O-I Glass (OI) Q4 2025 Earnings Call Transcript

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DATE

Wednesday, Feb. 11, 2026 at 8 a.m. ET

CALL PARTICIPANTS

• Chair — Gordon Hardie
• Chief Financial Officer — John Haudrich
• Senior Vice President, Investor Relations — Christopher Manuel

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TAKEAWAYS

• Revenue -- Net sales for O-I Glass (NYSE:OI) were approximately $1.5 billion, with average selling prices flat and favorable foreign exchange offsetting a mid single-digit percentage volume decline.
• Volume -- Global shipments in tons were down 2.5%, with a 10% volume decline in The Americas, affected mainly by beer and spirits, while food and NAB (non-alcoholic beverages) were more stable.
• Product Mix Shift -- Shipments by units were down only 1.5%, reflecting a strategic move to lighter weight and smaller format bottles; mix shifted about 1% toward higher margin categories.
• Fit to Win Benefits -- The initiative delivered $300 million of savings during 2025, exceeding the original target, with cumulative three-year savings target raised to at least $750 million.
• Adjusted EBITDA -- Rose 11% year over year with margin expansion of 220 basis points, more than offsetting modest net price and volume pressure.
• Fourth Quarter Adjusted Earnings -- Improved from net loss to $0.20 per share, attributed to "strong Fit to Win benefits, higher production levels, and a lower effective tax rate."
• Segment Operating Profit -- Reached $177 million, up 30% for the quarter, with margins expanding 280 basis points.
• Regional Operating Performance -- The Americas operating profit grew 40% despite 10% volume decline; Europe operating profit increased 8%, with volumes down 3.5%.
• Adjusted EPS -- Nearly doubled for the year, due to better operating results and a lower effective tax rate.
• Free Cash Flow -- Improved by approximately $300 million to $168 million, even after $128 million in restructuring payments; working capital management and a 30% decrease in capital expenditures were key drivers.
• Leverage -- Debt leverage decreased by nearly half a turn to 3.5, with a stated goal of reaching 2.5 by year-end 2027.
• 2026 Guidance -- Adjusted EBITDA expected in the $1.25 billion to $1.3 billion range, including a $150 million energy cost step up, and adjusted EPS projected at $1.65 to $1.90 assuming a 30%-33% tax rate.
• 2026 Segment Volume Outlook -- Company expects flat or slightly lower sales volumes in 2026, including impacts from exiting unprofitable business (approximate 1% movement in volume due to mix management).
• Restructuring and CapEx -- 2026 guidance includes approximately $150 million in restructuring cash costs and $450 million in capital expenditures, with restructuring payments expected to taper after 2026.
• First Quarter 2026 Outlook -- Company expects volumes to be down mid- to high-single digits due to tough comparisons and sluggish demand.
• European Operations -- Excess capacity elimination to be completed by mid-2026, improving regional operating performance and resulting in capacity underutilization declining from 6% to around 3%.
• Improved Forecasting and Supply Chain -- Forecast accuracy improved to 68%-69% (from prior ~50%), with ongoing supply chain optimization initiatives led by a new chief supply officer.
• Portfolio Focus -- Management is prioritizing higher value categories such as premium spirits, food, NABs, and RTDs over mainstream beer and wine.
• 2027 Targets -- Commitment to deliver at least $1.45 billion adjusted EBITDA remains; incremental Fit to Win savings provide buffer against continued commercial uncertainty.
• Energy Costs -- Expiry of legacy low-cost European energy contracts resulted in a $150 million one-time step up in 2026 energy costs, which is now locked in with hedged contracts "we are confident about the $150 million which is substantially at prices below current TTF but still a ramp up from where we were in the past."

SUMMARY

Management reaffirmed its 2027 financial targets, highlighting significant savings from the Fit to Win program and a stable earnings outlook despite external headwinds. Further mix upgrades to higher-margin categories are in progress, with the company focused on exiting unprofitable business and optimizing the commercial portfolio. Key 2026 drivers include the completion of major restructuring and capacity reductions in Europe, along with ongoing investments to bolster working capital and operational efficiency. Management expects first quarter 2026 to present the most difficult year-over-year comparison, with sequential improvements anticipated as the Fit to Win program accelerates and end markets stabilize. Initiatives targeting improved supply chain forecasting and a revamped go-to-market model are positioned to support future volume growth and margin expansion, particularly as consumer demand normalizes.

• European pricing and capacity conditions have improved from last year, though price pressure persists in certain segments such as French and Spanish wine.
• The Americas maintain tighter alignment between supply and demand, with fewer structural pricing challenges compared to Europe.
• Management confirmed ongoing inventory challenges in North American spirits, with historically high inventory-to-sales ratios exceeding 1.7, but stated that beer and wine destocking has largely cleared.
• The additional $100 million increase in Fit to Win savings primarily mitigates commercial environment uncertainty, rather than offsetting lower volumes alone.
• Management is implementing modern sales practices, enhanced customer insights, and accountability systems, with full rollout of the new commercial model expected by the end of the second quarter.
• Potential upside to 2026 free cash flow could come from improved adjusted EBITDA performance, further working capital reductions, and non-core inventory initiatives.
• Event-driven demand, such as the World Cup and US market celebrations, has not been modeled into baseline guidance and may present additional upside.
• Aluminum price convergence has slowed the shift from cans to glass in North America, but cost position remains favorable for glass in O-I's core categories.

INDUSTRY GLOSSARY

• Fit to Win: O-I Glass, Inc.'s multi-phased cost-reduction and network optimization initiative targeting significant, sustained improvements in operating profitability, capital allocation, and competitive position.
• NEB: Non-alcoholic beverages such as water, juices, and functional drinks, often targeted for higher-margin glass packaging solutions.
• RTD: Ready-to-drink beverages, including premixed alcoholic and non-alcoholic drinks driving category premiumization.
• IDS: Inventory Days of Supply, a metric indicating the average number of days that inventory remains unsold; used by O-I as a key supply chain efficiency benchmark.
• TTF: Title Transfer Facility, a major European natural gas pricing benchmark relevant to O-I's European energy procurement strategy.
• EP: Economic Profit, a profitability measure reflecting returns above the company's cost of capital that guides portfolio and mix management decisions.

Full Conference Call Transcript

Gordon Hardie: 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, expect continued progress in 2026 including another strong year of Fit to Win execution even as market conditions remain challenging. Are reaffirming our 2027 Investor Day financial targets.

Despite challenging end markets, have increased our cumulative Fit to Win benefit target reinforcing our confidence in achieving our 2027 adjusted EBITDA goal. As a result, we expect to continue improving earnings expanding economic profit, strengthening free cash flow, and delivering sustainable long term value for shareholders. John and I will provide more detail on recent performance and our outlook. Let us now turn to Page four, to recap our strong full year 2025 results. As you can see, our performance improved across our key financial metrics. We created intrinsic value with economic spread, expand 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% 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. And major projects startup 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, NEBs, 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 OI maintained our modest modestly improved market share as we continue to upgrade our business portfolio. Adjusted EBIT EBITDA increased 11% with margins expanding 220 basis points as Fit to Win benefits more than offset modest pressure from net price and volumes. Adjusted EPS nearly doubled driven by stronger operating performance and a lower effective tax rate. Free cash flow improved by approximately $300 million supported by higher adjusted earnings, favorable working capital management and a 30% reduction in capital expenditures. This improvement was achieved despite $128 million of restructuring payments which are expected to taper after 2026.

Finally, leverage improved by nearly half a turn to 3.5, and we remain on track to reach approximately 2.5 leverage by year end 2027. Stepping back, we continue to operate in a challenging environment as the value chain works through the long tail of post COVID normalization. Against this backdrop, we are taking a highly disciplined approach enhancing our portfolio, executing Fit to Win, and maintaining rigorous capital allocation which positions us well as markets eventually recover. The common thread behind these results is execution. Particularly Fit to Win, which we will now discuss on page five. Fit to Win is a core value driver for our business.

The effort continues to deliver significant cost reductions while optimizing our network and value chain. Cost discipline is not just defensive. Our cost mindset and discipline 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 have increased our three year cumulative Fit to Win target to at least $750 million up from $650 million. Let us discuss progress across the different phases of the initiative.

Phase a focused on SG&A streamlining, and initial network org optimization. Generated approximately $180 million of benefits in 2025. We expect an additional $135 million in 2026 as we advance later stage SG&A initiatives and finalize previously announced elimination of approximately 13% of excess capacity by mid 2026. With remaining actions primarily in Europe. Phase b, targets the end to end value chain transformation delivered approximately $120 million of benefits in 2025, ahead of expectations. We anticipate at least $140 million of savings in 2026 as we progress through the rollout of total organization effectiveness across the plant network with full implementation expected by year end. We are also accelerating procurement and energy initiatives to drive incremental savings.

Importantly, the upside opportunities in phase b drove or 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 targets. With that, I will turn it over to John to review fourth quarter performance and our 2026 outlook, starting on Page six.

John Haudrich: Thank you, Gordon, and good morning, everyone. I will start with a review of our fourth quarter performance as Gordon has already covered full year 2025 results. OI delivered a solid fourth quarter with higher earnings supported by a stable top line. Net sales were approximately $1.5 billion and average selling prices were essentially flat. While favorable FX largely offset a mid single digit decline in volumes. Adjusted earnings rebounded meaningfully improving from a net loss in the prior year to $0.20 per share. This improvement was driven by strong Fit to Win benefits, higher production levels, and a lower effective tax rate, which more than offset modest net price pressure and softer volumes.

Overall, we delivered another solid quarterly performance reflecting disciplined execution, continued cost reduction and sustained momentum from our strategic initiatives. Now let us turn to page seven to review segment operating profit. Momentum remained strong in the fourth quarter. Segment operating profit increasing 30% to $177 million and 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%, which was concentrated in beer and spirits, while other categories like food and NAB 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 remained soft. Trends were weaker in The UK and Italy, but stronger across other markets. Importantly, all actions to eliminate excess capacity are expected to be completed in the 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 we will discuss on page eight.

Looking ahead, we expect to build on our momentum and deliver improved results in 2026. The top line should be stable, or modestly higher, supported by slightly better gross price and favorable FX as sales volumes are expected to be flat or slightly down. As markets gradually stabilize, we will continue to optimize our portfolio including exiting unprofitable business to improve economic profit. While maintaining or growing market share. We anticipate adjusted EBITDA of $1.25 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% 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 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 will now turn it back to Gordon to discuss progress towards the 2027 targets and concluding remarks starting on Page nine.

Christopher Manuel: Thanks, John.

Gordon Hardie: 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 strengthen, and our economic spread has rebounded. Importantly, the business is moving in the right direction across all dimensions. Let us 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 discipline management system that drives consistent performance improvement regardless of market headwinds. As a result, margins and adjusted earnings are rising, free cash flow is improving, and our balance sheet continues to strengthen. Most importantly, execution is strong and momentum is building. You for your continued support. We are now happy to take any questions.

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

Ghansham Panjabi: 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 fair amount of cleanup going into 2026. So just curious as to your thoughts And then how are volumes in the region performing thus far in 2026? I know you have a tough comp from what you mentioned in terms of the pre buy, etcetera.

Gordon Hardie: Yeah. Thanks, Gansham. You know, 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, you know, we would say, you know, somewhere up to maybe half of that was an industry or inventory adjustments. So, they are the two main drivers of that. There was also a bit of destocking in wine, but I think we believe that is largely clear. So the big areas, have been beer and spirits. We continue to see fairly high stocks in spirits. You know? I think the, inventory to sales ratios still running above the 1.7, 1.8.

Which is historically high versus the long run average of above 1.3. So it continues to be a challenge. However, you know, as we laid out our, segment profit, you know, is continues to improve in The Americas as we as we drive Fit to Win and that helps us overcome these kind of short term, industries inventory adjustments. We expect those to continue in the first quarter. You know, given the high level of stock in North America. But, you know, we continue then on the other hand to, know, to drive Fit to Win and also eke out you know, pockets of growth across food, across NAB, particularly waters is particularly strong for us. In North America.

So, yeah. That is how we see the, the first quarter in North America, Gantrum.

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

Gordon Hardie: Yeah. I will take the first part. So would you take the energy question? Yeah. I will take the energy. Okay.

John Haudrich: 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. You know, 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, war with Ukraine, I should say, and then 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 are substantially contracted on our energy exposure in 2026 in Europe.

So we are confident about the $150 million which is substantially at prices below current TTF but still a ramp up from where we were in the past.

Gordon Hardie: And, Gautam, with regard to you know, the additional savings, it really is not of the volume. I think we pointed out, you know, you know, in earlier calls and particularly on Investor Day, $6.50 was the original target. And, obviously, we would have we would have bigger bucket to go off As the savings came faster than planned, you know, almost 50% of the savings in the first fifteen months and the organization's ability to you know, go after and execute those savings, then we are we are able to get after, you know, some of the stuff that we saw embedded but did not 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 is not because of the volume, so to speak. I think there are separate issues, but, certainly, it is it underpins our confidence in delivering our 2027 number.

Ghansham Panjabi: Okay. Perfect. Thanks for that.

Gordon Hardie: Thanks, Ghansham.

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

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

John Haudrich: Yes. I would say, Kyle, yes, thanks for the question. The outlook for 2026 where you 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 was about 4% of our total volume that was deeply negative EP. And we wanted to address that. We wanna address it either by rating 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 chip away at that. And so, yeah, that is included in that outlook for the next year. So maybe there is another 1% or so type of movement as we continue to mix manage.

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

Gordon Hardie: Yeah. What I am what I might do is if you look at the know, the volumes probably down, you know, 2.8%. And I might unpack some of that to give you maybe some insight as a as a as a oneself insight at year end. But if you look at our total volume, you know, off about 2.20.8%, within that. There was, you know, directionally above one to one and a half percent sort of share gain that translated into you know, one and a half percent volume. We also had some you know, restocking in certain in certain regions that probably added about another one to one and a half percent.

And then on the on the minus side, you know, we had some customer events where customers were managing their inventory, you know, taking some capacity down in the short term. That was about you know, a decline of about 1.5%. You know, we mentioned a start up of a fairly large capital project we had in the region that is and maybe some furnace repairs we had during the year. That was above 1%. So when you net that off, that nets to about 2.5%. But would within that, we had, you know, 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 in the market.

John Haudrich: And to build on that, what I would say is we really wanted to take a very in the marketplace. If you take a look at given the challenges in the macro environment, you know, we held the top line steady, 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 percent. Given the context of the market, we think that is good discipline in execution. And really the concept of growing notwithstanding the mix management and everything that is going on right now, is really kind of our horizon two effort that we are working on.

We are building the system for that right now, and we are finding those pockets of growth as Gordon alluded to in the commentary. We are starting to execute on them. Some of them take time to be able to translate into to into demonstrated volumes and things like that. But, you know, we are working on things like design and innovation, leveraging our record you know, our industry high net promoter score with our customers. To find those opportunities for growth. But it is we are just starting that journey to start to leverage Fit2Win as we go forward. Yeah.

Gordon Hardie: And just to build on that, Kyle, I think we mentioned in, in our investor day and in subsequent calls we really had mapped all of the categories and segments across all the markets in which we compete. We, we know her 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 is just starting to hit and be rolled out. We are and we are we are having some wins on that.

To give you an example, you know, with a regional, beer customer where our expected growth would be, you know, somewhere in the high to mid or mid to high single digits this year. We are seeing, you know, other spirits customers in certain regions where we would expect again high to mid single digit growth this year. So it is starting to come through. But, really, it will be, you know, towards the back half of the year and probably the last quarter of the year before we see that gain real momentum and then into 2027. You know, 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 in into May. We have got the 250 year celebration here in The US. We think that is going to have a kind of a positive impact So we see it starting to build. We spent the first kind of fifteen, eighteen months on the back end of the business and getting PoE right. I know there is 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.

Ghansham Panjabi: Thank you.

Operator: Thank you. Thanks, Kyle. The next question comes from Josh Spector of UBS. Your line is now open. Please go ahead.

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

John Haudrich: Yeah. Yeah. This is John. I can touch base on base on that. You know, yes, the end target of at least fourteen fifty remains in place. Right? So we are not limiting ourselves to fourteen fifty, at least fourteen fifty. So we have increased a Fit to Win by a $100 million. That does help mitigate the uncertainty around the commercial environment. Of course, we are working to drive improved commercial outlook for the business. It is just back to the last discussion. We are building this system to be able to grow as we always said. It is gonna be a little bit more of a horizon two, you know, a target to drive the top line growth.

But we are making some room given the uncertainty and the continued prolonged, you know, affordability challenges out there in the marketplace.

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

Gordon Hardie: Sure. You know, so when we when we kinda begin the journey, it was it was running at about 50%. You know, I am glad to report that as we move through 2025, that is jumped to about 68, 69%. And with many of our customers, you know, at the most at the most senior level, we have had discussions about the need to, you know, improve the supply chain efficiency. You know, if I compare it to other industries, I think there is a big opportunity for ourselves working with customers and suppliers to strip out waste and inefficiency in the in the in the value chain.

And that is what we are, we are focused on I think when we last spoke, our new chief supply officer had not started. He has he has now begin. Or begun. And you know, that is a key focus for him and his team is how do we strip cost and waste out of the supply chain and then share that with customers and suppliers with a view to growing, growing volumes in the different categories. So we have we have made good progress. Still a lot of work to go and still a lot of to take over the next eighteen, twenty four months, Lucia.

Anojja Aditi Shah: Great. Thank you. I will turn it over.

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

Michael Roxland: Yes. Thank you, Gordon, John, Chris and team for taking my Congrats on all the progress. Gordon, I wanted to follow-up if you absolutely yeah. Just wanted to follow-up with you, Gordon, on 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, you know, encourage the Salesforce to do differently to drive better volume? And as you think about your portfolio, I know you mentioned, yeah, you had some beer sounds like you had a beer win and maybe some spirits wins as well.

That are gonna hit later this year. But as you think about your portfolio, are you looking to reorient maybe toward more growth markets like food and maybe these RTUs, maybe minimize beer, may maybe minimize spirits particularly given the elevated inventories that category has experienced?

Gordon Hardie: Yeah. I will take the second piece first, Mike. So, yes is the short answer in terms of reorienting the portfolio to, you know, higher growth and higher margin segments such as, nonalcoholic beverages, you know, premium nonalcoholic beer, waters, juices. We are we are seeing, you know, you know, significant growth opportunities, in the 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 is that is very much part of a focus strategy, and we are starting to see results come through.

With regard to, you know, the go to market model, You know, I probably would have viewed the organization of the sales forces in the different market to be somewhat traditional. You know, and probably had not changed over a period of ten to fifteen years. And we are we are we are being 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 or sales force with insights and, and, you know, opportunities by customer on how the customer can either you know, 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 and a much tighter, account management Now in many industries, this is old hat. But this is, this is a this would be a big step forward for us in how we drive focus on performance. And yeah, we have some fantastic insights and data in the business, It is now how do we turn those into, opportunities for our customers. And we are already starting to see, you know, green shoots coming through in that system. It is it is early days in 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 are also upgrading some of the, you know, some of the commercial leadership in different markets. And bringing kind of better and best practices into the business. So that is a bit of flavor on that, Mike. Happy to elaborate on any of that.

Michael Roxland: No. That is very helpful. But would it really be fair to say that the changes you are pursuing are going to lead you to that volume growth that you are targeting for 2028 and beyond, the 1% that you outlined at iDay? Sounds like you are getting an earlier jump on doing these things, particularly you are bringing you have brought the there is been a there is been a pull forward of your of the Fit to Win benefits, such that you are starting to get a to move forward kind a faster pace on commercialization, trying to streamline the organization and bring in bring in business wins. Is that is that a fair assessment?

Gordon Hardie: Correct. Yeah. That is a fair assumption. And just to add a bit of color to that, So, you know, the first area of focus really was on the you know, the supply chain and strengthening the supply chain and getting the cost loan. And that is what really we have been focused on, you know, over the last eighteen months And as we have made sort of faster progress than expected, that allows us to, you know, orient more focus to the front end of the business.

It is very difficult to, to make moves on the back end and the front end at the same time, that risks also 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 on much better order. There is still a lot of opportunity there for us. And that allowed us then to switch, the focus to front end of the business, you know, probably maybe six to nine 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.

John Haudrich: Got it. Very helpful. Thanks very much, and then good luck in 26.

Gordon Hardie: Alright. Thanks, Mike.

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

Arun Shankar Viswanathan: Great. Thanks for taking my Hope you guys are well. Guess, first off, I just wanted to understand how the volume trajectory would progress through 'twenty six. So I think last year in the first half, you were up, you know, two to 4%. And then now you do face those tougher comps. And then, you know, 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 2027? Thanks.

John Haudrich: Yes, Arun, thanks for the question, John. Here. Yes, you are basically spot on The first quarter, as we had indicated, is going to be their toughest comp period. Our volumes were up between 45% last year. We believe that was substantially due to tariff prebuying So we kind of you work off of that tougher comp. So that is where we said we are gonna be done mid debt. Even high single digits depending on the consumer. We transition in the second quarter to something as closer to flat.

And in that in the back half of the year, you are 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, you know, we are we are to continue to try to improve the top line. Obviously, the you know, a little bit of help from the consumer will be good and, you know, if there is macros that need to be addressed on the affordability side. But as we work through that on macro basis, you know, that could, result in a in a tailwind down the road as markets recover.

And we get this engine that Gordon was talking about also know, fine tuned.

Arun Shankar Viswanathan: Great. Thanks for that, John. And then, the free cash flow, I think the guidance is somewhat in line with our expectations. Any opportunities there for upside You know, I guess, maybe it could come from maybe net price not being as negative. I do not know if that is one opportunity, but or working capital kinda harvesting a little bit more. Any opportunities there where you could see upside to that free cash flow maybe? Or how do you feel about that the level of guidance for twenty June.

John Haudrich: Yeah. Yeah. So clearly, the, the biggest lever is going to be on the EBITDA side if we can perform on the top end of the range and get some of that higher end of it improved cost performance. We are obviously we have $275 million. We are always aiming for more, right, as we have delivered the past. We are we are always aiming for more, so there is there is 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 are talking about the growth, but we are also working on, for example, nonfinished good inventories, other things to line be below the line that could generate additional cash And so I think those are your biggest variables and we continue to work on the, you know, the balance sheet, and we will probably have another year of refinancing going on. So we will look for opportunities to improve the you know, p and l and cash management there.

Gordon Hardie: You know yeah. You know you know, one other thing, you talked you asked about net price. I do think, you know, you know, price is probably less of the moving piece on the gross price, but inflation, you know, if inflation continues to trend off, that might be an upside, but I think that is a little early to determine.

Operator: Thank you. The next question comes from Anthony Pettinari of Citi.

Bryan Burgmeier: This is Brian Brickmire on for Anthony. Thanks for taking the question. 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 be I think, wrapped up by midyear this year. Any detail on kind of the curtailment or operating rate would be helpful.

John Haudrich: Yeah. Let me step back and talk about As you recall back in 2024, we had about 13% of underutilized capacity, and that is what drove our program to eliminate the capacity, which we have been working on You know, that 13% in 2024 dropped to about 6% in 2000 and, '25, primarily as we made progress on The Americas. Took us a little bit longer in Europe giving you know, 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. We are we also have efforts to kinda reduce some inventories, as I mentioned.

And that also that extra, you know, you know, downtime actually provides 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 are getting into the into the short strokes there.

Bryan Burgmeier: Got it. Thanks for that detail. That makes a lot of sense. Then last question for me. You know, you mentioned the pre buy impact from tariffs. And maybe just as we start to closer to 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 is maybe still not the full clarity some customers are looking for, but not sure if it has been stabilizing throughout the year. Thanks. I will turn it over.

Gordon Hardie: Yeah. I would I we are seeing some stabilization, and, certainly, it is it is there is more certainty here than a year ago. And then we are we are seeing other sort of geopolitical moves, you know, which we would say you know, The UK, which is a an important source market, obviously, for Scotch. You Know, Opening Up, You Know, Agreements With India and with China. And depending on how quickly they come to come to action, then that is that creates sort of opportunities for the Scotch Industry To Export More To India and China. And that obviously, you know, then has an impact on us. Same thing with French spirits, you know, in into China.

Particularly cognac. And the higher end wines and things like champagne. So those things help for sure. They were not on the radar. This time last year. They are now. And at least we you know, we are working with you know, the certainty of the system that is there at the moment. So I think the big challenge in The US market is to increase consumer offtake and to drive down the inventories that are in the system. We are seeing, you know, customers make moves to, you know, change in marketing strategies and increasing their spend behind that, increasing promotions. You know, to drive that.

So you know, I would say the outlook is certainly more stable, and I would say probably more positive than it was this year and last year with all the uncertainty.

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

Francisco Ruiz: Hi, good morning. Most of the questions have been answered, but I have I have I have two. 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 before the cut in supply would be in Europe. How you expect the volume to perform there?

Gordon Hardie: Yeah. So happy to do that, Ruiz. So what we are seeing in Europe is well, let me stand back. So in The Americas, we see capacity probably tighter and more aligned with demand and, you know, less sort of price pressure, I would say, in general across the markets. There are some pockets where that does not 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 have obviously, you know, taken, down what we feel is surplus to us. There has been some other capacity taken out across the markets.

But if you look at categories like wine in France and Spain, there is still a significant overcapacity, and there is price pressure in those categories in those markets. Also, you know, in sort of mainstream lower kind of beer, where we are seeing some, some capacity come on. But it is certainly has tightened up significantly year on year. Okay? And I would say, you know, pricing has firmed up whereas last year, you are probably looking at a situation of more over and therefore more pressure on pricing. So again, I would see the situation has improved year on year.

Obviously, you know, our focus is on what we control and, you know, we are taking, you know, the actions we have outlined, which should all be completed at the latest, by the half year. And that would make our network, you know, you know, pretty, pretty, pretty tight.

John Haudrich: I would add, you know, if you take a look at the trajectory of kinda net price performance, 2024 was a kind of a reset year. 2025 was significantly better, and then we expect 2026 to be better than 2025 even though we are seeing a little bit of still net price pressure. So it is gradably getting better and normalizing.

Gordon Hardie: Yeah. And, you know, 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 know, you can you can get to take actions in The Americas that are at a much swifter rate than in Europe, as you well know. But we have worked through that process, you know, diligently in a disciplined manner. And we are we are well down the path. To executing, you know, on the kind of actions that, that drove the uplifts in America with or the Americans we will see those coming through now in Europe, in 2026. Okay. Thank you very much.

My second question is from 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. And now given the high cost of the of the raw material of the aluminum, it is making this way alone. I mean, mean, there are there are more opportunities for big companies to move that way. Are you seeing this driver already this year, or is it something that is still pending to be seen?

Gordon Hardie: Yeah. Look. We, certainly in the categories in which we operate, we have seen a very big slowdown, particularly in North America of that switch. And, you know, if I take a look at the price cap, which I think we outlined about 35%, at IDE, That is certainly, you know, with the movement in aluminum on paper anyway, to you know, you know, 10, 12% mark. And historically, you know, when it is been around that level, you see a shift over time, from cans to glass. Right? However, we are still focused on driving our own internal opportunities to reduce costs, and we are not going to stop there. But, yes, absolutely, it helps.

You know, there is can growth in Europe, but it tends to be in the categories where, you know, where glass is not either not highly represented or it is not fit for purpose for a specific channel. Right? And there is there is 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 cannot use glass, like concerts and beaches and stuff like that. But, you know, where in terms of cost gaps to, to cans in Europe, you know, we are we are in a very good position as well. So, so yeah.

So let us see what plays out this year, in terms of drafts to cans. But, again, certainly in a much better position than we were this time last year in that regard.

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

Richard Carlson: Good morning, guys. I am standing in for Gabe Hajde today. Most of my questions have been answered, but I did wanna ask. So inventory was up looks like, $20 million quarter over quarter. We normally would have expected it to be, but down by about that much. So call it about a $40, $50 million delta there. You actually were tracking ahead of your free cash flow guidance earlier in the quarter? It seems like maybe a surprise with some of the volume in Americas might have been to blame there.

And then, I guess, if so, does this set you up a little better to start 2026 since maybe some of the inventory build into Q1 is already done?

John Haudrich: Yeah. One thing I would say is when you take a look at those balance sheet numbers, there is 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, you know, we ended in 2024 at 57 IDS. 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 that fifty days of IDS plus additional progress on non finished good inventories, things like raw materials and machine parts, spare parts and things like that, that also can contribute some upside opportunities to cash as we go forward.

Richard Carlson: Understood. That is helpful. And then and, John, also, your quarterly cadence guidance is reflecting pretty well balanced h one versus h two. I think based on some of the volume comments you made, I would have been surprised. And also, based on some of your peer commentary about, you know, 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?

John Haudrich: I think it is more of a potential upside. I mean, there is a lot of variables out there. You know, obviously, if we are talking about flat to slightly down volumes, there is not a lot of those event specific things considered into the into the guidance right now. As we take a look at the, you know, the reconciliations and things like that, you know, 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 a 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, you know, 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 are trying to be practical on our outlooks right now, and that includes the sales volumes at flat to down.

Richard Carlson: Thanks, guys, and, best of luck in Q1.

John Haudrich: Thank you.

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

Christopher Manuel: 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.

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

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