Good day. Thank you for standing by and welcome to the O-I Glass Fourth Quarter 2021 Earnings Conference Call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session and instructions will follow at that time. As a reminder, this conference is being recorded. I would like to hand the conference over to Chris Manuel. You may begin.

Thank you, Blue. And welcome everyone to the O-I Glass first quarter 2020 earnings conference call. Our discussion today will be led by Andres Lopez, our CEO, and John Haudrich, our CFO. Today we will discuss key business developments and review our financial results. Following prepared remarks, we will host a Q&A session. Presentation materials for this earnings call are available on the company's website at o-i.com. 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 Andres who will start on slide 3.

We appreciate your interest in O-I Glass. Overall, we are pleased with our performance during the first quarter as adjusted earnings of $0.35 per share were in the middle of the original guidance range. This was achieved despite the disruption from pandemic-related lockdowns in several markets, as well as severe weather that impacted our operations in Texas, Oklahoma, and Mexico. In fact, performance was strong across all key business metrics after excluding the impact of severe weather and related elevated energy costs. Higher prices more than offset underlying inflation and core sales volume was up around 1.5%. Importantly, favorable demand trends accelerated as we progressed through the quarter. Likewise, earnings benefited from the combination of very good operating performance and our margin expansion initiatives. In fact, these efforts more than offset the operational impact of severe weather. Finally, cash flow was favorable compared to historic trends, reflecting continued very good working capital management. On top of a strong operating performance, I'm very pleased with the progress we made advancing our strategy. In fact, I believe O-I reached an important inflection point. As you've seen over the past several quarters, we have demonstrated a step change in our ability to consistently perform and deliver on our commitments. This was achieved despite a very difficult backdrop, which underscores the improved resilience of our business and demonstrates improved agility. At the same time, we are removing the constraints of the past and we are successfully advancing breakthrough innovations to create a new future for O-I. Just in the last few weeks, we reached an agreement in principle on a fair and final resolution of our legacy asbestos related liabilities, and we successfully started up our first full scale MAGMA line. We expect these and other strategic actions will usher in a new period of prosperity for O-I. I'll expand on that in a moment. As we look to the future, we remain optimistic about our business outlook. We expect second quarter adjusted earnings will approximate $0.45 to $0.50, which is a significant improvement from the prior year, which was the most disruptive period of the pandemic. Furthermore, we are reiterating our previously communicated four year guidance despite the headwinds during the first quarter. Let's move ahead to slide 4 to discuss recent volume trends. As you can see on the chart, demand has been relatively stable over the past 15 months, except for the second quarter of 2020, which was the onset of the pandemic. As I mentioned, our first quarter 2021 shipments were flat with last year, but up around 1.5% excluding the temporary impact of severe weather. In fact, nearly all markets improved on an adjusted basis. In the Americas, shipments were down 1.3%. However, adjusted for the severe weather, underlying demand was up about 1.5%. Volume was up mid-single-digits in Brazil and the India markets. Underlying demand was up low-single-digits in North America and down slightly in Mexico, given capacity constraints. Shipments were up 2% in Europe. Demand was sluggish earlier in the quarter due to elevated lockdowns and some supply chain corrections. However, rents improved significantly as the quarter progressed and we were up low-double-digits in March. This improvement was broad-based, and the only exception was mineral water, which was soft given curtailed restaurant and hotel activity. As we have discussed in the past, demand for healthy sustainable glass containers has remained strong despite significant swings in on-premise and retail channel activity. We have shared some of these general insights in the chart on the right. It illustrates the expected trends in food and beverage consumption by channel before, during and after the pandemic. Naturally, on-premise dropped during the pandemic, but was substantially offset by strong retail sales. Going forward, consumption is expected to remain elevated at the retail level, while there should be a strong rebound in on-premise consumption. Overall, total consumption is expected to increase modestly, given changing market dynamics and heightened social activity post-pandemic. In particular, we expect double-digit demand growth compared to 2020 levels as we lap the onset of the pandemic. In fact, shipments are up more than 20% month to date in April. So, we are off to a good start. Barring any unexpected developments, we now expect demand this year will be up between 3% to 4% from 2020 as shipments recover back toward 2019 levels, with further growth to come. Let's turn to slide 5. In addition to solid underlying performance, we also achieved a number of key milestones during the first quarter as we continue to advance our strategy. On this page, we list our 2021 priorities, as well as provide some highlights for the first quarter. I'll touch base on each of our three platforms. First, we aim to expand margins. We have targeted $50 million of gross initiative benefits as well as continued performance improvement in North America. We have made good initial progress. Initiative benefits totaled $35 million during the first quarter as we accelerated efforts, given the impact of severe weather. I would like to emphasize how well the company is responding to the weather and energy issues. Within the span of two weeks, we curtailed and restarted operations across several large plants, which amounted to around 19% of our global capacity, and did so with minimal operating and asset usage. While disruptive, this outstanding response is an indicator of the improved resilience and operating agility on a sustained basis in North America and Mexico. Likewise, it reflects the positive impact of the manufacturing and engineering capabilities we have been developing across the enterprise. Next, we seek to revolutionize glass. To support this, we expect to validate the MAGMA Generation 1 design in Germany, advance our Glass Advocacy Campaign at Reposition ESG. First, we are pleased with our progress on MAGMA and we had a very successful startup of our new MAGMA line in Holzminden, Germany. This new line is already generating high-quality glass bottles and further testing will be conducted over the next few months. Likewise, we will be training and then transferring the line to a local plant personnel as we target commercialization of this new line by mid-year. Our Glass Advocacy Campaign aims to rebalance the dialogue about glass. Efforts are well underway with around 110 million impressions during the first quarter as part of our digital campaign. Like MAGMA, we are very encouraged by the positive response and progress made and will continue to advance these efforts. I'll touch on ESG momentarily. Third, we will continue to optimize our structure. This includes a number of efforts ranging from portfolio adjustments, improving the balance sheet, simplifying the organization and addressing legacy liabilities. Regarding our divestiture program, we have completed about $900 million of asset sales program to date. So, we are about 75% of our way towards our revised target of $1.15 billion by the end of 2022. Currently, we have several land sales that are in advanced stages, and a number of other efforts continue to move forward. As we look to grow the business, we recently announced our intent to invest $75 million to profitably expand in the Andeans where we are currently capacity constrained. This will be funded primarily by divestitures and will not alter our debt reduction plans. As John will expand, our first quarter cash flows were quite favorable, given historic seasonal trends for the business, reflecting very good working capital management, which will support debt reduction. Over the past year, one of our top priorities has been to establish the right organization for the future. Our goal is to enable an organization that is simple, agile, and effective to help us consistently deliver on our commitments. This effort continues. Last month, we entered into a long-term strategic agreement with Accenture to manage our global business service activities. In addition to reducing SG&A costs, we expect to accelerate capability enhancement by leveraging world class processes and technologies. Finally, we announced on Monday that our subsidiary, Paddock Enterprises, LLC, has reached an agreement in principle for a third and final resolution to our legacy asbestos related liabilities. Specifically, Paddock agreed to a mediator's proposal for a consensual plan of reorganization regarding the Paddock Chapter 11 filing. The agreement provides for thorough consideration of $610 million to fund a trust on the effective date of the planned reorganizations, subject to documentation and satisfaction of certain conditions. This is a major milestone. O-I has paid $5 billion in investment related claims over 40 years. Just in the past decade, these payments have consumed 40% of our cash flows. With this agreement, we are turning a new page where we can place all of our focus and resources to enable a prosperous future for O-I and all its stakeholders. Overall, we are very pleased with our progress. And I want to thank the O-I team for their tireless and effective effort to advance our strategy. Before I turn it over to John, let me add a few comments on sustainability. More than ever, consumers are looking for healthy choices both for themselves and the planet. As we say often, glass is made from natural ingredients. It won't harness the air or the oceans. Unlike other packaging, it is already 100% recyclable and it can be recycled endlessly. This is why consumers have long viewed glass as one of the most earth-friendly packages. Despite what you might hear, recycling rates in the U.S. are not where they should be today. Looking on the right side of slide 6, you will see the result of a recent survey by McKinsey that evaluates consumer views of packaging sustainability, which confirms what consumers have long believed. While views do range by geography, glass is viewed as a highly sustainable packaging option across most of the markets. In fact, it ranks in the top three across a majority of geographies. Importantly, glass is perceived by consumers as much more sustainable than metal containers, such as aluminum cans. This underscores the importance of our ongoing glass advocacy campaign, as we seek to rebalance the discussion around packaging substrates and sustainability. Now, over to John.

Thanks, Andres. Good morning, everyone. I plan to cover a few topics today, including recent performance, progress on our capital structure, as well as our most current 2021 business outlook. I'll start with a review of our first quarter performance on page 7. O-I reported adjusted earnings of $0.35 per share. Results were at the midpoint of our guidance range, but down from $0.41 last year, reflecting recent divestitures. Overall, very good benefits from our margin expansion initiatives nearly offset the impact of severe weather. Despite the disruptions during the first quarter, segment profit of $175 million was comparable to last year. Severe weather impacted results by around $40 million, including lower sales and production levels and elevated energy costs that reflect our estimate of expected energy surcharges from this event. On the other hand, initiative benefits of $35 million were better than expected as we accelerated margin expansion actions in light of the challenge of severe weather. While cost inflation exceeded the benefit of higher selling prices, this was all attributed to weather-related energy surcharges. As Andres noted, sales volume was flat with the prior year, but up around 1.5% excluding the weather impact. Our very good operating performance, our margin expansion initiatives, and other cost actions more than offset the operating impact of severe weather. The slide includes additional details of non-operating items. Overall, we are pleased with favorable underlying performance trends. Moving to page 8, we have provided more information by segment. In the Americas, segment profit was $100 million compared to $103 million last year. As noted, earnings were impacted by the severe weather, including related energy surcharges. While shipments were down slightly, underlying demand was up about 1.5% excluding the impact of severe weather. Finally, strong operating performance as well as the benefits from margin expansion initiatives more than offset weather related costs. In Europe, segment profit was $75 million compared to $61 million last year. Half of this improvement reflected favorable foreign exchange. While the region began to implement annual price increases, cost inflation was elevated, especially energy-related costs. This was offset by higher sales volumes which increased 2% from last year. Improved earnings were driven by favorable operating performance, including benefits from our margin expansion initiatives. Keep in mind that we no longer report in Asia Pacific region following the sale of ANZ last summer. Let's shift to cash flows and the balance sheet. I'm now on page 9. As stated in the past, we are following specific capital allocation principles during the pandemic. As we focus on maximizing free cash flow, we expect significantly higher cash flow this year, and key working capital measures should be in line or favorable compared to 2020 levels. As illustrated in the chart, our first quarter cash flow was a $149 million use of cash. While the first quarter is typically a use of cash given the seasonality of the business, our performance this quarter was considerably better than we have seen in prior years. This reflected significant efforts to improve working capital management and consistency. For example, IDS was down 11 days from the same period last year and we now maintain our AR factoring activity to between 35% and 45% of gross receivables. Going forward, we expect cash flows would be more ratable over the year. Second, we preserved our strong liquidity and finished the first quarter with approximately $2.1 billion of liquidity, well above the established floor. Third, we are reducing debt. We expect net debt will end the year below $4.4 billion and our BCA leverage ratio should end the year in the high 3s compared to 4.4 times at the end of 2020. Further divestitures will improve this position. Please note these targets could shift if a Paddock trust funding occurs prior to year-end. At the end of the first quarter, net debt was down around $900 million for the same period last year, reflecting improved free cash flow and proceeds from the divestitures, despite unfavorable foreign exchange. During the quarter, we did receive the final $58 million in proceeds on the ANZ divestiture which was used to reduce debt. Furthermore, our leverage ratio was around four times which is well below our covenant limit of 5 times. Finally, we intend to derisk legacy liabilities as we advance the Paddock Chapter 11 process. As Andres noted, we have an agreement in principle for a consensual plan of reorganization, whereby O-I will support Paddock funding of a 524(g) trust. Total consideration of $610 million to be paid at the effective date of the plan. Importantly, the agreement provides a channeling injunction, protecting O-I, Paddock and their affiliates from current and future liability. Timing will be a function of the remaining legal and court actions to conclude this matter. As previously noted, we have ample liquidity to fund this trust in the future. And for clarity, we are not considering equity as a funding method. Likewise, we remain highly focused on reducing our total debt obligations over time through free cash flow and proceeds from divestitures. Let me wrap up with a few comments on our business outlook. I'm now on page 10. As Andres mentioned, we anticipate our business performance will improve in 2021 as markets recover and stabilize. We expect second quarter adjusted earnings will approximate $0.45 to $0.50 per share. Naturally, this is a significant improvement from the second quarter of 2020 which was impacted by the onset of the pandemic. The improvement will be driven by higher sales and production volume. With more stable demand, we expect shipments will be up more than 15%, which would be more in line with 2019 levels. Likewise, production should be up more than 20% as we do not anticipate the operating disruption we saw last year, given major lockdowns underway at that time. Finally, earnings should benefit from continued operating performance, improved operating performance, while some temporary benefits in prior periods will not repeat or are rephrased. More details are on the slide. We are reiterating our full-year guidance despite the weather related headwinds in the first quarter. This includes adjusted earnings of $1.55 to $1.75 EPS and free cash flow of approximately $240 million. Consistent with prior comments, we anticipate hosting investor events in the near future. We expect that first will be in September after we have validated MAGMA at Holzminden by around mid-year. A specific date will be announced soon. During this session, we will update our strategy, provide more details on MAGMA, including evaluation analysis and preliminary deployment plan. Likewise, we'll share key company targets and milestones. With that, I'll turn it back to Andres.

Thanks, John. Let me wrap up with a few comments on slide 11. Overall, we are pleased with our first quarter performance which was in line with our original guidance range, despite the headwinds from weather issues and the ongoing pandemic. In fact, our underlying performance was favorable across all key business levers, selling prices and underlying volume went up and costs were down. Our margin expansion initiatives are working well and our ability to deliver on our commitments has improved. I'm very pleased with the progress we're making on our bold plan to change O-I's business fundamentals. Our business is more stable and we are a much more agile organization. As a result, our resilience and performance have improved, and we are consistently delivering on our commitments. Likewise, we are removing the constraints of the past, like legacy asbestos liabilities, while successfully advancing breakthrough innovations such as MAGMA. We expect these and other key strategic actions will pave the way for a prosperous future at O-I. Finally, we are encouraged by market trends and expect improved business performance and profitable growth in 2021 and beyond. I continue to believe our best days are yet to come. Thank you for your interest in O-I Glass and we welcome your questions.

Your first question comes from the line of Ghansham Panjabi from Baird.

Anders, since you last reported, obviously, vaccines have been deployed almost exponentially in the US, Europe continues to sort of oscillate between lockdowns, and there's been a significant virus flare up in Brazil. Can you give us a sense as to how these dynamics are playing out for you regionally at current and how it's changed your geographic sort of volume mix outlook for 2021 relative to your initial guidance, if at all?

Since we experienced the first wave of lockdowns back in 2020, I think everyone learned how to navigate these times when lockdowns come up. And that's what we're seeing in Europe, for example. Lockdowns have been strong. Nevertheless, demand is quite high, with the exception of one product which is mineral water, which has been impacted by lockdowns reducing activity in hotels and restaurants. Everything else is up. So, that has been learned. We have learned that there is a very good resilience of the glass packaging in both channels. So, as we've seen channel shifts between on-premise and off-premise, we've seen a very strong performance in retail, giving us then the balance of the growth in on-premise. Now, we're seeing on-premise coming back up in the United States as an example. But we expect that some of the gains that we got in the off-premise is going to be retained going forward. There are good things taking place out there in the various markets. For example, in Europe, demand for beer is very strong. Looking at Nielsen statistics for Western European countries, the performance of glass is very strong when compared to alternative packaging for those countries that are relevant to O-I. Demand for that two years in a row is now quite strong. And the reason for that is the exports to China are back up again, as well as the exports to the United States with the reduction of tariffs. And then, when we look at the Americas, demand for beer is very strong. And it's across all the markets, including the United States. And this is highly influenced by the focus of consumers or the preference of consumers for premium products. In the case of Latin America specifically, there is localization of global brands, which is driving significant demand in beer. There is conversion from returners to one way, and there is also entrance of new players in certain countries. Food is strong across all markets in which we operate. And in our case, in particular, we've been quite successful onboarding new mix in the United States. So there are plenty of dynamics taking place beyond the lockdowns per se. And we're seeing clearly markets like Europe that everyone learn – all the stakeholders learn how to weather those lockdowns.

I would just build on that. If you take a look at the demand that we have, particularly in Latin America, and take Brazil where you had mentioned, there's the cases going up. But we're in such an oversold position down in those marketplaces that, to tell you the truth, we're still looking very optimistic about the demand structures in those particular markets.

For my second question, specific to asbestos, relative to other 524(g) type bankruptcy cases, the resolution that you announced earlier this week was quite a bit faster than what other companies have been able to deliver upon previously. So, what insight can you provide on the timeline of your specific situation? And also, what are the next sort of milestones going forward? Thanks so much.

I'll address that, Ghansham. As you know, we entered into this process, looking to establish a fair and final resolution that was a top priority for the business. As you saw, and Andres explained, we've got a lot of good things going on with the business and we want to turn it a new chapter in this. I think after the initial administrative processes with this we had a mediation process with two very good mediators at the table there. And that was a very effective process to bring this to a head in a timely manner. So, we really appreciate all the effort that went into that. As far as next steps, there are a number of steps to complete the bankruptcy. I just gave you a little insight of some of the things. There's the drafting of the reorganization plan, the disclosure statements, solicitation, voting materials, there'll be a number of court hearings. And this needs to be approved by both the U.S. bankruptcy and the Delaware courts. Overall, we expect this process will be measured in months, but not years, for example.

Your next question comes from the line of George Staphos from Bank of America Merrill Lynch.

Thanks for the details and good work on the progress so far. Congratulations on that. I guess my first question is on the accelerated cost reduction activity. Could you put a finer point on how you're able to accelerate? What specific tactics did you work? How much of that is transitory? Will some of it come back into the P&L? If it was accelerated in the first quarter? And might we not see that $50 million number, if it's not temporary in the first quarter, actually prove to be conservative? And then, I had a follow on.

First of all, all the savings that we achieved under our margin enhancement initiatives are intended to be permanent savings, okay? So, we accelerated them, but they aren't going to disappear, for example. So, as we look to the full year benefits of the $50 million, we're still very comfortable with that. And we may see the potential to do a little better than that. So, how did things get accelerated? I would say a couple categories where we were able to push things was on the labor optimization front, is one area that sticks out. So, we were able to do more work there. Of course, there's some consumption related areas that we knew that we could do better at, and we invoked those particular activity early. But again, those tend to be things that are more permanent in nature and not timing related in that regard. So, $35 million, we probably expected about $20 million in the first quarter. So, we did about $15 million better than we had anticipated. But again, those are permanent. So, when we think to the second quarter, as we indicated, actually, the incremental amount of initiative benefits might be modest in the second quarter. It's not like they flip around. But then, as you go into the back half of the year, you start to pick up the steam in that regard. As we look to the total benefits, not included in the $35 million, we did have some belt tightening here in the first quarter. That might be in the neighborhood of $5 million to $10 million. That's part of when we made the comments about some temporary adjustments and everything when we gave our second quarter guidance of $0.45 to $0.50. Those will be a little bit lower. And examples of those would be timing of maintenance costs. For example, with the level of activity that had to happen between Texas and Mexico and things like that, there's a little bit less focus on some of the maintenance activities within the business. So, that's just going to happen in the second quarter. But again, that's different and distinct from $35 million that we believe is going to carry forward.

Point of clarification and then a question on Paddock. Just what is a consumption related area that you invoked a bit more quickly? If you could just sort of say what that is. And then, on Paddock, again, it's nice to see that you're getting to resolution here. And I recognize, we've covered you for a long time, we know how big of a burden it's been to you from a cash flow standpoint over the years. But if we didn't have asbestos, as you studied it, what would be the one or two things that you could do right now that you can't do at the present time, given this burden and overhang that you've had either from a capacity or some other standpoint. And John, as you studied it, what do you think it would do to your cost of capital not having this as a concern for O-I going forward? Thank you and good luck in the quarter.

On the consumption area, maintenance comes out, but I want to distinguish that between maintenance that is the timing element of maintenance, but how effective we go out with parts and elements and spending and indirect spending activities, or some of the areas that we can do better at. From a procurement standpoint, activities like that, we accelerated those to be able to get the costs down and the consumption a little bit faster than we thought. So, then moving on to some of the asbestos questions there. So, what are some of the things that we're able to do now that we would not have been able to do in the past? Well, I think if you look at the leverage of the company, overall, it is higher than we would like, primarily because we just historically haven't had the cash flow to be able to work down the debt and things like that. So, clearly, one of our opportunities is to delever the company at a rate that we wouldn't be able to do otherwise. At the same token, we do have capacity constrained marketplaces that we refer to now. We highlighted that as we work on the Andeans and the expansion there. We're going to be funding that through additional divestitures. But as we look to the future, that is a prime area to be able to go to, to be able to look at. And of course, we're very excited about MAGMA and the prospects there and being able to have the right balance sheet in place to advance that And then your last question was the cost of capital for the organization. And that's a bit of a tricky one. What I would say is that the equity cost of the business has – and the equity value of the business has been a little bit reduced as a result – because of the overhang of asbestos, at least we believe. So, I think there'll be a rebalancing, ideally, that there'll be more market capitalization of the business as this liability goes away. But as we are able to service debt and reduce and improve our balance sheet, I think our debt load and carrying cost of debt will go down a lot too. So, there's a lot of moving pieces in that. And hopefully, those give you some additional insights.

Your next question comes from the line of Anthony Pettinari from Citibank.

Your guidance for 2Q has price cost as neutral. And I just wondered if you could parse that out a little bit, specifically in terms of passing through some of these costs, like freight, that have spiked up pretty quickly? Are you doing special price increases? It just seems like some of your peers are probably not going to recover some of these costs until maybe the second half. So, just wondering how you get to sort of neutral price cost so quickly?

You're right. Our guidance is basically – they have neutral price inflation spread. Now, our original guidance for the full year, just for clarity, is to have some pressure there. We do anticipate in the back half of the year that that spread will be a little bit of pressure. What we're saying is that the price increases that we have for the year – so, for example, in the first quarter, prices were up about 2% or so. That is at a rate a little bit higher than the rate at which we're seeing inflation increase. Now, we do anticipate that to start picking up. As you mentioned, logistics costs and freight and some of the energy categories are the more inflationary areas, and particularly the U.S. has some freight pressure. But we've got a good start to the pricing improvements in the beginning of the year. So, that's moving forward. One of our margin expansion initiatives, as we've referred to it, is our revenue optimization program. And there's a lot of value-based pricing included in that, and that's going quite successfully for the organization. And it's contributing to some of the ability to manage through the front end of the beginning of the cost inflation. We continue to expect that to improve, but some of the cost inflation will start to mount the year. Now, as we look at inflation overall, we are seeing it going up. But keep in mind, last year was record low inflation. We expected increased inflation this year, but it's a little higher than we thought, but still probably at or below a normal year of inflation for the company. So, the type of dynamics and the pricing activities in the business can manage through it, at least for the next quarter or two.

You talked about sold out conditions in the Andes and I think Brazil. Is it possible to quantify maybe how much volume you've left on the table, whether it's half a point in the Americas or a point or something like that that you could have otherwise met? And then, is there any sort of general thoughts around CapEx needs in 2022 plus based on some of these opportunities?

It is difficult to quantify the volume that we are not enjoying at this point in time because of the capacity constraint. But what we can say is, in every one of those countries, if we have more capacity today, we will be selling more. So, what we're doing is we are evaluating opportunities and seeing what needs to be moved forward. But we've been saying very clearly that our priority is free cash flow and debt reduction. So as a consequence of that, we're looking at tactical divestiture opportunities beyond the targets that we initially established to be able to address those opportunities.

Your next question comes from the line of Sal Tiano from Seaport Global.

Firstly, I was wondering on the divestiture program that you have another $250 million including the land sales that you have line of sight to. Under any other non-operating, I guess, non-income generating assets that you can divest besides the $50 million that you discussed?

I think there is, Sally, for that $250 million or so left to go, it will be a mixture of land sales. I think the land opportunity is above the $50 million. Maybe one way to look at it is that if you blend the divestiture of land sales that don't have any EBITDA leakage, as well as some of the operating sites, you're probably looking at a 10 times multiple on EBITDA as far as what we think is the net effect of all of this, understanding that operating assets are going to go at certain multiple, and then you don't have any EBITDA leakage on the land sale side.

The other thing I wanted to understand is, with regard to a little bit of the sustainability, you mentioned about the perception of glass and, certainly, infinitely recyclable, but what progress are you making and what do you see as the perception in terms of actually having glass being recycled? And the reason I'm asking that is because I think your kind of hometown of Perrysburg, recently, it was announced that they're stopping accepting glass. And I guess, you guys are going to accept the glass from consumers at specific locations. But still, that is clearly a hurdle to having higher glass recycling rates in that town, but also globally as we think about glass being recycled.

Recycling rates in Europe are very high, if not the highest. So, we have that experience with us, which we intend to leverage as we move forward. Recycling rates in the United States are not as high. And obviously, we've got to make a significant change in the system in this country. It's not an easy task to accomplish. However, we're taking several actions in different fronts to address it. One of them is, for example, the GPI and its members put together a roadmap for recycling expansion with very clear targets. And the Boston Consulting Group supported that effort. That's now under execution. We haven't seen that in a long time as far as I remember. We've been exporting solutions for a separate stream collection based on experience in Europe and we are running some pilots about that. We are deploying a program that we call Glass for Good, which converts glass collection into value for the communities, for example, to improve education in the communities. We are working on closed-loop systems with our customers too. And overall, we are rebalancing the dialogue and increasing awareness of our glass benefits. And in particular, we are working on educating communities about the actual value of glass recycling.

Your next question comes from the line of Michael Leithead from Barclays.

I guess first two on the Paddock funding mechanism. One, is there a rough expectation yet on when you would expect to commit the funds? And two, should we expect one lump sum payment or a series of two or three contributions?

For clarity on the timeline, it goes back to what I had mentioned before is that there's a series of activities that have to go out, have to occur until the plan gets confirmed. The last stages of those, as I mentioned before, is the final approval by the U.S. Bankruptcy Court and the Delaware court. And so, the whole process is going to be paced by that. And as I mentioned before, this is gauged in months, but not years. So, we think it will happen reasonably quick. As far as the timing of this, the consideration is due at the end – once we come out of that plan and the bankruptcy courts approve it. But as I mentioned earlier on this is an agreement in principle. There's a lot of stuff that has to be written up and documented and worked out in that regard. But we would anticipate, at this point in time, that it follows quickly thereafter.

We should expect one payment at a time or would it be like a payment series of two or three contributions?

Let's deal with that in the future a little bit. But at this point in time, we would anticipate it would happen very quickly after the plan confirmation.

For my follow-up, just a question, maybe if I could reference slide 4. I just wanted to make sure I'm reading that correctly. Is 3% to 4% volume growth still your expected full-year volume growth? And if it's not, what's the current full-year expected shipment growth? And what that implies for the back half of the year? Thank you.

Our original guidance going into the year back in February was to be up 2% to 4%. So, 3% to 4%, we've closed that. And from that time and improved the overall outlook for the year. So, our volumes are essentially flat here during the first quarter, as we mentioned. The second quarter, if we're up in that 15% plus range, that equates to 3% to 4% kind of annualized increase. And so, in the back half of the year, that would imply fairly stable demand. The one thing that we don't know is we're seeing some good strong demand here, but how our supply chain is looking and will there be some supply chain adjustments in that regard and also the capacity that we have within our business to be able to meet further demand as we work through things. So, that's our best estimate right now. And we'll continue to update the market as we see things progress around mid-year.

Your next question comes from the line of Kyle White from Deutsche Bank.

I just wanted to go back to your business update that you provided back in February, just to make sure I understand. So, when you pointed to earnings being below your guidance and then now actually coming in line with the original guidance, a $40 million weather impact is pretty severe. So, was March just much better than what you're expecting there in mid-February or was it all driven by accelerating some of these margin expansions that you talked about?

It's a combination of both. The volumes were definitely better in March than we were originally expecting because at the time that we had given that kind of update on guidance in the mid-quarter or so, we had indicated we thought volumes as a result were going to be down, but they ended up being flat. So, that represents a marginal increase in the volume activity. But also the cost performance was very strong. The weather hit us in February, and the team got working very quickly and effectively in the March period to take a lot of costs out.

Yeah. I think it is important to mention that the program that we have, for example, to address cost of goods sold is called Total System Cost. This has been in implementation for about three years now. So, it's fairly mature. And this covers costs across the entire system. It connects the organization top down and across. It has a very good structure, information systems, and very clear targets. So, we have a pretty strong capability that was developed over time. And I think now we're enjoying the ability to influence cost in a pretty important manner. And I think you're seeing the impact of that.

Are you gaining any traction with customers in the hard seltzer category? Is there an opportunity in Europe as maybe some brands start to penetrate that market? Or maybe an opportunity to kind of preempt other existing brands here in the US or maybe target premix cocktails in both regions?

Yes, we are. And obviously, we cannot comment on them because they're in development, but, yes, there is increased activity. In fact, the Glass Advocacy Campaign that we're moving forward is calling the interests of both consumers and customers. And we see it, for example, reflected in the leads that were generated.

Excuse me, this is the operator. There's been a technical issue with the line of the presenters. I'll reconnect them now. Speakers, please continue.

We had some technical difficulties. Something dropped. Do you want to continue with your question?

I'll ask it again. But I was just asking about the opportunity with hard seltzers in the US and in Europe, and understanding that you can't comment on any future commercial developments, but maybe talk about, if you see more opportunity in Europe versus the US or anything of that nature.

So there is increased interest by customers across markets in putting hard seltzers in glass and other products – adjacencies of beer and other products. The new product development activity has increased. The Glass Advocacy Campaign is starting to create the interest in consumers and customers. And for example, we use C4C CRM in our organization. And we have seen the leads in that C4C system increase as a consequence of some of the latest campaigns that we move forward. There is significant value in glass related to branding and supporting brands, supporting premium products. And we are seeing that incrementally recognized by customers, and then moving forward with some of the brands.

Just if I could, I wanted to make one quick – this is John. I wanted to make one quick clarification to a question from Mike earlier because I realized that maybe some of my comments on the timing of the payment for the Paddock 524 funding was a little bit inconsistent. So, let me just clarify. The terms of the accepted mediator proposal, the $610 million of total consideration, are the fund on the effective date of the plan confirmation. Of course, there's some final documentation required and final steps between now and then. But that is the terms set forth in the mediator proposal that we accepted. So, I just wanted to clarify that point.

Your next question comes from the line of Mark Wilde from Bank of Montreal.

Congratulations on a good start to the year, headwinds notwithstanding. John, I wondered if you can just talk a little bit about the expectations in terms of the second half. You did beat expectations on the first quarter. Your second quarter guidance is above most estimates, but you've held the full year at existing levels. So, I wondered if you can just help reconcile that for us.

Yeah, yeah, sure. As we all know, the last year was a very disruptive period. And the typical seasonality of the business didn't play out. But we're seeing a much more reversion back to the norm there, Mark. So, what we have typically seen in our business in the past is the first quarter and the fourth quarter are very consistent with each other. They're both the winter periods in the northern hemisphere. And the second quarter and the third quarters were also very consistent with each other, consistent with the summer period in the Northern Hemisphere. So, the back half of the year will look a little bit like a mirror image of the first half of the year. So, I think that is probably a little bit of reversion back to the norm. Hopefully that answers.

Andres, I'm just curious, what's the recycling rate look like down in Latin America? We talked about Europe. We talked about North America.

Yeah, I think it's similar levels. The United States of Americas are pretty much in similar levels.

I'm just curious on that. It seems like there's a little bit of an inconsistency, this push on sustainability. But in Latin America, you're selling more one-way glass when you don't have recycling.

Yeah. So, we are squarely focused on improving the systems in all the countries. And we have acknowledged that the situation in Europe is really strong, the situation in Americas is not as strong. Now, we have ways to improve this. We've been quite passive communicating the benefits of glass and interesting communities in these efforts. That is changing. It's not an easy effort, but we're moving it forward.

Finally, just related, can you talk a little bit about the glass advocacy work. You called out the incremental expense in the earnings release.

This is a campaign on social media that is intended to reposition the benefits of glass. We want to rebalance the dialog around packaging and make sure the benefits of glass are properly positioned and understood both by consumers and customers and stakeholders in general. So, we've been very active on that. Part of the reason why things are not as good as you would like them to be in the recycling is because of being passive for quite a while. Well, that is changing. And we're becoming very active in the front and the Glass Advocacy Campaign is intended to reposition glass altogether. Now very importantly to highlight that MAGMA has several important characteristics that are going to support the recycling of glass. And that's something that we're going to talk about as we get together in September that the company is actually working to change the fundamentals of that recycling system in the markets where it is low. Because the potential of the product is really high. It's a great product. It's 100% recyclable like none out there. It's highly recycled where the effort has been moved forward. We're going to move forward the effort in the places where it's not.

Your next question comes from the line of Adam Josephson from KeyBanc.

Andres, just one on the updated strategy that you're talking about at the Investor Day. You've been reducing structural costs pretty effectively for years. You've been working on MAGMA for years. You're obviously dealing with the asbestos liability. And hopefully, that will be a thing of the past in the next few months. I guess I'm wondering what the updated strategy really is. In other words, distinct from what you've been doing consistently over the past two to three years in terms of cutting costs, working on MAGMA, et cetera.

We're going to update the strategy in September. So, we're going to provide an update to you on that at that time. Now, we've been squarely focused developing capabilities in this organization that we're needed to perform. And for example, I just described the Total System Costs, but we also are working on cost initiatives that impact SG&A. Now, it takes time to develop those capabilities. And what we're seeing today is those margin expansion initiatives are leveraging those capabilities that we will. And as a result, we are effectively impacting margin expansion and earnings expansion. Now, we're going to see that building over time even more. We believe those initiatives are multi-year initiatives. And the impact of that is still yet to come. Because we are – this is now gaining the momentum. The MAGMA development is a major technology development that doesn't happen in a short period of time. We've been several years now into this. Things are going really well. We are producing high-quality products at this point in time. So, it takes time. You're going to see the value of this technology and decipher when we get together in September. And obviously, Paddock and asbestos has been widely covered. It's a very structural move in the organization. And we're very pleased with the progress.

The only thing I would add there is, as Andres was talking, MAGMA is a major development for us. But it's not just a technology. It's how you go to market. And as we've said several times in the past, it's about a new business model for glass. And so, I think that opens up a number of doors that maybe have not been considered in the past for our business. And so, I'm sure we'll elaborate on that.

And just back to the sustainability issue and this McKinsey survey you're talking about, so if I look at this, in the US, consumers think glass is much more sustainable than metal containers obviously. Yet, the last 10 years, metal containers have been growing at a far more rapid rate than has glass. So, if in fact US consumers view glass as more sustainable, why are they not buying it nearly to the same degree that they are cans?

Well, there are multiple reasons for that. And I think we are intending to address all those reasons with the strategy we're moving forward. And one of them is being that we haven't been expanding, for example, at the rate this could be expanded to take the opportunity this package inherently has. Well, we're making those moves, as you see. We just announced an investment in the Andean countries to support that growth. We just made an expansion in Europe which was very timely. It's been selling extremely well from the start, and is supporting the fast growth of that beer demand in Europe. I just explained to you how – in the call how the demand in Western European countries for glass in the countries that are relevant for us has been strong and better in performance than alternative packaging. So, there are many things at play. I think you're looking at things with a perspective of where we're coming from. And I think it's important that, in our meeting in September, we can explain clearly to you where we're going to, which is reflecting significant changes in our impact in the markets.

Your next question comes from the line of Arun Viswanathan from RBC Capital Markets.

Congrats on the progress with asbestos and the recovery as well. I guess my first question is just on the volumes. We have seen some differing data on wine. Have you seen kind of a drop off in wine as we have seen the growth in the seltzer market? What's your kind of overall view on wine as we move from here?

Well, during the pandemic, wine has been growing at a better rate than before. We've got to observe closely what is going to happen when things normalize. So, I assume you're referring to the United States because of the situation in the US. So, in the United States, that's the situation. It's been better than it was before. It's primarily focused on premium wines, which is where we play the most. And that's been the case in the last year. We've got to see what's going to happen after things normalize. There's still some period of time to be able to get there.

Just on the quarterly kind of cadence for volume, I guess, maybe you're up 20% in the first part of April. Do you expect that pace to kind of continue through the rest of the quarter? And then, do you expect kind of negative growth in Q3, Q4 to get you to that 3% to 4% for the full year? Or how are you thinking about the evolution of volumes as you move through 2021?

Well, things are still quite volatile across the supply chain. So, it's very difficult to make a prediction on volume and what it is going to be. I think what we're seeing in April is a pretty good data point. But it's difficult to extrapolate that data point to the quarter or the year at this point in time. So, we've got to stay close to market conditions. I think you're seeing this in multiple companies. Volatility is high. It could be even involving more elements than it did a year ago in terms of drivers of volatility. So, at this point in time, the first quarter would work out well for us from a demand standpoint, with the exception of the severe weather impact. April has been very strong. And we'll be close to market demand and we'll update you as things progress.

I would just build on there. Remember, the last year April and May were kind of your toughest comps with the pandemic. So, good strong comparable numbers in April and May are expected. June will probably be a little bit more normalizing. As we saw last year, we're starting to normalize, blending out to that 15% plus for the whole quarter. So, that's kind of how we would look and you've got to consider the comp aspect of this. And keep in mind we're not targeting a decline in volumes in the back half of the year, more stability. Just got to – trying to see how the tea leaves work at this point in time, understanding that there's a lot of reopening activities and we'll give it an update around mid-year about how we look to the back half.

Your last question comes from the line of Gabe Hajde from Wells Fargo Securities.

Can you comment at all, John, about the tax profile of O-I going forward? I guess a two-part question. One is, is there any sort of one-time tax benefit associated with funding the trust when that does occur? And then number two, are the kind of legacy NOLs that were associated with or the tax shields with funding that along the way, does that go with the bankrupt entity? Or does that stay with O-I such that you'll kind of continue to have a kind of a cash tax rate going forward?

A kind of a normalized effective tax rate for us is in the mid – call it, mid to high-20s. It's a little bit elevated this year because of – there's just a little bit lower earnings. We haven't fully pulled out of the pandemic elements in that regard. There has been some legislative changes around the world. I'm thinking of Mexico and the Netherlands where they've kind of been addressing some of the interest deductibility. So, that's kind of pushed us up to that mid to high-20s compared to maybe the mid-20s in the past. As you think about the tax profile in reference to the payment that would be made for the 524(g) fund, that would obviously be a payment from O-I to Paddock from the support agreement from O-I that Paddock would then make to that fund. That obviously, just like any other historic asbestos payment that we have made, provides some relative tax shield or benefit to the organization. Of course, there's a lot of discussion about tax proposals under the administration right now and things like that. So, it's hard to put a bead on how consequential that is. But we would anticipate that. And if there would be something on the sizable side of tax changes, that could be beneficial for a couple years for the company when you bring that aspect in and legacy NOLs and other tax attributes that we have passed. So more to come. It's a little foggy out there with what's happening on tax legislation.

And then, specific to the second quarter guidance, you guys are producing kind of at a 20% rate and expecting kind of 15 plus percent sell-through. If history has taught me anything, that production rates are equally, if not more, important to kind of the income statement impact on quarter-to-quarter basis. So, I calculate that benefit to maybe be call it $25 million in the second quarter, again, kind of over- producing versus what you're selling. And I think I heard you say, maybe $10 million of some maintenance that got delayed. So, is it not fair to say your 'over-earning' by $15 million in the second quarter, and maybe that's why the second half kind of – you're a little bit cautious on it? And I guess another way I'm thinking about it is if I were to annualize kind of that $0.45 to $0.50 rate, I get to $1.80 to $2 kind of normalized earnings potential, if you can give us any pointers there.

There's a lot to unpack there. But what I would say is, on an annual basis, 1% of volume growth is generally worth $15 million to $20 million to us. 1% of production improvement is probably closer to 20%. So, you can calibrate where things are at. Actually, what you're seeing is more of a comp from the prior year issue than anything else because, frankly, our production and sales volumes right now are very consistent with each other and we continue to see a stable to improving overall demand environment. So, it gets a little wonky from quarter to quarter. Look at it that way rather than maybe necessarily just looking at from a comp standpoint in the prior year. And to your full-year component, the annualization of $0.45 to $0.50, the only issue would be the seasonality of the business. As I mentioned, the first and the fourth quarters are a little bit seasonally weaker, whereas you see that strength coming in the second and third. So, hopefully, that is helpful. There's a lot of elements involved in it.

That concludes our earnings call. Please note that our second quarter conference call is currently scheduled for August 4. And remember to make it a memorable moment by choosing safe sustainable glass. Thank you.

This concludes today's conference call. Thank you for participating and have a wonderful day. You may all disconnect.