O-I Glass, Inc. /DE/ Q4 FY2024 earnings call

• 2024 was a challenging year with sluggish market demand and macro conditions impacting performance. Adjusted earnings in 2024 were $0.81 per share, slightly exceeding guidance but down from 2023. Q4 2024 had an adjusted loss of $0.05 per share vs. adjusted earnings of $0.12 per share in Q4 2023.
• Implemented fit to win initiatives:
  • Phase A: Streamlining organizational structure, achieving $25 million in savings in Q4 2024, targeting $175 million to $200 million in savings for 2025. Reducing SG&A from 9% to 8% in 2024, aiming for 7% to 7.5% in 2025 and <5% by 2026. Network optimization: Closed 7% of capacity, target $75 million to $100 million in savings for 2025. Inventory reduction: Cut $108 million in inventory in 2024, target $50 million to $100 million more in 2025.
  • Phase B: Total supply chain optimization, starting with Toano, Virginia plant; ramping up Magma production in Bowling Green, Kentucky but paused development of generation three.

Segment operating profit in the Americas was $96 million compared to $93 million in Q4 2023. Earnings benefited from a 5% growth in sales volume and lower operating costs, partially offset by unfavorable net price. Segment operating profit in Europe was $40 million, down from $75 million in Q4 2023. This decline was due to unfavorable net price, a 5% decrease in sales volume, while operating costs were modestly favorable. Revenue contribution details weren't explicitly given for each segment's percentage, but the absolute figures are as stated.

• 2025 adjusted EPS expected to be in the range of $1.20 to $1.50 per share, representing a 50% to 85% increase from 2024 levels.
• Free cash flow expected to be between $150 million and $200 million.
• Adjusted EBITDA expected to be $1.15 billion to $1.2 billion, up from $1.1 billion in 2024.
• Sales volume expected to be flat or down slightly. Net price likely a headwind due to cost inflation, but costs to decrease from strategic initiatives. Outlook includes $120 million in costs for network and organizational structure optimization.

• Sluggish market demand and macroeconomic conditions.
• Overcapacity in certain European markets impacting net price.
• Uncertainty around recently announced tariffs, especially regarding glass imports from China.
• Currency translation headwinds due to a stronger dollar.

Q: Expand on signs of volume stability and alcohol trends A: Gordon Hardie states Americas show growth in Brazil, Mexico, Colombia and early signs of growth in North America. Europe has a 5% decline in sales with choppy, soft consumer demand and impact from China exports on higher-end wines, cognacs, and spirits. Alcohol is around 75% of the portfolio, non-alcoholic beverages and food make up the remaining 25%.

Q: Confidence in pricing in 2025 A: John Haudrich mentions 55% of global portfolio is under long-term contracts with price adjustment formulas, and 45% is local business renegotiated annually. About 80% to 90% of prices for 2025 are landed, with the remaining negotiations being minor.

Q: Effect of 25% tariff on volume in 2025 A: Gordon Hardie says fit to win program is not volume dependent. Exposure to tariffs is around 2% of empty box, with potential exposure between $10 million and $15 million, which could be covered by accelerating initiatives. John Haudrich adds about 1.4 million tons of empty glass comes into US from export markets, with majority from China and O-I having an advantage there.

Q: Network optimization savings for 2025 A: John Haudrich clarifies the first bullet point actions have a $75 million benefit in 2025, and potential actions could bring cumulative savings to $75 million to $100 million as shown, not additive.

Q: Substrate substitution and glass competitiveness A: Gordon Hardie talks about getting competitive with cans, noting glass was now available for RTDs in 12 ounces opening up opportunities. Focus is on being competitive with cans overall, not just other glass competitors.

Q: Energy contracts and working capital A: John Haudrich mentions energy is part of fit to win review, with enterprise-wide program to reduce energy usage. Working capital includes $50 million to $100 million inventory reduction, but pruning operating network affects AP balance, with focus on managing working capital through fit to win program.

Q: Fit to win benefits if volumes are negative in 2025 A: Gordon Hardie says fit to win is about making current volume more profitable. If volume is negative, it would be due to deliberate decision making around economic process, focusing on boosting returns on current capital.

Q: Combating price competition and pricing rollback A: Gordon Hardie says revenue minus target EBIT equals cost base, will manage margins. John Haudrich adds about half the business is under long-term contracts with timing issues on recapturing inflation, making negative price a timing element in 2025.

Q: Longer-term CapEx thought and phase B cash restructuring A: John Haudrich says restructuring activity will carry over, with $120 million to $150 million in 2025 covering phase A and early phase B, peaking in 2025, and some in 2026. Gordon Hardie mentions productivity is cornerstone, driving further productivity to eat inflation and price for value.

Q: Aluminum premiums and summer sell season impact A: Gordon Hardie says anything closing the cost gap between glass and cans is helpful, but focus is on elements controllable to drive competitiveness.

Q: Bowling Green plant and Europe margin differential A: Gordon Hardie says Bowling Green is focused on ramping up with right mix and volume, targeting premium end. Europe margin differential is largely due to cost and footprint, with Fit to Win designed to close the gap.

Q: Customers' willingness to use glass A: Gordon Hardie says consumers prefer glass for taste, health, and brand equity. Customers see growth in glass, with plans including glass in their portfolios. John Haudrich corrects alcohol portfolio to 62% alcohol-related.