to kind of first principles that we laid out last July, we, over the next two years, predicated kind of flat volumes. As we deliver savings, we will share some of that with our strategic customers and ultimately drive the value over the next two years by getting a much better return on the volume we have and getting fitter. That then puts us in a very strong position as the turn comes and consumers come back to these categories. Our story over the next two years is not a volume story per se.

You know, kind of trade issues. Um, you know, 85% of all Scotch producers exported 65% of all French, red wine is exported. So the 2 major markets of the US and China, um, you know, still not back to where they were, you know, historically, um, um, in in the US, you know, we see beer still sort of sluggish uh even imported beer so but yet they're then pockets of gold in terms of non-alcoholic beverages, you know, particularly Waters. Um and and food is, you know, um, you know, on the back of trends like anti micro Plastics, you know, performing very well in most markets you know, Latin America is is performing very well for us. Um, you know, particularly foods and non-alcoholic beverages Spirits, you know, coming back strongly in Mexico, beer, quite resilient, you know. Um, and, you know, going back to kind of first principles that we laid out.

You know, last last July we, uh, we over the the next 2 years, you know, predicated kind of flat volumes. As we deliver savings, we will share some of that with our strategic customers. Uh, and ultimately, you know, you know Drive the, the, the the value of the next 2 years by getting a much better return on the volume we have and getting getting fitter um, that then puts us in in position a very strong position.

Gordon Hardie: We predicate sort of flat volumes, but getting much, much more efficient and getting much higher returns on the volumes we have. I think for us, our thesis is that the value will be increased through getting better returns rather than chasing volume at lower margins and lower prices in markets that are where demand is sluggish.

Rather than chasing, you know, uh, volume at at lower margins and lower prices. Yeah. Uh, in markets that are, you know where demand is sluggish.

Speaker 7: That's very helpful. I appreciate all the color. Then just one quick follow-up. You mentioned the progress on TOE. If I heard you correctly, you said the first wave of 15 facilities has been meeting or exceeding your expectations, and you're about 60% to 65% through those plants. Is there any more color you can provide around the progress, maybe some of the cost savings or the returns that you've generated thus far at those 15 facilities?

That's very helpful. I appreciate all the color. And then, um, just one quick follow-up. You mentioned the progress on, um, toe. If I heard you correctly, you said the first wave of 15 facilities has been meeting or exceeding your expectations, and you're about 60 to 55% through those plants. Is there any more color you can provide around the progress, maybe some of the cost savings or the returns that you've generated thus far at those 15 facilities?

Gordon Hardie: Yeah, you know, again, the process is, we go into those plants and we understand, obviously, the cost base and what's driving the cost, where the waste is, and where your kind of top five issues or losses are. Then working systematically through that. Everything we've seen in our pilots in Tijuana, and indeed the initial study we did way back in June 24, are coming to fruition. We have some tremendous talent in our plants. But with a fresh set of eyes and some new thinking, from other industries that I've worked in, we're seeing opportunities to drive very significant productivity improvements and run these plants in a much more effective, efficient manner. So, I'm very happy with the alacrity with which our teams have taken on these new ways of working and going after the waste across the fleet. So, very happy with that, Mike.

Yeah, you know. Um, again you know, we we we the process is, you know, we we go into those plants and we, we understand, you know, the obviously, the cost base and what's driving the cost where the waist is and where your, your, your kind of top 5 issues or losses are. Um, and then working systematically through that. And, um, you know, everything, we've we've we've seen in our in our pilots in Toronto and indeed, the initial study we did way back in in June 24th. Um, you know, there we we have some tremendous talent in our plants. Um, but you know, with fresh set of eyes and and some new thinking, you know, from other industries that I've worked in, um, where we're seeing opportunities to drive very significant, uh, productivity.

Improvements uh, and run these plants in a much more effective efficient manner. So, um, I'm very happy with, you know, the the elac with which our teams have have taken on these new ways of working and, and going after the waist and um,

You know, across the fleet. So so very happy with that mic.

Speaker 7: Got it. Thank you and good luck in Q4.

Gordon Hardie: Thanks. Thank you.

Got it. Thank you. And good luck in 2 ways.

All right. Thank you.

Lucy: The next question comes from George Staphos of Bank of America. Your line is now open. Please go ahead.

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

Speaker 7: Thanks so much, everyone. Good morning. Thanks for the details. I wanted to, how are you, Gordon Hardie? Congratulations on the progress so far. I wanted to come back to Magma, not to necessarily do a postmortem on it and the whys and wherefores, but really to understand how glass fits in customers' mix. When Magma was talked about a few years ago, the notion was you would be able to drop in smaller facilities, you would be able to be more nimble, you would be able to then get into customers' new product launches more quickly. At least that was part of the story as I recall, and correct me if I am wrong on any of that. For whatever reason, Magma is no longer being utilized. Is it that the process itself did not really live up to your expectations?

Thanks so much everyone. Good morning. Uh thanks for the details. Um, I I wanted how are you Gordon? Uh and congratulations on the progress so far. Um, I I wanted to come back to magma, not to necessarily do a post-mortem on it, and the whys and wherefores but really to understand how glass sits in customers mix. And so when magma was talked about a few years ago, the notion was you would be able you'd be able to drop in smaller facilities. You'd be able to be more Nimble, you'd be able to then get into customers new product launches more quickly. At least that was part of the story as a as I recall and correct me if I'm wrong on any of that.

Speaker 7: Is it that customers do not really look to glass for that sort of new product, quick on the run type of product anymore or type of package? Or the Total Organization Effectiveness program and all that you are doing in the organization now gives you that agility that you thought you were going to get from Magma, but you do not need to spend the capital there. How would you have us think about that, what has happened here and why you do not need Magma anymore?

And, you know, for whatever reason, magma is no longer being, uh, utilized is it, that the process itself didn't really live up to your expectations, is it that customers don't really look to glass.

For that sort of new product, Quick on the Run, um, type of product anymore or type of package, or...

Toe and all that you're doing in the organization. Now gives you that agility that you thought you're going to get for magma, but you don't need to spend the capital there. How would you have us? Think about that. You know what's happened here? And why you don't need magma anymore?

Gordon Hardie: Great, thanks, George. Let me start with the customer piece. Consumers love glass, right? All things have been equal, they will choose glass. I have been out, I have met about 70 of our customers over the last year. I would say without exception, all of them want to put more glass into their portfolios for sustainability, to help drive that premiumization trend that is still there, as strong as ever. Glass is absolutely fundamental to the portfolios of all our major customers. In fact, our NPD pipeline this year is up about 35%, which is a massive increase as our customers look to spur growth. No question around glass in the portfolios in my mind with customers. I have heard that firsthand so many times. With regard to Magma, yes, the idea was, you could do maybe smaller batches of premium.

Great. Thanks. Thanks George. Um so let me start with the customer piece, you know, consumers, love draft, right? All things being equal, they'll choose glass. And, you know, I've been out I've met about 70 over customers over the last year and I would say without exception, all of them want to put more glass into their portfolios for sustainability, you know, to help drive that premiumization Trend that's still there as strong as ever. Um, so so glass is absolutely fundamental to um, you know, to the portfolios of all our major customers and in fact, our NPD pipeline uh, this year is up about 35%, which is a, which is a massive increase as you know, our our customers look to to Spur growth. So no

Gordon Hardie: When I look at it, there are two aspects. Did the technology work? Yes, the technology works. Can it deliver the returns we require if we were looking at rolling out 10 or 12 or 15 of them? What is the next best alternative? As CEO, I feel two important aspects of my role is to want to face reality and to make good decisions around that. Secondly, is to really allocate our precious capital as effectively as possible. When I look at, and you are right, TOE, and I look at the flexibility, I think TOE techniques can bring, and also greater volumes at lower costs and lower capital intensity. For me, it was a clear decision. There is a better way for us to deliver on the what customers are looking for, which is continued premiumization. They want premium products at an affordable cost, right?

Gordon Hardie: We do not have small ambitions around premium, right? We have very big ambitions around premium. I need higher volumes of premium than a Magma furnace could deliver. I think the way to do that is the path we have forward, which is the best-of-both model. By the way, we have a business in our portfolio that does exactly that and is making great returns, great margins, and it is highly, highly flexible. What we are embarking on is not new to the world. It is there. We just need to get much, much better at it. I am confident now we are putting in place the operational capabilities to do so. It is the correct decision for us. It is the correct decision for our customers, and it is the correct decision for our shareholders.

Or 12 or 15 of them. And what's the next best alternative? Um, and you know, as CEO, I I feel too important aspects of my role is, you know, to want to face reality and to make good decisions around that. And secondly, is to really allocate or precious Capital as effectively as possible. And when I look at and you're right toe, uh, and I look at the flexibility. Um, you know, I think, um, toe techniques can bring and also greater volumes at lower costs and lower Capital intensity. Uh, for me, it was a, it was a clear decision there. There is a better way for us, um, to, you know, deliver on the, um, the what customers are looking for, which is continued premiumization. But they want premium products at affordable cost, right? Um, and we we we we we don't have small ambitions.

Around premium, right? We have very big Ambitions around premium and I need higher, um, volumes of Premium than a magma foreigners could deliver. Um, I got and I I I think the way to to do that is, uh, is the path. We have forward, which is the best of both models. Which, by the way, we um we we have a business in our in, in our portfolio that that does exactly that and is making great returns. Great margins. Uh, and is highly highly flexible.

Speaker 7: Thanks, Gordon. For my second question, if possible, you talked about your current run rates and that things get a little bit better in August. Is there a way to parse the down mid-single digits across the regions? As we shift into the fourth quarter, you talked a little bit about why it is maybe now a lesser piece of your earnings cadence for the year. Can you give us a bit more color there? I know fourth quarters are small. The numbers can move around a lot. If we choose the midpoint versus one end of the range or the other end of the range of the guidance, we can come up with different conclusions. The fourth quarter seems a little bit weaker. Is any of it related to the volumes that we are seeing right now? Thank you, guys, and good luck in the quarter.

Flexible. So, um, what we're embarking on is not new to world. It's there. We just need to get much. Much better at it and I'm confident now we're we're putting in place the operational capabilities to to do so. So you know it was it's the correct decision for us. It's the correct decision for uh, our customers and it's the correct decision for our shareholders.

Thanks Gordon uh for my second question, if possible. Um, you know, you talked about your current run rates and that things you know, get a little bit better in August, is there a way to parse the down mid single digits across the regions? And then as we shift into the fourth quarter, you talked a little bit about why it's maybe now a lesser piece of your

Earnings Cadence for the year. But can you give us a bit more color there? I know. Fourth quarters are small. The numbers can move around a lot. If we choose the midpoint versus 1, end of the range, or the other end of the range of the guidance, we can come up with different conclusions, but the fourth quarter, seems a little bit weaker and is any of it related to the volumes that we're seeing right now. Thank you guys, and good luck in the quarter.

John Haudrich: Yeah, George, I can jump in and take the second part of that to start with. Hey, George, how are you doing? The seasonality of our business is such that we earn about 60% to 65% of our EPS in the first half of the year and the remaining 35% to 40% in the back half of the year. That is consistent with the average in the last five years. After exiting the A&Z business a few years ago, we are more levered to the Northern Hemisphere. As a result, with our products being used in the summertime, the seasonality of that, we do have this tendency that I just mentioned. As we take a look at the fourth quarter guidance that we have this year, we are making, in addition to the normal seasonality, we have made a provision in there in our outlook for potentially more temporary downtime.

I, yeah, George, I can jump in and take the the second part of that for to start with. Um, hey, hey, hey George, how you doing? Um, the seasonality of our business is is such that we earn about 60 to 65% of our uh, Epps in the first half of the year and the remaining 35 to 40% in the back half.

John Haudrich: It is taking us a bit longer than originally anticipated to complete the restructuring and network optimization activities over in Europe. We are following all the rules and the processes accordingly, but it is just taking longer. As a result, if this slips into next year, we will probably take more temporary downtime in the fourth quarter as we keep our system balanced until we can complete that. So that is a function of that. I just want to highlight also is that our ETR, our tax rate, is very sensitive to overall levels of earnings. As the earnings are lower in the fourth quarter, especially with making the provision for the potential temporary downtime, we also end up with a disproportionately higher tax rate. So it just kind of swings things around a little bit more in the fourth quarter.

After the year that that's, that's consistent with the average in The Last 5 Years. And, you know, After exiting the ANZ business a few years ago we are more levered to the Northern Hemisphere and and as a result with our products being used in the summertime, the seasonality of that. We, we, we do have this, this tendency that, we're that, that I just mentioned. Uh, but as we take a look at the fourth quarter guidance, that we have this year, we are making in addition to, you know, the normal seasonality, we have made a provision in there, in our outlook, for potentially more, uh, temporary downtime. It is taking us a bit longer than originally anticipated to complete the restructuring and network optimization activities over in Europe. We're following all the rules and the processes accordingly, but it's just taking longer. And as a result, if if this slips into next year, we would probably take more temporary downtime in the fourth quarter as we keep our our system balanced until we can, we can can complete that. So um that is that is a function of that. And and also I just want to, you know, highlight also is

John Haudrich: Hopefully that gives you the perspective you are looking for. It has nothing to do with the trends in the business and the volume. It has more to do with the downtime and managing the network optimization.

That our ETR our tax rate is is very sensitive to all the overall levels of earnings and as the earnings are lower. In the fourth quarter, especially with making the provision for, for the the potential temporary downtime. We also end up with a disproportionately higher tax rate, so it just kind of swings things around a little bit more in the fourth quarter. So hopefully that gives you the perspective you're looking for. But it has nothing to do with the trends in the business and the volume. It has more to do more to do, with the the, the downtime and managing the network optimization.

Gordon Hardie: Thank you. Yeah, and maybe the first part of that, George, if I do a quick run-through, maybe the segments or regions, beer in North America actually performed very strongly for us, and we outperformed the category. As did core spirits, very, very strong momentum there. We see, as seasonality kicks in, we see some of that come off for beer, certainly. But brown spirits particularly are weighted a bit more to the back half of the year. So we see probably continued momentum there. Wine is weak across the board. I spent some time in California in the last couple of weeks. But the industry is looking at ways to figure out how to overcome that. And the lesson I heard from people there is, hey, the wine industry has overcome many setbacks over the last 50 years.

Gordon Hardie: And there was a sort of a confidence there I picked up. But no doubt wine has been weak in Q2. NAB, waters are going really well for us in North America. And we see that continuing. And we probably see food kind of soft in Q2, but picking up in Q3 and Q4, particularly towards the holidays. Europe, beer, beer, particularly in Central Europe, down, wine down, and spirits down. I think that's just a common picture, as I mentioned. But food and non-alcoholic beverages, very, very strong for us. We probably see spirits coming back a bit in the second half. And white wine is doing better than red wine for sure. Other than that, Andean performing very strong for us. Brazil doing very well for us, up 3%, 4% in Q2. Order books very, very strong there.

You know, we we see, you know, a season, I don't see kicks in. We see some of that come off for for beer certainly. Um, but you know, Brownsburg is particularly our weighted a bit more to the back half of the year, so we see what we continued momentum there. You know, wine is weak across the board. Um, you know, I, I, I spent some time in California in the last couple of weeks, uh, but the industry is looking at ways to figure out, you know, how to uh, how to overcome that and the the lesson, you know, I heard from people there is hey the wine industry has overcome many setbacks over the over the last 50 years. And there was a there was a sort of a confidence there I picked up, but no doubt wine has been has been weakening in Q2.

Um, you know, any be, you know, waters are are are going really well for us in in, in North America. And we see that continuing and we, we probably see food kind of, you know, in soft and Q2 but picking up in Q3 and Q4 particularly towards the, the, the holidays, um, Europe, beer, beer, particularly in, in in Central Europe down, wind down and spirit Stone, you know, and I think that's just a common picture, um, as I mentioned, but food, and, and non-alcoholic beverages, you know, very, very strong for us. Uh, we probably see spirits coming back a bit in the, in the, in the second half and, and white wine, um, you know, is is doing better than red wine for sure. Um, other other than that,

Gordon Hardie: The big surprise for us was in Mexico, where beer actually has stabilized, particularly in the domestic market. And tequilas have rebounded remarkably well as the tequila industry figures out other markets besides the U.S. So Southwest Europe, impacted by red wine particularly. But food going strongly in non-alcoholic beverages. And we also see some upside in the back half of the year in the U.K. So that's sort of a run around the business chart. I hope that gives you a bit of color.

And we also see some upside in the back half of the year in the U K. So that's sort of a run around the business charge I hope that gives you a bit of color.

Speaker 7: That's fantastic. Thank you, Gordon. I'll turn it over. Thank you, guys.

That's fantastic. Thank you Gordon I'll turn it over thank you guys.

The next question comes from Anthony Pettinari with Citi. Your line is now open. Please go ahead.

Lucy: The next question comes from Anthony Pettinari of Citi. Your line is now open. Please go ahead.

Good morning. This is Brian birchmeier sitting in for Anthony Thanks for taking the question.

Speaker 7: Good morning. This is Brandt Bergmeier sitting in for Anthony. Thanks for taking the question. On net price, I noticed you are expecting a little bit less of a headwind now than originally. I think you raised the range by about $25 million. What kind of drove that? Do you feel like prices for the second half are maybe locked in now? Do you have kind of a line of sight to that? How do you feel about European operating rates at this point?

Just maybe on net price I noticed you're expecting a little bit less of a headwind now than originally I think you raised the range by about $25 million.

Maybe just what kind of drove that do you feel like prices for the second half or maybe locked in now.

A line of sight to that.

And just maybe generally how do you feel about sort of European operating rates at this point.

Yeah sure Brian Thanks.

John Haudrich: Yeah, sure. Brian, thanks for the question. When we take a look at the drivers for net prices, as we had entered it in the year, we had a higher expectation of that pressure point. It's obviously moderated. I think the net price pressure for the first half of the year is about $70 million. We are thinking right now it might be $100 million to $125 million, down from our previous expectations. Really, there are two factors going on. Inflation has been moderated, probably more so than we expected. Energy prices have moderated, so that is definitely one of the drivers. We have seen probably reasonably stable net pricing, I mean, gross pricing in the business. If you take a look at our business year to date, our sales volumes are up about 1%, but gross price is down about 1%, right?

Thanks for the question.

We take a look at the drivers for net price as we had entered into the year, we had a higher expectation of that pressure point. It's obviously moderated I think the net price pressure for the first half of the year is about $70 million and we're thinking right now it might be $100 million to $125 million drop down from our previous expectations really.

There's two factors going on.

Is that inflation has been moderated probably more so than we expected energy prices have moderated. So that is definitely one of the drivers and then we have seen probably reasonably stable net pricing.

Gross pricing in the business if you take a look at our business year to date our.

Our sales volumes are up about 1% the gross pricing down about 1% right. So it's not really fluctuated that much in the Grand scheme of things, we thought it might be under a little bit more pressure also it's really kind of both levers moving and I would say.

John Haudrich: So it's not really fluctuating that much in the grand scheme of things. We thought it might be under a little bit more pressure. So it's really kind of both levers moving. I would say, if we take a look at the back half of the year, most of the year-over-year pressure point has been incurred in the first half with a little bit still dribbling into the back half.

If we take a look at the back half of the year most of the year over year pressure point has been incurred in the first half with a little bit little bit still dribbling into the back half.

Okay.

Got it got it I appreciate that detail.

Speaker 7: Got it. Got it. Appreciate that detail. Then maybe just, broadly from a high level, do you think that the U.S. EU trade deal coming together this week provides a level of clarity for customers that you and they have been looking for to get orders going again? Or do you think the industry needs time to digest this and adjust to the tariffs? Just anything you can share on if a trade deal changes anything for you and your customers in Q3 and in the second half. Thank you. I will turn it over.

And then maybe just sort.

Sort of broadly from from a high level.

Do you think that the.

U S <unk> trade deal kind of coming together to suite provides maybe a level of clarity for customer stat that you and they had been looking for to maybe get orders kind of going again.

Or do you think maybe the industry needs time to sort of digest this and adjust to the tariffs.

Anything you can kind of share on maybe.

If a trade deal changes anything for you on your customers in <unk> and in the second half. Thank you I'll turn it over.

Gordon Hardie: Look, any certainty is a good thing. There has been so much uncertainty, and customers trying to figure out, do they need to ship bottling operations to different regions and so on. No decisions in the industry that I have seen have been made around this. Anything that brings certainty is a good thing. Then people can plan around that, and we can work with customers accordingly. The headline number is 15% on everything coming into the U.S. But I still understand, or from some commentary that, it is still not clear on where wine and spirits sit in all of that. Whether that potentially is zero for zero or whether it is 15%. There is still not full clarity on that, I would say. The faster we get to that, the better. Then we can work with customers accordingly. The more certainty, the better it is, I would say.

Look any any certainty is a good thing.

Theres been so much uncertainty.

Customers trying to figure out.

Do they do they need to ship bottling operations in different regions and so on and so no decisions in the industry that I've seen have been made around those so so anything that brings certainty is a good thing then people can plan around that and we can work with customers accordingly.

The headline number is 15% on everything coming into the U S, but I sort of understand or.

Some countries.

It's still not clear on where wine and spirits state and all of that and whether that potentially is 040 or whether it's 15%. So there is still not full clarity on that I would say so the faster we get to that to better and then we can we can work with.

Customers.

Accordingly, so the more certainty the better it is I would say.

The next question is from Josh Spector of UBS. Your line is now open. Please go ahead.

Lucy: The next question is from Josh Spector of UBS. Your line is now open. Please go ahead.

Hi, good morning, it's <unk> sitting in for Josh.

Anojja Shah: Hi, good morning. It is Anojja Shah sitting in for Josh. I just wanted to go back to Magma quickly. Are there any cost savings associated with this decision that maybe were not dialed in before, but do need to be added now?

I just wanted to go back to a model that quickly are there any cost savings associated with this decision that maybe werent dialed in before but continuing to be added now.

I would say the primary.

John Haudrich: would say the primary, yes, first, thanks for the question. I would say the primary savings is that we are overall reducing our D&E cost to the business. It is all part of our SG&A savings initiative. From an operational standpoint, obviously, we are ceasing the operations and that, you know, there was a minor loss associated with this, but I do not think it is a material aspect to the business. For the Bowling Green element, I think the bigger element is the reduced SG&A costs that is embedded in our SG&A savings targets.

Thanks for the question I would say the primary savings is that we are overall, reducing our R. R. R D and E cost to the business. It's all part of our SG&A savings initiative.

I think from an operational standpoint, obviously, we're ceasing operations in that.

There was a minor minor loss associated with this but I don't think there's a material aspect of the business for the bowling Green element I think the bigger element is the reduced SG&A cost is embedded in our SG&A savings targets.

Okay. Thank you and based on your comments on inventory earlier in our prepared comments.

Anojja Shah: Okay, thank you. Based on your comments on inventory earlier and the prepared comments, I think your prior guidance for working capital and free cash flow was flat. It sounds like now you would expect working capital to be a benefit to free cash flow this year. Can you just tell me what you are expecting in your guidance?

And I think your prior guidance for working capital and free cash flow that's flat. It sounds like now you could expect working capital to be a benefit to free cash flow. This year can you just tell me what what youre expecting in your guidance.

Yes, that's correct the earlier in the year, we thought that working capital probably.

John Haudrich: Yeah, that's correct. Earlier in the year, we thought that working capital would probably be a minor factor. Where we stand right now is something like an up to $50 million working capital benefit this year, kind of $0 to $50 million as we do better on the inventory. On the offset to that, we are having more restructuring costs that are probably going to be on the higher end. We updated that guidance range. We also increased the estimate for interest expense given where the forward curve has changed. So overall, we think the free cash flow outlook that we had at the beginning of the year is still relatively consistent. Obviously, FX plays into this equation with a lot of moving pieces. I also want to reiterate that we're really focused on free cash flow.

Minor factor.

<unk>.

And the where we stand right now is something like a.

Up to $50 million working capital benefit this year kind of zero to $50 million as we do better on inventory.

On the offset to that we are having more restructuring costs are probably going to be the higher end, we updated that guidance range. We also increased.

The estimate for interest expense, given where the forward curve has has changed too. So overall, we think the free cash flow outlook that we had beginning of the year is still relatively consistent obviously FX play plays into this equation with a lot of moving pieces, but I also want to kind of your reiterating we're really focus.

On free cash flow.

John Haudrich: With a $300 million year-over-year improvement, despite, call it, $140 million to $150 million of restructuring charges, it's a major swing, major improvement in the performance of the business. Certainly, we look to drive that as we go to our IDay targets of moving up to 5% of sales and ultimately up to 7% of sales over the next few years.

And with a $300 million year over year improvement despite.

$140 million to $150 million restructuring charges as a major swing major improvement in the performance of the business and certainly we look to drive to drive that as we go through our <unk> targets and moving up to 5% of sales.

After 7% of sales over the next few years.

Alright, Thank you for that I'll turn it over.

Anojja Shah: Great. Thank you for that. I will turn it over.

The next question comes from Francisco Lewis of BNP Powerbook. Your line is now open. Please go ahead.

Lucy: The next question comes from Francisco Ruiz of BNP Paribas. Your line is now open. Please go ahead.

Okay.

Hi, good.

Gordon Hardie: Hi, good morning. I have two questions for me. The first one is if you could update on how the negotiations with French authorities are on the restructuring you proposed a couple of months ago. Also, a follow up on this is what else is missing in terms of restructuring or closing facilities in order to get to your savings on Fit to Win program? The second question is if you could help me to understand what is the bridge between your Fit to Win program benefits and the rest of the cost as operating costs apart from the central cost? I mean, there is a gap of $20 million to $30 million this quarter. So what is this coming from? Thank you. Hi, Francisco. Let me take the first question.

Good morning.

Two questions for me. The first one is if you could update us on how they negotiate.

With frankly with all of you saw on the restructuring you proposed a couple of months ago.

Also a follow up on this is that what else is missing in terms of.

Restructuring or closing facilities in order to get to your face a savings on fit to win.

The second question is if you could help me to understand what is the bridge between your fit to win benefits and the rest of the cost operating cost apart from the from the center.

Cause I mean, there is a couple of 2000 13 million this quarter. So what is this coming from thank you.

Hi Francisco.

Let me take the first question. So we're engaged with our European works going to Incent, our local works going two of them were working through.

Gordon Hardie: We are engaged with our European Works Councils and our local Works Councils, and we are working through the process of consultation and listening to ideas. As we move through to getting agreement on how we reconfigure the network to be as competitive as we can be in France, we see France as a very important market in our business. We have plans to invest quite heavily in France, but we need the right network. Those discussions are progressing to plan. As you know, there is a process. You work through the process. We are committed to doing that fairly and squarely with our colleagues. Nothing more to add there other than it is going to plan in terms of timing of discussions.

Through the process of consultation and listening to ideas.

As we move through two getting agreement on how we reconfigure the network to be as competitive as we as we can be.

In France.

We see France, as a very important market.

In our business and we have plans to invest quite heavily in France.

But we need the right network and those discussions are progressing to plan.

As you know there is a process you work through the process.

We're committed to doing that fairly and squarely in.

With our colleagues.

Nothing more to add there other than it is going to plan in terms of timing of discussions.

John Haudrich: Francisco, this is John. I will address the other two questions you have as far as where we stand in the whole network optimization process and what is left. We have announced so far about a total of 10% reduction in global capacity, of which, as we stand here right now, maybe 5% or a little bit more is actually physically closed. The other component has to do with remaining elements that have been announced. One is what we just referenced in France. The other one is what we just referenced earlier today, last night in the Americas. That is what will be conducted over the next couple of quarters. That would be a completion of where we stand on the announced level of capacity restructuring.

Francisco This is Jon I'll address the other two questions you have as far as kind of where do we stand in the old network optimization process I think kind of what is left.

So we've announced so far about total of 10 percentage point reduction in global capacity of which as we stand here right now, maybe 5% or a little bit more is actually physically close the other component has to do with remaining elements that have been announced one is what we referenced in France and the other one is what we just kind of.

References earlier today.

Last night in the Americas.

That is what will will be.

Conducted over the next couple of quarters.

And then that would be.

Completion of where we stand on the announced level of capacity restructuring. We would still then have a little bit a couple percentage points of excess capacity, but we're going to monitor and see where the market trends go and see what ultimately determined hopefully we can grow into that.

John Haudrich: We would still then have a couple percentage points of excess capacity, but we are going to monitor and see where the market trends go and ultimately determine. Hopefully, we can grow into that. We will have to determine whether additional decisions are required. Your last question is, if Fit to Win program was $84 million, where are the other cost movements? I would point you to page six of our materials. There is a little chart in there that has the cost breakdown. As you can see with that, operating costs were favorable, $31 million. $63 of that was Fit to Win program in the operating line. But we did have $27 million of temporary curtailments. That is, as we have referenced, the continued downtime until we are able to get these permanent restructuring actions actually completed. Those are the major movers.

How do you determine whether additional decisions are required.

And then your last question is kind of so if what if it the win was $84 million.

Or is the other cost movements.

I would point you to is on page six of our materials. There is actually a little chart in there that has the cost breakdown and as you can see with that operating costs were favorable $31 million 63 of that was fit to win in the operating line, but we did have $27 million of temporary curtailments.

That is as we've referenced the continued downtime until we're able to get those these permanent restructuring.

Actions actually completed those are the major major movers and you take a look on the corporate side. If you add up the whole thing we have $84 million of fit to win you got.

John Haudrich: If you take a look on the corporate side, if you add up the whole thing, you have $84 million of Fit to Win program. You got the temporary curtailments. You will see an offset in corporate. A lot of that has to do with resetting management incentives with zero last year. Take a look at that. That provides you the details I think you are looking for.

Temporary curtailments and Youll see it offset in corporate a lot of that has to do with resetting management incentives with zero last year. So take a look at that that provides you. The details I think youre looking for.

Okay. Thank you very much.

Gordon Hardie: Okay. Thank you very much.

Yeah.

Lucy: The next question comes from Gabe Hajde from Wells Fargo Securities. Your line is now open. Please go ahead.

The next question comes from Gabriel hide from.

Wells Fargo Securities. Your line is now open. Please go ahead.

Gordon John Chris Good morning.

Speaker 7: Gordon, John, Chris, good morning.

Hi, Good morning, Hi, I apologize.

Gordon Hardie: Good morning.

Speaker 7: Hi, Gary. I apologize. Hello. I joined a few minutes late. I was curious if, John, you could kind of help us with the increase in the guidance range. $15 million. I think to your point, you talked about price cost being actually a little bit more favorable, maybe by $25 million if I pick midpoints. FX, I think, is maybe a $25 to $30 million tailwind as well. Volume is up 1% through the first half. We are sort of still targeting flattish, which I guess would suggest down 1% in the back half. You already gave us some color on the mix, Americas versus Europe. It seems like your Fit to Win program and cost outs are kind of running ahead of expectations. Is there something else that we are missing?

Hello, I joined a few minutes late but I was curious if you could kind of help us with the increase in the guidance range.

$15 million and I think to your point, you talked about price cost being actually a little bit more favorable.

Maybe by $25 million of our pigment points.

And then FX I think is maybe a $25 million to $30 million tailwind as well.

Volumes up 1% through the first half, we're sort of still targeting flattish, which I guess would suggest down 1% in the back half you already gave us some color on the mix.

Americas versus Europe.

And it seems like your fit to win and cost outs are kind of running ahead of expectation. So is there something else that we're missing.

Speaker 7: I do not want to talk to you to the upper end of the range. I am just trying to understand if there are any other puts and takes in our logic there.

I don't want to talk to you at the upper end of the range I'm just trying to understand.

If there are any other puts and takes in our logic there.

John Haudrich: Yeah, yeah. So, Gabe, the drivers that we have, and maybe just thinking, what are the factors that would drive you to the upper end of the range? Obviously, you got the FX, as you referenced, net price is better. Fit to Win probably has upside opportunities. Then the flip side that we have is interest expense will be higher because of the rates haven't changed. Then you also have, and I am sure you heard this, but we are making a provision later in the year for more temporary downtime in the event that we have, you know, the timing of, in particular, the European restructuring activity may kick into early part of next year. Those are the major factors.

Yes, yes, so Gabe I mean, the drivers that we have and maybe just thinking what are the factors that would drive you to the upper end of the range. Obviously, you've got you've got the FX as you referenced net prices is better fit to win probably has upside opportunities and then that the flip side that we have is interest expense will be higher because of the.

The rates haven't changed.

And then you also have <unk>.

I'm sure you've heard this but we are making a provision later in the year for more temporary downtime in the event that we have the timing of the in particular, the European restructuring activity may kick into early part of next year. Those are the major factors and anything and the variance between the high end of the range midpoint low end has probably do more with macroeconomic trends.

John Haudrich: Anything in the variance between, you know, the high end of the range, midpoint, low end has probably to do more with macroeconomic trends and things like that that we are just trying to make a general rainfall.

And things like that that that we're just trying to make a general range for.

Okay and then the follow up question.

Speaker 7: Okay. Then the follow-up question, I have seen a few announcements here in the past month or so, Heineken being one of them, I think, talking about building a pretty meaningful new brewery in Yucatan and maybe some reorienting. Gordon Hardie, you alluded to some of their bottling if that were to occur. In North America, there was an announcement on reformulation for Coca-Cola. I would be curious if there has been any sort of early discussions or if you can talk about maybe the opportunity for beer in Mexico on new facilities coming into. I think Heineken is bringing one online in 2026, and this new big facility would be operational in 2028. Thank you.

I've seen a few announcements here in the past month or so.

Heineken being one of them I think talking about building a pretty meaningful new brewery in the Yucatan.

And maybe some reorienting Gordon you alluded to.

The bottling.

That were to occur.

And then in North America, there was an announcement on re formulation for Coca Cola I'd be curious if theres been any sort of early discussions or if you can talk about maybe the opportunity.

For beer in Mexico.

On new facilities coming into I think bringing one online in 2026, and then the new big facility will be operational in 2008. Thank you.

Yeah.

Gordon Hardie: Yeah, look, we are talking to customers all the time, and I am spending 20% to 25% of my time over with customers, discussing what the opportunities and pain points are. If you look at the dynamics of Mexico, I think over the medium-long term, it is a tremendous market for beer. We have got a fabulous suite of assets down there, and we are going to make sure we are in position to take the opportunities as they come. Products taste better in glass. What can I say? So whatever customers want to make more of their products in North American glass, with some of the efficiencies and untrapped capacity that we are finding in Total Organization Effectiveness program, we will be ready and willing to support anybody that wants to launch products and more products in glass as we move forward.

We're talking to customers all the time and I'm spending 20, 25% of my time out with customers.

Discussing what the opportunities and pain points are in.

If you look at the.

If you look at the dynamics of Mexico.

I think over the medium long term, it's a tremendous market for beer.

We've got we've got a fabulous suite of assets still in there.

We're going to make sure we're in position to take the opportunities as they come.

No.

Product stays tastes better and glass, what can I say so.

Whatever customers want to make more more of their products in North American glass Ware.

With.

With some of the efficiencies in.

On trapped.

Capacity that we're finding.

We'd be we'd be ready and willing to support anybody that wants to launch products in <unk>.

More products in glass.

As we move forward.

Thank you.

Speaker 7: Thank you.

Yes.

Thanks, Craig we currently have no further questions. So I'll hand back to Chris for any closing remarks.

Gordon Hardie: Thanks, Gabe.

Lucy: We currently have no further questions, so I will hand back to Chris for any closing remarks.

Thanks, Lucy that concludes our earnings conference call. Please note that our third quarter call is presently scheduled for Wednesday November 5th.

Chris Manuel: Thanks, Lucy. That concludes our earnings conference call. Please note that our third quarter call is presently scheduled for Wednesday, November 5. Remember, make it a memorable moment by choosing safe, sustainable glass. Thank you.

And remember, making a memorable moment by choosing safe sustainable glass. Thank you.

This concludes today's call. Thank you for joining you may now disconnect your lines.

Lucy: This concludes today's call. Thank you for joining. You may now disconnect your line.

Okay.

[music].

Speaker 10: Safe-go-ones in a refrigerator. One tap to stop and save operations.

<unk>.

Great.

Ron.

Great.