O-I Glass, Inc. /DE/ Q4 FY2025 Earnings Call

Hello, everyone, and thank you for joining the O-I Glass, Inc. Full Year and Fourth Quarter 2025 Earnings Conference Call. My name is Lucy, and I will be coordinating your call today. During the presentation, you can register a question by pressing star followed by one. If you change your mind, please press star followed by two. It is now my pleasure to hand over to your host, Christopher Manuel, Vice President of Investor Relations, to begin. Please go ahead.

Thank you, Lucy, and welcome everyone to the O-I Glass, Inc. fourth quarter and year-end conference call. Our discussion today will be led by Gordon J. Hardie, our CEO, and John A. Haudrich, our CFO. Following prepared remarks, we will host a Q&A session. Presentation materials for this call are available on the company's website. Please review the safe harbor comments and disclosure of our use of non-GAAP financial measures included in those materials. I would now like to turn the call over to Gordon, who will start on Slide three.

Good morning, everyone, and thank you for your interest in O-I Glass, Inc. Today, we will review our full year and fourth quarter 2025 results, discuss recent business trends, and provide an update on our strategic initiatives. We will also outline our 2026 outlook and progress towards our 2027 investor day target. Before we begin, I want to recognize the commitment of the entire O-I team. Your dedication and execution continue to strengthen our performance. Last night, we reported full year adjusted earnings of $1.60 per share. Supported by stable top line, adjusted earnings nearly doubled versus 2024, and free cash flow rebounded to $168 million. These results reflect meaningful progress against our strategic objectives and were in line with our most recent upgraded guidance. A key contributor was the continued outperformance of Fit to Win, which delivered $300 million of benefits in 2025 and more than offset ongoing macroeconomic pressures. We exited the year with positive momentum as fourth quarter adjusted earnings increased meaningfully versus the prior year period. Looking ahead, we expect continued progress in 2026, including another strong year of Fit to Win execution even as market conditions remain challenging. We are reaffirming our 2027 Investor Day financial targets. Despite challenging end markets, we have increased our cumulative Fit to Win benefit target, reinforcing our confidence in achieving our 2027 adjusted EBITDA goal. As a result, we expect to continue improving earnings, expanding economic profit, strengthening free cash flow, and delivering sustainable long-term value for shareholders. John and I will provide more detail on recent performance and our outlook. Let us now turn to Page four to recap our strong full year 2025 results. As you can see, our performance improved across our key financial metrics. We created intrinsic value with economic spread expanding by 200 basis points, driven by stronger earnings, more disciplined capital allocation, and continued network optimization. As intended, we maintained a stable top line. Average selling prices were steady, while favorable FX largely offset a decline in volumes. Our shipments in tons were down 2.5% amid a 3% decline in consumer consumption. A few insights to add. On a unit basis, our shipments were down only 1.5%, reflecting our deliberate shift towards lighter weight and smaller format bottles with strong margins. Major project startups in Europe impacted shipments by nearly 1%. Finally, we capitalized on emerging opportunities and pockets of growth as higher value categories such as premium spirits, food, non-alcoholic beverages, and ready-to-drinks outperformed trends in mainstream beer and wine. Overall, we believe O-I maintained our modestly improved market share as we continue to upgrade our business portfolio. Adjusted EBITDA increased 11% with margins expanding 220 basis points as Fit to Win benefits more than offset modest pressure from net price and volumes. Adjusted EPS nearly doubled, driven by stronger operating performance and a lower effective tax rate. Free cash flow improved by approximately $300 million, supported by higher adjusted earnings, favorable working capital management, and a 30% reduction in capital expenditures. This improvement was achieved despite $128 million of restructuring payments, which are expected to taper after 2026. Finally, leverage improved by nearly half a turn to 3.5, and we remain on track to reach approximately 2.5 leverage by year-end 2027. Stepping back, we continue to operate in a challenging environment as the value chain works through the long tail of post-COVID normalization. Against this backdrop, we are taking a highly disciplined approach, enhancing our portfolio, executing Fit to Win, and maintaining rigorous capital allocation, which positions us well as markets eventually recover. The common thread behind these results is execution, particularly Fit to Win, which we will now discuss on page five. Fit to Win is a core value driver for our business. The effort continues to deliver significant cost reductions while optimizing our network and value chain. Cost discipline is not just defensive. Our cost mindset and discipline strengthen our competitive position, which is a critical engine to enable future profitable growth. In 2025, Fit to Win delivered $300 million of savings, exceeding our original target of at least $250 million. Momentum remained strong in the fourth quarter with benefits of approximately $80 million. For 2026, we expect at least $275 million of additional savings. Given this progress, we have increased our three-year cumulative Fit to Win target to at least $750 million, up from $650 million. Let us discuss progress across the different phases of the initiative. Phase A focused on SG&A streamlining, and initial network organization optimization generated approximately $180 million of benefits in 2025. We expect an additional $135 million in 2026 as we advance later stage SG&A initiatives and finalize previously announced elimination of approximately 13% of excess capacity by mid-2026, with remaining actions primarily in Europe. Phase B targets the end-to-end value chain transformation delivered approximately $120 million of benefits in 2025, ahead of expectations. We anticipate at least $140 million of savings in 2026 as we progress through the rollout of total organization effectiveness across the plant network, with full implementation expected by year-end. We are also accelerating procurement and energy initiatives to drive incremental savings. Importantly, the upside opportunities in phase B drove our increased 2027 target. Overall, Fit to Win is delivering faster and stronger results than planned, notably in our phase B project. We remain fully committed to achieving our 2026 and updated 2027 targets. With that, I will turn it over to John to review fourth quarter performance and our 2026 outlook, starting on Page six.

Thank you, Gordon, and good morning, everyone. I will start with a review of our fourth quarter performance, as Gordon has already covered full year 2025 results. O-I delivered a solid fourth quarter with higher earnings supported by a stable top line. Net sales were approximately $1.5 billion, and average selling prices were essentially flat, while favorable FX largely offset a mid single-digit decline in volumes. Adjusted earnings rebounded meaningfully, improving from a net loss in the prior year to $0.20 per share. This improvement was driven by strong Fit to Win benefits, higher production levels, and a lower effective tax rate, which more than offset modest net price pressure and softer volumes. Overall, we delivered another solid quarterly performance reflecting disciplined execution, continued cost reduction, and sustained momentum from our strategic initiatives. Now let us turn to page seven to review segment operating profit. Momentum remained strong in the fourth quarter, with segment operating profit increasing by 30% to $177 million and margins expanding by 280 basis points. In the Americas, segment operating profit rose by 40% driven by higher net price and continued Fit to Win benefits. Volumes declined by 10%, which was concentrated in beer and spirits, while other categories like food and non-alcoholic beverages were more stable. Based on market data, about half of this decline was due to lower consumption, given ongoing affordability challenges, changes in consumer behavior affecting many markets, and weather-related disruptions in Brazil. Evolving U.S. trade and immigration policies also impacted consumption and drove inventory adjustments across the value chain in the U.S. and Mexico, which also weighed on shipments. Additionally, results benefited from a one-time $6 million insurance settlement related to a prior year event. In Europe, segment operating profit increased by 8%, reflecting contributions from strategic initiatives and higher production following last year's inventory reductions. Net price was a headwind, and volumes declined by 3.5%. Based on market data, consumption was down low single digits while shipments were also impacted by a shift in order patterns and other factors with a few customers. Overall, segment operating profit increased solidly, demonstrating disciplined execution and the continued success of our initiatives. Looking ahead, we expect to build on our momentum and deliver improved results in 2026. The top line should be stable or modestly higher, supported by slightly better gross price and favorable FX as sales volumes are expected to be flat or slightly down. As markets gradually stabilize, we will continue to optimize our portfolio, including exiting unprofitable businesses to improve economic profit while maintaining or growing market share. We anticipate adjusted EBITDA of $1.25 to $1.30 billion, representing up to 7% growth versus 2025. This includes an estimated $150 million energy cost step-up as favorable European energy contracts expired at year-end. Excluding this impact, adjusted EBITDA would increase by up to 22%, highlighting the strength of our underlying operating improvements. As Gordon noted, we expect to benefit from at least $275 million of incremental Fit to Win actions, which should support improved performance despite modestly lower net price and flat or slightly lower volumes. We project adjusted EPS of $1.65 to $1.90, representing up to 19% growth assuming a tax rate of 30% to 33%. Free cash flow is expected to approximate $200 million, reflecting higher earnings partially offset by slightly higher CapEx which should approximate $450 million and about $150 million of restructuring cash costs which should decline after 2026. This first quarter will be our most challenging year-over-year comparison due to tariff prebuying, a one-time insurance recovery in the prior year, and a seasonally higher tax rate. Volumes will likely be down mid to high single digits given tough comps and sluggish demand. Over the balance of the year, results should improve as comparisons ease and Fit to Win benefits continue to ramp, particularly as European capacity actions and implementation progresses. Additional guidance details are included in the appendix. I will now turn it back to Gordon to discuss progress towards the 2027 targets and concluding remarks starting on Page nine.

Reflecting on our solid momentum, we are reaffirming our 2027 Investor Day targets. As you can see, we are making solid progress across our key objectives. Adjusted EBITDA and margins are improving. Fit to Win is accelerating. Free cash flow conversion is improving. Our balance sheet continues to strengthen, and our economic spread has rebounded. Importantly, the business is moving in the right direction across all dimensions. In summary, we are making solid progress in building a stronger foundation for the future. While conditions remain challenging, we are focused on improving competitiveness and preparing for volume recovery beyond 2026. Importantly, Fit to Win is a new discipline management system that drives consistent performance improvement regardless of market headwinds. As a result, margins and adjusted earnings are rising, free cash flow is improving, and our balance sheet continues to strengthen. Most importantly, execution is strong and momentum is building. Thank you for your continued support. We are now happy to take any questions.

Thank you. To ask a question, please press star followed by one on your telephone keypad now. When preparing to ask your question, please ensure your device is unmuted locally. First question comes from Ghansham Panjabi of Baird. Your line is now open. Please go ahead.

Yes. Thanks, guys. Thanks, Operator. Good morning, everybody. Gordon, just going back to the fourth quarter and the 10% volume decline in the Americas, how much of that do you attribute towards just year-end inventory adjustments? Obviously, it was a very tough year for many of your end markets throughout 2025, and I assume there was a fair amount of cleanup going into 2026. So just curious as to your thoughts. And then how are volumes in the region performing thus far in 2026? I know you have a tough comp from what you mentioned in terms of the prebuy, etcetera.

Yeah. Thanks, Gansham. We continue to see inventory adjustments in North America, particularly in spirits and in beer, particularly on beer originating from Mexico given some of the changes in consumer behavior. We would say somewhere up to maybe half of that decline was due to inventory adjustments. The two main drivers of that were inventory adjustments in beer and spirits, and there was also a bit of destocking in wine, but we believe that is largely cleared. So the big areas have been beer and spirits. We continue to see fairly high stocks in spirits, with the inventory to sales ratios still running above 1.7, 1.8, which is historically high versus the long-run average of above 1.3. However, we also continue to drive Fit to Win, which helps us overcome these short-term inventory adjustments. We expect inventory adjustments to continue in the first quarter due to the high level of stock in North America, but we are seeing pockets of growth across food and non-alcoholic beverages, particularly with water being strong for us in North America.

Got it. Thanks for that. And then for as it relates to the, you know, the expanded savings, you know, $750 million versus $650 million before. Is that just a function of the volumes being lower than you thought and so you are taking additional actions? And then just one final clarification on the energy headwind of $150 million for 2026. Is that just a one-and-done? Will it just be specific to 2026? Or will there be any sort of lingering impact, 2027 onwards? Thanks so much.

Yeah. I will take the first part. So would you take the energy question? Yeah. I will take the energy.

Let me just start with that one. On the energy side, yes, the $150 million energy reset is pretty much a kind of a one-and-done. The contracts that we had that were multiyear contracts expired at the end of the year and were rates before the war with Ukraine, which were at low rates. Those expired at the end of 2025. We have since been basically layering in contracts and hedges over the course of the last year. So we are substantially contracted on our energy exposure in 2026 in Europe. We are confident about the $150 million which is substantially at prices below current TTF but still a ramp up from where we were in the past.

With regard to the additional savings, it is not simply because of the volume. We had pointed out in earlier calls and particularly on Investor Day that $650 million was the original target, and we had a bigger bucket to go off. As the savings came faster than planned, we executed those savings, and we are able to get after some of the savings we saw embedded but did not have a clear line of sight to a year ago. Now they are coming to fruition and being able to execute that helps offset the volume, but it is not because of the volume, so to speak. I think there are separate issues, but they certainly underpin our confidence in delivering our 2027 number.

Okay. Perfect. Thanks for that.

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

Hi. Good morning. This is Kyle Benvenuto stepping in for George. Regarding the flat to slightly down volume outlook, does this include the impact of exiting unprofitable business? Or is that excluded? And what is the volume impact associated with walking away from that business? Thank you.

Yes, thanks for the question. The outlook for 2026 where we say flat to slightly down does incorporate our mix management efforts, which also includes our efforts to improve our premium mix of business and grow market share in this area, but also exiting unprofitable negative economic profit business. For example, if you go back to our Investor Day, we said that there was about 4% of our total volume that was deeply negative economic profit, and we wanted to address that. Over this last year, we probably saw about a 1% movement in that book, and we expect to continue to chip away at that. So, yes, that is included in that outlook for the next year.

Thank you. And then just to follow-up, the Fit to Win was designed to lower your cost position and open up doors to new volume opportunities, why was that not sufficient to retain this volume? And thank you. I will pass it over after that.

What I might do is unpack some of that to give you some insight at year-end. But if you look at our total volume, it was down about 2.8%. There was, directionally, above one to one and a half percent share gain that translated into 1.5% volume. We also had restocking in certain regions that probably added about another one to 1.5%. On the negative side, we had some customer events where customers were managing their inventory, taking some capacity down in the short term. That was about a decline of about 1.5%. We mentioned a startup of a fairly large capital project we had in the region that probably added some capacity. And when you net that off, that nets to about 2.5%. But within that, we think there was about a 1.5% growth in volume, and that was high quality, high economic profit growth.

And to build on that, we really wanted to take a very disciplined approach in the marketplace. Given the challenges in the macro environment, we held the top line steady, which was exactly what we wanted to achieve. From our perspective, net price was basically flat in the marketplace while volumes were down a couple of percent. Given the context of the market, we think that is good discipline in execution. The concept of growing notwithstanding the mix management and everything that is going on right now is really kind of our horizon two effort that we are working on. We are building the system for that right now and finding those pockets of growth as Gordon alluded to in the commentary.

We mentioned in our investor day and in subsequent calls we really had mapped all the categories and segments across all the markets in which we compete. We have a very clear view on where the pockets of growth are, where we have a right to win, and we are now adjusting or revamping our go-to-market model across all our sales force in all the markets. We are seeing some wins in that area, and expectation is for growth to come through, particularly with upcoming events like the World Cup and US 250-year celebration expected to positively impact our volumes.

Thank you.

Thank you. The next question comes from Joshua Spector of UBS. Your line is now open. Please go ahead.

Hi. Good morning. It is Anojja Aditi Shah sitting in for Josh. I wanted to ask about the $750 million new cost savings target. Not to take away from how impressive this performance has been, but you basically raised the cost saving target by $100 million but kept the 2027 EBITDA the same. I assume that means that maybe you are assuming volumes are going to continue to offset. But is there anything else in there, or what explains that? Can you reconcile that for us?

Yes, the end target of at least $1.45 billion remains in place. We are not limiting ourselves to $1.45 billion at least. So, we have increased Fit to Win by $100 million, which does help mitigate the uncertainty around the commercial environment. We are working to drive improved commercial outlook for the business. It is just back to the last discussion; we are building this system to be able to grow as we always said. It is going to be a bit more of a horizon two target as we drive top line growth but we are making room given the uncertainty and the continued prolonged affordability challenges out there in the marketplace.

Great. Thank you for that. And then in the past, you talked about working with customers and the supply chain to get better as an industry of forecasting demand. I think you had said that you were only about at a 50% success rate. Can you give us an update on that and maybe where you are now and any financial benefits you are seeing from that?

Sure. When we kind of began the journey, it was running at about 50%. I am glad to report that as we move through 2025, that is jumped to about 68, 69%. With many of our customers, we have had discussions about the need to improve the supply chain efficiency. I think there is a big opportunity for us working with customers and suppliers to strip out waste and inefficiency in the value chain. Our new chief supply officer is focused on stripping cost and waste out of the supply chain and sharing that with customers and suppliers with a view to growing volumes in different categories.

Great. Thank you. I will turn it over.

Thank you. The next question is from Michael Andrew Roxland of Truist. Your line is now open.

Yes. Thank you, Gordon, John, Chris, and team for taking my question. Congrats on all the progress. Gordon, I wanted to follow-up if you could provide more insights on the pockets of growth you mentioned and revamping the go-to-market model. What are you doing differently and what are you trying to encourage the sales force to do differently to drive better volume?

Yes, the short answer is we are reorienting the portfolio to focus on higher-growth and higher-margin segments such as non-alcoholic beverages, premium non-alcoholic beer, waters, juices. We are seeing significant growth opportunities in the Americas in that area. Food is growing particularly in the southern half of Europe and in markets like Brazil, Mexico, and North America. We are adjusting our go-to-market model across our sales force in all geographies. I view the organization of the sales forces in different markets as somewhat traditional, and we are bringing in better insights, sharing those insights with the sales force, and incorporating modern methods of sales management into the business. We are equipping the sales force with insights and opportunities by customer to improve growth and cost or both. We are implementing a much more rigorous system of review and accountability, with tighter account management. While this is standard in other industries, it represents a significant step forward for us, and we already see green shoots from this system.

That is very helpful. Would it be fair to say that the changes you are pursuing will lead to the volume growth targeted for 2028 and beyond? Sounds like you are getting an earlier jump on these things, particularly bringing forward Fit to Win benefits such that you are advancing on commercialization, streamlining the organization, and bringing in business wins.

Yes, that is a fair assumption. The focus was initially on supply chain improvements and strengthening cost management, which we have made progress on over the past eighteen months. This allowed us to shift to the front end of the business sooner than expected. We sequenced this approach carefully to avoid supply issues, and while there is still work to do, we have gotten the back end in order, enabling earlier focus on the front end.

Got it. Very helpful. Thanks very much, and good luck in 2026.

Thank you.

The next question comes from Arun Shankar Viswanathan of RBC. Your line is now open. Please go ahead.

Great. Thanks for taking my question. I just wanted to understand how the volume trajectory would progress through 2026. Last year in the first half, you were up 2%-4%. Now you face tougher comps. Should we expect a reversal of those trends in 2026? And if so, do you expect positive volume growth to continue into 2027?

Yes, Arun, thanks for the question. The first quarter, as we indicated, is going to be our toughest comp period. Our volumes were up between 4%-5% last year. We believe that was largely due to tariff prebuying. Given this, we project mid to high single-digit declines in the first quarter. We anticipate transitioning into something closer to flat in the second quarter, with low to mid single-digit growth in the back half of the year as comparisons ease and commercial momentum develops.

Great. Thanks for that. The free cash flow guidance is somewhat in line with our expectations. Any opportunities for upside, maybe coming from net price not being as negative? Or working capital harvesting a little more? Any opportunities there for free cash flow upside?

Clearly, the biggest lever is going to be on the EBITDA side. If we can perform on the top end of the range and get some of that higher-end performance, we are always aiming for more. We are also looking to continue reducing inventories this next year. While we have made provisions for receivables, we are working on reducing non-finished goods inventories, which may yield additional cash opportunities.

Thank you.

The next question comes from Anthony Pettinari of Citi. Your line is now open.

This is Bryan Burgmeier on for Anthony. Thanks for taking the question. Considering the first quarter outlook, do you anticipate any curtailments continuing into Q1 or Q2? Or do you think those curtailments, if they are going to be there, would taper off throughout the year considering your footprint actions to be wrapped up by midyear? Any detail on curtailment or operating rate would be helpful.

When you look back in 2024, about 13% of our capacity was underutilized, which drove our program to eliminate the capacity, which we have been working on. That 13% in 2024 dropped to about 6% in 2025 as we made progress. We expect that 6% to drop further in 2026 as we complete actions in Europe. We might carry some downtime initially, but we expect significant progress to stabilize the footprint.

Got it. Thanks for that detail. That makes a lot of sense. Then last question for me. You mentioned the prebuy impact from tariffs. As you start to get closer to Liberation Day, are you seeing kind of stability or even potentially a modest recovery in those impacted markets?

Yes, we are seeing some stabilization, and certainly there is more certainty now than a year ago. We are seeing some geopolitical moves that create opportunities for the Scotch industry to export more. The big challenge in the U.S. market remains increasing consumer offtake and driving down the inventories in the system as customers adjust their marketing strategies and spending to do so. Overall, the outlook is more stable and positive than it was last year.

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

Hi, good morning. Most of the questions have been answered, but I have two. First one is if you could give a little more detail on the European market's supply and demand dynamics. You commented that mainly before the cut in supply would be in Europe. How do you expect the volume to perform there?

In the Americas, we see capacity pretty tightly aligned with demand, which has reduced price pressure overall. However, in Europe, there is still excess capacity, especially in categories like wine where there remains price pressure. We have been taking actions to eliminate surplus capacity across the markets and expect that our network will be tighter moving forward as we complete our strategy by mid-2026.

Additionally, the trajectory of net price performance has been on the upswing. 2024 was a reset year due to overcapacity issues, while 2025 was improved, and we expect 2026 to continue that trend as we work through remaining price pressures.

Thank you very much. My second question is regarding the trend of moving from can to glass for better profitability. Are you seeing this driver already this year, or is this something that is still pending to be seen?

We have observed a slowdown in the switch to glass in North America. When prices of aluminum are at current levels, typically, we see movement towards glass. However, we are still focused on driving internal cost opportunities and are well-positioned against cans in various categories where glass is more suitable.

Thank you. The next question comes from Richard Carlson of Wells Fargo. Your line is now open. Please go ahead.

Good morning, guys. I am sending in for Gabe Hajde today. Most of my questions have been answered, but I did want to ask. Inventory was up $20 million quarter-over-quarter. We normally would have expected it to be down, so that is about a $40-50 million delta there. Are you tracking ahead of your free cash flow guidance? It seems like maybe surprise with some of the volume in the Americas might have been to blame there. Does this set you up a little better to start 2026 since maybe some of the inventory build into Q1 is already done?

When you take a look at those balance sheet numbers, there is a lot of FX flushing through. So on an FX neutral basis, we were able to reduce inventory some last year. While we did not achieve our inventory day targets, we anticipate continued improvement in 2026 with efforts to reduce inventories and work with our balance sheet to refine cash management.

Understood. That is helpful. Your quarterly cadence guidance seems pretty balanced in H1 versus H2. Many peers expect a stronger back half. Can you help reconcile some of that?

We view the first quarter as a tough comp period, given prior year performance. The second quarter will start aligning with our strategies and Fit to Win initiatives. Any sales declines will also need to factor in macroeconomic factors impacting affordability and consumer spending. While we are maintaining cautious optimism, we are also acknowledging potential upside from macro improvements.

Thanks, guys, and best of luck in Q1.

Thank you.

We have no further questions at this time. I would like to hand back to Chris for closing remarks.

Thanks, Lucy. That concludes our earnings call. Please note that our first quarter call is currently scheduled for Wednesday, April 29. Remember, make it a memorable moment by choosing safe, sustainable glass. Thank you.

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