O-I Glass, Inc. (OI) February 25, 2026 Conference Transcript

Happy to have one of the very first companies we ever had at one of our conferences, we won't say how long ago, OI Glass and the Chief Financial Officer John Hodrick, an old friend of ours, having joined the company in 2009 and having become Chief Financial Officer in 2019. Also in the audience is our friend and Head of Investor Relations, Chris Manuel. Chris, great for being here.

Thanks for being here, great that you're here and want to thank you for making the trek again with all of the weather and logistics so John take it away yeah thanks George and the big thanks to the Bank of America team for hosting this conference it's always a great venue and so what I have here is about five minutes of prepared comments I just want to talk through what's you know what is our strategy what are we trying to get done as a company and also provide a more update on our business outlook of where we stand right now before we go any further please note the safe harbor clauses within the materials that are hosted also out on our website. You probably already know OI, but just the background, we are the world's largest glass container manufacturing company. We make and serve the top brands and covering beer, spirits, a whole host of different categories that hopefully you enjoy on a day-to-day basis. Not only are we the largest glass company, we're the largest that serve the mainstream and to premium categories. We do this by serving thousands of customers spanning 74 different countries with our network of 64 plants covering 18 different countries with our team of almost 20,000 employees. And as you can see, we have the financial scale that is unique to our business. And we'll talk a little bit more about what makes OI unique. So consumers and customers love glass. I think we've done a lot of surveys over the year. If a consumer had a choice between a glass container and some other alternative, they usually pick the glass container. Our customers also love glass because if you are a brand manager and you're trying to show image, differentiation, quality, premium. Glass stands out as a very, very unique substrate to be able to put your product in. What we need to do is we need to make glass more cost competitive in the marketplace so we can get glass into more hands out there. So that's what we're very much focusing on. And as we accomplish that, we are going to leverage our privileged customer relationships, many going back more than 100 years, spanning all over the globe. And then we believe that we're going to be able to grow our business, leveraging that privileged footprint, because not only can we serve local accounts, but we can sell large global accounts, both with a global reach, but also a local feel. So what are we trying to get done? What is our thesis? Building on what I just said, we are improving the competitiveness of our business. We're doing this through an end-to-end value chain analysis. Every stone is being unturned to look at opportunities to improve the competitiveness of our system. As we do that, we believe we're going to be able to grow the business, focusing more on premium categories that have a great fit for glass. And then that will be able to launch expansion and different categories and geographies to be able to grow the business we're doing this all with an economic profit mindset we have economic profit to find down to every note of our business down to every SKU of our business we know where we make money and we know what we need to do to be able to make money on that business and as you look at it we project improved financial performance and as you can see on the on the chart on the right with our expectations of EBITDA improvement that's about an 8% CAGR per year. We're going to be executing this strategy over three horizons. The first horizon, which you may have heard of, is fit to win. That's where we're radically addressing costs, and I'll touch base upon that in a minute. By reducing those costs, we believe that we will make, again, our product more competitive in the marketplace, and more people will be able to cost effectively get the attributes of glass in their products. That will drive profitable growth. And then ultimately, you create that virtuous cycle. By doing that, we earned the right to look at expansion, M&A, different capital allocation options into the future, which is Horizon 3. So fit to win, that's where we are right now. We're kind of in the midpoint of that endeavor. And as you can see on this chart, we're off to a very good start. In 2025, we had $300 million of cost savings that exceeded our target of $250 million. So we got the momentum behind us in doing very well. We target this year in 2026, at least $275 million of savings. And then we have a three-year target of $750 million, which is actually, we actually increased that target here recently. And to put it in perspective, $750 million of savings is about a 15% reduction in the cost base of our company that'll go a long way that's going to be very important to be able to improve the competitiveness of our products in the marketplace so what is this doing for us we believe that we're making solid progress towards our 2027 investor day targets EBITDA is improving margins are improving fit to win is off to a great start and in fact we just as I mentioned we increased our targets there free cash flow has rebounded, leverage is improving, and we've inverted into positive economic profitable growth. So that brings us to where we are right now in 2026. As you can see on the left-hand side, we expect an improved earnings, higher EBITDA, higher EPS, higher free cash flow, and improved leverage on our way towards those investor day targets. One thing I don't know whether you saw, but we did send out a market update earlier this morning, and we are maintaining our 2026 guidance, but we are seeing more earnings pressure in the first quarter. There are two things going on, both in Europe, okay? First, we are seeing incremental competitiveness pressure, primarily in the wine category, and it's in Southern Europe, it's in Italy, and in France, mostly in Italy, And that's putting a little bit more pricing pressure than we anticipated. Usually those negotiations happen from kind of mid-November to early to mid-February. It's extending more. And some of those agreements that were previously set are being reopened against a competitive environment. So we expect more pricing pressure in that particular subcategory of the marketplace. The second is, as you may know, is we are in the process of restructuring our business over in Europe. We're eliminating excess capacity to balance our system with supply and demand. And in that process of closing three furnaces or three factories, rather, and moving that business to other facilities, we are incurring a little bit more logistics and supply chain costs than we originally anticipated. That's a temporary element that will be remedied in the near future. So as we stand here today, you know, the earnings quarterly allocation will be below the range that we've identified there. But again, we are not changing our full year view. We have additional fit to win opportunities we're pursuing. We're reasonably optimistic that through the negotiations we're doing, we'll see some additional sales volume opportunities over the balance of the year. That might come in a little bit later in the year as we work through things. And also in an environment where typically we see some additional pricing pressure, like we were talking about, often the inflationary pressures go down given the dynamics that are going on in the marketplace. We saw that last year, and our net price headwinds were a lot less than we ultimately thought at the beginning of the year. So those are three things that we're working on and working on the procurement side to be able to manage the full value chain that we're looking at. But again, we're focused on driving improved performance, again, reiterating our outlook for the full year, and looking forward to creating more value down the road, as we just talked about in the previous page. So, just in conclusion, we believe that we are delivering on what we said during our investor day. Last year, we had a very stable top line. We improved the quality of our earnings, moving things into more premium categories. We have simplified the organization, and the operations are more cost-effective with better-than-expected fit-to-win benefits. Margins are up, earnings are up, free cash flow is up, the balance sheet is getting healthier, and we're driving higher economic profit. So hopefully that gives you a bird's-eye view of the business. And, George, back to you.

Thanks, John. Great rundown. So, let me get settled here. So you mentioned that you're not changing your guidance, even though you have this pressure early on. And we appreciate that. Of the three, the things that you mentioned, three things, you have more fit to win. You have more volume later in the year and you expect there'll be less in the way of net price headwind because the inflation that's out there in the market.

Yeah, those are those are the variables in play, I believe, that that's going to allow us to achieve what we have.

So now, of those, as I sit here and tell me where you disagree, the additional fit to win, in my view, is the only thing that really is controllable. So if the other things, if it was just the fit to win, where would your guide be as opposed to that?

Yeah. For clarity, we have a roadmap to our guidance, okay? And that roadmap is fully aligned by cost through fit to win, okay? Those other variables that I mentioned, whether it's additional volume or whether it ends up seeing some softening of inflationary pressures, those would just be other variables that might be additive to being able to help the situation, but we're not relying on those by any measure.

Okay. So you feel you can be in your range just with fit-to-win?

Correct, yes. All the things that we have in our building blocks to recover against this early pressure points are all associated with fit-to-win and cost management.

And remind us what's embedded in your volume outlook for the year. And first quarter, I think, had started somewhat more softly. Help us calibrate on that.

Yeah, sure. So, we had it guided for the full year that we would be flat to slightly down on sales volume. Okay, that included kind of a general view of a flattish marketplace, and we did indicate that, hey, even at ideal operating performance cost standards that we're aiming for, a little bit of our business is still negative economic profit, and we're either looking to either increase the prices on that ideally or exit some business. OK, so we're making a little bit of room in there for that. We also indicated, you know, just several weeks ago at our earnings call that the first quarter would be the most challenging. You know, it's a comp issue. We were up, you know, between four and five percent last year on volumes. It ended up ultimately being pre-buying. OK, as that played before the tariff pressures and stuff like that or tariff dynamics came into play. So we believe that we were going to, you know, we had indicated we'd be down mid to single digits, the high single digits in the first quarter. It'll probably trend to that higher end of the range, primarily as people are negotiating and those negotiations extend out for that open market. There's not a lot of buying activity. Most people kind of sit on their hands a little bit waiting for those negotiations to be done before they enter the buying part of the market. So I think that dynamic is going to play out a little bit here in the first quarter, which is it's not not unexpected. Now, so from there, we believe that, you know, the comps for our business, just to be clear, get easier as the year progresses, that we think that, you know, volume should be kind of flattish in the second quarter and then invert to modest improvements in the back half of the year.

Thanks for that, John.

We'll have more, but any questions in the audience for John?

We'll keep forging ahead.

And you mentioned, and if you could give us a bit more color on that, that your efforts in fit to win will lower your cost base about 15%. So is that inclusive of the, is that all the $750 million that would reduce your cost base by 50% or just some component within fit to win would allow you to do that?

So $750 million represents 15% of our cost base. So we're about a $5 billion cost base or so, thereabouts. So that's what that relates to. Of course, you've always got moving things like inflation and other factors that are moving in. But the core controllable cost is that $750 million.

Now, the $750 million, which was raised from $650, it was greater than $650, now it's greater than $750. So an increment of 100 roughly. Was there any of that that was just related to the fact that as of last time you'd given the guidance, the dollar was a lot stronger? And so there was some currency benefit. And if that's the case, you know, I want to see what it might mean in terms of your ability to, you know, reduce your cost base by the 15 percent because there would have been some.

Yeah, that's a good question. Just to be clear, when we reconcile our earnings, which we do every quarter, we always pull. FX out. It's its own line. It's the FX running through the revenue and the FX running through the cost. We pull those out. So when we show price, that price and volume and cost, including the fit to win benefits, they should be on an FX neutral basis, you know, on an annual basis. And then you can see that kind of the cumulative impact of FX on the earning stream by just looking at that one line. So it should be a pure cost savings number story.

Understood. Now, Fit2Win, you know, radically reduces enterprise costs. You mentioned more than once that it's an end-to-end analysis. It's everything from SG&A to, you know, total organizational effectiveness or efficiency. Which of those benefits are more likely, hopefully they won't at all, to dissipate? And which ones tend to be longer lasting? And with TOE, Can you help us understand what it means where you found 10% or 15% trapped capacity? What does that actually mean, and why can you continue that on an ongoing basis? TOE right now is where? It's just Tuano?

It's 50% done. About 35% to 40% of our – 35% to 40% plants are done with that. So it's well beyond the pilot phase. So, hey, we're designing this to be sustained cost savings. That's the only way we can be competitive is to sustain the cost savings. So when it comes to, for example, the SG&A, we all know if you just go and make cuts, those aren't very sustainable. But we're redesigning our organization, and we're eliminating capabilities that we just don't think are affordable in the business. One of the areas was in the R&D area. We were doing a lot of R&D, and we've substantially retrenched on that as an example. Some areas we're investing in more, like commercial capabilities, because if we want to grow the business, we need to do that. We've also redesigned how we run our operations. My whole function, too, is changing on what we're doing, and we're bringing in experts to simplify business processes and things like that that can be done. So with an aim to sustainability. Now on the operating side, I would also say, I mean, we're trying to drive to a higher level of plant productivity. One thing, if Gordon was here, he would say, hey, you know, the ideas of improved performance in the glass industry are somewhat limited historically. It's a fairly insular industry, a lot of lifers who have been managing these businesses for a long time. What we were missing as a company, at least, is the latest ideas on manufacturing efficiencies and productivities. And so that's what Gordon's been bringing in, right, is how do we run these differently and more effectively so that there's a sustainable level of savings. So I guess it gets a little bit to your other question. What is it that actually drives the benefits? So when you're looking at TOE, which is Total Organization Effectiveness, which is a program to improve the productivity of our plans that ultimately releases trap capacity so that you can ultimately serve your customers with less assets or ideally sell more into the marketplace. Right. So. This is how it kind of looks at you, that the start of it is really focusing on speed.

And and on labor efficiencies.

OK, by that, by speed, I mean, you know, we you can pull a furnace at a certain rate. And and there's scientific studies that say here's the sweet spot of where you pull a furnace, meaning how much glass is coming out of it. There's a sweet spot of where you run your forming machines, the machines that make your bottles, okay? What we found in our network is that we were running that speed below the capability of the system, okay? So the furnaces were being pulled not as hard as, we weren't pulling as much glass out as fast as, you know, the ideal standards would be, same thing on the forming. By bringing the speed up of the pulling glass out and the forming speeds, we can get more capacity out of the system than we were getting there before, okay? Now, the key thing is to be able to do that with high level productivity and quality, right? And so what we do is we get the labor and the speed up to kind of ideal standards. And then the second phase of it is to make sure that you're really focusing on, you know, furnace efficiencies that tends to be batch composition and making sure there's consistency in batch composition, for example. And energy utilization is probably another major component of that to make sure that that is done in the most effective way. And then because that has a lot of impact on quality in the back downstream, you get those moving in the right direction. you know you have less rejects you know what's unique about glass is that we make a raw material and we convert it instantly into a product that has to be at six sigma quality okay so a baby has to be able to eat out of this and so what ultimately as a result of those very high standards is a lot of a lot of glass just gets knocked off the line you know a very very effective plant historically runs at 90% productivity, but you still have 10% waste, 10% of your, of your product is getting knocked off and, and, and recycled and thrown back in the system. By doing better on that batch composition, the forming processes, after you come through in those initial speed out activities, that allows you to really reduce the failure rate, um, of, of, of, of the, of the products, improving the quality and improving, increasing trap capacity even more. So the combination of moving faster and in higher quality is what gives you the release of the trap capacity.

John, on the quality standpoint, does trying to run with greater quality mean you have any incremental energy in the process, you know, improve the crystallinity or some other property within the glass? Secondly, as you're pulling the furnaces at a quicker rate, I know you, and we'll talk about it later in some of the Q&A that we have, you expect CapEx to be maintained at a certain level. Does the CapEx necessarily go up? Because I'm pulling the furnaces harder. Why wouldn't that happen?

Yeah, so if you're talking about a 10% increase in the furnace pull, we're not talking about something that meaningfully changes the life of the furnace. In fact, pulling it at the right level causes a level of efficiency that that that that that target rate is is the right spot for the capital intensity of the plant. So if you're pulling it less than that, you are you are actually not using your capital efficiency. If you're pulling harder than that, you're probably destroying the life of the furnace. OK, so to give you to answer that part of the pie. And as far as, you know, the whole idea is if you can make the precision of your manufacturing better, you end up with better quality. And quality in and of itself is a major energy savings if you can improve the quality of the product.

What do you think you can get that to, 5%?

You know, that would be, I mean, we have plants in our system that run close to that. You know, you know, it's not across the fleet, but that's part of the whole issue. That's part of the whole target of if you look at TOE, it's around OEE standards and calculations. And, you know, if, you know, world class is kind of 85 percent or better to, you know, TOE. Seventy five is a very good performing plant, but you might find yourself at 60 or 65 percent right now. So you're trying to move your way up those different systems to be able to improve the trap capacity, which includes all of the factors we just talked about, not just the reject rates.

Okay. Another question for you off of this. You mentioned that through Fit to Win, you are finding areas where you can drop innovation quite a bit. But there was something else that you said as a related point, which I wanted you to, if you could remember, sort of reaffirm because I didn't catch it. And then having covered the industry for a long time, what are the things that we look to ultimately is innovation, is that next product that stimulates growth, copycatism, hey, that beverage in glass was really hot, let's replicate it. So why should we not worry that cutting the R&D might not hurt that very simplistically?

Yeah, let me be very clear. There's a difference in how we talk about R&D and innovation. R&D is kind of what we talked about historically with magma and core changes and how we manufacture and things like that. Innovation is a whole nother story. And in fact, innovation becomes even more important. I mean, what we're hearing from our customers right now is that it's it's obviously demands soft out there. Right. And so and you're finding it across the whole fleet of different in use categories, with the exception of food and NABs, which which are doing doing quite well. you know brand managers want to stimulate growth okay they they need to they need to move their products um and and innovation is a critical element of that and so we have found a lot more interest coming to us and saying whether it is a brewer now that for example you know aluminum was a 25 to 30 percent premium i mean glass was 25 to 30 percent premium in the u.s now it's down to about 10% with the changes and with aluminum costs. In Europe, it was about a 14% premium glass to aluminum. Now it's down to parity. Now that the product is more comparative in price, there's a lot more opportunities and we're hearing a lot more interest from customers, including major brewers and things like that saying, hey, how do I stimulate demand?

But it requires innovation. It requires that new design.

Now, the good news is glass can do that across multiple different dimensions, color, design, the quality of the glass, you know, embossing, all those types of things in a way that a lot of other substrates can't. And so I think there's a renewed interest in how they utilize glass. But that means that we need to step up into the innovation game. You know, glass kind of missed a couple important trends. I mean, it did not hit the – in the – truly – hard seltzers. Hard seltzers, thank you, thank you. We missed that. You know, the RTDs were limited here in the United States because we were not able to legally put that in glass containers. We've done more successfully over in Europe. We need to be able to be in a position to jump on these newer trends that are coming out with innovative, different design of products that actually stimulate growth in the market and drive that brand image that our customers are looking for.

So in North America, you said glass is at a 10 percent premium. Correct. at Europe you're now about parity about parity yes when do we actually see that right and that's been part of fit to win it's been something you've talked about more broadly as that cost differential lessons that opens the aperture for business you can get at its first quarter we get it but why are we not seeing more opportunity given that very good reported improvement in cost position versus can't.

Yeah. Cause I think those, those cost positions have changed all within the last six months or so. And we know that these, these trends tend to, you know, buying patterns and, and marketing schemes and things like that, you know, you know, extend over a longer period of time. What I would say in conversation with our commercial teams is the level of engagement and interest by, you know, our customers, including the big brewers has gone up significantly. And so, We're looking forward to that maturing and turning into opportunities. It's important for us. The cost of glass and aluminum has closed. A lot of that's because of the price of aluminum or everything. We're coming in through TOE to fundamentally improve the cost position over time of our facilities. Granted, those trends create an umbrella for us right now, But we want to turn that into a permanent differential.

Sorry.

It's the can, guys.

They're upset with you. So, TOE increased efficiency at Tawana by 10%, and you said you're getting similar gains. So, help me understand, you know, as though I was looking at it, why you were running below efficiency And what, you know, what allowed you to regain that efficiency? Was it somebody just pulling the furnace guide off the shelf and saying, oh, we could run more quickly? Like, what actually happened that is like we're running below? Sure, sure. And then help me understand how comfortable you are that CapEx is going to be, you know, 450 on an annual basis, you know, I guess starting around 27 or so.

So the first question was, why weren't we running more efficiently to start with? Yeah. So I think that goes back to long held standards that were generally accepted in the glass industry. OK, so it was held that, hey, OK, you could pull a furnace at a certain rate or you could run a forming machine at a certain rate. but it was best to do it a little lower than that to avoid issues and challenges. Maybe it would pop up into a quality issue down the road if you try to push a little bit harder. So I think that these were long held standards, some of them going back, manufacturing, you know, indoctrinated into standards that we had, you know, technical standards within the system that were more conservatively set than necessary. And so those are, those preconceived standards have been challenged. And we've said, okay. And of course there was resistance where people said, oh my gosh, if I start speeding up, that'd be a problem. So we say speed up 1% a week, see how it goes. And all of a sudden, you know what? Hey, it's fine. And so we're winning it over and we're pushing those standards in a way that were just, you know, preconceived in the past.

And then CapEx getting to 450, so your free cash flow can be 5% or better of sales over time. Help us understand why we won't be seeing a rise in CapEx as you're pulling the furnaces more quickly.

So first of all, our CapEx over the preceding years, which was higher, was mostly extra spending towards expansionary investments and things like Magma and things like that. So that was running $150 to $200 million a year for multiple years. We're out of that mode. OK, so so we haven't really reduced the core maintenance spending over the last several years. OK, so so those numbers are are fairly consistent. We're just we've been drawing down the strategic capex. Now, with that said, you know, we have been in the process of eliminating 13 percent of excess capacity. Right. We're closing facilities and we're eliminating, you know, you know, excess capacity. but also some of the highest cost operating factories that we have within the system. And some of those that were probably due for furnace rebuilds sooner rather than later. One of the reasons that they're underperforming was they're late in their asset life. So with a smaller fleet, with a higher level of capital pull through of trap capacity, you can over time continue to right size the fleet, which just ultimately relies on less assets and therefore less CapEx. So we believe that that cycle is going to allow us to maintain our capex in this kind of relevant range for a period of time. Thank you, John.

As we're wrapping up, any last questions for OI?

John, maybe two last ones for me, and we'll wrap.

One, you know, glass tends to have a bit more of an alcohol exposure, for better, for worse. Why is that something that you're not concerned by in terms of your growth outlook over time? And how do you sort of leverage that for the better, maybe it's on the cost side, and get more share there, and also come up with other categories to add to that, to your end market so you have more end market to grow for, more TAM to grow for. And then regionally, as you're applying fit to win, which markets do you expect will be North America, South America, Europe will wind up over time having the most capital intensity?

Yeah, so let me answer that last one first. All of our operations are going to be under review and going through the same processes, right? What I would say is that historically, your highest capital intensity actually has been in North America, and there's probably the most opportunity to improve that network. I would say that your Latin America market is probably run very, very well from an efficiency standpoint. And so Europe is somewhere in between. It's a lower cost than North America, but it is also well run and has a lot of fragmented customer bases. So it's a little bit of a different mix of business. So they all have a little bit of a different need, but each one of them will be tailored, especially as we move to what we call our best at both, where we make sure that we understand where the premium market opportunities are, where the mainstream market opportunities are, and then recalibrate the systems accordingly. Okay. So to your last question on the mix of business and where do we think growth is at, especially relative to some, you know, cyclical and secular trends, right? For one thing, you know, we would say that the, you know, the last several years have been fairly, you know, all over the place. And, you know, going back two years ago, we were sold out and we were actually air freighting glass containers for spirits customers at different places. And obviously now we're in a different world where it's much softer. Of course, we're dealing with multiple factors at one time. You know, there's the affordability challenges. There's policy changes, for example, on tariffs and immigration. And then, of course, you have, you know, changes share a throat is what we call, you know, what are people going to drink? And the fact is there is less alcohol consumption, but people are drinking something, right? And what we're finding is that even with some reduction in alcohol consumption, that people still want the premium experience when they do drink, okay? And that tends to be more associated with more premium products. So so we'll have a fine cocktail. We'll have a fine glass of a glass of wine, you know, even if maybe they don't have three of them. Right. And so so we need to move ourselves upstream into the more premium categories, because that's where the experience is going to be when you do consume alcohol. And so I think that is very, very well positioned for glass. With that said, people are drinking something. And what we have seen is that double-digit growth in things like water is like what we have right here doing very well. So maybe you go out to dinner. Maybe you don't have a glass of wine or a bottle of wine, but you do get a nice bottle of water.

And for us, it's a container just as a container would be for other ones and things like that.

And then you have the zero alcohol beer category, which is very strong onboarding for the millennial category. And even then, within, you know, for example, spirits categories, you see pockets of growth. For example, spritzes are very popular. They're very light. You know, they're easy to consume. They're not a bazillion calories and things like that. So those apres and those types of things continue to do well. Flavored whiskeys and everything are doing very, very well. So you've got to find where people are drinking. They're always drinking something. And so you've got to find what those niches of opportunities are. And with the branding capabilities, image differentiation, the fact that people want to move their products, we believe that Glass is a winning proposition.

Thank you, John. Everybody, please join me in thanking OI Glass for a great presentation.

Thanks, George. Thank you.