Owens-Illinois, Inc. Aktie

Thank you for standing by. My name is Kate, and I will be your conference operator today. At this time, I would like to welcome everyone to the O-I Glass First Quarter 2026 Earnings Conference Call. [Operator Instructions] I would now like to turn the call over to Chris Manuel. Please go ahead.

Thank you, Kate, and welcome, everyone, to the O-I Glass First Quarter 2026 Earnings Conference Call. With me today are Gordon Hardie, our CEO; and John Haudrich, our CFO. After prepared remarks, we will open the line for Q&A.

Our presentation materials are available on the company's website. Please review the safe harbor statements and the disclosures regarding our use of non-GAAP financial measures included in those materials. With that, I'll turn the call over to Gordon, who will begin on Slide 3.

Good morning, everyone, and thank you for joining us. Today, we will review our first quarter results, what we are seeing across the business and our outlook for the year. Before I begin, I want to thank all our O-I colleagues across the world for their focus, execution and commitment to supporting our customers in a tough environment.

The year got off to a challenging start. While the top line held steady, demand was sluggish early in the quarter before improving through March. We also experienced elevated commercial pressures in Europe and several onetime external events that increased our costs. As a result, first quarter adjusted earnings of $0.05 per share came in below our original expectations. Fit to Win continues to deliver and the disciplines are now embedded across the organization. We are seeing the benefits of a stronger cost position reflected in new business wins across key categories that should support higher volumes starting in the second half of the year.

Operationally, it was a story of two hemispheres. In the Americas, earnings were stable despite several external disruptions. In Europe, results fell short of expectations amid elevated competitive pressure. Europe is also earlier in the Fit to Win journey than the Americas, and we expect performance to improve in the coming quarters as we execute the restructuring actions we have announced. Looking to the full year, we expect strong year-over-year improvement in the Americas. Yet we have an updated -- we have updated our 2026 guidance to reflect a more challenging European market, compounded by elevated energy inflation and broader macro dynamics. John will walk you through the updated outlook in more detail in a few moments.

Even with the near-term uncertainty, our strategy and priorities are unchanged. With continued Fit to Win execution and new business wins, we are confident we can strengthen results as the year progresses and expect to build momentum into '27 and beyond. We remain laser-focused on our investments -- Investor Day objectives, and we believe many of today's headwinds are temporary.

Let's now turn to Slide 4 to discuss our top line performance and volume trends. As you can see, net sales have remained steady over the past several quarters, even amid ongoing volatility and uncertainty. That said, we got off to a slow start this year with first quarter shipments down about 8% versus the prior year. This comparison was also tougher as last year likely benefited from customer prebuys ahead of a new U.S. tariff regime. By category, alcoholic end users were the softest, while NAB and food performed better. In fact, food is now emerging as our second largest category behind beer. Regionally, shipments declined in North America and Mexico amid ongoing customer inventory adjustments in spirits, while South America delivered mid- to high single-digit growth.

In Europe, demand was softest in wine, particularly in the South and an extended negotiation period, while other markets were more balanced. Importantly, volume trends improved sequentially through the quarter, with March volumes down only 2%. Given that trend, we continue to expect full year sales volumes to be about flat with the prior year. After a slow first quarter, we anticipate shipments to be stable in the second quarter and to deliver low to mid-single-digit growth in the second half, supported by easier comparisons and new business wins.

As we implement our new go-to-market approach, we are encouraged by the early progress. We've landed new business across about 15 accounts spanning all categories that should contribute 1.5% of new sales volume starting in the second half of the year. Together, these wins should help set us up for a profitable, sustainable growth in the 1% to 2% range beginning in 2027. While the quarter was challenging, the trend improved as we exited Q1. The team executed well in difficult circumstances. With steadier demand and new business wins, we believe the fundamentals position us well for a stronger second half.

Turning now to Slide 5. Fit to Win remains a core value driver for O-I. The program continues to take cost out and optimize our footprint and value chain. Strengthening our cost position improves competitiveness and enables long-term profitable growth as demonstrated by new business wins. We are now at the halfway point towards delivering $750 million of cumulative benefits through 2027, and we remain ahead of schedule. In the first quarter, the team delivered gross Fit to Win benefits of about $50 million, in line with our expectations. Net benefits were $35 million after headwinds from external disruptions in the Americas and temporary transition costs as we complete the closure of three plants in Europe.

Let me highlight our progress across the phases of the initiatives. Phase A, focused on SG&A streamlining and initial network optimization, generated $32 million of net benefits in the quarter despite transition costs in Europe. We expect the organizational actions and planned capacity closures to be largely completed by mid-2026. Phase B focused on end-to-end value chain transformation, was slightly up after absorbing costs associated with disruption in the Americas. Core work streams continue as planned. We launched the third wave of total organization effectiveness, and we are accelerating procurement and energy initiatives to drive incremental savings. We are also pursuing incremental opportunities to offset cost headwinds we observed in the first quarter. Fit to Win is working. We continue to target at least $275 million of benefits in 2026.

With that, I'll turn it over to John to walk you through the financials, starting on Slide 6.

Thanks, Gordon, and good morning, everyone. First quarter net sales were $1.54 billion, essentially flat with the prior year. Favorable FX largely offset slightly lower average selling prices and a high single-digit decline in volumes, while shipments improved meaningfully as the quarter progressed. Adjusted earnings were $0.05 per share, down from $0.40 per share in the prior year, primarily due to commercial headwinds, including unfavorable net price and lower volumes. Operating costs were comparable to the prior year as Fit to Win compensated for unanticipated disruptions. Earnings also reflected an unusually high effective tax rate on low pretax earnings. As earnings improve, we expect a full year tax rate of approximately 35% to 40% with the potential to move lower in 2027 and beyond. Looking ahead, the full O-I team is focused on strengthening performance as the year progresses.

Let's turn to Slide 7 to discuss operating results. Segment operating profit was $142 million, down from $209 million last year, primarily due to the commercial pressures we discussed. As noted, the Americas was stable, while Europe was down considerably. In the Americas, we performed well despite several external disruptions. The segment's top line was stable as favorable FX and mix, largely offset slightly lower selling prices and a 9% decline in shipments. Demand trends also improved as the quarter progressed with March shipments down only modestly versus the prior year.

Americas segment operating profit was $142 million, essentially flat year-over-year, benefiting from higher net price, while lower sales volume and higher operating costs were headwinds. Costs included $10 million of disruption-related expense driven by extreme weather, civil unrest in Mexico and a natural gas pipeline failure in Peru, partially offset by Fit to Win. In Europe, the results were well below our expectations, and they are the primary driver of the year-over-year decline in segment earnings. Europe segment operating profit shortfall was driven by a combination of softer demand and an increasingly competitive market backdrop, which pressured price amid low capacity utilization, most notably in wine in Southern Europe. As a result, net sales declined slightly with favorable FX partially offsetting lower price and volumes.

Shipments were down 7% year-over-year, although trends improved as we moved through the quarter and March shipments were up slightly versus the prior year. As you'd expect in that environment, profitability compressed meaningfully. Europe segment operating profit was breakeven in the first quarter, down roughly $68 million from a year ago. The biggest factor was a $76 million reduction in net price, reflecting both elevated price competition and the reset of favorable energy contracts that expired last year. Lower shipments were an additional headwind. These pressures were partially offset by Fit to Win benefit costs even after absorbing $5 million of higher-than-expected temporary plant closure expenses. Looking ahead, we anticipate performance to increasingly converge across the regions as Europe builds the same resiliency and execution capability demonstrated in the Americas while continuing our transformation journey.

Turning to Slide 8. I'll close with an update on our outlook for the remainder of 2026. As discussed, it has been a challenging start to the year, and we have updated our full year guidance to adjusted earnings of $1 to $1.50 per share. The chart also reflects our revised EBITDA and free cash flow expectations. To frame the outlook, it's important to separate what we are seeing in our core glass markets and what we are absorbing from broader macro environment, especially energy.

Starting with the core glass business, demand trends are stabilizing as the year progresses and Fit to Win is continuing to deliver meaningful results. In the Americas, our outlook remains positive, and we expect results to be up year-over-year. In Europe, we have risk-adjusted our outlook by up to $25 million given elevated competitive pressures, net of additional cost actions and restructuring should support improved performance in the second half. The biggest swing factor in our updated guidance is macro-driven energy inflation stemming from conflicts in the Middle East, which could total $75 million to $100 million.

Higher energy prices flow through natural gas, electricity, logistics and certain raw materials. Importantly, our proactive energy management practice significantly limit further exposure, particularly in Europe, where approximately 75% to 80% of gas requirements are protected at prices favorable to current market levels and higher protection in the colder winter months. We will continue to monitor macro developments, including customer demand and whether broader inflation could further influence commercial dynamics. As we have essentially risk-adjusted our outlook for energy inflation, the appendix includes additional earnings sensitivities to changes in European natural gas market prices.

While our 2026 outlook is conservatively set given macro uncertainty, our strategy and priorities remain unchanged, and we continue to drive towards the 2027 objectives we outlined at last year's Investor Day. We expect Fit to Win to deliver significant value next year, and we believe many of the pressures we are seeing in 2026 are temporary. More than half of our business operates under contractual price adjustment formulas that reflect changes in inflation on a lagging basis, providing an important structural mechanism as cost conditions evolve over time. Likewise, as capacity utilization increases, particularly in Europe, we believe our competitive position should continue to strengthen. Overall, we remain focused on the levers within our control, anchored by Fit to Win, and we are determined to deliver the best possible performance this year while building momentum into 2027.

With that, I'll turn it back to Gordon for closing remarks on Slide 9.

Thanks, John. Let me close with a few key takeaways. We are not satisfied with our first quarter results, and we are moving quickly to improve performance. At the same time, our strategy is unchanged, and our long-term value creation plan remains firmly on track. While near-term noise may continue to drive volatility, we see several clear indicators that O-I's underlying fundamentals are moving decisively in the right direction. Here are six reasons we believe O-I is a compelling long-term investment.

Fit to Win is delivering and continues to enable future profitable growth by improving operational discipline and cost competitiveness across the business. Core glass demand is stabilizing and recent trends are increasingly encouraging. March volumes point to a clear turning point in demand, providing early evidence that our actions are beginning to translate into profitable growth in the second half and beyond. Improving competitiveness across the footprint is already converting commercial opportunities. We have 15 confirmed incremental volume wins in hand, yielding approximately 1.5% annualized growth. These ramp up over '26 and into '27, giving us a clear line of sight to profitable, sustainable growth.

The Americas, where we are furthest along in executing our transformation, are performing very well. Our capacity and demand are tightly aligned and across much of the region, we are effectively sold out. As such, we are actively evaluating opportunities to bring dormant capacity back online. Further, cost parity between aluminum and glass is spurring increased customer interest. In Europe, Fit to Win execution is accelerating. While the region trails the Americas by roughly 6 to 9 months, our capacity rationalization and restructuring actions are underway.

Our competitive position continues to strengthen, especially as capacity utilization improves. While we conservatively risk-adjusted our 2026 outlook to reflect Europe's operating environment and the energy backdrop, we remain committed to our 2027 Investor Day targets. We believe these headwinds are temporary and manageable. Taken together, O-I today is a more disciplined, better balanced and better positioned for durable growth than at any point in recent years.

Thank you for your time today and your continued support. With that, we'd be happy to take your questions.

[Operator Instructions]

Your first question comes from the line of George Staphos with Bank of America Securities.

Gordon and John, what has your line management relayed to you about 2Q volumes and Fit to Win performance so far? And what have you relayed in turn to the Board? And why are you and the Board both confident that the turn is happening in 2Q, both in terms of volumes and accelerating in Fit to Win? Relatedly, the phase B on Fit to Win seems to be really not having much contribution so far this year versus target. The second question, I know you gave us some sensitivity, but if you could help us out, if energy rises from here and the consideration of your hedges, is there a way you could give us some back-of-the-envelope EBITDA effects? And do we need to start worrying about any of your secured debt covenants at this juncture or not? And where would we need to?

George, this is John. I'll take the second part of that point first. So as far as the sensitivity to the earnings situation, we assumed in these numbers given that we're 75% to 80% covered this year, we're assuming a range of EUR 45 to EUR 55 per megawatt hour being the relevant range. And so to the degree that energy is below that, for every EUR 5 drop on average, we get back about $0.05 per share. So that's about $12 million or so of EBITDA. To the degree that it goes above $0.55, we're protected, that's more like $0.02 to $0.03, so maybe $5 million or so of risk. We use a combination of different tools and factors and things to manage our energy positions.

So we're pretty confident that, that number that we have between $40 million and $60 million of pure energy exposure to the elevated environment and the conflict is about right. And ideally, we can perform better on the downside. And then on the secured question, we got -- we're very, very low on our secured ratio right now, very favorable net position. We're not anywhere near at risk. And I'll tell you, we've got significant liquidity, $1.5 billion of liquidity. We manage our cash very conservatively in the organization. So from a balance sheet standpoint and managing the liquidity, we're in great shape.

George, Gordon here. So with regard to Fit to Win, I think we're very well placed to deliver the $275 million and maybe beyond this year. The way we set up the timing of it, we're in line. Quarter 1 delivered to expectation. We did have a number of external events through the tough winter, particularly in North America and some extra costs in Europe on the closure and reconfiguration of the network that were once-off in nature. And so you will see the Fit to Win momentum build. Behind those numbers is very detailed plans, very detailed accountability, weekly tracking. So we feel we're in good shape on Fit to Win. And as ever, we're always looking at new opportunities that are identified and ways to strip waste and inefficiencies out. So we'll be obviously pushing for a higher number, but we're confident in that $275 million number.

And what are you seeing so far in 2Q on volume? What have you committed to the Board?

Q1 volumes of about 8% in the Americas, and let me break that down and about 7% in Europe. It's clear -- let me start with the Americas because it is a kind of a story of two hemispheres. Let me start in Brazil, where the business is performing very strongly for us with beer volumes up mid-single digits, NAB up mid-single digits and food and spirits up low teens. So we're outperforming the market in all categories in Brazil. And the team there has done an excellent job in executing Fit to Win to become much more competitive and has already entered what I would consider the profitable growth horizon of our strategy. And an interesting fact, Brazil is now more profitable in 2026 than when it had too fewer major competitors a number of years ago. And we expect Brazil to have another very strong volume and financial year.

If I move Northwest to Andean, again, performing very strongly for us, outperforming the market in all categories, delivering mid-single-digit growth. And we're expecting a very strong second half and full year in that business. We're also executing incredibly well our Fit to Win program in Andean, and I would consider that market well advanced in the profitable growth horizon.

In Americas North, our teams are executing well and addressing very effectively kind of long-run structural issues in that business and getting good results thereof. And so while volumes were down 8%, let me break that down. About 3% of that 8% was wine volume we -- that was not viable and was a barrier to us getting a much leaner network in place. And along the lines of our EP EBIT, we've taken that out of the business. There was about 3% of spirits customers destocking in the face of high distributor volumes. We know that is a temporary piece. And there was about 2% in what I would call missed beer volume due to those external disruptions and we had a furnace repair. We expect another very strong financial year in North America. And indeed, the first quarter EBIT in North America was the strongest in over 8 years.

If I look at America Central, we're on track for another strong year despite the macro challenges of tariff impact on beer and spirits exports. We're executing very effectively there, and we're driving cost and waste out and becoming much more competitive on the domestic market in beer, in food and in spirits to offset in part volumes lost in exports. But we expect a strong run home. So in essence, the Americas are performing strongly. We see the volumes coming through. We see the wins coming through with customers. And I'd reinforce that the Americas is about 6 to 9 months ahead of Europe in terms of executing on Fit to Win.

In Europe, overall demand was sluggish in the first quarter, particularly across spirits, wine and beer. However, food and NAB held up really well. That said, there are pockets of growth for us. So we had a strong volume rebound in spirits in the U.K., up mid-single digits and wine up about 11% delivering a strong overall year-on-year volume growth in the first quarter in the U.K. North Central Europe, which encompasses the Nordics, Germany and Poland for us, performed strongly with very good growth in food, up above mid-single digits and NAB the same.

And we've picked up significant new pieces of business in North Central Europe, where I would say our Fit to Win program is most advanced in Europe, and we can see that competitiveness turning into profitable volume growth opportunities. So they're the two kind of best-performing regions for us, where the issues in volume were in Southwest Europe and Southeast Europe. And that is largely driven by wine, where demand continues to be soft, down in the region overall of about 5%, where there's significant overcapacity and quite significant kind of price pressure in the first quarter.

So the bright spot for us in Southeast Europe is food, up about 10% and spirits up about 2% and RTD is actually growing quite nicely for us. But the main issue in Southwest Europe and Southeast Europe is wine and some spirits in France as cognac continues to be impacted by lower export volumes. So Europe, we believe the tide is turning. And when we look at our forecast for quarter 2, we expect to be up low single digits and then low to mid-single digits for the back half of the year.

And overall, in Europe, I think we're having the highest rate of new business wins since pre-COVID. And so that's very encouraging. One other marker that we keep an eye on is how many of our customers are returning. And we're having customers come back to us that we haven't done business with in a number of years. So when you put that all together and we look now at our new go-to-market approach and how effectively that's being implemented, we're confident we'll finish the year close to flat with sequential kind of volume growth now in each quarter. So I hope that gives you a flavor, George.

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

Gordon, I just wanted to follow up with you on the new business wins across 15 accounts, and you said spanning all categories. Is that mostly Europe? Because you just said a lot of the commentary in terms of your response to George's question, it sounded like there's a lot of new business wins in Europe. So can you just comment about those new accounts, the breakdown between, let's say, Europe versus the Americas and what end markets you're really seeing that growth come from?

Yes. So overall, that growth, if you were to annualize it, would make up about 1.5%, so overall. And right now, that's split about 70%, 75% Americas, 25%, 30% Europe, with Europe kind of building momentum. We're seeing that in beer. We're seeing it in spirits. We're seeing it particularly in food and NAB. And in North America, for the first time, we're starting to make inroads into RTDs. And as you know, due to a regulation change last year, it's given us the opportunity to enter the RTD market, which is a market that certainly in Anglo-Saxon markets is growing in double digits.

So we -- the way we've set up our business is -- and our sales forces and go-to-market is a category and sales combo. And so we see opportunities in each of the categories, and we're executing those, I think, quite effectively. We expect that momentum of new business wins to continue as we translate cost reduction into competitiveness. And if I take people back to I Day, the overall strategy is for us to get our cost base way down, and we're doing that. We still have quite a way to go to be the lowest cost producer, but we're making tremendous progress and then sharing some of that productivity with key strategic customers in exchange for profitable growth.

And you're seeing that come clearly through in Brazil, a business that was really in a tough place 2 years ago and is now outperforming in all categories and a tremendous uplift in profitability over the last 2 years. We're seeing the same in the Andean, we're seeing despite a tough macro environment in Mexico, seeing the same dynamic, winning more business, getting costs down, winning more business, improving the financial results. And particularly pleasing to us is North America, which for years, for O-I has been a tough market. We're addressing finally some structural issues in that business in that market and turning that into profitable growth with a number of really strong wins for us in North America.

So we believe we're executing this strategy. What happened in Europe in the first quarter, we're mid- to end of the network restructure. And I think the overcapacity in the Southwest and Southeast was an issue. And then the energy cost is a bit of a hit, but it's not a knockout for us. And we see a clear path to getting back to the kind of margins that, that business can deliver.

That's great color, Gordon. And then just one quick follow-up. Just you mentioned remain focused on 2027 targets, including EBITDA of $1.5 billion plus. Your 2026 guide is down about $100 million at the midpoint. So obviously, that's a setback. Can you help us bridge how -- roughly how you intend to get to the 2027 guide right now? And what levers do you have at your disposal to make up the shortfall? I know maybe not specifically going to provide guidance on 2027, but just maybe walk us through some of the larger buckets that will help you get there given the fact that 2026 is down $100 million.

Yes. So here's how we look at that. we are absolutely laser-focused on our 2027 Investor Day targets, of which one is $1.45 billion, okay? There's no question that this is a setback this year, but we're absolutely clear that we have a viable path to that $1.45 billion. And let me give you probably two, three -- three points. We've already laid out that we have $150 million of Fit to Win to come in 2027. And a significant part of our business is in -- has what we call PAFs, price adjustment formulas that are lagged formulas that will allow us to catch up on some of the inflation this year in next year. And we're also, as I said, starting to deliver and move in, in more and more of the markets into the profitable growth phase of our strategy, which also should help us bridge that gap.

We've tended to outperform on Fit to Win. So there's also the opportunity to do better than that $150 million, and we're ruthlessly focused on stripping waste and inefficiency out of the business and out of the chain. So when we put all that together, yes, is it a bit of a steeper climb, but absolutely achievable. And in every difficulty, there's an opportunity. And I think the opportunity for us here is to even get more focus and to move even at a faster pace to get to where we need to go.

Your next question comes from the line of Anthony Pettinari with Citi Investment Research.

Gordon, John, it seems like you have these -- you've seen these periods in the past where you have oversupply in Southern Europe with maybe smaller producers in Italy and France. And I'm just wondering if you could talk a little bit more about the competitive dynamics that you're seeing today and maybe how those situations have sort of resolved themselves in the past. Are people -- I guess the basis of the question is you were breakeven in Europe in 1Q. I assume smaller producers are doing much worse. And I'm just curious how sustainable that's been historically? And then I guess, related question, is it fair to say you're giving up a little bit of share in Southern Europe and maintaining or maybe even growing in Northern Europe?

I'll touch base on that one, Anthony, just to talk about the competitive situation and kind of maybe do a compare and contrast. So for example, if you go over to the Americas, where that's a lot of the restructuring has occurred already. We've taken out significant capacity. We went from the low 90s to the upper 90s as far as capacity utilization in that set of markets. And now you can see that on the bottom line. I mean, the performance of the Americas through Fit to Win and a good capacity balance in the marketplace. Our results are over the last 1.5 years, 2 years are up about 60% there. So you can see when there is the balance of these activities, it drives performance.

If you compare that to Europe, that probably going into the year -- and I think we brought this up during the last call is that we were -- the market was probably more in the low 90s, right? But there is significant amount of announced capacity closures underway. We're -- as we said, we're going to complete the work that we're doing by midyear. We believe from what we can see is even net of new capacity additions, you're getting into a very similar spot that you see in the Americas. So a much more supply-demand balance. And as a result, it gives us confidence that as we go forward, what we saw in the Americas, we could replicate over in Europe. And truth, yes, it's a more fragmented base in Europe than it is in the Americas. But if you look at the whole, the capacity utilization road map seems to be improving.

Yes. Just in addition to that, Anthony, as we laid out at I Day, our cost base was too high. We've made significant progress on that further along in the Americas, as I said. But we also see tremendous further opportunity to get our cost base way down, and that is a key focus for us so that we can compete and deliver our commitments in any environment. So a bit to go there, but that is fundamental to our strategy. And then we're -- it's not really up to us to comment how anybody else is doing. But we're crystal clear on what we need to do. We're crystal clear on the point on the cost curve where we need to be at to grow profitably, and we are absolutely determined to get there and have a clear line of sight on how to do it.

Your next question comes from the line of Joshua Spector with UBS.

This is Gaurav Sharma sitting in for Josh today. I'm just wondering what the optimal utilization target for the European network is in a normal demand environment? And then if there's any additional facilities where you're considering idling versus permanent closures if the market just generally remain soft this year?

Yes. So clearly, from an overall market utilization standpoint, as I mentioned just before, you see the Americas in the kind of an upper 90 utilization across the whole marketplace would be our estimate. But when we talk about our own plants, when we're running them, something in the 90s, low 90s is a great place to be for a glass plant. And so if you're running maybe in the 80s or mid-80s or so, being able to get your utilization up into the 90s is a really good performance trend. That's part of what we -- when we get to win with the total organizational effectiveness program is really about driving the productivity up and utilization levels within our own network. So that's where we're trying to drive that. And ultimately, that gives you scale and allows you to continue to network optimize within your system.

When it comes to the overall -- how do you manage kind of a softer environment, it is obviously -- you got to make a read on what you think that you need over the long term, right? And that has driven our own decisions around capacity rationalization over the last year or more. But you also have to say that you have to have some spare capabilities to be able to meet market growth and things like that. So if we go back 1.5 years ago, we were probably -- we had about 13%, 14% excess capacity in our overall network. And that's why we announced the larger restructuring, long-term restructuring activities. In the first quarter, that was down to low single digits or so. So -- and then we're going to continue, obviously, to complete where we are over in Europe over the next few months or so here.

So the idea is that we want -- we always want to have a couple of percent of spare capacity to be able to take advantage of what Gordon was saying, which is as we grow our business, we want to be able to do that. But one of the things we did comment is we -- over in the Americas, for example, we are bringing back a previously shutdown furnace to be able to meet the needs. So you've got the ability to flex a little bit on both sides.

Got it. That was very helpful. And then just a quick follow-up to that. You mentioned an extended price negotiation window in the release. I think you spoke about that at conference already. I was just wondering if this is done now or if there are negotiations still ongoing on that end.

Yes. For us, it's done usually, the season kicks off kind of late October, early November and a big chunk of it is usually completed before year-end. Some of it kind of runs on into the end of January. And I think the dynamic this year in Europe or last season in Europe was that there were deals done or agreements kind of brought to near conclusion that opened up again in January and February because of -- particularly in Southern Europe and Southwestern Europe, because of the spare capacity and a number of players feeling they needed to keep their capacity full. And so there was a bit of toing and froing. And that extended down to sort of, I would say, mid-February last week in February, which was an unusually long window. But that is done for sure, yes. Now there's always volume that's not contracted in the open market and -- but we're largely done in our business.

One thing I would add to that, and you saw that the volumes in Europe were down 7% in the first quarter. And as we indicated that was concentrated in when those negotiation windows extend like that, people tend to sit on the sideline on their orders, right, because they're waiting for the final deal. So one of the reasons we had a softer first quarter is because of this extended window and a lull in order activity. And so that's starting to normalize after that window was completed at the end of February.

Yes. And also, Easter was later this year, which had an impact in Europe.

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

I guess I just want to go back to the volume side. So I would agree that you do have a steep climb for next year given the $100 million shortfall this year. And when we started this journey, a lot of the comments was nonmarket dependent and volumes, I guess, you could still achieve your guidance with weak volumes. But it seems like volumes have been a bigger headwind than initially thought. So when you think about the 1% to 2% that you could be adding through new business wins, do you expect that to offset continued volume declines? And should we just kind of assume maybe low single-digit volume declines from here for the market? Is there a path to actually reporting absolute 1% to 2% volume growth on a consistent basis? Or maybe you can just comment on some of those ideas.

Yes. Thanks, Arun. So yes, I think it's fair to say over the last 15 months, probably volumes have been below what we thought they might have been. We were expecting them to come to flat a bit sooner. I think what's got in the way of that is the level of inventory in the total system in spirits, for example, and markets like the U.S. and China continuing to be soft. And then you have the continued decline in wine across both the Americas and Europe. And that probably has continued longer than we initially thought. So where we are is we really feel we've bottomed out. And so when we're talking about being close to flat year-end and then kicking into 1%, 1.5% next year, that is net, right? That's a net position. So -- and these new business wins, they're not small fragmented customers. They're largely of sizable customers with sizable volumes.

I would just add, Arun, two points. One is if you look at some of our volume numbers, as Gordon had mentioned earlier, we intentionally did walk away from some low profit business. So you have to kind of consider that in there. And if you go back to our original strategy, we said, hey, we intended to be focusing on the cost and maintaining a stable top line while we're really focusing on cost. But now we're pivoting to that point where we believe, especially like we see in the Americas here and ultimately in Europe, that the competitiveness is improving, which allows us the baseline to create the profitable growth. And so we're at that inflection point where it wasn't necessarily the primary focus of our strategy over the last 18 months. It's increasingly going forward because of the cost positions that we're establishing.

Yes. And Arun, I refer back to my earlier comments. We're in markets like Brazil, where we really nail the Fit to Win and translating that into being much more competitive. Our volumes are up mid-single digits in beer, NAB and food and spirits, and we're outperforming the market in all those categories. Likewise, in the Andean and increasingly in North America right now, we can sell all the beer that we can produce. And we have pockets in, as I said, in North Central Europe, where we've -- in that particular region, we've had a 7% uplift year-to-date. So the whole -- the entire strategy of getting more competitive and then translating that working with key customers into more profitable growth. There's numerous clear examples of that across the business. And we're absolutely focused on executing that strategy with more rigor.

Arun, one other point I'd make, we continue to see the cost gap between cans and glass narrowing. And we've absolutely seen an upturn in interest from beer customers to accessing more glass. And again, that was one of the premises we had that as you close that gap, you would curtail the shift from glass to cans and actually reverse it. And we're seeing that happen. And certainly, the interest in beer for glass, even in mainstream glass is a much different dynamic to last year.

Okay. Great. I appreciate that. I guess what I'm observing is that the market appears to be declining a little bit faster than maybe what the capacity rationalization is. And maybe that -- and so you have to take downtime and you have to make these decisions to exit businesses that maybe were unforeseen a year or 2 ago when you initially put together Fit to Win and that's maybe causing the shortfall. Do you envision a time period in the future where we won't have these supply-demand imbalances and oversupply situations?

Because I think just even 2 years ago, Europe was considered balanced and North America was a little oversupplied and then you have to kind of shut some capacity in North America and now because of the volume declines in Europe, wine and spirits and so on, that new capacity additions in that region is oversupplied. So is there ever a period where you envision again the capacity rationalization kind of being in line with demand growth or maybe demand growth kind of reaccelerating so we wouldn't have these issues of oversupply? I know it's kind of a longer-term question, but it seems to be the main issue here.

Yes. Look, I think we all live in a very dynamic world now with a lot of volatility. And I think over a cycle of a decade, there's also -- there'll be periods of where it's perfectly matched up and there will be periods where it's not. And then you've got to make a decision, is that a short-term mismatch? Or is it a fundamental match that's out of position where you can't make an economic return on that asset? And that's always a dynamic question in any business, I would say. We feel good about where we are in terms of our capacity, particularly in the Americas.

And as John said, there's even opportunities to bring some capacity back up to fill demand for profitable volume. And where we are in Europe, we should have all of the announced capacity curtailments completed and clear of that by the half year. And I think that puts us in good stead. I can't speak for the rest of the market, but our S&Ds or supply and demand should be well in balance. And then it's about executing productivity, quality and service levels to the customer. So as you said, it's a longer-term question, but it really depends on volatility and dynamics over an extended period, yes.

The one thing I would add, Arun, specifically to our own plan, as you know, we did increase our Fit to Win target in the face of some additional commercial pressures, and we believe that protects our position to our targets. But that also did include a little bit of scaling up of some of the restructuring from what we originally had to be able to be nimble to that. So as we stand here right now, we believe that the Fit to Win actions are sufficient to be able to address through our horizon here, our next year's target, understanding the other extra $100 million we're dealing with this year, it is more of a temporary phenomenon with a good ability for recovery through PAFs and things like that in the future.

I think one additional kind of thought on that, Arun, is portfolio momentum is also a part of how you maximize the value of your capacity. And as opportunities arise in the market to shed unprofitable volume like we did in wine in North America in the first quarter and bring in more profitable volume -- higher margin volume, more premium volume, that's also a way of sweating your capacity much, much harder. And I think we're getting much better at that and making those calls and starting that sort of mix shift that we outlined in Investor Day as well as part of our strategy.

I'll now turn the call back over to Chris Manuel for closing remarks.

Thanks, Kate. That concludes our earnings call. Please note, our second quarter call is currently scheduled for Wednesday, July 29. And remember, make it a memorable moment by choosing safe, sustainable glass. Thank you.

Ladies and gentlemen, that concludes today's call. Thank you all for joining. You may now disconnect.

Happy to have one of the very first companies we ever had at one of our conferences. We won't say how long ago, O-I Glass and its Chief Financial Officer, John Haudrich, 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, thanks for being here. Thank you for being here. Great that you're here. And I want to thank you for making the track again with all of the weather and logistics.

So John, take it away.

Yes. Thanks, George, and 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 5 minutes of prepared comments. I just want to talk through what is our strategy, what are we trying to get done as a company and also provide a more update on our business outlook and where we stand right now.

Before we go any further, please note the safe harbor clauses within the materials that are posted also out on our website.

You probably already know O-I, 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 the 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 O-I 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're 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, if 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 serve large global accounts, both with a global reach but also a local field.

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 in 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 flying down to every node 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 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 virtual cycle by doing that, we earn 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 at 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're -- we got the momentum behind us and doing very well.

We target this year, in 2026 at least $275 million of savings. And then we have a 3-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 will 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 are eliminating excess capacity to balance our system with supply and demand. And in that process of closing three furnaces or three factories rather in 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, 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 we'll 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 of the inflation that's out there in the market.

Yes, those are the variables at play. I believe, 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.

That's correct.

Okay. So if the other things -- what -- if it was just the Fit to Win, where would your guide be as opposed to?

Yes. For clarity, we have a road map to our guidance, okay? And that road map is fully aligned by cost through Fit to Win. Okay? Those other variables that I mentioned, whether it's additional volume or whether that it ends up in 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?

That's 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 the first quarter, I think, had started somewhat more softly. Help us calibrate on that.

Yes, sure. So we had 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, some -- 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, okay? So we're making a little bit of room in there for that.

We had also indicated just several weeks ago at our earnings call that the first quarter would be the most challenging. It's a comp issue. We were up between 4% and 5% last year on volumes, it ended up ultimately being pre-buying, okay, as that played before the tariff pressures and stuff like that or tariff dynamics play came into play.

So we believe that we were going to -- we had indicated we'd be down mid- to single digits to high single digits in the first quarter. It will 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 in 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 unexpected.

Now so from there, we believe that the comps for our business, just to be clear, get easier as the year progresses, that we think that value should be kind of flattish in the second quarter and then invert to modest improvements in the back half of the year.

Okay. Thanks for that, John. We'll have more, but any questions in the audience for John?

Okay. We'll keep forging ahead. 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 that -- is that inclusive of the -- is that all of 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 represent 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 always got moving things like inflation and other factors that are moving in, but the core controllable costs is that $750 million.

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

Yes. 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, net price and volume and costs, including the Fit to Win benefits, they should be on an FX-neutral basis, on an annual basis. And then you can see the kind of the cumulative impact of FX on their earnings stream by just saying that one line. So it should be a pure cost savings number story.

Understood. Now Fit to Win radically reduces enterprise costs, you mentioned more than once that it's an end-to-end analysis, everything from SG&A to 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?

Yes, sure.

Where TOE right now is where, is it just one-off...

It's 50% done. About 40% -- 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, okay, 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 in what we're doing, and we're bringing in experts to simplify business processes and things like that, that can be done. It's 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, 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 has 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 benefit. 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 trapped 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. The start of it is really focusing on speed and on labor efficiencies. Okay? By that, by speed, I mean, you can pull a furnace at a certain rate. And there's scientific studies that say, here's the sweet spot of where you pull the furnace, meaning how much glass is coming out of it. There's a sweet spot of where you run your forming machines within 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're pulling as much glass out as fast as the ideal standards would be same thing on the forming. By bringing the speed up of the -- pulling glass out in the forming speed, we can get more capacity out of the system than we were getting here before, okay? Now the key thing is to be able to do that with high level of 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 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 have less rejects. What's unique about glass is that we make our 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 flash just gets knocked off the line. A very, very effective plant historically runs at 90% productivity, but you still have 10% waste. 10% of your product is getting knocked off and recycled and thrown back in the system.

By doing better on that batch composition and the forming processes after you come through in those initial speed out activities, that allows you to really reduce the failure rate of the products, improving the quality and improving and increasing track capacity even more. So the combination of moving faster and 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, 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?

Yes. 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 you pulling in at the right level causes the level of efficiency that target rate is the right spot for the capital intensity of the plant. So if you're pulling it less than that, you are actually not using your capital efficiently. You're pulling harder than that, you're probably destroying the life of the furnace, okay? So to give you -- to answer that part of the pie. And as far as -- 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 as a major energy savings if you can improve the quality of the product.

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

That would be -- I mean, we have plants in our system that run close to that. 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 OE standards and calculations. And if world-class is kind of 85% or better TOE, 75% is a very good performing plant. But you might find yourself at 60% or 65% 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, one of the things that we look to ultimately is innovation. Is that next product that stimulates growth copycat is, hey, that beverage and 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?

Yes. 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 in how we manufacture and things like that. Innovation is a whole another story. And in fact, innovation becomes even more important.

What we're hearing from our customers right now is that, it's obviously demand is soft out there, right? And so -- and you're finding it across the whole fleet of different end-use categories, with the exception of food and NAVs, which you're doing quite well.

Brand managers want to stimulate growth, okay? They need to move their products 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, aluminum was a 25% to 30% premium. I mean, glass was 25% to 30% premium in the U.S., now it's down to about 10% with the changes with aluminum cost.

In Europe, it was about a 14% premium glass to aluminum, now it's down to parity. When -- 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, embossing, all those types of things in a way that a lot of other substrates can't.

And so there's -- 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. Glass kind of missed a couple of important trends. I mean, it did not hit in the truly is an hard seltzers. We missed that. 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 up 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% premium.

Correct.

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, something you've talked about more broadly as that cost differential lessons that opens the aperture for business you can get at. It's first quarter, we get it. But why are we not seeing more opportunity given that very good reported improvement in cost position versus can.

Yes, because I think those cost positions have changed all within the last 6 months or so. And we know that these trends tend to buying patterns and marketing schemes and things like that 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 our customers, including the big brewers has gone up significantly. And so we're looking forward to that maturing and turning into opportunities. And it's important for us, I mean, the cost of glass and aluminum has closed. A lot of that's because of the price of aluminum or tariffs 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.

So sorry. It's the can guys -- we'll start with you. So TOE increased efficiency at Toana by 10% and you said you're getting similar gains. So help me understand, as though I was looking at it, why you were running below efficiency? And what allowed you to regain that efficiently? 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 were running below. And then help me understand how comfortable you are that CapEx is going to be $450 million on an annual basis, I guess, starting around '27 or so?

So the first question was, why weren't we running more efficiently to start with. Yes. So I think that goes back to long-held standards that were generally accepted in the glass industry. Okay? So it was held that, hey, okay, 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 indoctrinated into standards that we had, technical standard within the system that were more conservative we set than necessary. And so are those preconceived standards have been challenged. And we said, okay. And of course, there was resistance where people said, "Oh my gosh, if I start speeding up, that would be a problem. So we say, speed up 1% a week, see how it goes.

And all of a sudden, you know what, it's fine. And so we're running it over and we're pushing those standards in a way that were just preconceived in the past.

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

Yes, yes. 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, okay? So that was running $150 million to $200 million a year for multiple years. We're out of that mode, okay? So we haven't really reduced the core maintenance spending over the last several years, okay? So those numbers are fairly consistent. We're just -- we've been drawing down the strategic CapEx.

Now with that said, we have been in the process of eliminating 13% of excess capacity, right? We're closing facilities, and we're eliminating 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 -- a pull-through of the trap capacity you can, over time, continue to rightsize 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 O-I? John, maybe two last ones for me and I'll wrap. One, 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 use on the cost side and get more share there and also come up with other categories to add to that? And to your end markets, 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 you expect will be North America, South America, Europe will wind up over time having the most capital intensity?

Yes. 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'd 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, okay?

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 the North America. But it is also well run and has a lot of fragmented customer base. 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.

So to your last question on the mix of business and where do we think growth is at, especially relative to some cyclical and cyclical secular trends, right? For one thing, we would say that the last several years have been fairly all over the place and going back 2 years ago, we were sold out and we were actually air-freighting glass containers and 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. There's the affordability challenges, there's policy changes and for example, on tariffs and immigration.

And then, of course, you have change is share of throat as what we call. 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 we'll have a fine cocktail. We will have a fine as glass of wine, even if maybe they don't have three of them. Right?

And 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 waters 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 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 categories. And even then, within -- for example, spirits categories, you see pockets of growth. For example, spritzes are very popular. They're very light. They're easy to consume. They're not as many calories and things like that. So those aperitifs and those types of things continue to do well. Flavored whiskeys and everything are doing very, very well.

So you got to find where people are drinking. They're always drinking something. And so you got to find what those niches of opportunities are in. And with the branding capabilities, image differentiation, the fact that people want to move their products, we believe the glass is a winning proposition.

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

Thanks, George.

Hello, everyone, and thank you for joining the O-I Glass Full Year and Fourth Quarter 2025 Earnings Conference Call. My name is Lucy, and I'll be coordinating your call today. [Operator Instructions].

It is now my pleasure to hand over to your host, Chris Manuel, Vice President of Investor Relations to begin. Please go ahead.

Thank you, Lucy, and welcome, everyone, to the O-I Glass Fourth Quarter and Year-end Conference Call. Our discussion today will be led by Gordon Hardie, our CEO; and John 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'd now like to turn the call over to Gordon, who will start on Slide 3.

Good morning, everyone, and thank you for your interest in O-I Glass. 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 also outlined our 2026 outlook and progress towards our 2027 Investor Day targets. Before we begin, I want to recognize the dedication of the entire O-I team. Our commitment 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's now turn to Page 4 to recap our strong full year 2025 results.

As you can see, our performance improved across our key financial metrics. We created an 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 and tons were down 2.5% and 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. A major project start-up in Europe impacted shipments nearly 1%. And finally, we capitalized on emerging opportunities and pockets of growth as higher-value categories such as premium spirits, food, NABs and RTDs outperformed trends in mainstream beer and wine. So we shifted our mix about 1% towards a higher quality book of business. 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 0.5 turn to 3.5, and we remain on track to reach approximately 2.5x 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 with 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 5. 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 strengthens 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've increased our 3-year cumulative Fit to Win target to at least $750 million, up from $650 million. Let's discuss progress across the different phases of the initiative.

Phase A focused on SG&A streamlining and initial network optimization generated approximately $180 million of benefits in 2025. We expect an additional $135 million in 2026 and as we advance later-stage SG&A initiatives and finalized previously announced elimination of approximately 13% of excess capacity by mid-'26 with remaining actions primarily in Europe. Phase B, which 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're also accelerating procurement and energy initiatives to drive incremental savings. Importantly, the upside opportunities in Phase B drove increased 2027 target. Overall, Fit to Win is delivering faster and stronger results than planned, notably in our Phase B project, and we remain fully committed to achieving our 2026 and updated 2027 target.

With that, I'll turn it over to John to review fourth quarter performance and our 2026 outlook, starting on Page 6.

Thank you, Gordon, and good morning, everyone. I'll 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 adjusted 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's turn to Page 7 to review segment operating profit. Momentum remained strong in the fourth quarter, with segment operating profit increasing 30% to $177 million in margins expanding 280 basis points. In the Americas segment operating profit rose 40%, driven by higher net price and continued fit-to-win benefits. Volumes declined 10% and which was concentrated in beer and spirits, while other categories like food and NAV were more stable. Based on market data, about half of this decline was due to lower consumption given ongoing affordability challenges change in consumer behavior affecting many markets and weather-related disruption 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 onetime $6 million insurance settlement related to a prior year event. In Europe, segment operating profit increased 8%, reflecting contributions from strategic initiatives and higher production following last year's inventory reductions. Net price was a headwind and volumes declined 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 at a few customers. Shipments were stable or slightly higher in wine and food, while beer and spirits remain soft. Trends were weaker in the U.K. and Italy, but stronger across other markets. Importantly, all actions to eliminate excess capacity are expected to be completed in the first half of 2026, materially improving Europe's operating trajectory. Overall segment operating profit increased solidly, demonstrating disciplined execution and the continued success of our initiatives. Taken together, these trends inform our expectations for 2026, which I'll discuss on Page 8.

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 and 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 business to improve economic profit while maintaining or growing market share. We anticipate adjusted EBITDA of $1.25 billion to $1.3 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% and 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 slower, 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.

The first quarter will be our most challenging year-over-year comparison due to tariff prebuying, a onetime insurance recovery in the prior year and a seasonally higher tax rate. So 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 TO implementation progresses. Additional guidance details are included in the appendix.

I'll now turn it back to Gordon to discuss progress towards the 2027 targets and concluding remarks starting on Page 9.

Thanks, John. 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.

Let's conclude on Page 10. 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 disciplined 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.

[Operator Instructions]. The first question comes from Ghansham Panjabi of Baird.

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 clean out going into 2026. So just curious as to your thoughts. And then how are your volumes in the region performing thus far in 2026? I know you have a tough comp from what you mentioned in terms of the pre-buy, et cetera?

Yes. Thanks, Ghansham. We continue to see sort of inventory adjustment in North America, particularly in spirits and in beer, particularly on beer originating from Mexico, given some of the changes in consumer behavior. So we would say somewhere up to maybe half of that was an industry or inventory adjustments. So there are the 2 main drivers of that. There was also a bit of destocking in wine, but I think we believe that's largely here. So the big areas have been beer and spirits. We continue to see fairly high stocks and spirits. I think the inventory to sales ratio is still running above the 1.7%, 1.8% which is historically high versus the long run average of about 1.3%. So it continues to be a challenge.

However, as we laid out our segment profit is -- continues to improve in the Americas as we drive fit to win, and that helps us overcome these kind of short-term inventory adjustments. We expect those to continue in the first quarter, given the high level of stock in North America. But we continue then on the other hand, to drive Fit to Win. And also egos pockets of growth across food, across NAB, particularly waters is particularly strong for us in North America. So yes. That's how we see the first quarter in North America, Ghansham.

Got it. And then for -- as it relates to the expanded savings, 750 versus 650 plus before. Is that just a function of just the volumes being lower than you thought and so you're taking additional actions? And then just 1 final clarification on the energy headwind of $150 million for 2026. Is that just a one and done? Will it just be specific to '26? Or will there be any sort of lingering impact 2027 onwards.

Yes. I'll take the first part. So would you take the energy question?

Yes. 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 that expired at the end of the year were rates before the Ukraine war with Russia. Russia war growth, Ukraine, I should say. And then -- which were at low rates. Those expired at the 2025, we have since been basically layering in contracts and hedges over the course of the last year. So we're substantially contracted on our energy exposure in 2026 in Europe. So we're confident about the $150 million, which is substantially a price is below current TTF, but still a ramp-up from where we were in the past.

And Ghansham, with regard to the additional savings, it really is not because of the volume. I think we pointed out in earlier calls and particularly on Investor Day, 650 was the original target. And obviously, we had a bigger bucket to go after. As the savings came faster than planned, almost 50% of the savings in the first 15 months and the organization's ability to go after and execute those savings, then we're able to get after some of the stuff that we saw embedded but didn't have a clear line of sight to, say, a year ago. Now coming to fruition and being able to execute that. That obviously helps offset the volume, but it's not because of the volume, so to speak. I think there are separate issues. But certainly, it's it underpins our confidence in delivering our 2027 number.

The next question is from George Staphos of Bank of America.

Good morning. This is Kyle Bambanuto 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?

Yes, I would say, Kyle, 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 and mix of business, grow market share in this area, but also exiting unprofitable negative EP business. So for example, if you go back to our Investor Day, over about a year ago or so. We had said that there is about 4% of our total volume that was deeply negative EP. And we wanted to address that. We want to address it either by raising prices in those books of business or exiting them. And over this last year, we probably saw about a 1% movement in that book, and we expect to continue to ship away at that. And so yes, that is included in that outlook for the next year. So maybe there's another 1% or so type of movement as we continue to mix manage that.

And then just a follow-up, the Fit to Win was designed to lower your cost position and open up doors to new volume opportunities. Why wasn't that sufficient to retain this volume?

Yes. Well, what I might do if you look at the volumes, probably down 2.8% and might unpack some of that to give you maybe some insight as the ones off inside at year-end. But if you look at our total volume of about 2.8%, within that, there was directionally above 1% to 1.5%. And sort of share gain that translated into 1.5% volume. We also had some restocking in certain regions that probably added about another 1% to 1.5%. And then on the minus side, we had some customer events where customers were managing their inventory, taking some capacity done in the short term. That was about a decline of about 1.5%. We mentioned a start-up of a fairly large capital project we have in the region that -- and maybe some furnish repairs we had during the year, that was above 1%. So when you net that off, that nets to about 2.5%, but within that. we had, we think, somewhere in the region about a 1.5% growth in volume. And that was high-quality, high EP growth. So we are seeing growth start to come through, but it is being offset by other events in the market.

Yes. And to build on that, what I would say is we really wanted to take a very disciplined approach in the marketplace. If you take a look at, given the challenges in the macro environment, we held the top line study, which was exactly what we wanted to achieve. And you look at that, hey, net price was basically kind of flat in the marketplace. Volumes were down a couple of percent. Given the context of the market, we think that, that is good discipline in execution. And really, the concept of growing notwithstanding the mix management, everything that's going on right now is really kind of a horizon 2 effort that we're working on. We're building the system for that right now. And we're finding those pockets of growth, as Gordon alluded to in the commentary. We're starting to execute on them. Some of them take time to be able to translate into actually demonstrated volumes and things like that. but we're working on things like design and innovation, leveraging our record in our industry high Net Promoter Score with our customers to find those opportunities for growth. But it's -- we're just starting that journey to start to leverage it to win as we go forward.

Yes. And just a bit on that, Kyle. I think we mentioned in our Investor Day and in subsequent calls that we really had mapped all of the categories and segments across all the markets in which we compete. We know have a very, 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 of our sales force in all of the markets. And that's just starting to hit and be rolled out. And we're having some wins on that.

To give you an example, with a regional beer customer, where our expected growth would be somewhere in the mid- or mid- to high single digits this year. We're seeing other spirits customers in certain regions where we would expect again high to mid-single-digit growth this year. So it's starting to come through. But really, it will be towards the back half of the year and probably the last quarter of the year before we see that gain momentum and then into 2027.

As we look ahead for the year, we have the World Cup coming up where we would start to see inventories building kind of late April into May. We've got the 250 year celebration here in the U.S. We think that's going to have a kind of a positive impact. So we see it starting to build we spent the first kind of 15, 18 months on the back end of the business and getting POE right. Now there's a huge focus on getting the go to market, piece of the business, right, so we can execute on where we see these pockets of growth.

The next question comes from Josh Spector of UBS.

It's -- so sitting in for Josh. I wanted to ask about the cost savings target, not to take away from how impressive this performance has been, but you basically raised the cost savings target by $100 million, but kept the 2027 EBITDA the same. I assume that means that maybe your volumes are going to continue to offset. But is there anything else in there? Or what explains that -- do you reconcile that for us?

Yes, yes. This is John. I can touch base on that. Yes, the target of at least 1450 remains in place, right? So we're not limiting ourself to 1450 at least 1450. So we have increased a Fit to Win by $100 million that does help mitigate the uncertainty around the commercial environment. Of course, we are working to drive an improved commercial outlook for the business is just back to the last discussion. We are building this system to be able to grow. As we've always said, it's going to be a little bit more of a horizon 2 target to drive the top line growth. but we are making some room given the uncertainty in the continued prolonged affordability challenges out there in the marketplace.

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

Sure. So 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's jumped to about 68%, 69%. And with many of our customers at the most senior level, we've had discussions about the need to improve the supply chain efficiency. If I compare it to other industries, I think there's a big opportunity for our service working with customers and suppliers to strip out waste and inefficiency in the value chain. And that's what we're focused on. I think when we last spoke, our new Chief Supply Officer, hadn't started, he has now begin or begun. And that's a key focus for him and his team is how do we cost on waste out of the supply chain and then share that with customers and suppliers with a view to growing volumes in the different categories. So we've made good progress, still a lot of work to go and still a lot of opportunity to take out over the next 18, 24 months low.

The next question is from Mike Roxland of Truist.

Congrats on all the progress. Gordon, I wanted to follow up with you. I just wanted to follow up with you, Gordon, some really interesting color in terms of mentioning where the pockets of growth are, where you have a right to win. And then you mentioned revamping the go-to-market model. So what are you doing differently? And what are you trying to encourage the sales force to do differently to drive better volumes? And as you think about your portfolio, I know you mentioned you had some beer win, it sounds like you had a beer win or maybe some spirits wins as well that are going to hit this year. But as you think about a portfolio, are you willing to reorient maybe toward more growth markets like food and AVRs and maybe minimize beer, maybe minimize spirits, particularly given the elevated inventories that, that category has experienced?

Yes. I'll take the second piece first, Mike. So yes is the short answer in terms of reorienting the portfolio to higher growth and higher margin segments, such as nonalcoholic beverages, premium nonalcoholic beer, waters, juices, we're seeing significant growth opportunities, particularly in the Americas on that. Food is growing particularly in the southern half of Europe and in markets like Brazil and Mexico. And indeed here in North America. So that's very much part of a focused strategy, and we're starting to see results come through.

With regard to the go-to-market model, I probably would have viewed the organization of the sales forces in the different markets to be somewhat traditional and probably hadn't changed over a period of 10 to 15 years. And we're bringing in much better sort of insights sharing those insights with the sales force and bringing kind of modern methods of sales management into the business. and equipping then our sales force with insights and and opportunities by customer on how the customer can either improve their growth or improve their cost or both. And then a much more rigorous system of review and accountability, building from daily sales to weekly sales to monthly against targets and a much tighter cap management.

Now in many industries, this is all has, but this is -- this will be a big step forward for us in how we drive focus on performance. And yes, we have some fantastic insights and data in the business. It's now how do we turn those into opportunities for our customers. And we're already starting to see green shoots coming through in that system. It's early days and embedding it. We should be well underway by end of the second quarter, and that system should be in place across all the markets. and functioning accordingly. We're also upgrading some of the commercial leadership in different markets. and bringing kind of better and best practices into the business. So that's a bit of flavor on that, Mike. Happy to elaborate on any of that.

No, that's very helpful. But would it be fair to say that we have you're pursuing are going to lead you to that volume growth that you're targeting for 2028 and beyond, the 1% that you outlined at day right? It sounds like you're getting an earlier jump on doing these things, particularly given that you're bringing -- you brought the -- there's been a pull forward of your -- of the Fit to Win benefit? Essentially you're starting to get to move forward in a faster pace on commercialization, trying to -- the regulation and bring in business wins. Is that a fair assessment?

Correct. Yes, that's a fair assumption. And just add a bit of color to that. So the first area of focus really was on the supply chain and strengthening the supply chain, getting the cost down. And that's what really we've been focused on over the last 18 months. And as we've made sort of faster progress than expected, that allows us to orient more focus to the front end of the business. It's very difficult to make moves on the back end and the front end at the same time, that risks all sorts of supply chain snafus and customer issues, and we were very deliberate in staging how we would do this.

So we got the back end in order in much better order. There's still a lot of opportunity there for us. And we did that faster than planned. and that allowed us then to switch the focus to the front end of the business, probably maybe 6 to 9 months ahead of what we might have thought in the early days. So really, it is a sequencing thing that allowed us to go faster as we made faster progress on the back end.

The next question comes from Arun Viswanathan of RBC.

I guess first off, I just wanted to understand how the volume trajectory would progress through '26. So I think last year in the first half, you were up 2% to 4%. And then now you do face those tougher comps. And then the back half of '25, you were down. So should we expect kind of reversal of those trends in '26? And if so, given that you would be exiting maybe at a positive rate, do you expect that positive volume growth to continue in '27?

Yes, Arun, thanks for the question, John here. Yes, you're basically spot on. The first quarter, as we had indicated, is going to be their toughest comp period. Our volumes are up between 4% and 5% last year. we believe that was substantially due to tariff prebuying. So kind of -- you work off of that tougher comp. So that's where we said we're going to be down mid maybe even high single digits depending on the consumer. We transitioned in the second quarter to something is closer to flat. And that in the back half of the year, you're looking at low to mid-single-digit type of growth numbers against obviously, easier comps that we had over the next year. And yes, I think that this develops into a bit of commercial momentum. And so we're looking to continue to try to improve the top line. Obviously, a little bit of help from the consumer will be good, and there's macros that need to be tested on the affordability side. But as we work through that on a macro basis, that could result in a tailwind down the road as markets recover and we get this engine that Gordon was talking about also fine-tuned.

Great. And then, the free cash flow, I think the guidance is somewhat in line with our expectations. Any opportunities there for upside I guess maybe it could come from maybe net price not being as negative. I don't know if that's one opportunity, but -- or working capital kind of harvesting a little bit more. Any opportunities there where you could see upside to that free cash flow? Or how do you feel about that -- the level of guidance for '26?

Yes, yes. So 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 and improved cost performance, we obviously we have $275 million. We're always aiming for more right, as we've delivered in the past. We're always aiming for more. So there's continued opportunities to work there. I would also profile, as you mentioned, working capital. We do have efforts to continue to reduce inventory this next year. We have made a provision for additional receivables towards the end of the year as we're talking about the growth but we're also working on, for example, nonfinished good inventories, other things below the line that could generate additional cash. And so I think those are your biggest variables and we continue to work on the balance sheet, and we'll probably have another year of refinancing going on. So we'll look for opportunities to improve P&L and cash management there.

One other thing. You talked -- you asked about net price I do think price is probably less the moving piece on the gross price, but inflation if inflation continues to trend off, that might be an upside, but I think it's a little early to determine. Thanks.

Next question comes from Anthony Pettinari of Citi.

This is Brian Burgmeier on for Anthony. Maybe just kind of following up on Arun's question. Just considering the 1Q outlook, do you anticipate any curtailments kind of continuing into 1Q or 2Q? Or do you think those curtailments if they are going to be there, would kind of taper off throughout the year, considering your footprint actions are going to be. I think, wrapped up by midyear this year. Any detail on kind of the curtailment or operating rate would be helpful.

Yes. Let me step back and talk about capacity management. As you recall back in 2024, we had about 13% of the underutilized capacity, and that's what drove our program to eliminate the capacity, which we've been working on. That 13% in 2024 dropped to about 6% in 2025 primarily as we made progress on the Americas. It took us a little bit longer in Europe having complying with labor regulations. So we expect that 6% to drop in 2026 as we complete that activity over in Europe. So that 6% maybe goes down to about 3% or so where we also have efforts to kind of reduce some inventory as I mentioned.

And that also that extra downtime actually provide some swing capacity for us, which is pretty important. So as markets recover, that you have the opportunity to take advantage on the upside. So we might be carrying a little bit of downtime, but we're getting into the short strokes there.

Got it. That makes a detail that makes a lot of sense. And then last question for me. You mentioned the pre-buy impact from tariffs maybe just as we start to get closer to the kind of lapping Liberation Day, are you seeing kind of stability or maybe even potentially a modest recovery in some of those impacted markets? I guess there's maybe still not the full clarity, some customers are looking for, but I'm not sure if it's been stabilizing throughout the year.

Yes. I think we are seeing some stabilization. And certainly, it's there's more certainty here than a year ago. And then we're seeing other sort of geopolitical moves with say, the U.K., which is an important source market, obviously, for scotch, opening up agreements with India and with China. And depending on how quickly they come to action then that creates sort of opportunities for the scotch industry to export more to India and China. And that obviously then has an impact on us.

Same thing with French spirits into China, particularly cognac and the higher-end wines and things like champagne. So those things help for sure. They weren't on the way there this time last year, they are now. And at least we're working with the certainty of the system that's there at the moment. So I think the big challenge in the U.S. market is to increase consumer offtake and to drive down the inventories that are in the system. We are seeing customers make moves to change in marketing strategies and increasing their spend behind that, increasing promotions to drive that. So I would say the outlook is certainly more stable, and I would say probably more positive than it was this year last year, but all the uncertainty.

The next question comes from Paco Ruiz of BNP Paribas.

Most of the questions one answer, but I have to -- first one is if you could give a little more detail on the European market, supply and demand dynamics. I mean you commented that mainly to forecasting supply will be in Europe. How do you expect the event to perform debt.

Yes. So happy to do that, Ruiz. So what we're seeing in Europe is well, let me step back. So in the Americas, we see capacity probably tighter and more aligned with demand and less sort of price pressure, I would say, in general, across the markets. There are some pockets where that doesn't hold. But in general, I think capacity and demand is pretty tightly matched in the Americas.

With regard to Europe, there certainly is more spare capacity. We've obviously taken down what we feel is surplus to us. There has been some other capacity taken out across the market. But if you look at categories like wine in France and Spain, there's still significant overcapacity. And and there is price pressure in those categories in those markets. Also, in sort of mainstream lower equity kind of beer, we're seeing some capacity come on. But it certainly has tightened up significantly year-on-year, okay?

And I would say pricing has firmed up, whereas last year, you're probably looking at a situation of more overcapacity and therefore, more pressure on pricing. So again, I would say the situation has improved year-on-year. Obviously, our focus is on what we control, and we're taking the actions we've outlined, which should all be completed at the latest by the half year. and that would make our network pretty tight.

I would add, if you take a look at the trajectory of kind of net price performance, 2024 was kind of a reset year. 2025 was significantly better, and then we expect 2026 to be better than 2025, even though we're seeing a little bit of still net price pressure. So it's ratably getting better and normalizing.

And you see the significant uplift in Americas in 2025 and not so much in the EU, and that really is just a factor of timing. You can get to take actions in the Americas at a much swifter rate than in Europe, as you well know. But we've worked through that process diligently in a disciplined manner, and we're well down the path to executing on the kind of actions that drove the uplift in America or the Americas. We'll see those coming through now in Europe in 2026.

Okay. My second question is one of the drivers that you commented on your Capital Market Day, which is the move from can to glass, which mainly you highlighted this on a better improvement of your profitability. But now given the high cost of the raw material of the aluminum, it's making this way alone. I mean there are more opportunities for the companies to move that way. Are you seeing this driver already this year? Or is it something that is still pending to be seen.

Yes. Look, we -- certainly in the categories in which we operate, we've seen a very big slowdown, particularly in North America of that switch. And if I take a look at the price cap, which I think we outlined at about 35% at ID, that is certainly with the movement in aluminum on paper anyway, to 10%, 12% mark. And historically, when it's been around that level, you see a shift over time from cans to glass, right? However, we're still focused on driving our own internal opportunities to reduce costs, and we're not going to stop there. But yes, absolutely, it helps. There is can growth in Europe, but it tends to be in the categories where glass isn't either not highly represented or it's not fit for purpose for a specific channel, right? And there's growth in kind of CSDs and particularly energy drinks, which is nearly exclusively can -- and a lot of those consumption moments are in areas where you can't use gas, like concerts and beaches and stuff like that.

But we're -- in terms of cost gap to cans in Europe, we're in a very good position as well. So yes, so let's see what plays out this year in terms of draft cans. But again, certainly in a much better position than we were this time last year in that regard.

The next question comes from Richard Carlson of Wells Fargo.

Good morning, guys. I'm sitting in for Gabe Hate today. Most of my questions have been asked, but I did want to ask. So inventory was up, looks like $20 million quarter-over-quarter. We normally would have expected it to be down by about that much. So call it about a $40 million, $50 million delta there. Were you actually tracking ahead of your free cash flow guidance earlier in the quarter? It seems like maybe the surprise with some of the volume in Americas might have been to blame there? And then, I guess if so, does it set you up a little better to start 2026 since maybe some of the inventory build into Q1 is already done?

Yes. One thing I would say is when you take a look at those balance sheet numbers, there's a hell of a lot of FX flushing through there, okay? So on an FX-neutral basis, we were able to reduce inventory some last year. Now keep in mind, we did not achieve the IDS targets we were hoping to at the end of the year. We ended in 2024 57 IDS. We were hoping to get that down to 50. We did not get there because of the softness in the back half of the year.

But to your point, that does set us up for continued progress to be made this next year. in 2026. So yes, we are anticipating and included in our guidance right now is us getting to that 50 days of IDS plus additional progress on nonfinished goods inventories, things like raw materials and machine parts and spare parts and things like that, that also can contribute some upside opportunities to cash as we go forward.

Understood. That's helpful. And John, also your quarterly cadence guidance is reflecting pretty well-balanced H1 versus H2. I think based on some of the volume comments you've made, I would have been surprise and also based on some of your peer commentary about most are expecting a stronger back half. So maybe can you help us reconcile some of that? And then also, where is the World Cup contemplated in this? Or is that just representing potential upside?

I think it's more of a potential upside. I mean there's a lot of variables out there. Obviously, if we're talking about flat to slightly down volumes, there's not a lot of those event-specific things considered into the guidance right now. As we take a look at the reconciliations and things like that. Obviously, some of this has to do with prior year comps and where we were earnings-wise in the prior year. We also are looking at the cadence of Fit to Win Obviously, we got a lot of activities here in the first half of the year, especially with Europe that will start to track into the second quarter. But again, if there is upsides in the markets and they recover, then that probably, as I mentioned, is not comprehended in the outlook that we have right now. So we're trying to be practical on our outlooks right now. and that includes the sales volumes at flat to down.

Got it. Thank you, guys. Best luck in Q1.

Thank you. We have no further questions at this time. So I'd 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. And 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 lines.

Thanks, everyone, for joining. I'm Anthony Pettinari. I'm the Packaging Analyst here at Citi. And we're very pleased to welcome Gordon Hardie, CEO; and John Haudrich, CFO from O-I Glass. Gordon, John, thanks for joining us.

Yes. Thanks, Anthony. Many thanks to the Citi team for hosting us. We posted a brief presentation online and direct people to the safe harbor statement. What I might do is take a few minutes just going through a few slides, and then we can hand it back to you for Q&A.

So we're the global leader in glass packaging. We're systemic to the beverage industry. We service a lot of the world's top food and beverage brands. We sell in over 74 countries, 21,000 employees. And we have a combination of what we call mainstream categories and premium categories, roughly about $6.5 billion. And we're transforming the business to -- by being much more competitive. We had lost over the years our competitive edge mainly due to an inflated cost base, which we are now addressing through our Fit to Win program. So we've got a pretty simple approach divided into what we call three horizons. First one is get fit, strip the waste and inefficiencies over the business and direct those savings to improving our earnings and our cash on the one hand and investing in profitable growth with customers on the other.

As we move through Fit to Win, we made progress towards that. That should open up sources of volume growth that have been close to us in the past because we weren't competitive enough and we're already starting to see the green shoots of that in '25, where we're winning business that perhaps in the past, we wouldn't have been competitive enough to win. And as we drive through the whole Fit To Win and we get to the level of $650 million out in terms of cost, we would expect more profitable growth opportunities to open up. And then as we work through that, we should be reaching 1.45 billion EBITDA, 5% of revenue as free cash flow and a plus 2 returns.

That opens up sort of options then to maybe expand into new markets, supporting customers as they grow in new geographies, new segments, new adjacencies. And that really is Horizon 3, which is -- we do have a very sharp focus on economic profit. So either we can have pieces of business that are well above their weighted average cost of capital targeting WACC plus 2. If we can't get there through our own means and with better conditions things like pricing and that, then we take that business also and redirect the capacity and the capital elsewhere.

And I'll cover the last comments here. It's on Page 21 of the materials. But just what are we trying to achieve over the next several years? Understanding that our journey here started with the 2024 ESR base. We had about $1.1 billion of EBITDA. And as Gordon mentioned, our target over a 3-year window by 2027 is to get that up to $1.45 billion. That's a 30% improvement or about 8% CAGR on EBITDA over that period of time. That should translate into return of EBITDA margins in the low 20s. Importantly, free cash flow as a percent of sale greater than 5%. And then back to, as Gordon mentioned, in economic spread that's 2% above our cost of capital. We're off to a very good start on this.

Fit to Win has exceeded our expectations, and we are set to double our adjusted earnings in 2025 compared to 202 but the journey doesn't stop there, that we have long legs as far as opportunities. As you can see in 2029, we aspire to $1.65 billion. continued improvement in margins and importantly, getting free cash flow up to 7% of sales as well as a higher economic spread. And you can see a number of other longer-term objectives to while over this next 3-year period out through 2027, we're looking for a stable top line as we really focus on becoming cost competitive. Our expectations to start to grow the business at more than 1.5% a year off of a more competitive base is going back to Gordon said, the profitable growth stage, which we believe is above market.

So we believe that, that should drive market share improvement in the same token, while we're doing that, we're going to be moving our portfolio business from what's right now about 27% premium up to 40% over time, and we're going to do that through leveraging a very good close relationships with customers, very good Net Promoter Scores that we have right now. and a significantly improved cost base, which in the mainstream category should be 20% lower than where we are today. So we've got a great plan, I think we're executing well on it. They're coming out of the gate strong and even if in a generally soft and sluggish marketplace, we're exceeding the original expectations we set ourselves to.

Great. Great. It's super helpful. Maybe we can we're in December, close to the end of the year. Last month, you raised full year EBITDA guidance. And I'm just wondering if you could kind of walk us through what led to that increase and maybe look back on the year and if you can talk about sort of volumes, net price and then fit to win and how it's gone versus expected.

Sure, yes. I mean we have regularly increased our outlook in 2025, as you mentioned. Our current guidance has earnings to $1.55 to $1.65 per share and corresponding EBITDA improvement, as you referred to. That increase has been substantially driven by improved Fit To Win benefits. So we entered the year thinking $250 million or so of fit-to-win benefits. We're now guiding to $275 million to $300 million primarily because a lot of the operating improvement areas that we've been targeting are ahead of schedule. At the same token, we benefited from net price while we thought it was going to be a bigger headwind this year.

It's actually moderated as far as a headwind, which is a good thing, and that's helped offset some of the incremental volume softness. We anticipate the year will be down about 2% or so sales volume is consistent with what we kind of last guided to. Expectations going into the year were originally flattish. So a little bit better on net price, a little bit softer on volumes. But overall, if wins the one that really drove the upside of guidance.

Got it. And just following up on a few things there. What kind of drove the better-than-expected Fit To Win performance? Was it a specific region? Or do you think you're maybe conservative in the initial or what surprised you?

I think the standout thing for me was the way our people went after the opportunities that we identified. It's not untypical to face a bit of resistance when you face into a big change program. I think there was very little of that overall, and people really saw the opportunity. And I also think people recognize the reality and that we had become uncompetitive and particularly people in the plans feel that because they are the first ones to see volumes dropping and so on.

So there was -- I think across the board, there was a feeling of -- well, finally, we're pacing up reality, and we have a plan to get after it. And yes, I think people really stepped up and dug in and went after the opportunities are there and are executing really well. A big shoutout to the folks at I-O. I think they've done a tremendous job getting after the inefficiencies and waste in the system.

And not to go through a history lesson, but I think it's probably important for this discussion. Can you talk about maybe why the cost base got a little bit out of control. And in terms of Fit to Win being different from maybe previous types of restructuring actions, like can you give us some kind of context on -- maybe start with the second part.

As you ask, Anthony, many people have asked me.So what's different with this versus other maybe productivity programs that the company has undertaken in the past. And there have been successful productivity programs, but they've been in targeted areas. And unless you fundamentally changed the business system and way of working, costs tend to go back, right? So what we're doing is reviewing, as we pointed out at the business end to end from the backdoor of the suppliers all the way through to the customer. In the past, that supply chain was divided into 5 areas with 4 leaders reporting into the CEO. We've changed that structure. I know have one end-to-end Chief Supply Officer who is accountable for the whole chain.

And so there's much more cohesion in the approach to how we get fitter, how we strip inefficiencies and waste out. So it really is an end-to-end view of the business rather than just specific programs. I also think John and the team have set up a really effective method to track progress and if it's not in the P&L or it doesn't appear as an improvement on the balance sheet, then it's not real. We've set up a value office to track that, and that's working really, really well. So people see sort of results in real time and they're reported on and people know where they stand each week and each month. And as you get after the cost and the waste and people see it coming out, that engenders more confidence to your on the way. in faster. So that's kind of what's different.

I might build on that just sure somebody who's been around for 15 years in the company is, I think, the redefining what good looks like is also really important. Historically, the business has been run by people who have been in the glass industry for 30, 40 years. right? And they believe based on what they saw, right? And it's not a big industry, but -- and it's kind of a little bit close knit. So I don't think there was a really challenging of what best-in-class manufacturing looks like. And so in many regards, standards of how we operate or set 30, 40 years ago, and some of those were just became ways of doing business. Now it's being challenged in a way that it wasn't before with ideas that are outside of the industry and saying, hey, we can do something different. It doesn't have to -- you don't have to run this machine at the speed or this furnace at this particular rate, you can actually challenge that against long-held beliefs.

Can you talk about curtailments and facility closures in terms of what you've done in '24, '25, what you flagged for '26 and how that impacts...

Yes, I can address that one. So if you take a look at it, our demand is down about low double digits, maybe call it 13% from pre-pandemic basis, right? So -- and of course, we're in a trough kind of marketplace and anything like that. But what we have done over the last, call it, 12 months and will extend into the first few months of next year is permanently closing 13% of our capacity. As at the end of the third quarter here, we were at about 8% or so was functionally closed, and the remaining 5% will be done by the first quarter of next year. And so most of that, the work here before has been done in the Americas, it's easier and quicker to get on top of that, all the actions that are going to be going in are going to be over in Europe, but we are moving forward with that.

So at the end of the day, we should be substantially done with what we call initial network optimization and rebalancing that whole network by the end of the first quarter. and all the cash restructuring associated should be out of the system by midyear. So we believe we're just going to be at a much better both operating rate and cash run rate by around midyear or so next year.

And in terms of visibility into volumes, I mean, we had the kind of whipsaw the pandemic, but how much visibility do you have? How much visibility you customers have? And has that changed? Or is improving that been like a target?

I think we have a fair amount of visibility certainly enough to take a view, okay, this is where revenue be here's our target EBIT and there families where costs were to be over the period of the year. So one of the things that surprised me coming into the role in the industry is that forecast accuracy is pretty low across the industry from customer back to supplier running is about 50%, and in some instances, much lower. So if you're a plant manager, you've got a 1 of 2 chances of either shipping it to a customer or invoicing it or sending it into stock. So we've done a lot of work in terms of our own systems and also working with our key customers and say, hey, how do we improve that? Because it's a cost for us. It's a cost for you. It's just cash sitting there. And so over the kind of 6 to 8 months, we've taken that number from 50 to about 68%, and we'll see further improvements as we go through next year.

And so the better you get at that, plus the more efficient and more agile, you get at manufacturing. You can respond more quickly to the ebbs and flows of demand. So I think there's a lot of work to do for us in our supply chain with our customers of getting that supply chain really, really fit and agile of responding to demand signals and producing our demand segment rather than necessarily forecast. We've got to improve forecast accuracy, would ultimately get to a place where we're producing to a demand signal from the customer in the retail.

You talked about price being a bit better than expected year-to-date. Can you just kind of remind us the pricing mechanisms, you have some contracts and you the timing of that? And then what you said about '26 on price.

Yes, sure. And just kind of go around some of the contract structures and the timing of things. If you go over the start over in Europe, which is about 45% of the company's business, right, about 1/3 of that business is under long-term customer agreement with tier agreements that have price adjustment for and those associated with them. So it's very structural. But the other 2/3 is what we call open market. And so while the 30% is multinational accounts, think of thousands of small wineries, right, when you're looking at the -- with the open market, we typically have a negotiation window for those annual agreements. That starts about now right at the end of November and concludes mid-February or so.

Okay. So that's kind of the dynamic that occurs in that entire environment over in the Americas. It is more tracked. So for example, in North America, it's probably over 90% under long-term contracts with price adjustment for is a much more predictable environment. And in Latin America, it's about 75% contract with the other 25% kind of open market. So really, the thing that swings our view of net price realization is the outcome of those open market agreement negotiations. That's basically just started now over in Europe. So -- and what we had indicated during our last earnings call, we kind of gave a directional view of what we think going on next year. And if you take aside the onetime energy contract resets. We can talk about that if you want. But that's a kind of known item out there.

We had indicated that gross price would be up some primarily in the Americas, whereas net price will be kind of balanced maybe you might see a little bit of pressure over in Europe, but it's a little early to be able to tell that because those negotiations when those have only just begun.

And the -- maybe possibility of net price pressure in Europe, is that energy contracts? Or is that just a...

I would say that you have the opportunity of some net price positive in the Americas, a little bit of net price pressure. I'm just talking about market and competitive dynamics, not the energy contracts a little bit pressure in Europe. So right now, we're looking at a balanced environment overall for the company, understanding that we haven't initiated. We're just at the very front end of that. So we'll have to see what the net effect is, and we'll update that at the year-end call.

Right. And you kind of talked about this before, in terms of cost. But can you talk about the competitiveness and the pricing of glass, especially versus beverage cans, PET.

So I think as we laid out at [indiscernible] one of the realities we need to face is that particularly in North America, glass had become very uncompetitive or a 30% to 40% differential. And when you look at the share of glass and beer, it's lowest in those markets where the cost differential. So if you look in the U.S., it's a lower share of the beer category. And glass has some tremendous advantages it's the only packaging deemed grass, generally regarding the safe product tastes better. There's a brand equity piece for the brand or, but all those advantages are blunted if you're if you're on a WACC and I think realizing that. And how did that come to pass, while it came to pass by 0% to 1% productivity and then 2% to 3% cost growth a year, it doesn't take it very long to get out of WACC.

So we're addressing that. And in those markets where that gap is closest or even we have a cost advantage to we have the highest share of the beer category in terms of substrate. So it's very clear that when we look back over the numbers and particularly in North America and in the U.S. when we get win about 15% substrate versus substrate, we see a swing back to glass. So if you like, no, in terms of competitiveness, I suppose the Apex or target competition benchmark is the cans not necessarily to the glass. So if you like, in terms of competitiveness, I suppose the Apex or target competition benchmark is the cans, not necessarily to other glass companies...

One thing I would add is our business overlaps with cans about 35% of our business. So think about wine and spirits and the food categories that we do serve, they don't overlap with aluminum can. So it really is that kind of mainstream category and certain NABs categories that overlap, and that's where we're certainly targeting our cost competitiveness efforts really, really need to be really honed in on those. I mean, right now, as Gordon said, is price differential was, call it, 30% plus between glass and aluminum. With the tariffs now that's probably between 15% and 20% would be our estimate. Of course, we're not relying on we need to be competitive at the core, and that's why we're looking to improve that really in a targeted way on the cost competitive.

And I think if you're me, 5% to 10% less competitive than another glass company or a substrate, you have to think about cost and in a certain way. When you're 30% to 40% out, then you've got to radically rethink your business model, every process in the business to get that level of cost and was in the system. And that's part of the thinking behind Fit to Win. It's not an incremental program. It's a transformation program, which take 13% to 15% of our cost base hold, and changes of the total enterprise cost basis.

And then when you narrow that down to what John said, where we compete against can that really gets well into the zone of where we need to be.

And so are you actually seeing some switch back? Or in that 35%, are you seeing some markets where you have large customers that are moving a little bit back into glass. And -- or is that something maybe you anticipate for next year?

Yes, I think it's more next year. This year has really kind of been working on getting traction. We'll we -- as we said, we'll be somewhere between $275 million to $300 million this year. If you add the '25, we delivered in the last quarter of Q4 will be close to 50% of the 3-year program out to 15 months. There's a very high probability when you're as far advanced after 15 months that you'll deliver the whole program and maybe go well beyond. And as we start to gain and deliver that momentum, then that gives us the ability to get much closer to cans. And we've got to get there irrespective of the price of aluminum tariffs have driven that aluminium prices that will help, but you can always rely on that. We have to get there in a much more structural way, I would say.

I think there's -- my understanding of the aluminum purchasing process, there's utilization of hedges and other things like that, that have actually mitigated some of the near-term impact of those, but those will eventually roll off and then the market will be exposed to that price. So that will take a little bit of time to flush through.

And for that 35% overlap, if I'm one of those large customers in beer or NAB, I mean, do I have a reasonable ability to flex or do I have to like recapitalize the filling line and make a capital investment to go more into glass I mean it's hard to generalize.

I think it depends on mark. But in general that there's a lot of bottling capacity out there and the dollar margins on bottled products are very good. And I think when you're that far out on the cost base, the issue is ours to fix, right, of the customers. And we're setting about that targeted, focused in executing well against it. So over time, over the next 2 to 3 years, I would expect us to pick up share, particularly in the premium segment. I also think there's a job not just on cost but on innovation. For the first time, I think in 30 years, glass will be able to or cannot play in the 12-ounce RTD market, which is which is quite a large segment and growing in double digits. But I think we need to bring some really kind of innovative concepts to those customers that have been premiumize a lot of the RTD segments.

So there's both cost opportunities and also innovation opportunities for us as we go forward.

I don't know if there's any questions in the room, but. One thing -- one question that we do get is trend volume growth in terms of how to think about glass volumes long-term trend. But maybe start in North America. I mean there's only one publicly traded glass company in North America. There's a bunch in Europe. So it's sort of hard for us to know really what how you think about that.

But the way we look at it is kind of a demand stack. If you look at it's the organic growth of the category. Then there is growth potential from us getting either a greater share of customers' business already. And so you kind of being more competitive and share to you. But there's also a very large segment of the U.S. demand service by imports, largely from Asia that have been that have managed to survive and thrive because the cost base we've had was so high. So through true Fit To Win, we're going to get a lot fitter in North America, and that also opens up growth opportunities for us to combined costs with proximity to customer and agility to respond to demand that will allow us to kind of take share from there.

So we kind of look at that at 3 levels. And then you look at categories like food, where there's a growing display among consumers with regard to microplastics and food in plastic packaging. And so we are seeing a steady and accelerating flow back into glass. So food manufacturers that might have moved to plastic packaging, now moving back into glass. And particularly in the more premium segments of food, we're seeing that. And then things like Gen Zs and a specific section of Gen Z-ers is kind of age 22 to 26 or drinking less alcohol. They are drinking, they are accessing the beer category through nonalcoholic beer and waters, flavored beverages, vitamin drinks, and we see those nonalcoholic beverage category is growing strongly, and that's an opportunity for us as well as -- so we see growth.

I'm very bullish about the U.S. market. Actually, it's a large market, a large profit pool we've got a privileged footprint here. We're on the path to getting much more competitive and much closer to customers in terms of what their innovation needs are.

Is there -- for the '27,'29 targets, is there specific volume assumptions there that you'd highlight?

Well, I think we said about 1.5% volume growth. And when you see the kind of scale of the markets in which we operate on a cost base that could be up to 20% more competitive in a way. I think that's not a target for us to sell ourselves.

You gave some color on the North American market. Maybe we can just kind of take a tour, and I don't -- maybe talk a little bit more about Europe.

Yes, Europe quite a fragmented market, big beer mark, big wine market, obviously, big spirits markets. At the moment, demand just like here in the U.S., I think there's a large portion of consumers that are challenged by affordability. And the discretionary income is a driver alcoholic beverage consumption. So we're seeing that everywhere. Premium beer continues to kind of operate well. It's really the mid-tier that's sort of the time. And then with regard to spirits. I mean the two -- there's a big proportion of the spirits produced in Europe that are exported. And the two largest markets are the U.S. and China.

So the U.S. has been challenged for a number of years, both on the offtake, but also on the amount of stock that was in the system and sold into the system during COVID and that's still kind of finding its way out. And then in China, consumer demand has been muted. There's been talk of the government having an edict on alcoholic consumption the official events, that impacts. And the supply chain to China actually is quite empty. And we expect that probably to ease up maybe at '27. So you could see a scenario where that supply chain or China would fill up pretty quickly. So yes, so that's kind of the European picture. There are green shoots in certain areas, again, like waters, non-alcoholic beverages, doing quite well and food, particularly in Southern in again, that shift back into cars.

Then Latin America, we have a very strong business in the Andean region. So Colombia proved Central America, we are doing well there, food doing well. And then Brazil had a kind of a tough beer year, I would say. It was it was one of the coldest winters in 30 years in Brazil, and that impacted both consumption and beer, but also crop availability for certain food products. So we saw lesser demand for food in glass. And there have been price increases due to inflation going to the market, and I think that impacted demand a bit in Brazil. But overall, if you look at kind of dynamics of Brazil, the population demographics, increasing consumer wealth over time. I think it's a very, very interesting market for us.

Coming up on time here, but can you talk about cash generation when you get to '27 or '29 and like...

Yes. I mean it's -- that's a massive focus from us. I came from an award of daily fresh, where you dropped your inventories to 0 every night. So coming into a business where inventories are sitting or we're sitting at 70 days. You kind of got to ask yourself, okay, where are the inefficiencies that caused that? So we had a usage of cash last year as we curtailed capacity of about $128 million. I think we told the market we delivered somewhere between $150 million to $200 million after about $150 million of restructuring this year. So that's almost a $420 million cash turnaround at a gross level. We'll improve our cash flow next year. Our net cash flow after restructuring. Restructuring should be around the similar level, maybe even less next year.

And then we're through that heavy restructuring in '27. If you look at the gross number before restructuring, we're almost at the 5% of revenue target and that's still with kind of 55 days of inventory in the system, right? So we have tremendous opportunities to get beyond together 5%. And as we outlined at we expect to be at 7% of revenue by 2019. I mean this is a business that has tremendous potential to generate a lot more cash out of the business. And that would allow us to pay down debt, get below the 2.5, and that allows us then to look at options of returning capital to shareholders buyback or by dividend. So that's a plan, pay down debt, get us below 2.5, maybe closer to 2, and then we look at how we allocate capital.

Well, we're coming up on time. But Gordon, John, I mean, the progress this year has actually been very impressive from my perspective. So I think a great job. Thanks for the time.

Thanks for the interest.

Good to be here.

Thank you.

Thank you.

Good morning. Thank you for attending today's O-I Glass Third Quarter 2025 Earnings Conference Call. My name is Jerry, and I will be your moderator today.

[Operator Instructions] I would now like to pass the conference over to our host, Chris Manuel, Vice President of Investor Relations. Please go ahead.

Thank you, Jerry, and welcome, everyone, to the O-I Glass Third Quarter 2025 Earnings Conference Call. Our discussion today will be led by Gordon Hardie, our CEO; and John 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.

Now, I'd like to turn the call over to Gordon, who will start on Slide 3.

Good morning, everybody, and thank you for your interest in O-I Glass. Today, we will review our third quarter performance, examine recent market trends and highlight the progress we have made on our transformation journey. We will also share our improved outlook for 2025 and an early view on key business drivers for further improvement in 2026.

Before we begin, I want to acknowledge the dedication and determination of the entire O-I team. Your commitment, teamwork and execution are the drivers behind our ongoing transformation.

Last night, we reported third quarter adjusted earnings of $0.48 per share, delivering strong results that exceeded both last year's performance and our own initial plans. Our top line remained stable, supported by higher average selling prices and favorable FX, even as overall consumer demand remained subdued. We saw revenue growth in non-alcoholic beverages, food and RTDs, while beer and wine experienced declines due to softer consumer demand.

Importantly, the execution of our strategic initiatives is leading to a higher quality of revenue as we strip out waste and inefficiencies, expand in growing categories and exit some unprofitable business. As a result, segment operating profit rose by more than 60% year-over-year, and margins are up a robust 570 basis points, propelled by significant benefits from our strategic program and increased production levels following last year's inventory reduction.

Fit to Win contributed another $75 million in the third quarter and $220 million year-to-date. We now expect to surpass our original 2025 savings target, and this program is strengthening our competitiveness, enhancing performance and enabling durable profit improvement.

Despite ongoing macroeconomic headwinds, our strategy is delivering results. We have raised our full year 2025 guidance and now expect adjusted earnings per share to nearly double versus 2024. Momentum is building, and we anticipate continued growth in adjusted earnings and free cash flow in 2026 as we advance towards the target set out at our recent Investor Day.

Let's now move to Page 4. As we review our quarterly results, it is important to consider current trends within the broader market context. Packaging dynamics are evolving. short-term cyclical pressures, including inflation, consumer price resistance and elevated supply chain inventories have temporarily dampened demand. However, we anticipate these headwinds will ease over time.

Longer-term factors such as lower per capita alcohol consumption and increased substrate competition will persist in certain markets, yet these challenges are expected to be offset by growing interest in premiumization and sustainability. Furthermore, rising consumer health awareness is driving growth in no, low alcohol beverages as well as food and water.

These trends suggest a more balanced and sustained demand for glass over the long term. In the interim, our focus remains on eliminating waste and inefficiencies, building higher quality revenue streams, delivering a more profitable portfolio and positioning the business for future shifts in consumer demand.

O-I has navigated market volatility effectively, maintaining stable net sales in recent years. As we address near-term cyclical pressures, we are carefully balancing price and volume to achieve a relatively stable top line. For the full year, we now expect pricing to be flat and sales volumes to be down about 2%, which is consistent with softer consumer demand. Despite this, our Fit to Win initiative is delivering a higher quality business mix and strengthening our competitive position, as evidenced by improved margins and segment profits.

Looking ahead, we anticipate O-I will achieve 1% to 2% annual sales volume growth post 2027, as markets stabilize, strategic initiatives enhance our cost position, and we drive profitable growth in the next phase of our strategy.

Let's now turn to Page 5 to review the progress of our Fit to Win initiative, which I'm pleased to report is ahead of schedule. Fit to Win is significantly reducing costs across the enterprise as well as optimizing our network and value chain to enhance competitiveness and support future growth. In the third quarter, we achieved another $75 million in savings with benefits of $220 million through the first 9 months of the year, well ahead of our initial plans.

With this momentum, we expect 2025 savings will range between $275 million and $300 million, which exceeds our current year goal. So we are well on our way to at least $650 million of benefits by 2027 on a cumulative basis. We are making excellent progress in Phase A, which focuses on streamlining SG&A costs and initial network optimization actions. We've already secured $100 million in SG&A savings in 2025, and we are on track to reach our 3-year target ahead of schedule.

Our network optimization is also moving quickly. We have communicated the closure of 13% of capacity to align supply with demand. 8% is now complete and all remaining actions should be completed by early next year. Phase B centers on transforming our entire value chain. The first wave of our total organization effectiveness rolled-out across 15 plants is completed, and each location has met or exceeded expectations. The second wave covering another 15 plants is in progress, and we should complete the remaining plants by the end of next year with benefits continuing into 2027 and beyond.

Our teams are driving strong results in procurement and energy reduction, further boosting savings and resilience. New supplier agreements are set to enhance productivity and competitiveness over the next 3 years. Overall, the Fit to Win program is delivering results faster than planned. We are well ahead of our targets for 2025 and are positioned to unlock even greater value through 2027, despite challenging market conditions.

Now, I'll hand it over to John, who will start with a review of our third quarter results on Page 6.

Thanks, Gordon, and good morning, everyone. Let's begin with our third quarter top line results. Net sales held firm at approximately $1.7 billion with modest improvements in gross price, especially in the Americas. Favorable FX provided a helpful tailwind even as consumer demand remained muted.

Shipments in tons declined by 5% as modest growth in the NAB food and RTD categories was more than offset by lower performance in beer and wine. Keep in mind, this headline figure does not fully reflect underlying trends as several factors which are not indicative of actual consumption impacted volumes by approximately 3 percentage points. These factors include: a major capital project commissioning in Europe, which we discussed during last quarter's call; inventory correction in the Mexico and North America beer category related to changes in U.S. trade and immigration policies; and mix changes as we exited some unprofitable business lines, consistent with our focus on increasing economic profit as well as the ongoing trend towards container lightweighting.

Excluding these factors, shipments were down about 2%, which is more in line with softer underlying consumer consumption trends. Importantly, overall volumes improved over the course of the quarter and shipments were nearly flat with the prior year in September. While revenues were stable, margins improved significantly and O-I delivered third quarter adjusted earnings of $0.48 per share, exceeding both last year's results and our own plans.

This achievement was driven by favorable net price, significantly lower costs, thanks to Fit to Win initiatives and higher production levels despite softer sales volumes. A lower tax rate also benefited the bottom line. Overall, O-I has delivered strong third quarter results, outperforming expectations through disciplined execution, cost reductions and continued momentum from our strategic program, positioning the company for ongoing success.

Moving to segment profit on Page 7. The momentum is clear as segment operating profit improved more than 60% from 2024 with robust gains in both the Americas and Europe. In the Americas, segment operating profit rose nearly 60%, propelled by higher net price and continued Fit to Win benefits.

Volumes were down 7%. We believe underlying consumer consumption represented half of this decline, while specific factors drove the other half, namely lapping new business wins in 2024, inventory adjustments in the beer value chain across North America and Mexico as well as mix change as we exited some unprofitable business.

In Europe, segment operating profit surged by 70%, reflecting contributions from strategic initiatives and higher production following last year's inventory reductions. Net price was a headwind and sales volumes dipped due to a major capital project start-up. Importantly, volumes were about flat, excluding this event.

In summary, segment operating profits increased significantly with strong gains in both the Americas and Europe, reflecting the continued success and disciplined execution of our key initiatives.

Now let's turn to Page 8 for our updated business outlook. Looking ahead, our outlook for 2025 has improved. Given our strong year-to-date performance and the momentum of Fit to Win, we have raised our full year earnings guidance. We now expect adjusted earnings in the range of $1.55 to $1.65 per share, nearly double our 2024 results. This meaningful increase reflects stronger initiative benefits and better net price, partially offset by slightly lower sales volume.

Free cash flow is projected at $150 million to $200 million, an improvement of approximately $300 million versus last year and closer to $400 million increase prior to restructuring costs. Although the adjusted earnings outlook has improved, our free cash flow guidance remains unchanged due to higher-than-expected restructuring opportunities and the settlement of a legacy environmental liability, which together totaled more than $25 million.

Higher restructuring is a result of O-I's accelerated network optimization initiatives, which are expected to deliver benefits in 2026 and beyond. Excluding these temporary and elevated charges, our free cash flow is nearing the 5% of sales benchmark, which is our 2027 target. We successfully refinanced our bank credit agreement last month at favorable economics, which also extends out maturities.

Leverage improved over the last quarter, and we continue to expect our leverage ratio will land in the mid-3s by year-end. Despite a challenging macroeconomic backdrop, we are executing effectively and our self-help initiatives are delivering results that exceed our original expectations. As a result, we are increasing our full year adjusted earnings per share guidance and expect this positive momentum to continue into next year.

Now let's turn to Page 9 for our early perspectives on key business drivers for 2026. Looking ahead to 2026, we anticipate continued momentum with higher adjusted earnings and free cash flow as we advance towards our 2027 objectives outlined at Investor Day.

Revenue is expected to remain stable or increase modestly, supported by better mix, fairly consistent sales volume and higher gross price, reflecting the pass-through of 2025 inflation. This aligns with our strategy to maintain a stable top line while executing Fit to Win to further strengthen our competitive position and lay the groundwork for profitable growth after 2027.

Adjusted earnings are projected to improve, fueled by another year of strong initiative benefits. These gains should more than offset the impact of lower net price as we reset favorable energy contracts in Europe, which are expiring at the end of this year. Free cash flow is expected to rise, driven by increased earnings and disciplined capital allocation. Cash restructuring costs should be at or below 2025 levels as we complete key initiatives by mid-2026.

Our balance sheet should continue to improve with financial leverage in the low 3s by year-end 2026. With strong execution, ongoing transformation and a clear strategic direction, O-I is well positioned to deliver lasting value to all stakeholders.

Now back to Gordon on Page 10.

Thanks, John. As we wrap up today's call, I want to emphasize the significant progress O-I has achieved and the solid competitive foundation we are establishing for the future. Our strong year-to-date performance driven by the ongoing success of our Fit to Win program has enabled us to raise the 2025 adjusted earnings guidance once again.

Looking ahead, we anticipate continued growth in both earnings and free cash flow in 2026. We are delivering on the commitments made at our recent Investor Day, maintaining a stable top line, enhancing our quality of revenue and advancing our transformation despite a challenging environment. Our efforts to realign our network and supply chain are supporting mix improvement and positioning us for long-term profitable growth.

Our cost transformation initiatives are generating substantial savings and increasing our competitiveness, and we have streamlined our organization to be more agile and focused. As a result, margins and earnings are up, free cash flow is increasing, and our balance sheet continues to strengthen.

Most importantly, we are executing well, building momentum and expect to create sustainable value for our shareholders. Thank you for your continued support and confidence in O-I. We look forward to building on this momentum and achieving even greater success together.

We're now happy to take any questions you may have.

[Operator Instructions] We will now take our first question from Ghansham Panjabi from Baird.

Gordon, as you think about the demand environment -- as you sort of think about the demand environment and the variability we've seen over the years, et cetera, how much of this most recent decline is influencing your view as it relates to what's actually a cyclical decline versus some sort of secular change because of changing consumer preferences and so on and so forth? Because if you go back to 2019, volumes are down roughly mid-teens, you're aligning your capacity down by pretty much a comparable amount. And I'm just curious as to what you think is the right baseline for volumes going forward or is this the new starting point?

Yes. Thanks, Ghansham. It's quite a dynamic demand environment. And depending on where -- what segments and categories you look at and what part of the world, there are probably different dynamics. I think it's fair to say that beer across the board, and wine across the board are declining. And certainly, we've seen that in most of the markets. But within beer, there's a dynamic where premium beers are showing some growth. But it's mid-tier and maybe lower equity brands, if I can put it that way, losing share to private label.

So, there definitely is a piece around beer and wine that we see because consumers are challenged, right? I hear that. I'm in the market a lot. I hear that quite a bit. What we are seeing, though, is a growth in non-alcoholic beers. And interestingly, we're hearing in different markets that up to 60% of new users of the non-alcoholic category are Gen Z-ers. So, they're coming into the beer category via non-alcoholic ranges.

So, I think there's a piece there, quite a large chunk around beer that's, I would say, cyclical. And then the shift, people -- health and wellness accessing beer through low and non-alcoholic beverages, which I think will kind of grow. I very much think we're still in the midst of the implications of COVID and how it disrupted supply chains and behaviors and the stages of -- with particularly Gen Z-ers enter different kind of categories.

So, I think there's very much a part in beer, which I think is cyclical. Wine, I think some of it is structural. Younger consumers, what you hear is finding it difficult to access wine. It can be a complicated category to access with different appellations and labels and so on. But what we do hear is the wine industry saying, "Okay, how do we make it easier for consumers to access the category?" So, I think there's some work being done there that should help that over time.

The way we look at it, Ghansham, is, as I've mentioned before, we have about 1.7x the volume of our nearest competitors. And in this period of kind of volatile demand, I think the most clear path for us to create value is to increase the profitability and the returns and the cash on the volumes that we have and really strengthen the portfolio and strengthen the core business and generate higher returns and higher cash flow from what we have and shedding volume that doesn't deliver economic profit or a cash for us. And you'll see that starting to come through in the results where volumes are down, but margins are up very significantly, cash will be up significantly for the year.

So, what is the right base? That's a $64,000 question. But what I am clear on is that we are only focused on volume that delivers economic profit for us. Now we are in that early stage of that 3-horizon strategy where we said we got to get Fit in order that we access growth. There is volume available in the market if you wanted to chase really low margins and give up a whole bunch of terms that will destroy cash. That's not our game plan.

So, we are getting Fit in order that when the market turns, then we can access the kind of growth. And we have a very clear view on the kind of growth we're looking for, what categories, what segments, what markets, what customers. That's very clear to us internally. But there's a timing issue. We've got to work through the Fit to Win, getting much more competitive than we have been when the market turns, access that growth.

As we said going forward, just to close out, we would then expect 1% to 2% volume growth that would be EP accretive and cash accretive for us going forward post 2027. So that's a long answer, Ghansham, but that's kind of how we look at it, yes?

Okay. Just one quick follow-up. On the 13% capacity cut, how does that skew between the regions? And I'll turn it over.

Ghansham, this is John. On the balance, there is probably a little bit more going on in the Americas than in Europe. But what I would say is where we stand right now, the Americas is substantially advanced, and the final stages are going to be over in Europe.

We will now take our next question from Josh Spector from UBS.

I was wondering if you could talk a little bit more about the volume kind of cadence and the results in the quarter. I think you explained a decent amount of it, particularly within the Americas between some of the beer headwinds in the quarter and the exits that you guys did. Just wondering if you could bucket those 2 pieces apart a little bit for us. So, should we expect more exits on a go-forward basis? Does that matter for profitability since there's maybe some offset there? So just helping to pick that apart would be helpful to start.

Sure. So, if you take a look at the 5%, I'd break it out about 2% is just softer consumer demand and consumers being more challenged, I think, and kind of price resistance in the market. And then between network optimization and a deliberate decision to exit volume that did not make sense for us from an EP point of view, and then also some very deliberate strategies around lightweighting, that's about 3%. So, the underlying, we think, is about 2%, right? And we probably see that holding to year-end.

Yes. I would add, just looking at the numbers here, Josh, the exiting of unprofitable business probably was 1 percentage point of that 3-percentage point that we would say is not specifically due to consumer consumption trends, and that will episodically continue for the business. I think we flagged this back at Investor Day, there is a low single-digit -- kind of mid-single-digit kind of portfolio of our business that is deeply economic profit negative. And we are either going to raise prices in that market or we're going to exit that business. And that's the process that we're going through as we go over the next year or so.

I appreciate that. And I also appreciate some of the kind of early overview here of '26. I don't know if there's -- if it's too early to frame this in a real quantifiable way. But I guess the easy math that you've kind of laid out is you expect at least a couple of hundred million benefit of cost savings. You guys earlier sized that the energy contract reset. I think it was $130 million, I guess. Correct me if I'm wrong. I guess if you think volumes are flat, is the bogey that you should have earnings up $70 million in that context if we go sideways from here? Or are there other ways that you would think about puts and takes we should be adding?

One is, we probably don't want to get into quantification just yet. We expect a nice increase next year as we move our way towards that $1.45 billion in 2027. Of course, we have to absorb that energy credit reset -- energy reset. That number, as we mentioned back even at Investor Day, is about $150 million. That still remains to be very much in line with that right now.

So, as we look at the puts and takes of the business, kind of stable volume, we'll have gross price up against low single-digit kind of normalizing inflation, but then we'll absorb the energy reset, as we mentioned, that mark-to-market and then very robust -- continued robust Fit to Win benefits. But we'll come back at the end of the year with quantification, but we expect a nice bump next year.

We will now take our next question from Francisco Ruiz from BNP.

I have 2, if I may. The first one is on the restructuring, it's kind of a follow-up on the previous question. Out of the 13% capacity reduction that you are aiming, how much is already announced? And how much is pending apart from the French announcement that you made at the beginning of the year?

The second question is in Latin America, more specifically in Brazil, with a very bad quarter in terms of volumes overall. Some of your competitors are increasing capacity. How do you see the area in the coming quarters?

Yes, Francisco, this is John. I'll touch base on the -- and cover the first one. On the restructuring, if we go back to 2024, we were carrying about 13% excess capacity, and that was costing us about $250 million of unabsorbed fixed costs. We have since then announced closure of 13% of our capacity, which would ultimately get us substantially out of that fixed cost absorption.

Right now, as of the end of the third quarter, we have completed 8 percentage points of that 13%. And as I mentioned earlier, that is substantially more skewed to the Americas. We have a remaining 5% left to go, which will be done by the early part of next year, and that is going to be skewed towards Europe, including what we've announced in France.

We anticipate restructuring charges this year of around $140 million to $150 million, a little bit on the high end of what we originally anticipated because we're moving faster in certain areas. But we anticipate a carryover of restructuring costs next year that will be at or below that level. And we should be out of that exit range of that cash activity by mid-2026. So, really, the fundamental cash flow moving -- momentum going forward in the back half of the year will be better.

Yes. Francisco, with regard to Brazil, I was actually in Brazil a couple of weeks ago and spent a week touring the market and meeting with customers. A couple of -- on the positive side, we're seeing very strong growth in non-alcoholic beverages, so waters and juices in Brazil. We're seeing strong growth in wine in Brazil and strong growth in spirits. Where the big declines came were in beer.

And I know it's easy to blame the weather, but everywhere I went, people spoke about it being probably the coldest winter in 30 years in Brazil, and that's definitely had an impact on consumption, and also people being challenged in terms of spending power and a bit of trading down going on in beer for sure. What we are seeing is customers launching new offerings to the market. There were also some sizable price increases went into the market that impacted volumes, I think, in the short term.

And then on the food side, for us, we saw a decline in volumes. That was very largely driven by raw material shortages, particularly kind of olives, and that impacted our business. But the main piece around beer was largely weather-driven and some mid- to-high single-digit pricing going in on shelf, which I think put a bit of pressure on consumption. That's starting to sort of come back, and we're obviously heading into the summer months in Brazil and would expect better volumes going forward.

Just another question. I don't know if you have mentioned, but as you did in other quarters, can you give an idea of the current trading in October?

Yes. I would say as we take a look at -- going back to what Gordon had indicated, we think the full year is going to be down about 2% now, consistent with that underlying consumer consumption. Fourth quarter is kind of playing out in that low single-digit territory. So, nothing particularly new against the consumer consumption trends.

We will now take our next question from Mike Roxland from Truist.

Congrats on a strong quarter in a tough environment. Can you hear me?

Yes.

Perfect. Okay, great. Just wanted to follow up on the pruning of unprofitable business. I realize you mentioned in response to an earlier question that in the Americas, that amounted to about 1%. Can you comment on what that was in Europe? Because when I look at some of your peers, your peers had volumes that increased low-single-digits. Your European volumes declined 4% in 3Q. So, I'm just wondering how much of that volume decline in Europe was you guys walking away from unprofitable business, which your peers then possibly picked up versus, let's say, underlying consumer weakness?

Yes, Mike, as we had indicated, overall, the number -- the shipments were down about 3% in Europe overall. We attribute that substantially to that major project that was underway. We talked about that last quarter. It was primarily in the spirits category. So that was the biggest impact.

Yes, we were walking away from some business there, but I think it was more skewed towards that major project.

Yes. And just to add a bit of color on Europe for us, Mike. We kind of look at this in probably 3 parts. Southern Europe was very strong for us actually and strong growth in all categories and particularly waters, food, RTDs. In Western Europe, we were impacted a bit by wine with wine exports down and spirits, some of the French spirits not picking up yet in terms of shipments to either the U.S. or to China.

Northern Europe was good, was strong for us across food and spirits and beer. And then, as John said, we had that commissioning, which was slower than we had anticipated. So, yes, we're pretty happy where we are in Europe, given the context there. We're very focused on improving the profitability of the volumes we have, and we're not chasing volume just for the sake of volume, and we're being very disciplined around that. As I said, there is volume out there that can destroy your margins and eat your cash, and that's not our game plan.

One thing to add, Michael, on the question about the walking away from unprofitable business, and you can see that in our revenue and earnings [ recs ]. Yes, the revenue is down as a result, but the decremental margins on the lower volumes were half of what you would normally expect. So, you see us walking away from unprofitable business, and it's very visible in the bottom line performance of the business.

Got it. Great color. Really appreciate it. And just one follow-up. Just wanted to ask you about the cost spread to aluminum cans. And given where aluminum prices are today in the U.S., where does the spread currently stand relative to the 25% you cited at your Investor Day? And do you think you could gain share next year if aluminum remains elevated and as hedges -- alumina hedges roll off? And I also realize it's early stages, but can you comment on how much your actions thus far have reduced the cost spread to cans?

Yes. Mike, I'll kick off on the first part of that is, if you take a look at the elevated cost of aluminum right now, we would say that, that has moved that cost differential, for example, in the U.S., which was between 25% and 30%, more into that zone where we believe that historically, glass can compete well, which is 15% or lower premium to aluminum. So, it's early days, obviously, and as things flush through in the system, -- but that's what we're seeing as far as the competitive position of the product.

Yes. And then, Mike, as you've said, and I think as we've said in our Investor Day, we can't be reliant on the price of aluminum to be competitive to cans. We've got to find our own path there to 15% or less spread between cans and glass, which we are focused on. But it does give us a bit of extra time if aluminum prices rise. But we've got to get there irrespective of where aluminum is over the journey between now and 2027.

But just as a close out on that, the closer we are, the more competitive we are, then the more choice our customers have in which substrates to use and indeed consumers, which one they choose on shelf.

We will now take our next question from George Staphos from Bank of America.

Congratulations on the progress and on the decremental margin. It was a nice job this last quarter, guys. Three questions. I'll ask them in sequence for time. First of all, if we go to Slide 7 and your -- if you will, your bridging or waterfall chart, on the items that were controllable, where did you perform best and where did you perform least well relative to the increase in your guidance for the year?

Related question, I remember from last quarter, there were some operations that you were studying when and how you might be able to close, restructure, but there were some timing factors that determined whether that would wind up remaining on the books, so to speak, in terms of downtime or whether you could actually move it to non-operating and restructure and potentially have a better result. How did that play out? Is that still playing out? Is it still downtime?

And then the last question, as we look to 2026, recognizing, again, there's a lot of water that still needs to flow under the bridge, we get it. It would suggest given that you're at least expecting good results for next year, good being defined by up earnings or up cash flow, that at least your initial commercial discussions with customers on pricing resets is going favorably. Can you talk about where that process stands earlier than normal, later than normal? Any qualitative commentary would be helpful.

Yes. I might take the last question first, George, if you don't mind. I mean we're heading into that season. As John said, we would expect sort of gross pricing to probably be up. Your capacities are tight, but it's early days yet. And -- but we're focused on being very disciplined in terms of improving the profitability of the volume we have. Anything that doesn't make economic sense for us in any contract negotiations going forward, we would shift that out of the business and dedicate our assets to that volume that is delivering the kind of margins and cash targets we have.

Yes, George. And to the other questions as far as what changed in performance as we -- in the quarter and then as we look to the guidance going forward. Obviously, Fit to Win in the cost performance is exceeding our expectations. We increased our full year guidance of that by $25 million to $50 million for the full year. At the same token, you also see that net price has been positive relative to what we thought going into the year, and that has offset some of the softer sales volumes that we have.

So, when we look at it, the commercial performance net-net of price and volume is right where we expected it overall, a little bit different componentry. But really the driver of increased performance in the quarter, expectation for the fourth quarter better performance and for the full year is largely driven by Fit to Win improvements, okay?

On your next question, you had asked about operations and closures and restructuring opportunities. As you may recall, last quarter, we said we had announced about 10% capacity closures, and now we're at about 13%. So, we, in fact, have been able to identify those additional 3 percentage points of capacity that, again, balances supply with demand at the end of the day and are moving towards closing those out on a permanent basis.

And again, 8% of it was done at the end of the third quarter. So, we were still carrying some restructuring charges, I mean -- sorry, LOB or temporary downtime charges through the quarter, and we will through the end of the year. But once we get out from underneath that in the early part of next year, that will substantially be out of the system.

John, recognizing it's the same pair of pants. It's just different pockets. Does that help the fact that you're able to close that incremental capacity help your guided EBIT and EBITDA for the year? And if so, is there a way to quantify that?

Yes. Yes, I think it is. And keep in mind, when we talk about our Fit to Win numbers and benefits, the $270 million to $300 million this year, we are taking an accounting in for their -- those permanent closures. And so, as we do better on that and make more progress on that, that is driving in part the upside of the performance on the cost performance.

In addition to that, what we call Phase B, which is also doing better, which is the more accelerated total organization TOE projects and other cost-related things. So Fit to Win is going up because of a lot of things, but partly because of the ability to close out capacity. Now, keep in mind, the activity in Europe is going to shift a little bit into the early part of next year from maybe our original expectations, but we've been able to pull forward some activities into the Americas. So, net-net, we're able to backfill some of that time.

We will now take our next question from Anthony Pettinari from Citi.

This is Bryan Burgmeier on for Anthony. Just following up on maybe the volume discussion from earlier. You talked about growth in non-alcoholic beer and maybe some younger consumers staying away from wine. Just maybe from a high level, how would you frame kind of O-I's ability to maybe capture some of these new product launches? Do we expect that to maybe be more of a 2027 item once you're through Fit to win? Or are you may be seeing some early traction with new product launches and kind of new business in '25 and '26?

Yes. We actually are seeing customer's response to consumer softness by introducing new products. If I take a look at our -- or what we call our funnel, I'd say it's up about 8% to 10% this year already. And our total NPD, so that's products that are new to the portfolio or products that are renovated already in the portfolio but might be value engineered or designed to look -- stand out on shelf, they're running at about kind of 10% of our volume.

So, we absolutely are seeing more NPD. And as we simplify our plants, as we make them more flexible and as we work on the strategy of best at both, which we outlined at Investor Day, we're able to respond more rapidly. We're also in the process of reshaping the NPD organization and ways of working, which was very -- I would say, it was decentralized to a point where it was wasteful. We've now reshaped that, and that new kind of NPD go-to-market organization will kick off in January. And we expect to be able to slash our time to market by at least 50%. So being able to respond more quickly to customers and their marketing teams and bringing products to market.

And we see growing demand for that, particularly as new consumers kind of maybe are not engaging with older brands in the same way and there are need for new offerings. That's absolutely a feature driving the market. And I think we've -- with our Fit to Win approach and the organization being much more agile, working with customers differently and working with suppliers differently, where we've been able to ramp up the speed at which we can get to market.

And again, I think there's kind of a narrative out there that Gen Z are walking away from certain categories, and we actually see them just coming into categories in a different way. As I said, 60% of non-alcoholic new consumers are Gen Z-ers in many of the markets we're operating in. So, there's no question that NPD is a key part of our value shift strategy as we go forward, because typically, we would have better margins in new products.

I would -- building on that, I mean, even though the market has been a little soft out there, the NAB non-alcoholic beverage category in North America and Europe is up mid-single digits. And so, we are seeing a bright spot in those categories. And in particular, waters in that categories have been doing very well. And we've gotten some notable wins in those categories. We're seeing people come over to that. And it's interesting, you can even Google it. There is articles out there saying about how people go out to dinner and they might have had a glass of wine, but now they prefer sparkling water or something like that on their table. So, it's an interesting set of dynamics that are playing through that also benefit the business.

Yes. And I think glass is very well placed with these younger consumers because across the world, they are far more sustainability aware and are -- have a very, very positive view on glass packaging. And so, we're seeing that come through in these categories as well. So that's -- they're positive trends for us.

Got it. Got it. Really appreciate all the detail. It's really helpful. And then, just a quick follow-up, John. I think you mentioned a charge from an environmental liability during the quarter. I guess, is that a new item? I didn't recall hearing that before, but maybe I missed it. Just any detail you can provide on that.

Yes. I mean, we've flagged this up for the last several quarters in the 10-Q, but there was a former subsidiary that had an old paper mill that stopped operation in 1967. It's now on federal land, and we had -- there was a settlement with the federal government. So, it's something 58 years old, but we did make a payment on that in the quarter. It was a little bit over $15 million as part of that $25 million plus number that I was referring to.

We will now take our next question from Arun Viswanathan from RBC Capital Markets.

Congrats on the progress as well. I guess, I just wanted to go back to the volume and understand maybe some of the cushioning that you have. So, I think in the past, you've noted that each point of volume is maybe $0.07 in EPS, which we could potentially gross up to maybe $14 million of EBIT and each point of production is $0.13, which is maybe, I don't know, $25 million of EBIT.

So, I think you went in the year expecting this year was going to be flattish on volumes. You're up low to mid-singles in the first half. I know you're up 4% in Q1, but it does look like you're now maybe down 1% on the year or so, maybe could end up the year down 2% or 3%. So, does that kind of imply that you have $40 million to $50 million of EBIT cushion within Fit to Win benefits that's offsetting that greater than expected weakness in volumes? Maybe you can just kind of frame out how you're finding extra savings to offset the volume weakness.

Yes, Arun, I'll take that one. From a commercial performance standpoint, I think we're almost exactly on where we expected going into the year, okay? So, yes, volumes are down, what we said about 2% for the year, and that has the cost that you referred to. But also, net price has been more favorable than anticipated going into the year.

Those 2 have generally offset each other, okay? So, when you think of the net effect -- and Gordon had said in the prepared comments, we're really trying to manage these levers between price and volume in a pretty soft environment, right? And so, we're trying to find that balance of -- that provides the best reasonable financial outcome to the business as we try to manage a stable top line.

So, with those 2 essentially offsetting each other, really the improvement in the year is Fit to Win. And that's where -- that's driving the upside, and that's driving -- this is the second time now that we raised guidance for the year, and it's really driven by the momentum on what we can control.

Yes. And just as a point on that -- sorry, go ahead.

No, that's fine. Sorry, Gordon.

Yes. No. And as I've said since the [ out start ], we're focused on better quality revenue and not chasing what I call kind of profitless prosperity volume for volume's sake. And we really are strengthening the quality of the portfolio we have and improving the returns on the portfolio we have. And you can also see that coming through in the margin expansion and obviously seeing it coming through on the cash side as well. And that's going to be an ongoing feature for us, right, really improving the quality of the revenue we have going forward.

Great. And then given this volume performance, do you think you'd have to take additional downtime as you go into '26? Maybe you can also just update us on inventory levels and -- especially related to maybe Europe and some of those wine markets and spirits and areas that you're seeing weakness. And if that -- if you do have to take that downtime, again, would you have other levers to pull on to offset those headwinds?

As far as our -- currently, I mean, we are balancing supply with demand, and we have -- we still are carrying some lack of business downtime. But keep in mind, we did increase our permanent capacity closures, which we anticipate to be done by early part of next year. As a result, we think that we are going to be reasonably balanced between supply and demand once that's done, and it will be substantially out of that LOB category for the business or the temporary downtime category for the business.

As we look to the inventory management, I think we ended the third quarter in the low 50s, maybe 52 or 53 days. Our goal is around 50 days this year, which would be about a 15% decrease on a year-over-year basis. The softer sales volumes that we're seeing right now, we may end up in the 50 to low-50s-somewhere range, but very close to the overall goal that we anticipated.

So, I think we have time for one more question.

We will now take our next question from Gabe Hajde from Wells Fargo.

Two questions. I guess, looking at the model and just thinking about kind of how you're describing commercially things shaking out the way you wanted, competition a little bit different. I know you can't necessarily dictate and manage this quarter-to-quarter, but price accelerating pretty heavily in the Americas and not -- maybe I think [indiscernible] might have already answered this, but can you parse out for us maybe the intentional business moves that's flowing through on the mix side, maybe the formulary price adjustments that are flowing through in the Americas and then intentional price that you're taking in North America, if that makes any sense?

Yes, Gabe, I can take a stab at that, and Gordon can build on if he has any additional comments. Our price, gross and net price is obviously softer in the first quarter. It's better -- I mean, soft first half of the year and it's better in the second half of the year. What you are seeing in the Americas is -- keep in mind, for example, North America, we pass through energy on a monthly or quarterly basis. And so -- through the PAF process. So, you pick up a little bit more there.

I would also say the Americas, from a capacity standpoint is probably in the mid-to-high 90s as far as capacity utilization. So, it's a pretty tight environment in the Americas overall as a backdrop. Compared to Europe, it is probably mid-90s to low 90s to give you just a relative comparison. But keep in mind, Europe should improve as a number of different capacity closures are completed.

And then on the portfolio piece, Gabe, I mean, we have a very clear sort of process for how we make those decisions. And I think in previous calls and certainly at Investor Day, we mentioned that we have visibility now in the business right down to SKU level on what the economic profit is by SKU in effect. And I also mentioned that there's a bunch of things you can do internally to improve the economic profit of a particular product or a particular range. And we take a look at those and we say, okay, we can get that done. Does that make sense for us?

Even having done that, or even if we were to do that on some ranges, we would still need significant price increases from the customers. And some customers would say, yes, okay, the price and quality and what you give and service and so on is worth it. Some say, no, yes, that's not for me. And then we make a view that, that piece goes out because what we find as well is, those pieces of business add a lot of complexity into our supply chain.

A lot -- there's a lot of hidden costs in there as well or there can be. And it brings complexity to the lines. And as part of our operation strategy of best at both, that relies on us having less complexity, particularly on the big furnaces on the big lines. And that has been a feature of the business over the years that the lines that were built for much longer runs ended up too complex. So, we're cleaning up all of that. And so, there's a very intentional process of how we do that, and we understand what the financial implications are for that. And getting that non-economic volume out of the business is good, and you can see it coming through. And then it frees up capacity for power SKUs where we make a lot more money. And that's really the thinking behind it, Gabe.

Got it. Maybe that kind of feeds into my second question. Most of the capacity adjustments, I think you talked about in the U.S. or in the Americas. By our math, maybe 0.5 million tons or so that's been identified in Europe. What about the tons and closures, and really, I think you talked about 40% of that business that gets exported out of your European operations into some other part of the world, and it's still relatively depressed. So, I guess what's enabling you to service that business as you talk about having the potential to come back with those capacity adjustments?

Yes. I think if you look at spirits largely in China, the 2 core markets for spirits out of Europe are the U.S. and China. And I think what we're going through in the U.S. with some -- I'll call them short term in the context of years, there's some pricing that consumers are coming up against. We think that's a cyclical thing. And we also think the inventory in the system will work its way out. And the U.S. will continue to take large quantities of spirits out of Europe.

And China at the moment is experiencing the same thing and where demand is suppressed there. And again, we see that working its way out over time and those markets coming back. And then you see the growth of markets like India and South Korea growing strongly. We're seeing the start of green shoots in travel retail, which is up about 3% in volume year-to-date, but still not back, particularly on a value basis, to where it was pre-COVID. So, I think these are cyclical things that are going to work itself out. And we see ourselves having the capacity to match that when it comes back.

And to build on that, Gabe, yes, we are closing out excess capacity to balance supply with demand. But keep in mind, our TOE, Total Organization Effectiveness program is intended to unlock trapped capacity in the system. That will allow us to grow, and that is by far the cheapest way to get capacity within the system with great operating leverage when you enable it.

And so, getting the operations a lot fitter and then sweating them a lot harder than they were in the past, Gabe.

I will now pass the conference back over to Chris for any additional remarks.

Thank you. That concludes our earnings call. Please note, our year-end and fourth quarter call is currently scheduled for Wednesday, February 11, 2026. And remember, make it a memorable moment by choosing safe, sustainable glass. Thank you.

Thank you.

Thanks all.

That concludes the O-I Glass Third Quarter 2025 Earnings Conference Call. Thank you for your participation. You may now disconnect your lines.

Hello, everyone, and thank you for joining the O-I Glass Second Quarter 202 Earnings Conference Call. My name is Lucy, and I'll be coordinating your call today. It is now my pleasure to hand over to your host, Chris Manuel, Vice President of Investor Relations, to begin. Please go ahead.

Thank you, Lucy, and welcome, everyone, to the O-I Glass Second Quarter 2025 Earnings Conference Call. Our discussion today will be led by Gordon Hardie, our CEO; and John Hodrick, our CFO. 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 disclosure of our use of non-GAAP financial measures included in those materials. Now I'd like to turn the call over to Gordon, who will start on Slide 3.

Good morning, everyone, and thank you for your interest in O-I Glass. Today, we will walk you through our second quarter performance, key market dynamics and our outlook for the remainder of the year. Let me begin by expressing my thanks to all our colleagues across O-I. Your dedication, agility and focus are instrumental in driving the transformation we are undertaking. Last night, we reported second quarter adjusted earnings of $0.53 per share, exceeding our plans and outperforming the same period last year. This result reflects the meaningful progress we are making towards a leaner and more competitive company.

We continue to navigate a complex environment, including softer consumer demand in certain markets and many macro uncertainties. While overall second quarter shipments declined approximately 3%, performance varied by region as volumes increased in the Americas but declined in Europe. On a year-to-date basis, shipments were up nearly 1%, and we continue to expect full year 2025 volumes will be stable with last year. Our Fit to Win program is delivering strong results. We achieved $84 million in savings this quarter, bringing our first half total to $145 million, well on track to meet or exceed our $250 million target for 2025.

Fit to Win is foundational to renewed competitiveness by significantly reducing total enterprise costs to improve performance and enable future growth. We've had a strong start to the year in difficult market conditions and are effectively managing the factors within our control. As a result, we are raising our full year guidance and now expect adjusted earnings to increase between 60% and 90% compared to 2024. John will provide more detail on our outlook and quarterly performance shortly.

As announced last evening, following a comprehensive review, we have made the financially prudent decision to halt further MAGMA development and operations. While the earlier stages developed meaningful technical advancements, we have concluded the platform does not have the pathway to the operational or financial return requirements as most recently detailed at our March Investor Day. Through our best at both operations strategy, as outlined at our I Day, we expect to drive significantly higher premium output at lower operating cost and capital intensity than MAGMA would have realized in the coming years. This decision aligns on our focus on driving competitiveness and economic profit.

Accordingly, we intend to reconfigure our Bowling Green facility into a best cost premium focused operation. We are confident this is the right path forward for our business, our customers and our shareholders. Let's now turn to Page 4 to review recent market trends. Overall, our shipments for the first half of 2025 were up nearly 1% compared to the prior year. Volumes increased mid-single digits in the first quarter, but declined approximately 3% in the second quarter.

Lower glass shipments are consistent with softer consumer offtake, which is down low to mid-single digits in mainly European markets amid ongoing macroeconomic uncertainty. Unseasonal weather this spring and summer across the Northern Hemisphere further impacted consumption patterns. Finally, we have started to exit some business with unfavorable economic profit, consistent with our disciplined approach.

Despite recent softness, we have also had some notable wins as we leverage Fit to Win to drive future profitable growth. Likewise, we have seen a 35% increase in our new product development pipeline as brand owners look to spur growth. As previously noted, we are navigating mixed market conditions. Second quarter shipments increased in the Americas but softened in Europe.

In the Americas, shipments were up approximately 4% in both the second quarter and year-to-date, driven by solid rebound in beer and spirits categories. Notably, both Andean and North American regions outperformed the segment average, with all geographies reporting positive growth despite continued soft consumption patterns, especially in the U.S. As we embed Fit to Win, we see our competitiveness improving in key markets, especially in North America.

In Europe, volumes were down 3% year-to-date and down nearly 9% in the second quarter, which we attribute to the following factors. About 3 percentage points were due to a supplier-related delay at a major plant reconfiguration project in Europe which is now ramping up well. We estimate another 3% of the decline was timing related as increased beer and widen sales in the first quarter, likely in response to trade policy uncertainty negatively impacted Q2 shipments. And finally, the balance of the decline pertain to macroeconomic uncertainty and unfavorable weather conditions, which is in line or favorable to broader consumption trends.

Despite these challenges, there were bright spots as nonalcoholic beverages and food categories posted low single-digit growth. To align supply with demand and manage inventory levels, temporary production curtailments remain in place across Europe with a continuing drag on our operating costs there. We remain engaged in consultations with European and local works councils on long-term network optimization initiatives aimed at addressing excess capacity in the fleet. These actions, when finalized, are expected to strengthen our competitive position and support sustainable profitable growth in Europe.

In July, our global shipments were down mid-single digits compared to July of last year, reflecting continued soft conditions plus the rephasing of some specific customer order activity and the delayed ramp-up of a reconfiguration project at a European plant.

We continue to expect full year 2025 volumes to be in line with the prior year as shipment levels are projected to be stable across both the Americas and Europe. This outlook calls despite some intra-quarter fluctuations, which are primarily driven by comparisons to prior year performance.

Let's now turn to Page 5 and review the progress of our Fit to Win program, which is focused on significantly reducing total enterprise costs while optimizing our network and value chain to drive competitiveness and growth.

In the second quarter, we delivered $84 million in savings bringing our first half total to $145 million, surpassing our initial plans. With momentum building, we remain confident in achieving our 2025 savings target of at least $250 million and at least $650 million cumulative by 2027. Phase A centers on reshaping our SG&A structure and initial network optimization actions and we remain on track to meet both our 1-year and 3-year goals. We have completed actions to secure our $100 million SG&A savings target for 2025 with more opportunity underway to drive additional savings next year.

Important is our network optimization efforts continue to progress, including the recently announced actions in the Americas. We continue to expect initial network optimization activities will be completed by mid-2026. Phase B focuses on transforming costs across the value chain, including the rollout of our total organization effectiveness program to optimize system-wide capacity.

Following a successful pilot at the Tiana plant, the first wave of 15 facilities is nearing completion of the same rigorous process. Results are meeting or exceeding our expectations. Additionally, our cost transformation team is making meaningful progress in procurement and energy reduction initiatives. These efforts are contributing significantly to our overall savings and enhancing operational resilience.

We are making significant progress on the end-to-end value chain efficiencies with a number of significant agreements made with strategic suppliers to improve productivity and competitiveness over the next 3 years.

In summary, momentum is building and initial fit-to-win benefits have exceeded our expectations. We are on track to meet or exceed our 2025 objectives and unlock further upside in the years ahead.

Now I will turn it over to John, who will walk you through the second quarter performance and updated 2025 outlook beginning on Page 6.

Thanks, Gordon, and good morning, everyone. O-I reported second quarter adjusted earnings of $0.53 per share, exceeding both our expectations and prior year results. The performance was primarily driven by strong contributions from our Fit to Win program and improved competitiveness.

As shown on the left, adjusted earnings surpassed last year's figures. We faced expected headwinds from lower net price lower sales volumes and temporary production curtailments. Yet these factors were more than offset by substantial fit-to-win savings and favorable below-the-line items, including a moderately better-than-expected tax rate, supported by favorable regional earnings mix.

Looking to the right segment operating profit increased in the Americas but declined in Europe. In the Americas segment operating profit improved significantly, reflecting notably lower cost due to fit-to-win benefits, higher shipments and fairly stable net price amid tight capacity utilization.

In Europe, segment operating profit declined due to lower net price and softer sales volumes. Operating costs rose slightly due to the impact of ongoing production curtailments, but these were largely offset by Fit to Win savings. We expect performance in the region to improve progressively as our downtime decreases, network optimization actions to deliver a better cost position and our cost competitiveness improves. As part of our focus on economic profit, we've made meaningful progress in reducing inventories across the enterprise, down approximately $160 million compared to the same period last year.

We remain on track to meet or potentially beat our year-end 2025 target of fewer than 50 days of inventory supply. In summary, second quarter results exceeded both our plans and prior year levels, positioning us well for continued success through the rest of 2025.

Now let's turn to Page 7 to review our business outlook. Given our strong year-to-date performance and momentum of the Fit to Win program, we have raised our full year 2025 guidance. We now expect adjusted earnings to range between $1.30 and $1.55 per share, representing a 60% to 90% improvement over fiscal year 2024. We also anticipate about a $300 million year-over-year improvement in free cash flow driven by stronger operating results, reduced capital expenditures and lower inventories despite $140 million to $150 million in cash restructuring costs.

Additionally, we've refined our expectations for the quarterly cadence of earnings throughout the year. As you can see, we expect the third quarter will be generally consistent with trends noted in the first half of the year. Fourth quarter will be softer due to the typical seasonality of our business and the tax impact of lower earnings levels.

Please note that our outlook may not fully account for potential volatility stemming from evolving global trade policies and other external factors. For more details, please refer to the appendix, which outlines the assumptions behind our updated guidance.

Despite a soft macro environment, we are executing well and our self-help efforts are exceeding original expectations. As such, we are increasing our full year earnings guidance.

Now I'll turn it back to Gordon to conclude on Page 8.

Thanks, John. In closing, O-I is executing well and delivered a strong first half of 2025. Despite mixed market conditions and sluggish demand, we remain sharply focused on what we can control and are making excellent progress on all self-help fronts. We expect a meaningful rebound in performance, adjusted earnings and cash flow this year and have increased our full year guidance accordingly, executing Fit to Win and our long-term value creation road map, as illustrated on the right and discussed in detail during our March Investor Day, positions us well for the future. Importantly, these initiatives are largely within our control.

As we continue to execute our strategy, we are confident in our ability to meet our goals, including radically reducing the cost base, building a more premium business portfolio and driving economic profit. This should deliver strong financial results, including sustainably higher EBITDA and create long-term value for our shareholders. Thank you for your attention. We look forward to your questions.

[Operator Instructions]

First comes from Ghansham Panjabi of Baird.

Congrats on all the cost out progress. I guess first off, in terms of your volume assumptions for 2025, how does that break out by segment? I guess I'm just curious as to your confidence as it relates to being able to hit flat volumes and just given the uncertainty, et cetera, at this point.

I can kick off on that one, Ghansham. Overall, if we take a look at our segments, as we indicated, we believe both Europe and the Americas will be generally stable year-over-year. So in the first half of the year, you saw a stronger Americas and a little bit softer Europe. We expect that to maybe kind of invert in the back half of the year, but it's only due to comps.

Overall, what we're seeing over the course of the year is a generally stable environment with maybe the exceptions of some disruption due to the capital project that Gordon talked about as well as maybe some fluctuation we saw between the first and second quarter associated with tariff concerns or uncertainties and trying to buy ahead. Other than that, if you take out the noise of kind of prior year comps and things like that, you're looking at a pretty stable environment.

Okay. Got it. And then for my second question, as it relates to the Bowling Green plant. What exactly is that going to be pitted towards? What is the time line associated with that? And what is the cash cost, just rough cash cost as it relates to making that transition at that point.

Yes. So that's -- that facility is focused really on premium opportunities in spirits in the U.S. and we still see a big opportunity in that category in those segments of the market. So Magnum was conceived to deliver against premium. And when we look at our best at both strategy, and we look at the cost we feel we would need to be to really grow significantly our premium volume and the capital intensity were required to deliver the target economic profit. That was the right call for us, and we see a path to being able to reconfigure that plant to get lower operational costs, lower capital intensity and to really grow the premium business in the U.S. We're working on that reconfiguration as we speak.

And at the next earnings call, we'll really give a further update on that, Ghansham, but that's our focus for that facility right now.

On the cost side catch that the facility does have invested capital around the superstructure around legacy assets and things like that, which obviously can be be utilized in this. But I think it's a little early to be able to give any specifics there.

Yes. But Ghansham, as we've laid out in the past, every project we undertake will have to be able to deliver a WACC plus to a minimum return for us going forward.

And one final point, I want to reiterate that the outlook that we provided during day about the outlook for the business as well as the capital investment in the business still holds. We're going to fit this in within that we're not going to change at this point in time, our CapEx outlook for the business.

The next question comes from Arun Viswanathan of RBC.

Just wanted to ask about the Fit to Win benefits. So you were able to accelerate those from $61 million to $84 million looks like you are guiding to $250 million plus now and the $650 million plus in the long term. So maybe you can just frame the upside opportunity there? Are you guys finding more as you pull back the layers a little bit more? And would those be mainly in SG&A.

And I guess related to this point, the corporate costs were also a little bit lower this quarter at, I think, 25%. Is that the new level of corporate that we should kind of consider or was there something unusual in there? Is that really reflective of those lower SG&A costs?

Yes. Well, I'll take the first part of that question, Arun. As we've laid out over the last year or so, Fit to Win is designed to review the cost base of the business across the entire value chain from the back end of our suppliers right through to our customers' warehouse. And we've been systematically working through the value chain and peeling back where all the costs are, where the waste is, where the inefficiencies, what's driving that.

And at every part of the chain, as we suspected and as our thesis held, there's opportunities to get more efficient and to strip out ways. That means us working differently with suppliers and with customers. And likewise, they are changing some of the ways we work, but we're making tremendous progress on that and have already signed a number of agreements with suppliers. That drive much greater productivity and competitiveness for us. within our own footprint.

We shared the results of Toano on previous calls and made great progress there. And we are now in the first wave of 15 plants being rolled out. That's about 60%, 65% through that program for those plants and we're on or exceeding the targets we had set.

So very happy with with how that is going. And then as we sit with customers and we look for ways to improve order forecast accuracy logistics, warehousing, again, working through all of that and finding opportunities.

So as we set out at the beginning, this is an end-to-end review of the cost base of the business and stripping out the waste and inefficiencies and then reinvesting some of that back into the business or using that to be more competitive in the market, which we're already seeing signs of, particularly in the Americas.

To build on that and to answer your other corporate question, Arun, if you look at Page 5, the outperformance that we're seeing really is in the Phase B area to Gordon's point, we're already above our full year target for that area and just building off that and taking out those productivity and efficiency opportunities and actually jumping ahead of the actual full rollout of of the TOE project is driving the upside opportunities that we're seeing across the business.

And to that, the corporate levels, we would expect to be a reasonable range is $100 million to $120 million a year is a logical place for the corporate cost.

Great. And then if I could just ask a quick follow-up. So then as you look out into, I guess, the second half into next year, again, you're already at $145 million for the first half. So should we also assume that fit-to-win benefits should continue to grow? Or is the second half kind of -- have you already kind of gotten what you -- more than 50% of the year's benefits? Or do you still see continued sequential growth in those benefits?

I think we'll see sequential growth. But keep in mind, in the fourth quarter, we will start to lap the early phases of the activities. And as you can see on the chart on Page 5, we had $25 million of benefits already in the fourth quarter while the core activity continues to drive momentum, there will be a little bit of a comp element to the fourth quarter.

Yes. I would say culturally as well run, we are relentless on waste and inefficiency coming out of the business. So even if we hit a number, there's no satisfaction in that. We drive on as long as there is waste and efficiency to be had where we're going after it.

The next question comes from Mike Roxland of Truist Securities.

Congrats on all the progress. Gordon, you mentioned that in your comments that shipments were weaker in July and you cited rephasing of order activity and delayed ramp-up at a configurated plant. Do you have any sense what your order books look like for August?

Yes. Look, we have line of sight. I think the Americas are looking pretty strong, and we're seeing some comeback in places like Northern Europe and in the U.K. And as John mentioned, we see Europe probably stabilizing in the second half of the year. There is still significant consumer weakness in all of the regions, probably except for Latin America. But whether it's wine or beer in Europe, spirits in Europe still down compared to long-run averages than last year driven spirits and say, widens driven by the macroeconomic kind of trade issues, 85% of all scotch produces exported, 65% of all French red wine is exported.

So the two major markets of the U.S. and China, still not back to where they were historically. In the U.S., we see beer still sort of sluggish even imported beer. So -- but yes, there are been pockets of growth in terms of nonalcoholic beverages, particularly waters and food is on the back of trends antimicroplastics performing very well in most markets.

Latin America is performing very well for us, particularly food, nonalcoholic beverages, spirits coming back strongly in Mexico, we are quite resilient and going back to kind of first principles that we laid out last July, we, over the next 2 years, predicated kind of flat volumes as we deliver savings, we will share some of that with our strategic customers and ultimately drive the value over the next 2 years by getting a much better return on the volume we have and getting fitter.

That then puts us in a position, a very strong position as the turn comes and consumers come back to these categories.

So our story over the next 2 years is not a volume story or per se. We predicate sort of flat volumes, but getting much, much more efficient and getting much higher returns on the volumes we have.

And I think for us, our thesis is that the value will be increased through getting better returns rather than chasing volume at lower margins and lower prices in markets that are -- where demand is sluggish.

That's very helpful. I appreciate all the color. And then just one quick follow-up. You mentioned the progress on TOE, I heard you you said the first wave of 15 facilities has been meeting or exceeding your expectations and you're about 50% to 55% through those plants. Is there any more color you can provide around the progress, maybe some of the cost savings or the returns that you've generated thus far at those 15 facilities?

Yes. Again, we the processes we go into those plants, and we understand obviously the cost base and what's driving the cost, where the waste is and where your kind of top 5 issues or losses are and then working systematically through that. And everything we we've seen in our pilots in Cana. And indeed, the initial study we did way back in June 24 are coming to fruition. There -- we have some tremendous talent in our plants -- but with fresh set of eyes and some new thinking from other industries that I've worked in, we're seeing opportunities to drive very significant productivity improvements and run these plants in a much more effective, efficient manner.

So I'm very happy with the alacrity with which our teams have taken on these new ways of working and going after the waste across the fleet. So very happy with that, Mike.

The next question comes from George Staphos of Bank of America.

I wanted to how, Gordon, and congratulations on the progress so far. I wanted to come back to Magma, not to necessarily do a postmortem on it and the wise and wear force. But really to understand how glass sits in customers' mix. And so when Magma was talked about a few years ago, the notion was you'd be able to drop in smaller facilities, you'd be able to be more nimble, You'd be able to then get into customers' new product launches more quickly. I think that was part of the story as I recall, and correct me if I'm wrong on any of that.

And for whatever reason, Magma is no longer being utilized. Is it that the process itself didn't really live up to your expectations? Is it that customers don't really look to glass for that sort of new product quick on the run type of product anymore type of package or TOE and all that you're doing in the organization now gives you that agility that you thought you were going to get for Magma, but you don't need to spend the capital there.

How would you have us think about that? What's happened here and why you don't need matter?

Great. Thanks, George. So let me start with the customer piece. Consumers love drag, right? All things being equal, they'll choose glass. And I've been, I've met about 70 of our customers over the last year. And I would say, without exception, all of them want to put more glass into their portfolios for sustainability to help drive that premiumization trend that's still there as strong as ever.

So glass is absolutely fundamental to the portfolios of all our major customers. And in fact, our NPD pipeline this year is up about 35%, which is a massive increase as our customers look to spur growth. So no question around glass in the portfolio is in my mind with customers, and I've heard that firsthand so many times.

With regard to Magma, yes, the idea was you could do maybe smaller batches of premium. But when I look at it, there's 2 aspects, the technology work. Yes, the technology works. But can it deliver the returns we require if we were looking at rolling out 10 or 12 or 15 of them. And what's the next best alternative. And as CEO, I feel two important aspects of my role is to want to face reality and to make good decisions around that.

And secondly is to really allocate our precious capital as effectively as possible. And when I look at and you're right, TOE and I look at the flexibility, I think TOE techniques can bring and also greater volumes at lower cost and lower capital intensity -- for me, it was a clear decision. There is a better way for us to deliver on the -- what customers are looking for, which is continued premiumization but they want premium products at affordable cost, right?

And we don't have small ambitions around premium, right? We have very big ambitions around premium and I need higher volumes of premium than a Magma furnace could deliver. And I think the way to do that is the path we have forward, which is the best of both model, which, by the way, we have a business in our portfolio that that does exactly that and is making great returns, great margins, and it's highly, highly flexible.

So -- what we're embarking on is not new to world. It's there. We just need to get much, much better at it. And I'm confident now we're putting in place the operational capabilities to do so. So it's the correct decision for us. the correct decision for our customers, and it's the correct decision for our shareholders.

Gordon. For my second question, if possible. You talked about your current run rates and that things get a little bit better in August. Is there a way to parse the down mid-single digits across the regions? And then as we shift into the fourth quarter, you talked a little bit about why it's maybe now a lesser piece of your earnings cadence for the year. But can you give us a bit more color there?

I know fourth quarters are small, the numbers can move around a lot. If we choose the midpoint versus one end of the range or the other in the range of the guidance, we can come up with different conclusions. But the fourth quarter seems a little bit weaker. And is any of it related to the volumes that we're seeing right now.

George, I can jump in and take the second part of that George. The seasonality of our business is such that we earn about 60% to 65% of our EPS in the first half of the year and the remaining 35% to 40% in the back half of the year. That's consistent with the average in the last 5 years. And after exiting the ANZ business a few years ago, we are more levered to the Northern Hemisphere.

And as a result, with our products being used in the summertime, the seasonality of that, we do have this tendency that were -- that I just mentioned. But as we take a look at the fourth quarter guidance that we have this year, we are making in addition to the normal seasonality, we have made a provision in there in our outlook for potentially more temporary downtime. It is taking us a bit longer than originally anticipated to complete the restructuring and network optimization activities over in Europe.

We're following all the rules and the processes accordingly, but it's just taking longer. As a result, if this slips into next year, we will probably take more temporary downtime in the fourth quarter as we keep our system balanced until we complete that.

So that is a function of that. And also, I just want to highlight also is that our ETR tax rate is very sensitive to overall levels of earnings. And as the earnings are lower in the fourth quarter, especially with making the provision for the potential temporary downtime. We Also end up with a disproportionately higher tax rate. So it just kind of swings things around a little bit more in the fourth quarter.

So hopefully, that gives you the perspective you're looking for. But it has nothing to do with the trends in the business and the volume it has more to do more to do with the downtime and managing the network optimization.

Yes. And maybe the first part of that, George. We -- if I do run through maybe the segments or regions. Beer in North America actually performed very strongly for us, and we outperformed the category. -- as the core spirits, very, very strong momentum there. We see as seasonality kicks in, we see some of that come off for beer certainly but brown spirits, particularly are weighted a bit more to the back half of the year.

So we see probably continued momentum there. One is weak across the Board. I spent some time in California in the last couple of weeks. But the industry is looking at ways to figure out how to overcome that. And the lesson I heard from people there is, hey, the wine industry has overcome many setbacks over over the last 50 years, and there was sort of a confidence there I picked up.

But Nodowine has been weakening. NAB waters are going really well for us in North America, and we see that continuing. And we probably see food kind of it was soft in Q2 but picking up in Q3 and Q4, particularly towards the holidays. Europe beer, particularly in Central Europe down, Window and Spirit stone. And I think that's just a common picture as I mentioned, but food and nonalcoholic beverages very, very strong for us.

We probably see spirits coming back a bit in the second half. And white wine is doing better than red wine for sure. Other than that, MDN performing very strong for us. Brazil is doing very well for us, up 3%, 4% in Q2. Order book is very, very strong there. And the big surprise for us was in Mexico where beer actually has stabilized particularly in the domestic market and tequilas have rebounded remarkably well as the tequila industry figures out other markets besides the U.S.

So Southwest Europe impacted by red wine particularly, but food going strongly and nonalcoholic beverages. And we also see some upside in the back half of the year in the U.K. So that's sort of a run around the business, George. I hope that gives you a bit of color.

The next question comes from Anthony Pettinari of Citi.

This is Bryan Burgmeier sitting in for Anthony. -- just maybe on net price. I noticed you're expecting a little bit less of a headwind now than originally, I think you raised the range by about $25 million. Maybe just what kind of drove that do you feel like prices for the second half are maybe locked in now you have kind of line of sight to that? And just maybe generally, how do you feel about sort of European operating rates at this point?

Yes, sure. Brian, thanks for the question. When we take a look at the drivers for net price, as we had entered in the year, we had a higher expectation of that pressure point. It's obviously moderated I think the net price pressure for the first half of the year is about $70 million, and we're thinking right now, it might be $100 million to $125 million, down from our previous expectations. Really, really, there's 2 factors going on. Is that inflation has moderated probably more so than we expected. Energy prices have moderated.

So that is definitely one of the drivers and then we have seen probably a reasonably stable net pricing gross pricing in the business. If you take a look at our business year-to-date, our sales volumes were up about 1%, but gross prices down about 1%, right? So it's not really fluctuating that much in the grand scheme of things. We thought it might be under a little bit more pressure.

So it's really kind of both levers moving. And I would say, like -- if we take a look at the back half of the year, most of the year-over-year pressure point has been incurred in the first half with a little bit still dribbling into the back half.

Got it. Got it. Appreciate that detail. And then maybe just sort of broadly from a high level, do you think that the U.S. EU trade deal kind of coming together this week provides maybe a level of clarity for customers that you and they have been looking for to maybe get orders kind of going again or do you think maybe the industry needs time to sort of digest this and adjust to the tariffs.

Just anything you can kind of share on maybe if a trade deal changes anything for you and your customers in 3Q and the second half over?

Yes. Look, any certainty is a good thing. There's been so much uncertainty and customers trying to figure out do they need to ship bottling operations in different regions and so on. And so no decisions in the industry that I've seen have been made around this.

So anything that brings certainty is a good thing, then people can plan around that, and we can work with customers accordingly. The headline number is 15% on everything coming into the U.S. But I still understand some commentary that it's still enough fear on where wine and spirits sit in all of that and whether that potentially is 0 for 0 or whether it's 15%. So there's been a lot of full clarity on that, I would say.

So the faster we get to that, the better, and then we can work with customers accordingly. So the more certainty, the better it is, I would say.

The next question is from Josh Spector of UBS.

[indiscernible] sitting in for Josh. I just wanted to go back to Magma quickly. Are there any cost savings associated with this decision that maybe weren't dialed in before, but do you need to be added now?

I'd say the primary -- first, thanks for the question. I'd say the primary savings is that we are overall reducing our D&E cost to the business. It's all part of our SG&A savings initiative. So I think from an operational standpoint, obviously, we're ceasing the operations and that there's there was a minor loss associated with this, but I don't think it's a material aspect to the business for the Boeing Green element.

I think the bigger element is the reduced SG&A cost is embedded in our SG&A savings targets.

Okay. And based on your comments on inventory earlier in the prepared comments, and I think your prior guidance for working capital and free cash flow was flat. It sounds like now you'd expect working capital to be a benefit to free cash flow this year. Can you just tell me what you're expecting in your guidance?

Yes, that's correct. Earlier in the year, we thought that working capital probably minor factor. And the -- where we stand right now is something like an up to $50 million working capital benefit this year. kind of 0 to $50 million as we do better on the inventory.

On the offset to that, we are having more restructuring costs that's probably going to be the higher end. We updated that guidance range. We also increased the estimate for interest expense given where the forward curve has changed, too. So overall, we think the free cash flow outlook that we had at the beginning of the year is still relatively consistent. Obviously, FX plays into this equation with a lot of moving pieces.

But I also want to kind of reiterate we're really focused on free cash flow. And with a $300 million year-over-year improvement despite call it, $140 million to $150 million of restructuring charges as a major swing, major improvement in the performance of the business. And certainly, we look to drive that as we go to our ID targets and moving up to 5% of sales and ultimately up to 7% of sales over the next few years.

The next question comes from Francisco Ruiz of BNP Paribas.

I have two questions for me. The first one is, if you could update on how the negotiations with French authorities are on the restructuring you proposed a couple of months ago. And also a follow-up on this is, what else is missing in terms of restructuring or closing facilities in order to get to your Phase I savings on fee to win?

The second question is if you could help to understand what is the bridge between your fit-to-win benefits? And the rest of the cost at operating cost, apart from the central cost. I mean there is a cap of EUR 20 million, EUR 30 million this quarter. So where is this coming from?

Francisco. Let me take the first question. So we're engaged with our European works councils and our local works councils, and we're working through through the process of consultation and listening to ideas. And as we move through to getting agreement on how we reconfigure the network to be as competitive as we can be in France. We see France as a very important market in our in our business, and we have plans to invest quite heavily in France, but we need the right network. And those discussions are progressing to plan.

As you know, there's a process, you work through the process, and we're committed to doing that fairly and squarely and with our colleagues. So nothing more to add there other than it's going to plan in terms of timing of discussions.

And Francisco, this is John. I'll address the other two questions you have as far as kind of where do we stand in the whole network optimization process and kind of what is left. So we've announced so far about a total of 10 percentage point reduction in global capacity, of which, as we stand here right now, maybe 5% or a little bit more is actually physically closed. The other component has to do with remaining elements that have been announced. One is what we just referenced in France. And the other one is what we just kind of referenced earlier today. I mean, last night in the Americas, that is what will be conducted over the next couple of quarters and then that would be a completion of where we stand on the announced level of capacity restructuring.

We would still then have a little bit a couple of percentage points of excess capacity, but we're going to monitor and see where the market trends go and see ultimately determine hopefully, we can grow into that and we'll have to determine whether additional decisions are required.

And then your last question is kind of -- so if it to win was $84 million, where is the other cost movements. What I would point you to is on Page 6 of our materials. There's actually a little chart in there that has the cost breakdown. And as you can see with that, operating costs were favorable $31 million, $63 million of that was fit to win in the operating line, but we did have $27 million of temporary curtailment that is, as we've referenced, the continued downtime until we're able to get these permanent restructuring actions actually completed. Those are the major movers and you take a look on the corporate side, if you add up the whole thing, we have $84 million of Fit to Win, you got the temporary curtailments. You'll see an offset in corporate. A lot of that has to do with resetting management and census with 0 last year. So take a look at that, that provides you the details I think you're looking for.

The next question comes from Gabrial Hajde from Wells Fargo Securities.

I apologize. I joined a few minutes .But I was curious if, John, you could kind of help us with the increase in the guidance range. in. And I think to your point, you talked about price cost being actually a little bit more favorable, maybe by $25 million, if I pick midpoints.

And then FX I think, is maybe a $25 million to $30 million tailwind as well. Volumes up 1% through the first half. We're sort of still targeting flattish, which I guess would suggest down 1%. And in the back half you already gave us some color on the mix Americas versus Europe. And it seems like your bid to win and cost-outs are kind of running ahead of expectations. So is there something else that we're missing I don't want to talk to you to the upper end of the range. I'm just trying to understand if there are any other puts and takes in our logic there?

Yes. Yes. So Gabe, I mean, the drivers that we have and maybe just thinking what are the factors that would drive you to the upper end of the range. Obviously, you got the FX, as you referenced, net price is better, fit to win probably has upside opportunities. And then the flip side that we have is interest expense will be higher because of the rates haven't changed. And then you also have and I'm sure you heard this, but we are making a provision later in the year for more temporary downtime in the event that we have the timing of -- in particular, the European restructuring activity may kick into early part of next year. Those are the major factors.

And anything in the variance between the high end of the range, midpoint, low end, has probably do more with macroeconomic trends and things like that, that we're just trying to make a general range for

Okay. And then the follow-up question. I've seen a few announcements here in the past month or so. Heineken being 1 of them, I think talking about building a pretty meaningful new brewery in the Yucatan and maybe some reorienting, Gordon, you alluded to, some of their bottling if that were to occur. And then in North America, there was an announcement on reformulation for Coca-Cola. I'd be curious if there's been any sort of early discussions or if you can talk about maybe the opportunity for beer in Mexico on new facilities coming into. I think Heineken bringing one online in 2026 and then this new big facility would be operational in '28.

Yes. Look, we're talking to customers all the time, and I'm spending 20%, 25% of my time out with customers discussing what the opportunities and pain points are. And if you look at the -- if you look at the dynamics of Mexico, I think over the medium and long term, it's a tremendous market for beer. We've got we've got a fabulous suite of assets down there, and we're going to make sure we're in position to take the opportunities as they come.

Product stays better in glass, what can I say? So whatever customers want to make more of their products in North American glass were with some of the efficiencies and on trapped capacity that we're finding in TE, we'll be ready and willing to support anybody that wants to launch products and more products in glass as we move forward.

We currently have no further questions. So I'll hand back to Chris for any closing remarks.

Thanks, Lucy. That concludes our earnings conference call. Please note that our third quarter call is presently scheduled for Wednesday, November 5. And remember, make it a memorable moment by choosing safe, sustainable lab. Thank you.

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

Thank you all for being here. I'm Gabe Hajde, Wells Fargo's senior containers and packaging analyst. Joined by my colleague, Richard Carlson here. I'd like to welcome O-I Glass, and representing the company is John Haudrich, the SVP and CFO; and Chris Manuel, Vice President of Investor Relations.

Would like to remind everybody that it is kind of intended to be a fireside chat, if there's any questions, don't hesitate.

And with that introduction, I think, John, you have a couple of prepared slides, please.

Yes. First of all, good afternoon, everybody, and a big thanks to Gabe and the Wells Fargo team for hosting us today. I'm joined today by -- with Chris to my right, who's Head of IR. We just want to walk through a little bit of our story and the thesis that we have and our strategy to start the conversation. But before we get going, please note the safe harbor comments and the materials are also posted on our website.

Okay. So O-I. I'm assuming most of you in the room are familiar with the company, but just the level set. Obviously, we're the world's largest global glass packaging company. We serve over 6,000 customers across 74 countries through our network of 69 plants in 19 countries. We serve and help produce and help manage many of the brands that you enjoy every day and every week. In fact, we are the world's largest producer of mainstream and premium glass packaging.

So as we go forward, ultimately, we're looking to drive longer-term growth as we leverage a best-in-class Net Promoter position with our customers and leverage an improved cost and competitive profile that we'll talk about over our network, which is 1.5x larger than the next closest competitor, which we believe ultimately provides a competitive advantage.

So let's talk about our investment thesis. We laid this out during our Investor Day back in March. But I think we've got a very clear comprehensive plan here to drive shareholder value creation. It starts with becoming more competitive, cost competitive. Historically, I would say that O-I is pretty in the ballpark with competitiveness within the glass industry, but we are redefining our competition as the aluminum can. The aluminum can has been taking the market and profit share, opportunities in the marketplace, and we want to reduce our cost and improve our competitive position to regain that share and grow our business.

This will include an end-to-end network optimization, value chain optimization includes a lot of work internally, but also working with our customers and suppliers to create much more efficient systems. And over as we move along, we want to grow our business in the more premium categories, which actually is growing 4x faster than the mainstream categories, and we'll talk about that a little bit, too.

And ultimately, as we get the business competitive and we are ultimately growing organically, we want to be able to expand our business right now. O-I, the largest global glass company, only has 9% global market share. So there's a lot of opportunities to be able to expand and grow our position within the glass universe. And importantly, we're taking an economic profit approach to the business going forward as we look to drive value.

So we believe that O-I has a strong right to win. So consumers prefer drinking out of glass. There are studies -- many studies, and we have information in our recent Investor Day that showed this when given the option, people want to drink out of glass. It's a more premium experience. The question is, how do we make that more available to people. And so we are working with a privileged group of world-class customers as I mentioned before, great Net Promoter Scores with them. They want to do business with us and they want to be able to grow in glass.

So we want to be able to leverage our privileged footprint to make that a reality. And in fact, what we want to be able to do is leverage our global scale, but also our local presence. I was just looking the other day and talking with one of our general managers in Brazil. We've been in Brazil for over 100 years. And so -- and not too many multinational companies going to say that. So we got long, deep roots and histories with a lot of the customers over in those particular marketplaces. And ultimately, over time, as we drive improved competitiveness, we believe that we're going to be able to leverage all of that to drive value for the company.

So sequencing matters, and we just want to show real quick, what's the virtuous cycle that we're trying to create. So it does start with competitiveness. We've got to get our costs down off of a more competitive base. We are able to profitably grow the business off of a more optimized network. That's going to drive better earnings and importantly, cash flow. We're going to use that cash flow primarily first, to reduce debt and get the balance sheet in a better position and ultimately allow us to be able to invest in the growth that I was talking about. And as we get the -- I mean the balance sheet in the right place and the earnings engine going, be able to share more value back with our shareholders.

So we are organizing all of this in 3 different horizons. Horizon one is what we call Fit to Win. It's all about becoming competitiveness, radically taking a radical position to reduce costs within our industry. Off that competitive base, we expect to go into the second horizon profitable growth and then ultimately, be able to expand the business in other geographies.

We have laid out a number of what we believe are aggressive but achievable targets for the organization. We take a 3-year view and also a 5-year view here. Considering that we started at about $1.1 billion of EBITDA next year, I mean last year, we're looking by 2027 to grow that to $1.45 billion, and ultimately, in over a 5-year period to $1.65 billion. That's more than an 8% CAGR growth in EBITDA on a year-over-year basis. And you can see that there's relative improvement also in the margins, free cash flow and economic profit creation for the company.

In addition to the financial metrics, we also have a number of other more business-related objectives post the 2027 window. We want to be able to grow the business above the average for the marketplace. We want to expand our premium business from 27% to 40% or thereabouts. And we want to be able to reduce our cost by 20% or so in the mainstream categories that significantly overlap with the can activity, for example, along with a number of other measures that you can see on the page.

So how do we get there on the EBITDA side? This just gives you the moving pieces. As we move from $1.1 billion to $1.45 billion, you can see that we're being quite conservative and cautious on the commercial outlook given the overhang in the marketplace right now. As you can see, we've made a provision for a reset of current favorable energy contracts. So we're absorbing that in this outlook, maintaining flat sales volume. But really what's going on is we're improving the cost position of the company significantly through our Fit to Win initiative, which we expect to generate at least $650 million of value over the next few years here. Over -- as you go into that next window of time, you see a much more balanced contribution of benefit from Fit to Win as well as our profitable growth and ultimately what we call strategic optionality, which is expansion beyond our own 4 walls. So all of those things are pretty laid out. And really what you see here is a self-help story that was substantially within our control, and we're not relying on any commercial magic.

So how are we doing? I would say very well. I'm really pleased actually with how the companies come out of the gate on Fit to Win. As you can see here, this is our scorecard that we shared during our first quarter earnings call. We anticipate $250 million or more savings this year on Fit to Win, and then leading to $650 million or more cumulative savings by 2027. And we're off to a good start at $61 million. I'd say that was probably $10 million to $15 million better than I anticipated. What we have seen here is that -- I mean, what you see here is that we are putting these activities in 2 phases, what we call Phase A and Phase B. Phase A, your quicker hits, reducing SG&A costs, eliminating excess capacity in our network. That is all going all the schedule and well advancing. But then what we really were pleased with is the advancements that we saw on what we call Phase B. Even though a lot of these programs are yet to actually kick off. Our operations are jumping ahead and actually driving a lot of the principles behind our cost transformation and total organizational effectiveness programs, and we're seeing early benefits associated with that. So as we look into the -- into the balance of the year. I'm also really pleased with what we're seeing in the second quarter on cost, and we're optimistic that we'll be able to meet or achieve our 2025 and 2027 Fit to Win targets.

So what are we going to do with the cash? O-I generates significant cash from operations. So over a 3-year period of time, well in excess of $2 billion of cash flow there. First, we want to properly maintain our assets so that we sustain that strong cash flow. We will be investing some in the productivity, especially as we go through Fit to Win, we're going to find opportunities to improve the cost position of the business. We'll also be doing some restructuring that's currently underway. But you'll see after the free cash flow side, the majority of the available free cash flow will go to debt reduction as well as supporting our current moderate share buyback program. We've also shown on the right-hand side, various different examples of the type of investments that we might would do as we move forward.

Let's just shift to the current year. We are reaffirming our 2025 outlook that we had -- early part of the year that you see that the adjusted EPS of between $1.20 to $1.50 and free cash flow between $150 million to $200 million. So we remain comfortable with that. Of course, we continue to drive towards the upside of that and continue to work on additional cost plans and everything to be able to meet and be on the high end of that guidance range from an ideal standpoint.

So as we think about where we are right now in the marketplace, I would say the sales volumes quarter-to-date are down modestly. They're down about 2% or 3%. Now keep in mind, that's probably down about 1% when you take out the noise of Easter and the timing of the holidays on a year-over-year basis. So pretty much in line with what we were expecting. Now what we are seeing is that the Americas is definitely stronger than we anticipated, is growing at about 5%, mid-single digits or better. But we're also seeing a bit of a softer Europe, which is down mid-single digits or maybe a little bit more.

When you look at the Americas, though, you're seeing nearly all categories and geographies up and with the strongest performance over in the Andean marketplace. Latin America marketplace are fundamentally stronger. And if you take a look over in Europe, your softness areas are in those pockets that are more exposed to exports. About 40% of what we make over in Europe ultimately gets exported out of Europe. So things like spirits, wines, international beer brands, those were a bit softer. It leads us to think there's probably some tariff pause or impact associated with that right now as people given the uncertainty. But overall, I would say the values are better in the Americas, a little bit softer in Europe. But entering the year, we thought the Americas would be, say, up 2%; in Europe, it would be down 2%. We're just seeing both of them a little bit more stronger in America, a little bit softer in Europe overall.

So then just to conclude, I think we're off to a good start this year. We're really focusing on Fit to Win, driving ideally upside performance of that to drive us in the higher end of the range as we work going forward. And we're looking for strong earnings improvement this year as we execute our strategy.

So Gabe, back to you.

Thank you, John, for all the detail here. This has been analyst stock that's actually pretty strong year-to-date, maybe a little bit of early endorsement from investors based on the strategy. You've been at the organization -- 15 years?

16.

Okay. And there's been some other restructuring efforts at the organization that have had varying degrees of success. So I'm curious maybe I'll take the easy answer ahead of time. But I think Gordon bringing the EP or the economic profit approach is different this time. But maybe what's different about this program? Or can you compare contrast this versus other efforts at O-I historically? And again, appreciating that it's not just O-I. I think yesterday, the term volume recession was used for packaging or packaging volume recession. So it's -- the past 5 years have been anything but normal from a demand standpoint.

Right. Yes. So what's different this time than last time or previous times? What I would say is -- O-I and the glass industry have historically approached our business from the perspective of a glass company, okay? And I think the difference is what Gordon is doing is he's coming in and he's bringing in a lot of insights. Having spent his career in food and beverage, but not within glass itself, okay? So what he's doing is he's bringing in insights that have application in the broader space, but really have not been utilized within a glass company before. And so I think in my -- from my standpoint, having worked in the company for 15 years, in the past, what we did is we tried to say, okay, what does good look like and how do we get closer to that.

What Gordon is doing with what he's brought in is we're redefining what good looks like, which is a step-up from how it's been defined historically. So for example, if you go into the manufacturing systems of the company, what some of the standards were set maybe 20 or 40 years ago, about what good looks like. And I think those are being challenged. They're being challenged through an initial thesis, but then coming in with experts and data scientists and everything like that to be able to help us evaluate each one of those steps and understand it. I was having a conversation earlier today. One of the steps we brought in to data scientists, and there's 700 variables that affect a furnace.

But we're able to really isolate the 5 or 6 that really matter. And as a result, when you do that, you can say, what are you going to really target to make that better. And so those are the aspects, I think, that are very different than in the past. It involves bringing people outside of the business, technologies outside of this business, solutions outside of the business to be able to refresh and redefine what is good.

I'd add one more point there, too, and it's redefining what the competition is and going beyond just other glass. And we had to recognize that to compete with cans or other substrates, we needed to take a substantial chunk of our cost out.

Yes. To build on that, 30% to 40% number of our business overlaps with cans. The other 60% to 70% doesn't, so the spirits and the lines and et cetera. But in that 30% to 40%, what you need to do -- what needs to be true to be successful is different when you really think in the context of beating or being able to be competitive against cans. So you really reset the horizons of what you're really trying to achieve, you can achieve more.

Yes. Understood. Thinking about the volume commentary, and I just want to make sure that you get everything out there that you would like to and maybe we fully understand. It sounds like maybe the obvious thing is we look for a little bit of resolution or for Europe and the U.S. to kiss some make up and figure out what's appropriate from a tariff standpoint. And that gives visibility to your customers. But then can you speak to some of the strength that you're seeing in the Americas categories that stand out? Or I know you talked about the Andean region doing a little bit better, and then maybe the sustainability of that is as you kind of look at order books today?

Yes, sure. So the fact that the Americas is up 5% or 6% right now is a combination of two factors. One is it's a comp issue in the prior year, okay? So if you like take a look at North America where consumer demand still is somewhat muted, is the fact that last year, there was significant destocking going up, okay? And then we just have the absence of that. But if you move over into Latin America, it is a fundamentally stronger consumer demand and in particular, in the Andeans, we have worked with strategic customer, and they have brought in new brands into that marketplace. And then last year, we expanded and brought online new capacity to be able to support that, and now we're getting the benefit of that. So it's a combination of both of those factors really dependent on where you are in the marketplace.

Got it. One thing that we've written...

Can you give us two or three potential applications where you think glass [indiscernible] a potential replacement...

Yes. So the question is, are there different examples where glass could be a replacement against cans.

So let me step back and talk about what needs to be true for that to happen, okay? So if you take a look in North America, glass cost per unit is about 25% to 30% higher than a can, and we've lost market share over the last decade in North America. If you go over to Europe, it average -- it hovers around 14%, and we've been able to maintain market share over in Europe. So that -- so glass can command a premium price but not that much, right? I mean you've got to get it within a certain range. And so substantially reducing the cost in the Americas -- in North America, for that example, to be under those types of rates will allow for you to be more cost competitive against the cans. And then you can see just some switching. In fact a couple of years ago when -- and because of the prices of metals and things like that, that differential got down to about 14% or 15% in North America. And we did see switching. We did see movement of demand coming from cans over to the glass containers. So most of our customers, even on the brewer side, we said we'd love to see more in glass. It's a better premium experience and everything like that, but we have to keep -- it has to be done within a certain price. And so I think that, that is an important part. And not necessarily such focusing just on cans, but some of the conversion opportunities that are out there, I think waters is a really important one. You see a lot of water in plastic and things like that. And with whether it's sustainability issues or health and wellness issues, we're seeing really strong growth in particular, sparkling water. And we know there's some generational shifts in alcohol consumption and things like that. But we are seeing really strong growth in Sparkling Waters as a potential alternative. And also the whole zero alcohol opportunity is really big.

And one other example is if you take a look in the U.S., RTDs the ready-to-drink items and things like that, we have been prohibited by regulation for putting spirit-based RTDs in glass containers. It was prohibited. Only beer and malt alternatives could have been put in glass for whatever reason for, I guess, lack of consumer confusion. We ultimately got -- a few months ago, got that restriction that lifted. And so now we're able to go in and work with the Spirits customers to be able to say, "Hey, if you really want to have a spirits-based mocktail or RTD or something like that, why don't you rather have it in glass. It's a lot more consistent with the image that you have with your spirits brand than maybe a can would convey." So those are a couple of different options of what we're looking to convert and what needs to be true for that to happen.

Thank you for that. A little bit related, Make America healthy again, we're in print talking about some of these concepts, some of which I can see probably helping and maybe potentially being a headwind for quite honestly, again, consumption, generally speaking, or at least net inflationary if there are formulation changes and things like that. But specifically around the alcohol consumption that you talked about, we're seeing it most pronounced in beer, I think, and then maybe on the wine side, wine is predominantly packaged in glass. So just maybe your customers' conversations, no one specific, but just trying to understand if they're observing that and maybe any possible explanations they have, and again, to your point about generational changes, and maybe how to combat some of that?

Yes. The health and wellness is very much a trend, but it's a complicated trend, right, to your point. And when it comes specifically to what's happening in alcohol, yes, there seems to be evidence that people are drinking less alcohol. I don't know if that's universal around the world, but it's certainly been much more of a top of consideration here in the United States. Yes, wine and beer are down, but spirits are actually doing fine. I mean they're better overall than the other two. So what we are seeing that people are drinking less, but when they do drink, they want it to be more of a premium experience, and we're seeing a little bit more movement towards that. But I think -- and in fact, I was with one of our largest customers, [ Byg ] Brewery and 90 -- the CFO said, 90% of their growth is in their zero alcohol categories and things like that. So yes -- yes, everybody is trying to respond to that. They're creating the zero alcohol options or low alcohol options. But we're also seeing, as I kind of mentioned before, is the knock-on effect, people are drinking something, and they go out to dinner. Even if they're not going to drink some alcohol, they want to have something better than just the straight glass of water. So you are seeing the sparkling water, the tonics, those types of things taking off. And in fact, it's one of the strongest growing categories that we have, to be able to offset maybe some of those alcohol component of it. So it's complex.

What is the net effect of all that going to be? Who knows? There's pluses and minuses. You brought up the [ Maha ], and you and I were talking earlier, RFK was speaking at a conference. It was chemicals of concerns conference, believe it or not, about a month or so ago up in Charlotte. And he spent quite some time talking about packaging, obviously, talking about the concerns around plastic packaging and as well as the fact that there's a liner in an aluminum can. But he also did talk about that we need to rejuvenate glass. He talked extensively about the need to bring the returnable -- reusable bottle back into more prominence, which it was decades ago. It is very live, 50% of beer in Europe is in the returnable bottle, 40% in Brazil, for example. So there is opportunities to bring this back. And he specifically said, we got to reverse the trend in glass plant closures in the United States to be able to make sure that this healthy, sustainable packaging option. Glass is the only packaging option considered generally safe for human consumption transfer by the FDA.

So it's an important part of making America healthy again and how all these pieces come together. Obviously, they become somewhat complex.

To be careful how I phrase this question, but I think consumers also value convenience. And so there's a consideration there. But just we're talking about recyclability, we're talking about the infrastructure in place. Wasn't necessarily on my list, but we're bringing it up. Europe, to your point, has a more robust glass system. I want to say it's almost 3x the size of the market than we are here sort of in, call it, North America proper. Maybe some reasons why. And do we have any visibility on to increasing infrastructure here in the U.S. for recycling of glass?

Yes. So if you compare and contrast Europe in North America, for example, in the recycling environment, you see very significant differences. And in the U.S., we have a -- the multistream, you basically throw everything into one bin and it gets sorted out later on over in Europe. It's a multistream where the consumer breaks it down in advance. Obviously, that is more superior because it's sorted from the very beginning. The -- in the U.S., about 22%, 23% of glass is recycled, for example, it's 70% over in Europe. Culturally, it is done. There's much more penalties on the cost of creating waste over in Europe as opposed to the U.S. really where there practically is none.

And the other major difference is the recycling is managed at the federal level over in Europe. There's no federal regulation in the United States. There's no practical state regulation other than a few bottle bill states. So you're really left with about 3,500 municipalities that you have to work through. So it is challenging. But with that said, is there are about 6 major corridors in the U.S. or if you take a look at where glass is made and where the recycling content is at, if you can get those corridors more advanced, you can make a lot of progress without having to change the whole country. And so we continue to work into the value chain, and there's opportunities to do more in there to be able to make sure that the interest of glass and in particular, where those treatment facilities are relative to collection and the glass plants. If we can make that more convenient and more consistent, then I think we can make better progress on glass.

Thank you. I'm going to go off script for a second. I apologize. I think glass and packaging, in general, at least as it relates for beverages, has the attributes of what should be an attractive industry. You've got kind of regional distribution nodes. You got to be close proximity of customers. You've got reasonably consolidated markets, maybe more so in the U.S. than you do over in Europe, but still reasonably consolidated. So two-part question. One is do you agree with that, generally speaking, that those sort of moats to the business still hold true? And then second, can you talk about competitive response here in the past, call it, 18 months and how the market has behaved in a softer or weaker demand environment?

Yes, sure. I think to your first question, yes, the moats are there. I mean making glass is a complex process, right? I mean it's a capital-intensive process. There's a lot of know-how associated with it. It's geographically enclosed. The key thing is kind of cost competitive. And to the degree that it overlaps with categories that are exposed to less costly options. We got to respond to that and get it down there. I think it's probably one of the biggest things that we're indicating. We've got to improve the competitiveness, and we've got to redefine our -- the competition differently than we have in the past.

And as far as the -- how the marketplace is operating, I mean, of course, I can only talk to O-I, right? I can't talk to the intent of other players. But the notion of understanding value is much better, I think, now than it was in the past. I mean the margin recovery that's happened over the preceding number of years has made it very clear where the profit is. And so making sure that you're managing your business like [indiscernible] is managing its business is understanding how all those variables come together and what type of approach to the marketplace is constructive to your own profitability. And so I think it seems as though that, that broad process is understood.

People being disciplined. Short answer.

Yes. I mean everybody knows what drives profit and what drives margins. And so just operating to be able to sustain your business is pretty, I mean, it's just good business.

Yes. It wouldn't be [ 25 ] if we didn't ask about tariffs. You identified, I think, 15% of your business or so that's in some way, shape or form downstream customers impacted. And then some that's USMCA compliant as it sits today. Maybe just dive into that a little bit. And you kind of alluded to it like maybe some customers pausing. Can they redirect that to other parts of the world?

Yes, sure. So to lay the foundation, I mean to level set on it, we have about 15% of what we make crosses over the U.S. border, okay, and that's in the form of both empty containers, but more predominantly infill containers. And as you had mentioned, most of that is movement across in the Americas between Canada, the U.S. and Mexico, et cetera, but that's all exempt under USMCA. So what's really left that has a potential exposure is about 4.5% of our business in volume that comes primarily from Europe in the form of filled whiskey bottles or spirits, I mean other spirits, wines, premium beer over into the United States. Okay. That is the pocket that is exposed to whatever potential tariffs might come through.

And I think, as I mentioned, yes, I think there's probably a little bit of a pause a little bit. Nobody wants to have a boat full of products stuck in the Atlantic and the tweet comes out and also you're left with the tariff situation. In particular, you look at the wine category, and that's a very fragmented base. And a lot of the people who buy into wine are just smaller distributors and things like that rather than large companies managing big global value chains and things like that. And I think there, in particular, probably held off on buying because that could be quite consequential with them.

So as we stand, I mean, really, we have a very limited exposure on tariffs overall. And really, the biggest element that's unknown to us is that if tariffs could ultimately get put in place that actually change consumer behavior, if that's probably the biggest unknown. It is just that the consumer goes down and it reduces consumption activities because of the weight of tariffs. That's probably the biggest swing factor that we can see. It's not so far, not really seeing anything, right, but it's -- but a lot of the things have been deferred. So we're keeping a watchful eye on it. But certainly, entering the quarter, I think there's a bit of a sigh of relief relative to where we could have been at this point in time. So time will play out. But all things considered, it seems like it's moderated.

Last one for you. You spent a decent amount of time talking about, obviously, Fit to Win and the transformation. $650 million is a big number. You talked about being a little bit ahead this year. You've actioned a couple of plant closures or I think, are in negotiations over in Europe for some rooftop consolidations and things like that. Can you talk about where you're ahead? And then is that more -- it sounds like TOE, people were being early adopters and proactive with that. But just anything else that we should be mindful of as we look out over the balance of '25 and then maybe into '26 that we should be looking out for?

Yes. So as far as -- yes, we're coming out of the gate better, and we're saving more than I originally anticipated and then what we had in our plans. And part of that is pull forward of activities that otherwise would have come through more a broader rollout like the TOE program. Another example would be energy, okay? So we have a project going in and talking and looking at how can we reduce energy consumption. And so the plants are taking to heart a lot of the things that we plan to roll out in advance of the actual initiatives going out, which is a great sign because, one, we get the benefits earlier. And then two, it just shows the resolve of the organization to embrace these changes and new ideas that are maybe outside of glass in total, be able to incorporate them and save money. So -- and the TOE project is just starting to roll out. And so all of that is happening even before we institutionalize it within the business.

I think the things to keep a look out for going forward is we're going to report out every quarter like we do, where we land on Fit to Win, the different levers that we're doing. And I think it's going to be probably the TOE program that if it could drive swing upside performance. If we're seeing the performance of the plant personnel right now, even before it starts to roll out. And when it does formally roll out, can we do better there? Yes, I think that's what we're keeping a good eye on and I like what I see so far in the behaviors.

Well, I think people were giving you a hard time for not raising guidance or -- and you said, "Hey, listen, we feel good about being at the top end," you reiterate that today. So a good sign. Great.

Thank you all. Appreciate your interest.