O-I Glass, Inc. /DE/ Q3 FY2025 earnings call

• Strong third-quarter results: Adjusted earnings per share were $0.48, surpassing last year's performance and initial plans. The top line remained stable, supported by higher average selling prices and favorable foreign exchange (FX). - Segment operating profit grew over 60% year-over-year, with margins increasing 570 basis points due to Fit to Win initiatives and increased production levels following last year's inventory reduction. - Fit to Win initiative: Contributed $75 million in the third quarter and $220 million year-to-date. It is on track to exceed the 2025 savings target. Phase A, focusing on streamlining SG&A costs and initial network optimization, is ahead of schedule. Phase B, transforming the entire value chain, has completed the first wave of total organization effectiveness across 15 plants, with the second wave in progress. - Market trends: Short-term cyclical pressures like inflation and elevated supply chain inventories dampened demand, but longer-term trends such as premiumization, sustainability, and growth in no/low alcohol beverages and food/water benefited glass. The focus remains on eliminating waste, building higher-quality revenue streams, and positioning the business for future demand shifts.

Segment operating profit rose by more than 60% year-over-year. In the Americas, segment operating profit increased nearly 60%, with volumes down 7%. Underlying consumer consumption accounted for half of this decline, while other factors such as lapping new business wins in 2024, inventory adjustments in the beer value chain across North America and Mexico, and mix changes from exiting unprofitable business contributed to the volume drop. In Europe, segment operating profit surged 70%, driven by strategic initiatives and higher production following last year's inventory reductions. Net price was a headwind and sales volumes dipped due to a major capital project start-up, but volumes were approximately flat when excluding this event.

• Raised 2025 adjusted earnings guidance to a range of $1.55 to $1.65 per share, nearly double the 2024 results. - Free cash flow is projected to be between $150 million and $200 million. - Anticipates 1% to 2% annual sales volume growth post-2027 as markets stabilize and strategic initiatives enhance the cost position. - Fit to Win is on track to surpass the 2025 savings target, with 2025 savings expected to be between $275 million and $300 million, exceeding the initial goal.

• Macroeconomic headwinds affecting consumer demand. - Volatility in the beer and wine segments due to softer consumer demand. - Capacity adjustments and potential downtime impacting operations. - Energy contract resets affecting margins. - Raw material shortages and weather-related issues impacting certain markets.

Q: How much of the recent decline in demand is cyclical versus secular?

A: Gordon Hardie stated that beer and wine declines are partly cyclical, with non-alcoholic beers showing growth and Gen Z entering categories via non-alcoholic ranges. Wine has some structural elements but efforts are underway to make it easier for consumers. The focus is on volume that delivers economic profit.

Q: On the 13% capacity cut, how much is announced and pending?

A: John Haudrich said 8% of the capacity cut is already complete, and the remaining 5% will be done by early next year, with more of the remaining focused on Europe. Restructuring charges this year are expected to be around $140 million to $150 million, with carryover charges next year at or below that level.

Q: Outlook for 2026?

A: John Haudrich said they expect adjusted earnings and free cash flow to grow next year, with revenue stable or modestly increasing, fueled by Fit to Win benefits, and the energy contract reset absorbing some impact but overall positive momentum.

Q: Volume trends in Brazil?

A: Gordon Hardie mentioned strong growth in non-alcoholic beverages, wine, and spirits in Brazil, but beer declined due to cold weather, trading down, and price increases. Summer months in Brazil are expected to bring better volumes.

Q: Impact of pruning unprofitable business on Europe?

A: John Haudrich said Europe's shipments were down about 3% overall, primarily due to a major project in the spirits category, with some unprofitable business walked away but more skewed to the major project.

Q: Current trading in October?

A: John Haudrich said the fourth quarter is playing out in the low single-digit territory, consistent with underlying consumer consumption trends.

Q: NPD and new product launches?

A: Gordon Hardie stated that NPD is up 8%-10%, total NPD is at about 10% of volume, and the NPD organization is being reshaped to slash time to market by at least 50%, benefiting from Gen Z's new category engagement.

Q: Volume cushion and Fit to Win benefits?

A: John Haudrich said net price has been more favorable than anticipated, offsetting volume decline, and Fit to Win is driving the upside in earnings, having raised guidance twice due to Fit to Win momentum.

Q: Capacity adjustments and Europe's export business?

A: Gordon Hardie said Europe's export business to the U.S. and China is affected by short-term factors but cyclical trends are expected to resolve, with capacity adjustments balancing supply and demand, and the TOE program unlocking trapped capacity.