Good day and thank you for standing by. Welcome to the O-I Glass full-year and Fourth Quarter 2021 Earnings Conference Call. At this time, all participants are in a listen-only mode. After prepared remarks, there will be a question and answer session. Please limit yourself to one question and one follow-up. Please be advised that this conference is being recorded. I would now like to hand the conference over to your speaker today, Chris Manuel, Vice President of Investor Relations. Please go ahead.

Thank you, Jerome, and welcome everyone to the O-I Glass full-year and fourth quarter 2021 Earnings 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. Please review the safe harbor comments and our disclosure of the use of non-GAAP financial measures included in those materials. I'd now like to turn the call over to Andres, who will start on Slide 3.

Good morning, everyone. I appreciate your interest in O-I Glass. Let me start by thanking the O-I team. I truly appreciate your high level of engagement, agility, and focus on execution over the past year, which helped us achieve our commitments and advance O-I's strategy. Last evening, we reported full-year 2021 adjusted earnings of $1.83 per share and free cash flow of $282 million. Both earnings and cash flow exceeded our original guidance and our most recent business outlook. Fourth quarter adjusted earnings were at $0.36 per share, which also exceeded our business outlook as we close the year on an exceptional note, with sales volumes up more than 5% excluding divestiture. Favorable 2021 results reflected a strong rebound from 2020, which was impacted by the onset of the pandemic. Sales volumes were up 5.3% and production volume improved significantly. Importantly, our 2021 shipments exceeded pre-pandemic levels, reflecting a strong consumer preference for premium and sustainable glass packaging. Higher average selling prices offset around 80% of elevated cost inflation. These last quite a bit given inflation was nearly doubled, but we expected heading into a year. So there was good momentum passing through incremental inflation. Earnings also benefited from our successful margin expansion initiatives, along with continued strong operating performance. As we will review shortly, we continue to take bolder structural actions to advance O-I's strategy. This includes all facets of the business, including structural actions to improve margin and investments to support organic growth. Likewise, we are developing our proprietary macros solution addressing legacy liabilities and optimizing our structure. On the right, we have shared a dozen key financial measures. As you can see, we are making solid progress across all dimensions of the business. This reflects a much more agile organization capable of effective execution, resulting in solid progress during 2021. There is great momentum at O-I and we are optimistic for 2022. We expect improved adjusted earnings and strong adjusted free cash flow. Adjusted earnings should improve to between $1.85 to $2 per share. We expect higher adjusted earnings despite an anticipated $0.18 impact from the combination of unfavorable FX, higher interest expense that we have funded, and dilution from divestiture as we optimize our portfolio. Excluding funding the legacy liabilities, we expect free cash flow of at least $125 million. Likewise, strong adjusted free cash flow should exceed $350 million, which excludes elevated expansion capex that is fully funded as we redeploy proceeds from divestitures. Reflecting good momentum we expect first quarter earnings will improve from prior year results. John will expand on our financial performance and outlook later. Let's move to Page 4 as we review our recent sales volume trends adjusted for divestitures. The chart illustrates our sales volumes over the past five years, which reflects today's action from the pandemic. On a CAGR basis, our sales volumes have been stable over this period. Keep in mind, annual shipments have increased about 1.5% on average when including our JVs, which is more indicative of underlying glass demand. As I just noted, shipments were up 5.3% in 2021 as we've recovered from the onset of COVID. Importantly, shipments improved 1.1% from pre-pandemic levels in 2019, as we saw solid growth across nearly all markets and the newest categories. Stronger glass demand reflects flexibility amid ongoing challenging shifts, consumer preference for premium products, consumer preference for localization of supply, and favorable sustainability attributes of glass. This was achieved despite ongoing supply chain challenges and reflects increased demand and improved commercial and operating capabilities. Strong demand continued through the fourth quarter as shipments were up more than 5% from the prior year. The Americas was down slightly reflecting peak asset project activity combined with record low inventory levels. However, shipments were up a robust 13% in Europe. In particular, wine was very strong in Southern Europe as we exited the year. The strong demand continued into a new year and January shipments were up more than 3% from the prior year period. Amidst continued robust demand for glass containers, we expect wine sales volume will grow up to 1% in 2022. This growth will be served by increased productivity and asset projects that will add the equivalent of foreign capacity across our enterprise. Additionally, we are building new capacity that should be online in early 2023, to serve premium categories in attractive, growing markets. For the next three years, we anticipate organic growth with a projection of 1% to 2% per year across our consolidated network as the incremental capacity comes online. Let's turn to Slide 5. As we exceeded our financial commitments, we also made very good progress advancing O-I's strategy. In fact, we achieved all of our key objectives this past year. Our highly successful margin expansion initiatives posted earnings of $70 million, which exceeded our target of $50 million. With MAGMA, we aim to create a new profitable business model that will revolutionize the glass market. We achieved critical milestones in 2021 as we validated our MAGMA Gen 1 line at Holzminden. And we are currently testing key Gen 2 technologies at our Streator pilot. As we rebalance the glass, our glass outlook as a digital marketing campaign generated 1.3 billion impressions, reaching more than 105 million people in the U.S. We are off to a great start in the first year of this much-needed creative and effective progress. Likewise, we advance our ESG agenda and our efforts are being recognized. I invite you to review the sustainability page in our appendix, which summarizes the meaningful ESG improvement at O-I noted by organizations such as Sustainalytics and EcoVadis. We also made great progress in optimizing our structure by rebalancing our business portfolio and improving the balance sheet. Our portfolio optimization program is advancing swiftly. As discussed at Investor Day, we announced up to $680 million of future expansion initiatives, including up to 11 MAGMA lines, which will be substantially funded by our Portfolio Optimization Program. We are also making great strides resolving legacy liabilities. Back in April, we established an agreement in principle for Paddock's consensual plan of reorganization. A few weeks ago, the plan of reorganization was submitted to the court. Likewise, we have significantly reduced the unfunded position on our legacy pension plans. As a result of our efforts, we nearly doubled our free cash flow and net debt is now at the lowest levels since mid-2015. Finally, we advanced our efforts to establish a simple agile organization as we completed the first two phases of our new strategic managed services partnership with Accenture. I firmly believe 2021 represents a step function improvement for O-I and I'm confident we will continue to accelerate our transformation in 2022. On Page 6, we have laid out our key strategic objectives for 2022 aligned with the six key priorities we shared at our recent Investor Day. As we seek to expand margins, we intend to achieve higher selling prices that will offset last year's favorable spread and recover the impact of 2022 cost inflation. We will continue our highly successful margin expansion initiatives, which should yield at least an incremental $50 million of benefits. Next, we intend to profitably grow our business in premium categories in key strategic markets. We will substantially complete the expansion initiatives in Colombia and Canada this year, which are currently underway, leveraging legacy technology. Future expansion will increasingly utilize our MAGMA technology, including the next wave of projects in Peru and Brazil. All expansion projects are substantially backed by long-term customer agreements. We will complete our current $1.5 billion Portfolio Optimization Program in 2022. Remaining proceeds should be received prior to significant expansion reinvestment. We also intend to resolve legacy asbestos liabilities in the first half of 2022, thus reducing the risk to our pension plans. We expect to complete our multi-generation MAGMA development plan over the next few years. In 2022, we will have Gen 1 fully optimized and plan to validate the Gen 2 pilot. Likewise, we will continue to advance our Generation 3 solution and the ultra lightweighting initiatives. We aim to further enhance glass's already attractive sustainability profile. We will reduce our greenhouse gas emissions by 5% to 10% and source 30% to 35% of our electricity from renewable energy sources. Along these lines, we will continue to expand our Glass Advocacy campaign, with a focus on multiple end-use categories. Through continued disciplined execution, we aim to deliver on these commitments, and many more critical milestones in 2022 that we believe will increase stakeholder value. Now over to John.

Thanks, Andres. And good morning, everyone. I plan to cover a few topics today, including recent performance, progress on financial priorities, as well as our 2022 business outlook. I'll start with a review of our 2021 financial performance on Page 7. As shown on the left, O-I reported full-year 2021 adjusted earnings of $1.83 per share. This represented a 50% improvement from the prior year as the business recovered well from the onset of the pandemic. Segment operating profit was $827 million, up $157 million from the prior year, adjusted for FX and divestitures. Net spread was a headwind reflecting elevated cost inflation. On the other hand, sales volume was up 5.3%, excluding divestitures as shipments exceeded pre-pandemic levels. Likewise, production levels excluding divestitures increased 7.3%, providing a significant earnings boost. Our results also reflect the continued strong operating performance as well as $70 million of benefits from our margin expansion initiatives. As you can see on the right, we recorded fourth-quarter 2021 adjusted earnings of $0.36 per share. Segment operating profit was $177 million, which was down $21 million from the prior year, adjusted for FX. As expected, net spread was a headwind due to elevated cost inflation and prior to sales price increases that began to take effect in January of this year. Sales volume was strong, up 5.3% from the prior year. Likewise, production increased 1.2%. However, higher production benefits from our margin expansion initiatives were more than offset by elevated logistic and higher maintenance expenses in the fourth quarter since that quarter was the peak of our project activity in 2021. Moving to Page 8, we provided more information on our fourth-quarter performance by segment. In the Americas, segment operating profit was $99 million, down $27 million from the prior year adjusted for FX. Results benefited from favorable net price, reflecting timely pass-through of energy costs primarily in North America. As Andres noted, same-structure shipments were down about 1.7%, reflecting low inventory levels in key growth markets and elevated asset maintenance activity, which was concentrated in the Americas. As anticipated, the impact of higher maintenance activity and elevated logistics costs more than offset the benefit of slightly higher production levels. In Europe, segment profit was $78 million, up $7 million adjusted for FX. Net price was a headwind pending price increases starting in January. Shipments increased 13% from the prior year, mostly reflecting robust demand in the wine category across France, Spain, and Italy. Significantly lower operating costs reflected a 1% improvement in production levels, benefits from our margin expansion initiatives, and very good operating performance. Turning to Page 9. We achieved all of our key financial priorities in 2021. Free cash flow was $282 million, which exceeded our original guidance and most recent business outlook. As illustrated on the top chart, cash flow has improved significantly from recent periods, reflecting strong shipments. Our inventory days were down five days from the prior year as we achieved record low inventory levels. We aim to maintain low inventories, although rebalancing will be required across the network. Committed liquidity exceeded $2.3 billion significantly above our guidelines. Net debt ended the year at $4.1 billion, well below our 2021 target of $4.4 billion. As you can see on the lower chart, we reduced net debt by around $500 million compared to last year, and $900 million compared to 2019 levels. Our leverage ratio, as defined by our bank credit agreement, ended the year around 3.6 times, which is favorable to our guidance of in the high 3s. Our balance sheet improvement reflected improved free cash flow and proceeds from divestitures, which totaled $180 million in 2021. As Andres discussed, we have significantly advanced the Paddock Chapter 11 case. We also made very good progress reducing our unfunded pension liability, which declined nearly $325 million from year-end 2020. Actions included annuitizing liabilities and rebalancing the asset portfolio to reduce future volatility. Overall, we continue to improve our cash flow and balance sheet position. Let's shift to our 2022 business outlook. I'm now on Page 10. We expect 2022 adjusted earnings will range from $1.85 to $2 per share. As mentioned, earnings will be impacted around $0.18 per share by a number of factors, including a stronger U.S. dollar, net dilution from divestitures, and incremental expenses to fund the Paddock Trust. Currently, we have negotiated more than 90% of our open market sales agreements and we're implementing annual price adjustment formulas on long-term contracts. As such, we're confident the benefit of price increases should recover last year's unfavorable spread and offset 2022 cost inflation. We expect sales volume growth of up to 1%. Earnings will also reflect more than $50 million of benefits from our ongoing margin expansion initiatives. These benefits will be partially offset by some one-time costs attributed to our expansion initiatives as we seek to debottleneck in key markets. The chart includes other details. Overall, we expect earnings will improve between 12% and 20% adjusted for the impact of FX, divestitures, and Paddock. Shifting to cash flows on the right. We expect 2022 free cash flow of at least $125 million, and adjusted free cash flow should equal or exceed $350 million. As the chart illustrates, higher EBITDA and favorable working capital trends will boost cash flows. $600 million of CapEx compares to around $400 million in 2021. And the increase is due to investment in expansion projects, as previously communicated. Interest and taxes will be a headwind. Naturally, we will incur higher interest upon funding the Paddock Trust while elevated tax payments are attributed to higher earnings and resolution of tax matters. These factors should yield free cash flow of at least $125 million. Adjusted free cash flow is a new additional measure which excludes the impact of strategic capital investment. Going forward, we are breaking out our expansion investments which should approximate $225 million in 2022 and includes projects underway in Colombia and Canada. Keep in mind our expansion project will be substantially funded by proceeds from our Portfolio Optimization program. So adjusted free cash flow of at least $350 million reflects the cash available to return value to shareholders through debt reduction, share repurchases, and alike. Please note that this cash flow outlook excludes the one-time $610 million impact of funding the Paddock Trust. On Page 11, we share our 2022 financial priorities. This year, we will focus on funding our expansion projects and further improving our balance sheet. As we just reviewed, we intend to optimize our adjusted free cash flow, which should be at least $350 million in 2022, reflecting an EBITDA conversion of between 25% and 30%. We intend to complete our $1.5 billion Portfolio Optimization program in 2022, well ahead of the original 2024 target. To date, we have completed or announced transactions totaling $1.1 billion, and other initiatives are in advanced stages. We have provided some additional details on timing of proceeds. Like Andres noted, we anticipate resolving legacy asbestos liabilities and will further de-risk our pension plan in line with our goal of eliminating the unfunded liability by 2024. Finally, we will further reduce our leverage. As illustrated on the right, we are introducing a more expanded financial leverage measure, which includes net debt, like the past, as well as our legacy asbestos and pension liabilities. As you can see, we have made significant progress in reducing our financial leverage compared to recent years. We will further reduce our financial leverage in 2022. While we will incur new debt to fund the Paddock Trust, the Paddock support liability will be eliminated. Total leverage should decline from over four times last year to the high 3s by the end of 2022. This reflects strong adjusted free cash flow and proceeds from divestitures that will more than fund incremental investment and expansion initiatives this year. We remain on target to achieve our total leverage objective of around 3.5 times by 2024. I'll wrap up with a few comments on our first quarter 2022 business outlook. I'm now on Page 12. We anticipate favorable net price as price increases take effect, and we begin to offset the impact of prior year unfavorable spread and current year cost inflation. Reflecting continued strong demand, earnings should also benefit from higher sales volume as we expect shipments will increase up to 2% from the prior year. Finally, we anticipate stable operating costs. We do expect higher production levels, especially since last year was impacted by severe winter weather. Likewise, earnings should benefit from our margin expansion initiatives; however, we anticipate this will be offset by additional expenses related to elevated project activity. Overall, we expect higher first-quarter earnings compared to the prior year. Now I'll turn it back to Andres.

Thanks, John. Let me wrap up with a few comments on Slide 13. All in all, we're pleased with our performance in 2021 as strong earnings and cash flows exceeded our original earnings guidance and most recent business update. Likewise, we made great progress advancing our strategies this past year. We have great momentum entering 2022 as all key levers are pointing up, supported by strong fourth-quarter sales volume that has continued into the new year. We have a clear plan and ambitious targets for 2022, which are well aligned with what we articulated at Investor Day. Importantly, we are focused on a set of near-term catalysts to create value. We have implemented most of our price increases effective early 2022 and expect stable to improving sales volumes. After decades of litigation, we intend to establish a third and final resolution of our legacy asbestos liabilities by mid-year, which have consumed over 40% of our cash flows in the last decade alone. Likewise, our Portfolio Optimization program is moving swiftly, and we expect to complete that program this year, which will support our respective expansion projects for the next three years. O-I is a much more agile and capable organization as we have demonstrated over this past year through sound execution, and consistently meeting or exceeding our commitments. As such, we are optimistic about 2022, and we expect higher adjusted earnings, strong adjusted cash flow, and further balance sheet improvement. I'm confident these efforts will improve shareholder value. Thank you for your interest in O-I Glass, and we welcome your questions.

Ladies and gentlemen, as a reminder, if you would like to ask a question, please signal by pressing star one on your telephone keypad. Your first question comes from the line of Ghansham Panjabi with Baird; your line is open.

Thank you. Good morning, everybody.

Good morning.

For my first question, can you provide more details about the 1% volume growth you mentioned for guidance for 2022? Considering the feedback from your major customers about glass shortages and low inventory levels, along with your increased capital expenditures, it's surprising that we are at just 1% when your first quarter is projected at around 2%. Please share more information on this evolution and any offsets related to what I've mentioned.

So I can make a couple of comments and then John can complement. The growth of 1% is primarily driven by the Americas. The reason for that is last year we had the Tex-Mex event, which we expect not to repeat this year. We have incremental productivity, but we also took some actions to put in place line extensions to be able to have incremental production volume, even with the good performance that we're seeing in the demand for glass containers. Now regarding the glass shortages, we've been actively working with customers to serve them the best we can. The fundamental reason for these issues is that demand for glass is very strong and in many cases, shows up in peaks that are very difficult to follow. But I think the strong relationships we have created over the last few years are helping us to really work together, plan together, and improve those situations fairly quickly, despite the challenging situations we face.

I would like to mention that the winter storm early last year likely reduced our production volumes by approximately 0.5%, but we expect to recover that. We are also adding some incremental lines to our system to increase our capacity. It's important to note that we are currently at record low inventory levels, and the major capacity increases we have been investing in will really take effect in early 2023. This means we should see a significant uptick in production levels next year, which is encouraging. We aim to return to a volume growth rate of 1% to 2% in 2023, and as we continue to boost production, we hope to reach 2% to 3% growth in the following period.

Okay, that's very helpful. Regarding your comments on price cost recovery, I believe the impact on an EPS basis was about $0.21 in 2021. What are you assuming for 2022? How have you managed the extreme weather conditions and shortages in Europe regarding natural gas and the effects in the U.S. from the recent spike in Metro Gas and energy prices overall? Thanks.

Yeah. As we said late last year, we were squarely focused on executing on price increases and we got very well organized internally. And we've been able to implement more than 90% of those price increases already. So we know what the price increases will be for 2022 for the most part. We've been tracking inflation very closely. We are seeing that stabilizing for us, so we believe that with the information we have, we will be able to fully recover inflation.

I could add on that is that in 2021, what we incurred was about $230 million of inflation and we recovered about $180 million in price, and that kind of gives you the negative spread that we had in 2021. We're actually thinking that 2022 inflation will exceed what we saw in 2021, but we'll get the prices above that, recover that plus the negative spread in 2021. What we saw with inflation was last year in '21, it was really driven by energy and logistics costs and that inflation bubble moving through the value chain and it's going to be more on the raw material and labor side in 2022. And we continue to have very good procurement practices, contract coverage through other tools. So we have a pretty good bid, I believe, on where we stand on the cost inflation side. And as we mentioned in the prepared comments, over 90% implemented on the local contract basis. So we believe we have a good view on what's happening next year at this point in time.

With regard to extreme weather, it is difficult to know what weather is going to do in the next couple of months. Nevertheless, if we look at the largest markets in which we operate in Europe, we look at the supplier base we have for those markets and the contracts we have in place, we're very comfortable we will be able to go through a winter with good supply. Now if any circumstance, new circumstance emerges, we will analyze that one and we'll take action in line with it, but at this point, we feel comfortable we're going to be able to operate well. The highest pressures coming from natural gas supply are markets where we are either smaller or not present.

And your next question comes from the line of George Staphos with Bank of America. Your line is open.

Hi, Ron. Good morning. Thanks for the details and congratulations on concluding the year, guys. Two questions for me. One on growth and the other on operations. So as far as growth goes, what gives you comfort. Why should we be comfortable that the growth that you saw in Europe in particular wasn't just pre-buying ahead of the price increases that are going into place in 2022, which obviously, if it was more pre-buying, would risk your volume and your volume forecast in '22 and beyond? And relatedly to that, what benefit, if any at all, and if you could quantify, are you getting from ready-to-drink cocktails and what demand that's driving in glass? My second question is on operations. John, Andres, can you talk to us about how you expect that project activity headwind in operations to step down in 1Q, 2Q, and so on, that $30 million recognizing it was not just the project activity, it was a big headwind for you to get over. Thank you.

Thank you, George. So let's talk about Europe first. We've been tracking closely our demand and we didn't see any major reasons for indicating pre-buy in the previous quarter. Now, that demand that we saw in that quarter continued, and our price increases have been implemented. So we, at this point, believe that the pre-buy activity, if it is there, is quite low. Now, what gives us comfort regarding our demand in general, and at this point I'm going to talk about all markets, is the favorable trends we're seeing across markets. Some of them driven by consumer preferences; consumers are trading up. They're highly focused on premium, and they are focused on sustainable products and health and wellness for which glass is a very good fit. When we look at customers, they are focused on branding. Glass is a very good fit for branding tools. And we're seeing an increased preference by customers for local supply, and the reason for that is all the challenges they have experienced over the last two years with global supply chains, so they're concerned about security of supply cost and sustainability. As a result of that, they're localizing the production of their brand. So we're seeing more and more localization of global brands, for example, which is positively impacting our volume. The third dimension of these trends is glass has been performing really well in on-premise and off-premise both. And these can be confirmed by looking at the Nielsen statistics for off-premise and CGA for on-premise. Now, all of this that I just mentioned has resulted in high MPD activity across markets. And now because demand is solid for us, we're taking the opportunity to work on mix improvement to improve margins and improve returns. And the other dimension of that, which is very helpful to us, is it helps us define which businesses and assets we will focus on.

To build on some of the other parts of your question there, George. First on the growth side, I would say that we have a very strong commercial pipeline. In fact, we're oversold in multiple markets. So if we can make it, we can sell it in that regard. And then when it comes to the project activity, our maintenance activity in 2022 will probably be high in the first quarter and then start to normalize and drop off after that. Now the expansion activity will be a little bit more back-end loaded for the year just to give you a sense of that. Now what's playing through all this is a sense of what's going on in the supply chain? I mean, obviously project activity has been impacted by the ability to get equipment and also contracts for labor services. So overall, we've seen a little bit of delay and we've had to re-sequence things out across our system, but we're confident we can get the project done.

Just to complement, our expansions in 2022 which will generate incremental volume in the first quarter of '23, are all based on legacy technology. So we know that technology well, and all of the operating practices are very clear for us, so that facilitates the implementation. The execution involving MAGMA technology and the commissioning of that technology comes in the second half of '23. So we have enough time to get organized to be able to get there. So I think your question is a very relevant one and we identified that as an important area of focus for the organization, and that's why we're taking all the actions that I described before. Now one final point. One of the largest pressures we have had in demand over the last few years has come from domestic beer in the United States, and the declining trend of that domestic beer is slowing down, but there is accelerated growth of local and international brands for beer, which is fully offsetting that decline of domestic beer. So one of the largest pressures we've had over the last three or four years is fading away, and that's very positive for our total volumes.

Your next question comes from the line of Anthony Pettinari with Citi. Your line is open.

Hi, this is actually Bryan Burgmeier sitting in for Anthony. You're looking at 1Q guidance, you have $40 million in non-repeated storm costs, positive price costs, and positive shipment growth. What are some of the headwinds that I might be missing as to why 1Q couldn't be even stronger? Is there anything you would flag, R&D costs, equity, earnings, or supply chain headwinds?

Yeah, thanks. On the spread side, we'll have double-digit positive spread; however, we will probably have single-digit benefits from the volume that we talked about. As you alluded to, part of the spread is there because of the impact of the prior year on the winter storm year and from the energy surcharges. Our production will be up, but I think the key thing, there's two elements that are out there: we flagged higher project activity, whether it's maintenance and starting to ramp up on some of the expansion projects. Then there was a one-time $4 million insurance recovery last year that just as a thing to identify out there. Other than that, I think you get where you need to be.

Got it. Thanks. And just on the CAPEX guide for 2022, apologies if I missed this, and you lowered it by $50 million to $100 million from the guidance you gave at our conference in December. What changed over the last two months, and is the revised guide indicative of any supplier constraints or labor constraints that you may be seeing?

Yes. I would say that the planning numbers we provided a few months ago were early in the project planning process as we refined the actual project plan, which contributes to the difference. We have also experienced a delay of over three months in some project activities due to supply chain issues, particularly with contract labor. It’s challenging to find workers given the level of construction happening globally. All these factors are coming together. As for the implications for our long-term outlook, I believe they are minimal from one perspective. We may see a bit more normalization over the three-year period of the project activities instead of being heavily front-end loaded. That said, the dilution from divestitures is more favorable than we initially anticipated. While we initially guided for headwinds of about $0.25 to $0.30 for all these items, it now seems likely to be closer to $0.20. Ultimately, I think everything will normalize, and our guidance for the 2024 period still makes a lot of sense.

Your next question comes from the line of Salvator Tiano with Seaport Research. Your line's open.

Yes. Hi. Good morning.

Good morning.

Firstly, I want to ask a little bit about the earnings solution from the portfolio divestitures and the incremental debt from Paddock. So you mentioned it's going to be a headwind this year, but that's not happening in the first day of the year. So how should we think about additional EPS headwinds for 2023? What's remaining?

Yes, yes. The simple answer to that, and the easy answer is that if we had a $0.10 headwind this year, it will be an incremental $0.10 going into 2023. So the cumulative effect is that $0.20 I just referred to on the previous question, again, a little bit lower than what we were originally expecting. And this assumes Paddock middle of the year, as we kind of indicated, and then kind of a sliding scale for some of the Portfolio Optimization activities.

Okay, great. Before you discuss insurance proceeds, could you remind us what was received in Q4? Last year, the weather impact was around $40 million in Q1. Do you anticipate any additional settlements with utilities or insurance providers that will benefit your earnings this year?

Yes. Regarding the insurance, we are actively pursuing potential recovery, but the process is quite slow due to the disruptions and the number of companies involved. It's still in progress, and I think it's too early to draw conclusions, but there is a possibility for upside. In the first quarter of 2021, we recovered $4 million from insurance proceeds, but we do not expect that to occur again in the first quarter of 2022. What was your other question? I think we lost him.

Operator, are we ready for the next one?

Thank you. Your next question comes from the line of Mike Leithead with Barclays. Your line is open.

Great. Thanks. Good morning, guys.

Good morning, Mike.

First question. I wanted to circle back to Ghansham's first question and just make sure I understood it, but it sounds like the shipments guidance this year is pretty much a function of your capacity running full out. So even if your customers wanted to grow, say 4% or 5% this year as an example, it sounds like 1% kind of the upper limit in what you're going to be able to serve until the new investments come on in '23. Is that a correct way to think about it? How are your customers handling that conversation? Because my guess is they wouldn't want to leave growth on the table for a year or so.

The achievement reflects our understanding of the trends we've previously discussed and the available capacity. We took proactive steps last year to implement line extensions and have significantly focused on improving productivity to maximize the output from our existing assets. These efforts, along with upcoming events, will enable us to meet this growth. In Europe specifically, we've also added capacity, although we haven't yet experienced a normal operational year with full capacity. 2022 will mark the first with that full capacity in place, alongside various line extensions we've implemented over the past two years. This combination is currently aiding our supply in Europe and contributing to the higher figures we are observing. All our expansions are backed by long-term agreements, which are the primary drivers of our growth. Consequently, the timelines for these expansions align well with customer needs, so we anticipate no issues. There is indeed more potential, but we must proceed cautiously regarding the rate of our investments. We are continually assessing the market, and our pipeline remains robust. Our main focus now is identifying opportunities for the next business planning period.

And I would just add, the 1% growth is a function of the capacity of the elements that Andres has reflects the recovery from the winter storm Yuri in some of those additional line extensions. Of course, the team is working hard to continue to increase productivity, and we'll see whether that provides an opportunity on the upside. But I think it's too early to make that call.

Thank you for that. I have a couple of quick follow-up questions for John regarding interest. First, what are you currently assuming for the additional interest related to the Paddock funding? Second, can you remind us about your mix of fixed versus floating debt, considering the possibility of rising rates this year?

Yes. On the Paddock side, we estimate around $14 million. This equates to $600 million at our average borrowing rates starting mid-year. Currently, we're looking at a 70-30 split between fixed and floating rates, with about 30% being floating, possibly slightly less. Importantly, we have limited exposure to U.S. floating rates, estimated at around $500 million. Our current assumptions are based on the forward curve from a few days ago. If there are additional rate hikes, it may result in a couple of million dollars in impact, but we are not very sensitive to short-term changes in Fed policy.

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

Thanks. Good morning, Andres. Good morning, John.

Good morning.

John and Andres, you've answered a little bit of this already, but can you give us some sense of the follow-through you saw from Omicron and how we go into the first quarter here?

Yes, so the sound was breaking a little bit, but I think you were asking about Omicron and potential impact on the first quarter? Well, we've been very active in implementing guidelines, and all the procedures that are designed and are recommended to protect the employees from this perspective. As we know, Omicron has transmitted a lot faster, easier. However, it has significantly less impact than the previous variants. So it has been putting more pressure on the employees for our factories. Nevertheless, we've been able to operate pretty much normal across the global footprint. But that's an ongoing effort. I think at this point the incidence is starting to drop so that should move directionally appropriately for us, but we've been able to keep our factories running at 100% around the world.

And just to comment on the broader impact of the ongoing pandemic on the supply chain. One thing to keep in mind compared to other industries, our business is quite local. 90% of what we ship is shipped within 500-600 miles, and over 85% of our supply base is very local to our facilities. So as such, while you might hear of broader supply chain challenges, our business in effect is fairly localized. We've seen more with our customers impacted in things, but we've seen some smoothing out of that overall, over the last several months.

Okay. Then John, for my follow-up, I wondered if you can just help us understand your exposure to these high European gas prices. I know you've got hedges in place that protect you from some of that, but I'm just curious, as those hedges roll off, how will that interplay with pricing?

So what I would say is we have a very mature process to manage energy across the business. The team does a fantastic job and has been doing for a period of time; this is not a new thing. But we look out for the long-term and continue to manage the long-term of our contracts and also the financial tools that we use. So we're quite confident about where we stand on the contracted and net cost of energy.

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

Hey, good morning. Thanks for taking my question. Obviously, a lot of replacing with numerous price increases being pledged to consumers. Can you just talk broadly about your price elasticity with some of your end-markets? Any concerns here in terms of the higher value markets, such as spirits and champagne? Any way to characterize what percentage of your end markets are more sensitive to higher prices?

Over time, many of our businesses are increasingly shifting towards premium categories, which generally perform well compared to lower-end value categories. We experienced a similar trend during the last recession, where there was a move towards value in some mid-tier products. However, much of that has since been cycled out in the U.S., leaving us in a solid position. Particularly during the COVID period, affordable luxuries have remained significant as people are spending more time at home. Enjoying a good bottle of wine or a nice scotch becomes a way to find pleasure, especially when travel and other activities are limited, despite ongoing inflation.

Got it. Then you mentioned record low inventory levels, particularly in the Americas which was having an impact in terms of your ability to maybe serve some of your customers. Where are your inventory levels now here in February, and will you have the ability to get them to maybe more manageable or more efficient levels?

Yes. So the reason why we're seeing lower inventory levels is because we've been working on demand planning, supply planning, sophisticating those processes, and having those practices share around the world. We mentioned before in previous calls that we implemented integrated business planning, or IBP in the company, which has a significant influence on our ability to plan the business. So all of that is coming together to help us perform very well with lower inventories. Our expectation will be that we'll be able to continue reusing the inventories further, and we'll be able to maintain them at those lower levels over time.

The team has done a great job; our inventory days are down 25% over the last two years. As Andres mentioned, we're going to be putting in new systems and tools to be able to continue to sustain that and continue to do better. We can do better. It will take a little bit of time to create that balance, but there's still opportunity.

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

Thanks. Good morning, everyone. Hope you're well.

Good morning.

Hi, morning Andres. John, one question on your operating cash-flow guidance of 725-plus. Can you just help me with working capital? Do you expect it to be a source or a use, and how much? And then, with respect to some of the other items that lower pension and equity dividends, I'm just trying to understand relative to a normalized level of operating cash flow, how we should think about that 725-plus given some of the moving parts I mentioned and anything else that I neglected to ask about?

Certainly. In 2021, we saw significant cash usage due to accounts receivable as we built them up while the business was recovering. Accounts payable also contributed to cash usage, but this was balanced out by a decrease in inventories. Looking ahead to 2022, we anticipate collecting on those receivables since growth volumes will not be as strong as in the previous recovery year. This provides us with a cash flow opportunity, especially if our inventories remain stable or improve slightly. We expect business interest to increase moderately, mainly due to Paddock, while taxes will rise slightly due to settling some past issues. The pension situation is positive as 2021 marked the peak of our pension payments, which were around $80 million and should drop to between $20 and $30 million in 2022. We do not expect significant increases in pension payments after this. Overall, other factors will remain fairly consistent year over year.

Thanks, John. Andres, regarding the volume issue, you entered the fourth quarter anticipating flat shipments, but they actually increased by 5.4%. Why do you think your visibility on volume is so limited? Looking back at last year, January saw an increase of three, and it appears you have an easier comparison for February and March due to winter storm Yuri. However, you are still forecasting a slowdown as the quarter goes on and a further decline later in the year. I'm trying to grasp how clear your demand visibility really is and why it differs so much from your expectations in the fourth quarter.

I think the key driver of the incremental shipments that we saw is the continuously improved demand for champagne, wine in France, and Prosecco and Italian wines. Now those categories were extremely strong and a lot more than we expected. The interesting part of it is it continued coming into the first quarter. Remember that two years ago, those categories slowed down and they were soft. What we are seeing at this point is the full recovery of those categories. Our time is that sustained, and we will be able to incorporate those into our projections better. The other factor that is driving significant incremental demand is the very strong performance of beer in Europe, in the largest countries where we have our largest presence; primarily in Southern Europe, beer is growing ahead of alternative packaging and is having a very strong performance when you combine the two, we see the level of shipments that we're seeing in Europe. And the oil markets, they have very strong demand; they're just limited by capacity. So we got to deal with that. Depending on how the mix moves, we have the capacity available or not, and we have the inventory available or not. So that influences our planning that, for the most part, demand is very healthy, and as we go into a year, we will be able to fine-tune those projections.

To build off that, I would say, it's understood that the demand profile has been strong and has been strong, and we think it’s going to remain strong. The challenge has been looking at the supply chain and how that has been a cap on things, not necessarily in our system, as mentioned before, but on our customer side. The third quarter, we were down, and it was all because of supply chain related items, and it's kind of hard to read that. Going forward, I think that the wildcard is our ability to do more in the production side, creep it out, and get more capacity out there to serve that strong demand. And so it's really those variables not on the demand side that we're trying to read through, and there are a couple of wildcards there.

Your next question comes from the line of Mike Roxland with Truist Securities. Your line's open.

Thanks very much. And congrats Andres, John, Chris, on the year and the continued progress.

Thank you.

I have a quick question for John regarding inflation. You mentioned that your contracts are expected to cover not only 2021 but also inflation for 2022. Is the inflation for 2022 significantly higher than what you anticipated? Are the contracts designed to account for any additional inflation beyond your expectations for 2022?

Yeah. What I would say is we know our contracts and we know what they stipulate, as well as our financial positions that we use. So the line of sight on 2022 cost inflation is pretty good for the last few months. And I think if you've heard from us over the last couple of public appearances is that we believed consistently that we're going to be able to recapture unfavorable spread in 2021 and offset 2022 cost inflation. So we're in a good position there. Could spread be better than we anticipate? I think it will be if our view on inflation proves to be conservative. That's where it's at. And of course, we still continue to do some marginal level of pricing out in the marketplace. And so we'll see how those two dynamics play out.

And if inflation goes higher than we currently have it projected in our conversations with customers, we make clear that if that happens, we'll be back. Because we won't be able to absorb ourselves the pressure of that inflation. But at this point, with all the information we have, we believe our predictions are conservative.

I believe this builds on our earlier comments. As we entered 2021, inflation turned out to be double what we initially expected, but we managed to offset 80% of it. This demonstrates greater commercial flexibility than what has typically been seen from the business in the past. We have a solid capability in this area, and that’s how we are navigating these challenges.

Got it. I appreciate the color. Just one quick question on the inventories. You mentioned shipment is grown 1% this year, you have high demand, you have limited capacity at least for the time being. But you want to keep inventories lean. Given the current supply chain logistics issues, obviously, that could be transitory or could come back at some future point. What do you think it’s prudent to maintain inventories at a very lean level, coming out of the other side of this pandemic or the supply chain? Why not, say, look at inventories, evaluate, maybe you need inventories 5% higher, 10% higher? What's the logic in saying, we'll continue to run lean and risk potentially not being able to supply customers as you have been able to do recently?

Well, this business can run with lower inventories than we have determined. If we have all the right processes, and tools, and practices in place. Now, the investments we're making are the ones that are going to help us take us to have incremental demand. So we want the efficiencies of the supply chain, but we need larger capacity to be able to meet the growing demand for glass containers. So that's how we look at it. We're moving forward with the expansions in at the region and we are in early planning stages of the projects that we presented to you as part of the business plan.

And your last question comes from the line of Arun Viswanathan with RBC Capital Markets. Your line's open.

Great. Thanks for taking my question. I just wanted to follow up on a couple of comments you made earlier about the dollar impacts for '22. It sounded like you were about $50 million behind on price cost but you fully expect to recover that in '22. And it sounded like your inflation for '22 would be above the 230% that you saw in '21. So assuming it's around 250%, that looks like you'll get about $300 million or so of pricing. I guess, is that right? And then given your volume outlook of just, say 1%, it sounds like your EBITDA or your EBIT would be up in that $30 to $50 million range for the full year, is that right? Is that the right way to think about it? Maybe $30 million to $60 million, is that right?

So on your point of the pricing and the spread, the way you're thinking about it is right. But we're not specifically going to communicate what we're getting on the top of the top line price for competitive purposes. But the way you're doing the math is logical. As far as the improvement on the EBIT side, I think it'll probably be on the high end of the range that you indicated on the EBIT side; EBITDA might be more like $30 million or something like that. I'm sorry. Let me correct that. You're right. It might be in the kind of the mid-part of the range that you're saying there, mid-to-low range.

Thank you. That concludes the question and answer session of today's call. I'll hand the call back to Chris for any closing remarks.

Thanks everyone for participating in our call. That will conclude our events today. Please note that our first quarter 2022 call is scheduled for April 26. And remember to make it a memorable moment by choosing safe, sustainable glass. Thank you.

Thank you. That concludes the O-I Glass full year and fourth quarter 2021 conference call. You may now disconnect.