Owens-Illinois, Inc. Stock

Thank you for standing by. My name is Jesse, and I will be your conference moderator today. At this time, I would like to welcome everyone to the O-I Glass Third Quarter 2026 Earnings Conference Call. [Operator Instructions]

I would now like to turn the call over to Chris Manuel, Vice President of Investor Relations. Please go ahead.

Thank you, Jesse. Good morning, everyone, and welcome to O-I Glass Third Quarter 2026 Conference Call. Joining me today are Gordon Hardie, our CEO; and John Haudrich, our CFO.

Following prepared remarks, we will open the line for questions. Our earnings release and presentation are available on the company's website. Please review the safe harbor comments and disclosures regarding use of our non-GAAP financial measures included in those materials. Today's remarks include forward-looking statements, and actual results may differ materially from current expectations.

With that, I'll turn the call over to Gordon, who will start on Slide 3.

Thank you, Chris. Good morning, everyone. Today, we will review our third quarter results, update our 2026 outlook and share an initial view of the key business drivers for 2027.

Before I begin, I want to thank all our O-I colleagues for their focus and commitment. Our teams acted with urgency to navigate a difficult environment, particularly in Europe, while continuing to serve customers across challenging markets.

Our third quarter results reflected 3 key trends. Net sales were stable and year-over-year shipments continue to improve. Adjusted EBITDA declined from last year. Results were stable in the Americas, but significantly lower in Europe, where higher-than-anticipated energy and freight costs drove performance below our expectations entering the quarter. Adjusted EPS was down, reflecting lower operating margins and an unusually high tax rate.

Europe remains our largest opportunity to improve financial performance, but progress has been slower than expected. These results are unacceptable, and we are acting with urgency to address the issues weighing on earnings. As I will discuss shortly, we have sharpened our focus on our 4 priorities to restore European margins to competitive levels.

In the Americas, our team delivered another solid quarter, demonstrating the impact of disciplined execution, Fit to Win and close collaboration with customers. This performance also reflects the broader impact of Fit to Win, which continues to strengthen our cost base and has delivered $135 million of year-to-date benefits.

At the same time, energy, freight and demand headwinds require us to update our 2026 guidance. While these pressures weigh on the near-term outlook, demand trends are gradually improving and actions underway should position us for improved adjusted earnings, cash flow and profitability in 2027.

Against this backdrop, our priorities are clear: execute the Europe recovery plan, sustain momentum in the Americas and capture the remaining Fit to Win opportunity to strengthen performance and grow the value of O-I.

Let's now turn to Slide 4 and discuss the top line. As noted, net sales were relatively stable at approximately $1.6 billion as favorable currency translation largely offset modest declines in selling prices and volume. While demand remains sluggish and uneven across markets and categories, year-over-year shipment comparisons continue to improve sequentially as shown on the chart. Third quarter volumes declined approximately 2% from the prior year.

In the Americas, shipments were down approximately 1%, reflecting the earthquake in the Andean region and the onset of the U.S.-Canada trade dispute. Overall, solid growth in Latin America largely offset lower demand in North America.

In Europe, shipments declined just under 4%. Demand increased in the U.K. and remained stable in Northern Europe, while Southern Europe remained under pressure, particularly in wine-related markets.

For the fourth quarter, we expect enterprise shipments to range from flat to up low single digits, supported by new business wins and easier prior year comparisons. For the full year, we expect sales volume to decline 3% to 4% from 2025. Looking ahead, we expect gradual sequential improvement to continue, supported by new business wins representing approximately 4% of annual sales volume.

Now let's turn to Slide 5. Fit to Win remains central to our strategy and continues to strengthen our competitive position as demonstrated by our new business wins. This program delivered approximately $50 million of benefits in the third quarter, bringing the year-to-date total of $135 million and cumulative benefits of $460 million since inception. The actions previously identified under Phase A are substantially complete.

We also recently initiated a process with employee representatives regarding the proposed permanent closure of an additional European plant. Going forward, our focus is shifting to Phase B execution, including total organization effectiveness, procurement, energy and supply chain optimization.

The Americas demonstrate how Fit to Win can strengthen competitiveness and resilience when paired with consistent execution even in a challenging macro environment. Europe is earlier in that progression. We intend to build on initial gains in plant efficiency and establish a stronger foundation for future benefits.

We now expect $180 million of net benefits this year, reflecting the time required to address supply chain challenges in Europe. The deferred benefits will shift into next year, and we continue to target at least $650 million of cumulative Fit to Win benefits by the end of 2027. The remaining opportunity is substantial, particularly in Europe, where successful execution of the recovery plan should strengthen operating stability and contribute to higher adjusted earnings and free cash flow. I will return to this shortly.

With that, I'll turn the call over to John on Slide 6.

Thanks, Gordon, and good morning, everyone. Net sales were generally stable, but adjusted results declined from $0.48 per share of profit in the prior year to a loss of $0.09 per share. Lower net price was the primary headwind. Average selling prices declined just under 1% overall as improvement in the Americas was more than offset by declines in Europe. Cost inflation also remained elevated, particularly for energy in Europe, reflecting the onetime reset discussed previously and additional inflation related to the Middle East conflict.

The impact of slightly lower sales volume was offset by favorable operating costs as Fit to Win benefits more than offset higher delivery and maintenance costs, lower joint venture performance and other onetime items. As in the prior quarter, adjusted earnings also reflected an unusually high tax rate, primarily due to lower earnings in Europe.

Turning to the balance sheet. Net leverage increased modestly due to lower earnings. We continue to maintain ample headroom under our senior secured leverage covenant and liquidity remains strong at $1.5 billion.

Let's turn to Slide 7 and review segment performance. As shown on the left, enterprise adjusted EBITDA and segment profit declined year-over-year. Performance continued to differ sharply by segment with solid results in the Americas and continued pressure in Europe.

In the Americas, net sales increased more than 3% from the prior year period to $970 million. A volume decline of approximately 1% was more than offset by a selling price increase of just over 1.5% and favorable currency translation. Segment operating profit declined approximately 2% to $137 million. Favorable operating costs and currency translation largely offset slightly lower volume and net price. The year-over-year comparison did include a $6 million onetime insurance recovery in the prior year that did not repeat.

In Europe, net sales were $634 million, down approximately 8% from the prior year period. Selling prices and sales volume each declined nearly 4% and currency translation was also unfavorable. Europe's earnings remained under significant pressure. Segment operating profit was $2 million compared to $95 million in the prior year period. Unfavorable net price was the largest driver, reflecting competitive pricing pressure. Elevated energy and freight costs were approximately $15 million above our expectations for the quarter. Lower volume was also a modest headwind, while operating costs benefited from greater plant efficiency following post-restructuring disruption in the first half.

Now let's turn to Page 8. We are updating our 2026 outlook and providing an initial view of the key levers and business drivers for 2027. As shown on the left, we now expect 2026 adjusted EBITDA of $925 million to $950 million and free cash flow usage of approximately $300 million. We expect year-end leverage ratio will range from 4.5x to 5x.

The revised earnings outlook reflects lower sales volume, including the estimated impact of the U.S.-Canada trade dispute, higher energy and freight costs and lower Fit to Win benefits, primarily due to the slower pace of Europe's recovery. Importantly, we have secured coverage for 100% of our fourth quarter European natural gas needs. Barring extreme price spikes or supply disruption, this coverage should significantly limit further changes in direct gas costs for the remainder of the year. In addition to lower operating income, free cash flow will be affected by higher inventories resulting from softer sales and cash used to strengthen our 2027 energy risk management position.

We expect 2026 results in the Americas will be nearly 50% above 2024 levels, driven by record performance in Latin America. However, earnings in Europe will likely remain under pressure through the first quarter of 2027 due to peak energy inflation and normal seasonality. We believe this outlook appropriately reflects current operating conditions and our expectations for the remainder of the year.

Turning to the right side of the slide, our initial view of 2027 calls for higher net sales and adjusted EBITDA, significantly improved free cash flow and lower net leverage. Although it is still early, we expect net price to improve through commercial actions, including commercial PAFs and procurement initiatives.

We have covered more than 90% of our forecasted European natural gas needs for 2027, including 100% for the first quarter. Barring extreme market conditions or supply disruptions, this coverage should significantly reduce our exposure to gas price volatility. Although coverage will increase costs compared to 2026, our average prices remain well below the current TTF forward curve, and we retain flexibility to benefit if market prices decline.

We expect stable sales volume with new business wins offsetting sluggish demand. Demand will likely remain subdued until affordability pressures ease. Operating costs should improve, supported by at least $170 million of Fit to Win benefits. This would enable us to meet or exceed our 3-year target of $650 million. The chart provides additional details. These are our current planning assumptions. We intend to provide 2027 guidance at our next earnings call.

Now I'll turn it back to Gordon on Slide 9.

Thanks, John. Europe remains our key focus and largest opportunity for value creation. The segment has significantly underperformed our expectations this year. Commercial pressures and elevated energy and freight costs created a difficult backdrop, while internal supply chain challenges amplified the impact.

Our recovery plan focuses on 4 priorities within our control: strengthen commercial performance to improve net price, improve energy procurement, risk management and usage, drive profitable volume growth by strengthening competitiveness and deliver greater end-to-end supply chain productivity and performance.

We advanced each priority during the third quarter. As noted earlier, we expanded our 2027 European energy coverage at rates favorable to current market prices and secured new business wins representing 4% of annual sales volume. We also improved plant pack to pull by 1% and identified significant additional opportunities to strengthen logistics performance. Our focus now is to translate this progress into stronger financial results.

We expect these actions to deliver meaningful improvement and ultimately restore margins. We will continue to track and report our progress with more detail to come when we provide our 2027 guidance on our next earnings call.

Let's now move to Slide 10. Before we close, I want to connect the near-term actions discussed today with our broader value creation opportunity. Our first priority is to improve materially business performance by executing Europe's recovery plan and capturing the remaining Fit to Win opportunity. Beyond that, we continue to pursue profitable growth opportunities that strengthen capacity utilization and earnings power across the portfolio. Finally, we are evaluating opportunities to create long-term shareholder value by optimizing our portfolio, strengthening our position in the value chain and expanding our strategic flexibility. Our near-term focus remains firmly on execution while we continue to advance initiatives that create value over the longer term.

With that perspective, let's now turn to Slide 11 for concluding remarks. The Americas delivered another solid quarter, demonstrating the power of disciplined Fit to Win execution. Our immediate priorities are to execute Europe and the recovery plan, sustain momentum in the Americas and capture the remaining Fit to Win opportunity. Demand trends are gradually improving, and we expect shipments to be stable to modestly higher in the fourth quarter. While our revised 2026 outlook reflects incremental pressure, we expect stronger earnings and cash flow in 2027.

Thank you for your time. We will now take your questions.

[Operator Instructions] Your first question comes from the line of Ghansham Panjabi with Baird.

This is actually Josh Vesely on for Ghansham. Maybe if we could just dig into the recovery plan in Europe a little bit and maybe specifically on the commercial performance aspect of it. I'm just curious if you could give us some specifics on how the commercial execution at O-I has underperformed over the last few years relative to your expectations, kind of what needs to be done to address these issues and how O-I expects to kind of target those going forward?

Sure. Let me take that, Josh. So as I outlined in previous earnings calls, we have reconfigured or reorganized how we're going to market in each market in Europe. So how we structure the sales force behind the different categories, different groups of customers and also how that sales force is managed on a daily, weekly, monthly basis. And we're starting to see that come through in terms of forward visibility, where the leakages on performance or price, for example. So we've made a lot of progress in this quarter tightening up and executing the system that we had envisaged.

There's no doubt that there's opportunity for us to execute commercially more effectively to negotiate our PAFs in a way that capture the cost in a more timely fashion. We have a number of PAFs that are annualized, which means you don't pick them up until the following year, and that's something we're looking at addressing, given the excessive cost and inflation environment that's out there.

We've also brought in some new talent, and we've structured the teams in a way that there's much more focus on commercial improvement. And we see that coming through in a number of wins, both in Europe and also in the Americas. And those wins are now totaling up to 4% of our annual volume.

If I give you some detail, for example, where we're most ahead in Europe, for example, in our Northern region, our beer sales were up almost 4.5% in the quarter, while the beer category, we estimate in that region was probably flat. So we outperformed. Our food business in that Northern region was up 36% -- I beg your pardon, up 9%. So we're seeing the benefits of both the stability of the supply chain platform, coupled with the improved commercial execution, pay dividends.

Now the Northern region is where we're furthest ahead on that. We still have work to do in the Southern regions. So we're -- as I said, it's a major area of focus for us, and we see improvements coming through, and we see it coming through in the business wins, Josh.

Great. That's awesome, Gordon. Yeah, and maybe just another one and sticking on Europe here. I just wanted to quickly ask on the competitive intensity in the region. And obviously, that's been a call out for the broader industry this year. Just maybe kind of what are you seeing now if it's kind of troughing, if it's getting worse? And how do you think about that dynamic into 2027, just given what's going on from a geopolitical point of view and consumers just continuing to stress from affordability issues?

Are you talking across the entire fleet or just Europe, Josh?

I was talking specifically about Europe, but both would be great.

Yeah. Okay. So yes, in Europe, as we came into this year, we estimated that the industry capacity utilization was in the low 90s, and in fact, in wine, probably in the high 80s. So quite a significant amount of spare capacity. That drove competitive intensity and impacted pricing, I think, as the year rolled through and the ability to recapture some of the excessive inflation that's been there due to the energy spike.

As we've moved through the year, we've obviously resized and reshaped our own network. And from what we hear and from what we see on other announcements, as we move through the end of the year and into next year, we see the capacity utilization probably pulsing up to mid-90s, maybe a little higher. However, there is still significant overcapacity in wine in Southern Europe, and that continues to drive competitive intensity in that region.

We've driven a lot of productivity to cover a lot of the costs. But I think as we look forward, it's going to be important that we pull all the commercial levers at our disposal, PAFs, procurement initiatives and so on to recover what is excessive cost increases this year.

If we look to the Americas, capacity is tight throughout Latin America, maybe, I would say, touching in the mid- to high 90s. If I look at Central America and particularly Mexico, probably mid-90s. And then in North America, capacities are pretty tight. So that's kind of a capacity overview, but happy to take any follow-on on that.

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

So I want to peer a bit more into '27, if possible. And if you can, even though you don't have a '27 target currently, could you give us at least directionally which way the target would have gone relative to what you previously had? And what the -- we have Fit to Win what you're looking for, I guess, the $180 million, but what the other buckets look like, such that you're still looking to an up year in EBITDA. The related question, you talk about being hedged right now on energy in Europe, and that's terrific. Can you give us some way of dimensionalizing what the cost increase is, '26 to '27, on energy based on your hedge position?

Yes, George, this is John. I will start with that -- those questions. So we take a look at 2027. Obviously, we had a target out there before, and we pulled that for now and going to replace it with year-end guidance in the next call as we indicated. The key challenge is that the base for 2026 has softened, right? And so instead of believing that -- before it was about $1 billion, we're looking at the $925 million to $950 million. So that made those previous targets particularly challenging in that regard. And so the first piece there is the base is softer by that, call it, $50 million to $75 million, and that's a challenge.

So now if we look at the various different pieces of the pie, and I'm looking at Page 8 here, and just thinking first on -- more focusing on the EBITDA, we do indicate net price is going to be up. That's the hardest one to get a particular beat on. We understand our inflationary view right now. But of course, with most -- 2/3 of our business being open market, it's harder to get a read on that. Of course, as we indicated, we expect positive net price against an inflation environment that is clearly going to be still elevated, but not what we experienced this last year, right? So we were coming off of a crest of cost inflation, we're behind a big bubble of cost inflation. And we believe that, that cost inflation environment peaks, especially on the energy side in the first quarter then starts to comp and move in the right direction.

And I'll touch base on your other one here in a moment. But then you have the stable net sales. You have about $170 million or more of Fit to Win benefits. We do believe that there will be some cost offsets to that, other cats and dogs we're working through like maintenance and things like that, that we're still refining through the budgeting process. But those are the big pieces, the big open element, obviously, being the commercial element, as you know, it's in front of us at this point in time.

When it comes to -- on the energy side, we have revamped our energy management practices, okay? As you know, we benefited from a 5-year contract, very favorable rates that expired at the end of 2025, then we kind of have a bit of a mark-to-market this year, a big bubble there. Now we take a 5-year approach instead of a 3-year approach on energy management. And in the past, where we would look to be substantially hedged going into the next year, for example, we look to be 100% covered on a rolling 12-month basis. And then obviously, it stair-steps down as you look into the future. So we're trying to take that approach to minimize the volatility that we see.

And we also use various tools that allow us to either have, for example, traditional fixed forwards, but other tools that kind of act like caps and collars where you can be protected within a range or a cap, but allow you to benefit if prices come down off peak levels. So as I indicated, the rates at which we have right now are definitely favorable to the forward curve that you see in the TTF right out there.

George, I can't give you specifics on this because it's a competitive element going into the next year. But we believe our energy cost inflation will have crested and then we will be getting back into what we believe would be very competitive and relative to the marketplace of energy costs going forward.

Okay. John, just one follow-on there. Just since so much rides on, and we understand we've covered the industry a long time, on the pricing and the commercial development from November through February, what gives you the confidence that you'll be up next year in total, given how significant it is?

Yes. I'll just build on the comment that Gordon said is if you compare last year's market conditions and the pricing environment at that time relative to what we believe is shaping up, last year, we had low capacity utilization. And obviously, we internally had some struggles with some of the execution elements that was talked about earlier.

Going forward here, we believe the utilization levels and the backdrop of supply-demand is a lot more -- is a lot better, and given the level of inflation that we've seen, we have mechanisms through the PAFs, at least it covers part of our business that pass that along on arrears, right? We're going to work on those, but they do recapture on the back end.

And then there's just a lot of pressure in the marketplace with the energy. And there's no reason that we, O-I, should sit on those energy costs. It should be shared within the supply chain, and that's what we're looking to accomplish.

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

This is Bryan Burgmeier on for Anthony. Just in the press release, you pointed to free cash flow being up in '27 relative to '26. So I was just wondering if you can try to put a finer point on that. Just curious if you expect positive free cash flow next year? And if you can maybe try to size some of the impact from things like cash restructuring costs or you said cash to secure your energy position, working capital, anything like that?

Yes, sure. Thanks for the question. So yes, we intend to drive to positive free cash flow next year. Obviously, we are looking at the major drivers of the business, we are looking for higher EBITDA. We can't quantify that just yet because of the last discussion we had on the commercial aspect of the business, but we're looking to drive the various different levers of the EBITDA in the right direction. CapEx should be a little bit lower. We got $400 million there, and we intend to be very, very conscious and with a lot of capital discipline. We want to make sure that we're maintaining our operations, but we want to be lean on the capital side.

We are looking at lower restructuring costs. The restructuring costs are going to be north of $150 million -- close to $160 million this year. A normal year for us is $25 million to $50 million, but we did include it in the announcement, we did indicate that we are looking to -- we're working through the process of another furnace closure, and there would be some additional cash being built on top of that, but significantly down on a year-on-year basis.

One of the challenges we have in the back half of this year with the sales volume being softer in the back half than anticipated is the inventories are higher than we anticipated. So that has been an element working against us on cash flow next year. We'll look to address that in next year to be able to get to a neutral positive working capital. But we're still working through all those details. Those are the biggest moving pieces right now.

Got it. Got it. And just one follow-up. I appreciate the headwinds you cited around the earthquake in South America, North American trade dispute. Just curious if there's any impact in France from some of the social unrest in the country. Broadly, it maybe seems like European demand wasn't too far off from what you were expecting, but any details there would be great.

Yes. And with regard to the Americas, despite those headwinds in the Andean, for example, and the energy issue in the Andean, that business performed very strongly with nonalcoholic beverages up about 18% and beer up about 11% and I think demonstrating the power of execution around Fit to Win and working closely with the customer across the chain.

And likewise, in Brazil, we had a standout performance where beer was up nearly 30% for us, about 3x the market growth. And our NAB nonalcoholic beverages was up about 18%, where the market we estimate was up about 12%. So again, I think we're demonstrating the power of Fit to Win when it's properly executed despite tough macro environment.

With regard to France, a lot of our reorganization this year was in that region, and it proved more difficult than we had planned. Anything like social unrest, while it's not good for society in general, it also makes doing business tougher, and it also impacts consumer sentiment. So I would say, overall, it's a negative, but hopefully, we'll get through it and things will settle.

But yes, it's not a positive, obviously, very hard to quantify, and it depends how long it goes on. But our job is to overcome that. And we are very focused with a lot of our best resources focused on Europe to improve the results there, which I said are unacceptable to us.

I can build on a few specifics here. If you take a look at our outlook, we did adjust the commercial outlook for the business. We did incorporate about a $10 million impact on the tariff element between the U.S. and Canada. We have about 2% of our volume move across the border. And so who knows how long that will endure, but that's probably the impact from a little bit in the third quarter to the fourth quarter of the year.

I did check that we do not have any operational impact as a result of the France upset. But we have tapped down, as Gordon said, the commercial outlook for the business because of factors like the tariffs and also the social unrest.

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

I guess maybe I could try the '27 initial framework again. So it sounds like you have a little bit more than $170 million coming from Fit to Win, and you've kind of framed out positive net price and stable volume. I guess what's kind of getting you to that stable volume outlook? Because it seems like there's continued pressure from inflation. I think China is also consuming less wine and maybe spirits as well. There's some headwinds there as well as potentially some headwinds in Latin America.

Maybe you can just kind of frame that out a little bit for us. So do you expect kind of that to offset most of the $170 million of Fit to Win benefits? Or would you still expect to be up next year? And if you could put a finer point on price as well because you've been giving back price now for a couple of years. So that'd help out, too.

Yes, sure. So on the stable sales volume, our base case, to your point, is that you're probably looking at a softer, probably core negative demand a little bit. But as -- back to what Gordon spoke to on the call, we got about 4% of new sales volume that we've landed through working through the pipeline. So at this point in time, we believe that the benefit of those new wins will essentially offset probably the core soft consumer. And even in our prepared remarks, I indicated until the affordability issues change, that you're alluding to, you're probably looking at core softer demand.

But overall, we think that, that sales volume is kind of a neutral on a year-over-year basis. So I don't think that there's something necessarily working against it. And of course, we continue to fine-tune this through the year and when we give guidance.

On the net price, to your point, yes, if you look over the last several years, there was a period of significant price increases in glass in Europe, in particular. And then there's been some adjustments to that over the last few years. That was kind of a super cycle moving through the beginning of the Ukraine war and the energy at that time and then normalization. So that's probably played its course. But now we have another bubble of cost inflation. And as we've experienced this year and as you know, and we talked about a little earlier here, we recover our costs on arrears through other mechanisms and stuff like that.

So that's the process that we're working through. This is a historic process that we go through. And with an improving backdrop of supply and demand, we feel confident that, that will drive into a positive net price environment, and we'll get more specific here.

Yes. And Arun, just to build on that. With regard to Europe, we missed significant sales this year due to our supply chain issues as we reconfigured the network. We obviously don't expect those to occur again. That coupled with our Fit to Win improvements in the European plants and improving the stability and the productivity and the capacity of the plants. And thirdly, as I said, the execution of a much more disciplined sales force in the market plus the wins, as John outlined, give us confidence that we can deliver on that kind of volume number.

With regard to the Americas, our business in Brazil continues to power ahead. We're actually going to bring on a new furnace this year, the capacity of which is -- when I say this year, we're going into 2027, correct that. And most of that volume, we believe, has a home already. And we continue to see our Brazilian business execute strongly in beer, in NAB. We expect some upside in spirits as well.

Likewise, in the Andean region, the market overall is growing at about 7% for beer. We've consistently outperformed that market, and we see no reason why we can't do that in 2027. And also from a couple of years' decline in Mexico due to export tariffs of beer into the U.S. and tequila into the U.S., we've turned that business around and are now growing volumes, both domestically and in export, and we expect that to continue.

With regard to North America, while our financial performance was solid there, our volume was impacted by the tariffs, as John alluded to, but we also had 2 significant furnace rebuilds that we don't expect to happen next year. And there's no doubt that during that process, we lost volume there, and we don't expect that to occur, plus the reshaping of the customer mix and weighting our portfolio more towards winning customers, I think, is going to help us in North America.

That business is executing very well, but has some external headwinds that we feel may soften certainly on the supply chain side for us next year. So you put all that together, that gives us a solid footing to deliver on the volume numbers that John mentioned.

Great. And just as a follow-up, I think you mentioned something like 85% to 90% utilization rates. I don't know if that's -- maybe you can just elaborate. It would seem like, with the energy pressures and the volume declines, that the industry would be in a position where it would need to maybe shut down some capacity. Would you agree with that, especially just given this most recent bout of inflation and volume performance? Maybe just give us your assessment on where global supply-demand stands.

Yes, Arun, I'll clarify on that point. So we believe that Europe, based upon the information that we have, is in the mid-90s, not mid-80s. So for clarity, we believe the utilization rate has definitely improved. We entered the year more like 90-ish. And then through a number of the actions we did and what we understand is going across the marketplace, it has improved.

And to your point, we included in our announcement that we are working to do a closure on one additional furnace over in Europe. That factors into our position. We believe our system is in the mid- to upper 90s. So we're working to improve the utilization rates within our system in Europe.

In the Americas, we're in the very high 90s. We're basically 100% in Latin America and in the very, very high 90s over North America, too. So we believe that our system is getting in a pretty good shape. Of course, we always look at supply and demand and what's going on in the marketplace to assess other decisions. But we've done a lot of work over the last 2 years, and the network is looking pretty clean.

Your next question comes from the line of Francisco Ruiz with BNP Paribas.

I have 2 questions, if I may. So the first one is on the pricing for next year. I mean, taking into account that you have much higher visibility right now on your cost base and you are guiding for net pricing, which is flat or increasing in 2027, what would be the price level that you need in order to offset this inflation?

Yes. I would just say, for competitive purposes, we can't go there. So that's all in front of us. But when we do our guidance at the next quarter, we'll be in the midst of all the activity, and we'll be able to provide the specific guidance.

Okay. The second question is on the restructuring plan in Europe. I mean I don't know, correct me if I'm wrong, but it looks like a Fit to Win 2 in my opinion. And why do you think that this is going to work? And don't you think that there is something underlying on the asset base in Europe that make it more difficult to expand the profitability of the business contrary to what happened in North America?

Yes. So, a couple of things. I mean, Paco, as you know, it takes longer to get to an agreed plan for any sort of significant change in Europe. You can execute that a lot faster in the Americas. And so when we announced the plan, between announcing it and executing it, it was the [ guts ] of 15 months, by which time the actual environment had changed and particularly the supply chain environment has changed.

And so when we executed and we shut facilities and we moved certain portions of volume into new facilities, that required a rewiring of supply chain, freight lines, customer reconfiguration and so on. And a lot of the businesses that we work within that area also experienced fairly explosive energy inflation, and that drove pricing. Some of the freight capacity that we would have envisaged to help us in that reconfiguration actually left the market. And so there was actually a supply chain squeeze, if I can put it that way.

But not walking away from our own accountability there, we didn't execute that as effectively as we could have. We understand at a very granular level what the root causes are, and we bunched that into 4 areas of focus as we outlined. And we are now just ruthlessly focused on executing that.

I can say this is a European -- Europe isn't a mystery. A lot of the same rules of execution apply at the end of the day. And we've upgraded the team. We've upgraded the resources. We know what to do. We have a rigorous plan, and that plan is reviewed weekly and sometimes daily to drive that execution.

We know how to execute things across the business. We're demonstrating that in the Americas, where we've driven a 50% increase in profitability in the last few years. And businesses like Brazil that had been faltering are actually now leading the market on [ foot ] of the Fit to Win disciplines and the TOE discipline. So we will get it right. We're committed to getting it right. And it just hasn't come as fast this year, given all of the market volatility. So that's how we think about that, Paco.

One thing I would add there is because of the disruption that we had from the post-restructuring in Europe, we actually put on hold some of our Fit to Win-related initiatives, whether it's plant efficiency, procurement initiatives, things like that. The last thing we wanted to do was layer on another thing on the plants while they're trying to unravel some of the supply chain challenges.

So -- and we included in our comments, we've deferred some of these projects, and that's why you see some of it shifting into next year. So we're not changing our objectives. In fact, some of these we haven't even launched. So it's a timing and sequencing with the extra disruption that we've had for the time being.

Yes. And to give you kind of a detail on that, like 7 of our highest opportunity plants in Europe haven't gone through Fit to Win or TOE yet, okay? So that's all to come in Europe. So we know there's much more earnings power in this business. We have a clear plan. We're executing that plan, and we commit to update on those 4 levers that we've outlined in the setup here this evening to -- or this morning to the market as we go forward on each earnings call.

Can I make another question, which is, how worried you are about the current leverage of the company? And are you thinking on different initiatives apart from or beyond the organic deleveraging that you are guiding for 2027 to reduce the debt?

Yes, sure. I mean -- so Paco, thanks for the question. Yes, obviously, the leverage is getting higher. Our overall objective doesn't change. We believe that the business should be around 2.5x leverage. And at 4.5x leverage, we are clearly outside of that range. Keep in mind, we believe that the factors that are driving that higher leverage are somewhat temporary in nature, not necessarily structural. And while it might take us a little bit longer to be able to right the ship and improve the core performance and restore the profitability in Europe, that's exactly the plan that we're trying to do to get us back into something that naturally delevers the organization.

The good news is we've got plenty of room on our covenants. We've got great liquidity in the business. We intend to be opportunistic on dealing with any near-term maturities and things like that to make sure that we have good runway in the business. And as we indicated in our strategy, our strategy is Fit to Win, then profitable growth. Then Horizon 3 is to look at strategic optionality and what can we do looking at what's the right portfolio with the right balance sheet for the company going forward.

And so all of that is work. It was always intended to be the work of the business, and it's still on the table as we look going forward. Of course, we have to include all the variables of the business, such as the balance sheet, where we're at, and what we think are our projections to be able to naturally delever against other alternatives.

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

Gordon, realizing that market forces worked against you to some degree during the quarter and really for the large part of the year, can you just provide some more color on what you're doing internally to improve results or better manage expectations or uncertainty? I mean you mentioned you're upgrading the European team, upgrading resources. But any more color about what's actually being done internally to improve results and how you intend to manage expectations, Street expectations, investor expectations, relative to what you're looking to accomplish?

Yes. So I think it's contained really in the deck, and we alluded to it already. I mean the first thing we are focused on doing is strengthening the commercial performance, right? We're well ahead in the Americas on that, okay, where we still have opportunities to deliver on that in Europe. So that's first and foremost is turning the competitiveness into -- or have the competitiveness executed by the commercial teams in the market. So that's the #1 priority.

Two is energy management. It's a huge cost to our business. We've said before, it's about 20% of our cost. We were probably undercooked in terms of how we manage that. And we now break that down into 3 buckets. One is procurement. So working more effectively with probably a wider range of suppliers that can bring different offerings to us.

Two, risk management. So a much better grasp on forward curves, how they operate, seeing where the opportunities are to manage risk and costs more effectively. And we have upgraded the resources, both internal and external that are helping us do that. And we're already seeing improvements in how we manage energy.

The third element of energy is usage. Coming into the business, it struck me that there wasn't enough focus on and understanding where the energy leakages was. We now have software and by the end of the year, it will be in every single plant. where we can see energy in real time. We have a dedicated energy management team that look at energy every week and work with the plants and provide resources to improve energy.

The third one is turning the emerging competitiveness into profitable growth. And we really are demonstrating that in the Americas. We've had very, very significant wins of new business that is starting to flow in the second half and will flow through next year, currently equating to 4% and a significant pipeline ahead of us yet to convert.

And finally, there's no doubt our supply chain in Europe and our supply chain capability in Europe was undercooked. And it was found out in -- when our restructure met at very intense energy-disrupted and inflated supply chain cost environment. And we've reconfigured the team. We've brought in new resources. We have a much, much sharper focus and integration between ourselves, the plants and the customers.

And so you put those 4 things together, that -- and seeing how well we are already executing those in the Americas and the results coming through, it really is an execution focus for us in Europe. And I'm committed to that. I'm spending a lot of my time there as CEO. And there, it's no more difficult than that, Michael, to be honest. Yes.

The second part of your question, Michael. Did I miss the second part of your question?

Yes. Well, the second one, I guess, just following up -- I guess the follow-up would be, how central is Europe to your strategy overall? I realize it's been a decent business up until this year. But even in prior years, you guys have lagged your competition with respect to volumes, margins. Is there really a strategic benefit in having Europe? Is there just other synergy between Europe and other regions? And if not, why hold on to it?

Look, it's the largest profit pool for glass in the world. And if you want to be a central player in the glass industry, then I think you have to be in that market. And it's a market that will continue to grow. I think a lot of the macro trends, things like the microplastics and so on, sustainability and so on, favor glass. And it's a large market. It's over 22 million tonnes of glass.

The market has some challenges, but that's not a reason -- and we've had some challenges executing a refreshed strategy that we know is the right strategy. That's not a reason for us to leave that market. We have a clear path. We have a clear plan, and we believe that can be a very profitable, high-returning business for us as we look forward.

We're disappointed with the result. We own that result, and we have to fix it. And as CEO, I'm committed to doing that. So no, I think it's central to our platform, Michael.

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

It's Anojja Shah sitting in for Josh. I just want to go back to the 2027 EBITDA directional point that you're giving. If I think about the inventory levels this year, and I know you're pointing to stable volumes for next year, but could you still have a negative EBITDA impact from under-absorption as you continue to work down the inventories next year? Or do you expect production to match shipments after Q4?

Yes. So as we look at it right now, we entered 2026 at about 56 days IDS, this is an enterprise number, okay? I'm just using an enterprise number. We had expected, through the actions we were taking, through the restructuring, through growing the business, et cetera, that we would end up at about 50, 52 days. Unfortunately, with the softness in the back half of the year, we're going to end up at about 60 days, okay? So that's why you see that working capital change flushing through the outlook in the back half of the year.

As we go into next year, keep in mind, we have been restructuring over the course of the year with another one that we're talking about right now and a network that is in the mid- to high 90s on utilization rate. Assuming a stable background in the marketplace, that's an environment where we can continue to chip away at inventory. But we'll give specific information about that at year-end. You also have to understand where you're going to be at the end of the year, be able to understand where you're going to be able to be next year, all the things that go along with those types of planning activities.

But the idea is, over the long term, to continue to whittle down those inventories and drive favorable working capital. It would certainly be good to have a little bit of help in the marketplace to be able to do that, but we will continue to manage those levers.

Right. Okay. And then my other question, CapEx has been below depreciation this year and last year, and your guide of $400 million sort of implies the same for next year. And you've had a few furnace events this year. Are you worried about the risk of underinvestment generally? Or are you comfortable with this level of spend?

We need about $350 million of CapEx to maintain our operations on a regular basis, and that's what we spend. If you look in the last previous years, last year or so, we spent in the low 400s or so. But in some years, we were in the $600 million. We were building out capacity, given the signals that we saw earlier in the decade to grow the business. We are not making those investments anymore, right?

So we believe we're properly maintaining the business, and we are doing selective investments such as that furnace expansion in Latin America that Gordon referenced earlier. So at that point in time, I don't believe the asset events that we had have anything to do with the nature of the spend. You always have the question in -- of trying to understand what's going inside of a furnace that's 3,000 degrees. You can never completely get that down to a perfect science.

But at the end of the day, we believe that the spend is appropriate, and we're maintaining our assets.

Yes. Just to build on that, Anojja, as we go through the TOE program in the plants and focus on improving the pack-to-pull and the pack-to-melt and the pull rates, there's still latent capacity in the network that needs to be freed up or we will free up. And we're seeing that coming through, as I said, in the Americas, very strongly where we've executed TOE exceptionally well, and we've seen a release of capacity that we've been able to convert into new business and grow the earnings in those markets.

So we still feel there's -- between what John has said and the ability to extract more capacity out of the network as is, that we're well covered for the next couple of years.

There are no further questions at this time. I will now turn the call back over to Chris Manuel for closing remarks.

Thanks, Jesse. That concludes our call today. Two notes, our year-end call is scheduled for Wednesday, February 3, 2027. And with the transition to 23x5 trading, please note, our future earnings materials will be released morning of the call rather than evening before. And then in conclusion, remember to make it a memorable moment by choosing safe, sustainable glass. Thank you.

This concludes today's call. Thank you for attending. You may now disconnect.

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

Thank you, Gabby. Good morning, everyone, and welcome to the O-I Glass Second 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 press release and earnings materials are available on the company's website. Please review the safe harbor statements and disclosure regarding our use of non-GAAP financial measures included in those materials. Today's remarks do include forward-looking statements, and actual results may differ materially from our current expectations. With that, I'll turn the call over to Gordon, who will begin on Slide 3.

Thank you, Chris, and good morning, everyone. Today, we will review our second quarter results, discuss market conditions and provide an updated view of our 2026 outlook and 2027 targets. Before I begin, I want to thank our O-I colleagues around the world for their continued commitment and flexibility during a challenging operating period. Let me start with a straightforward assessment. We are clearly disappointed with our first half performance.

Europe has not delivered the expected results as outlined in our Investor Day framework. We own those results. We are taking decisive action. We also think it is important to distinguish between a strategy that is not working and one where value realization has been delayed. We will address that distinction throughout today's discussion. With that, let me turn to recent performance. Second quarter net sales were stable, while adjusted earnings were $0.09 per share compared to $0.53 per share last year. Performance varied significantly by region. Strong Americas results helped to offset substantially lower earnings in Europe, while an unusually high adjusted tax rate resulted in reduced results by $0.18 per share.

In the Americas, segment operating profit increased 22% year-over-year, which we believe demonstrates strong execution of our strategy and the resilience of the business even with one furnace event during the quarter. Europe was significantly below our expectations and prior year performance. We do not believe this is a structural issue with the business or our strategy. Rather, we believe the shortfall reflected 3 main factors: elevated competitive pressure affecting selling prices, higher energy costs related to Middle East conflict and unanticipated operational inefficiencies following restructuring across multiple EU plants, along with 2 furnace events. We believe these issues are largely transitional and should improve as market conditions recover, and we work through the remaining restructuring challenges.

We are currently troubleshooting with internal -- the internal team. Sorry, folks, we're just troubleshooting the speaker, give us one moment.

Gabby, do you have us now? Okay. Gabby, do you have us?

Yes, we have you.

Okay. Put us back onto the main line.

Doing that now.

Good morning, again, everybody. I'll now comment on recent performance. Second quarter net sales were stable, while adjusted earnings were $0.09 per share compared with $0.53 per share last year. Performance varied significantly by region. Strong Americas results helped offset substantially lower earnings in Europe, while an unusually high adjusted tax rate reduced results by $0.18 per share. In the Americas, segment operating profit increased 22% year-over-year, which we believe demonstrates strong execution of our strategy and the resilience of the business even with one furnace event during the quarter.

Europe was significantly below our expectations and prior year performance. We do not believe this is a structural issue with the business or our strategy. Rather, we believe the shortfall reflected 3 main factors: one, elevated competitive pressure affecting selling prices; two, higher energy costs related to the Middle East conflict; and three, unanticipated operational inefficiencies following restructuring across multiple EU plants, along with 2 furnace events. We believe these issues are largely transitional and should improve as market conditions recover, and we work through the remaining restructuring challenges.

Global demand was also softer than expected with shipments down approximately 4.5% year-over-year. However, trends improved through the quarter and June volumes were flat with last year. Operational disruptions also limited sales opportunities and accounted for about half of that decline. We believe Fit to Win remains a key driver of value creation. We have delivered significant savings year-to-date despite operational disruption and inefficiencies. In light of these near-term challenges, we have adjusted our 2026 Fit to Win target, while our 3-year target is now in line with our original expectations of $650 million. Given these factors, we have updated our 2026 guidance and recalibrated our 2027 targets from last year's Investor Day. Importantly, we believe firmly in our strategy. We are realigning the timing to achieve our goals, not changing the strategy.

Let's now discuss the top line on Slide 4. Net sales remained relatively stable in the quarter. Volume performance continued to reflect soft demand, although trends improved as the quarter progressed. As noted, global shipments declined approximately 4.5% year-on-year, while June volumes were flat with last year. Recovery has been difficult to predict given sluggish consumer demand and customer destocking in certain markets. In the Americas, shipments were down 7%, reflecting challenging prior year comparisons, exiting some unprofitable business and a furnace event that limited sales opportunities.

In Europe, shipments declined 2%, primarily due to operational disruption that constrained sales. Excluding that impact, underlying trends were roughly flat in Europe. We continue to see pockets of strength across the portfolio. Nonalcoholic containers remain a standout performer and several geographies exceeded local market trends and prior year levels. The Andean Group delivered double-digit growth, while Brazil was up low single digits. In fact, we outperformed the market in the majority of category and market clusters amid generally sluggish demand. We continue to expect second half growth supported by easier comparisons and new business wins while maintaining a more cautious recovery outlook.

Our commercial transformation continues to gain traction. We are focused on business that generates economic profit and are applying greater discipline across the portfolio. Following strong execution in the Americas, we are starting to get more traction in Europe. New business wins represent approximately 2% of annual sales volume with contributions expected later this year. While the recovery remains gradual, improving momentum and portfolio optimization strengthen our confidence in delivering profitable growth.

Let's now move to Slide 5. Fit to Win remains central to our strategy and continues to generate meaningful benefits. We believe the program is improving our cost position, strengthening our competitiveness and building the foundation for long-term profitable growth. Since launch, Fit to Win has generated more than $400 million of net benefits. Through the first half of 2026, we delivered $85 million of benefits. This is net of $30 million of direct operating inefficiencies and the total impact of disruption was approximately $45 million when including constrained opportunities and additional logistics costs.

Phase A execution remains strong. Announced plant closures are complete, and we are advancing the final stages of organizational restructuring. Phase B continues to progress, although operational disruption has delayed TOE benefits. We are also advancing supply chain, procurement and energy initiatives that should deliver increasing benefits over time. We have revised our '26 and '27 targets to reflect the headwinds discussed today. We now expect approximately $200 million of Fit to Win savings in 2026 and at least $650 million over the 3-year period. Importantly, this reflects timing and execution disruption, not a change in underlying opportunity. The Americas performance and recent customer wins are encouraging signs of improved competitiveness through Fit to Win. As execution stabilizes, we believe this can deliver meaningful value over time. With that, I'll now turn it over to John on Slide 6.

Thanks, Gordon, and good morning, everyone. The top line was fairly stable, while second quarter results were below our expectation given challenges in Europe. Net sales were nearly $1.7 billion, down about 2% from the prior year. Favorable currency and stable consolidated selling prices partially offset lower sales volumes. Adjusted earnings were $0.09 per share compared with $0.53 last year. Lower net price was the primary headwind. Selling prices increased in the Americas, but declined in Europe amid competitive pressure.

Europe was also impacted by higher energy costs related to the Middle East conflict and the onetime reset we have discussed previously. Lower sales volume was offset by favorable operating costs, reflecting Fit to Win benefits net of unanticipated costs tied to operating inefficiencies and furnace events. Adjusted earnings also reflect an unusually high adjusted tax rate, driven by lower European earnings and a reduced full year outlook. We also recorded a significant noncash goodwill impairment charge and increased tax valuation allowances. Both are excluded from adjusted earnings. The impairment was triggered by the decline in the company's share price during the quarter and reflects Europe's current challenges from an accounting perspective. These charges do not affect cash flow, operating plans or Fit to Win milestones.

Our priority is to bring the same discipline and execution to Europe that have improved performance in the Americas while recognizing that progress is taking longer than expected in a tough macro environment. Regarding the balance sheet, leverage is up some given lower EBITDA. However, liquidity is very good at $1.5 billion. We have no maturities until 2028, and we have ample headroom on our senior secured covenant. Let's turn to Slide 7. Segment operating profit was $171 million compared to $225 million in the prior year as strong performance in the Americas was more than offset by continued pressure in Europe.

In the Americas, net sales were $949 million, up about 1%. Higher selling prices and favorable currency more than offset a 7% decline in volumes. Segment operating profit increased 22% to $165 million and margins expanded by around 300 basis points to 17.4%. Higher net price, favorable FX and operating costs, net of a furnace event, more than offset lower volumes. This represents the highest second quarter profit in the Americas over the past 10 years and demonstrates the value of Fit to Win. In Europe, net sales were $704 million, down 5%, with shipments down 2% as disruption limited sales opportunities.

Segment operating profit was $6 million compared to $90 million last year. The decline primarily reflected unfavorable net price from competitive pressures and higher energy costs. Europe delivered solid gross Fit to Win benefits, but temporary operational disruption and inefficiencies prevented those benefits from translating into net savings.

Let's turn to Slide 8. We are revising our full year 2026 guidance to reflect the second quarter shortfall and a more measured pace of improvement in Europe. Please note that we have removed adjusted earnings guidance because the effective tax rate is highly sensitive to changes in operating earnings, particularly given the low level of anticipated earnings in Europe. We now expect adjusted EBITDA of $1.0 billion to $1.1 billion with updated free cash flow and leverage guidance included on the chart. We continue to anticipate strong performance in America with the results expected to be up nearly 60% in 2026 versus 2024.

As Gordon noted, lower current year guidance is primarily driven by 3 factors in Europe: continued market challenges, including additional price pressure and higher energy costs related to the Middle East conflict, adjusted Fit to Win timing due to temporary operational disruption and additional costs at a few specific plants. We believe the revised outlook better reflects current operating conditions and the environment we expect through the balance of the year. Importantly, we believe performance in Europe should improve sequentially over the second half.

Let's turn to Slide 9. We are also realigning our 2027 targets to reflect the same factors affecting our 2026 outlook. We now expect adjusted EBITDA of $1.2 billion to $1.3 billion in 2027, reflecting a more gradual improvement path in Europe. From our revised 2026 guidance, 2027 should benefit from at least $150 million of additional Fit to Win savings. Potential upside could come from market improvement in Europe and energy price normalization following an eventual resolution of the Middle East conflict. Importantly, we remain committed to the original adjusted EBITDA target of $1.45 billion. We continue to believe that target is achievable, but it will likely take longer than originally anticipated. With that, I'll turn it back to Gordon on Slide 10.

Thanks, John. Before we close, I want to reinforce several key points. We are not satisfied with our performance. We understand that investors will expect clear evidence of improvement. At the same time, the framework we laid out around Fit to Win, profitable growth and strategic optionality remains the right path to create long-term value. In Horizon 1, Fit to Win is delivering meaningful savings and improving our competitive position. The Americas demonstrate the earnings potential of stronger execution. Europe is about a year behind the Americas on Fit to Win.

Ultimately, we believe Europe should improve to mid-teens segment profit margins within the next 2 years. This should be achieved through initiating recovery of excess cost inflation, addressing temporary disruption and normalizing energy market and completing our Fit to Win implementation. In Horizon 2, improved competitiveness is supporting profitable growth with new business opportunities expected to build volume momentum through the second half of 2026 and into 2027.

In Horizon 3, we are evaluating strategic options to strengthen the portfolio, improve our position in the value chain and preserve flexibility for long-term value creation. In short, we are addressing near-term challenges with urgency while staying focused on the strategy we believe will create sustainable long-term value. With that, let me conclude on the next slide.

To close, second quarter results were below expectations, primarily due to Europe. We understand the drivers and are addressing them directly and with urgency. At the same time, the Americas performance highlights the earning potential of effectively executing our strategy. Demand remains soft, but volume trends improved through the quarter, and we expect gradual improvement in the second half. Fit to Win continues to deliver meaningful value even with near-term disruption. Most importantly, our strategy remains intact. We are recalibrating timing, not changing direction. Our focus is clear: restore performance in Europe, improve execution and create sustainable long-term value. Thank you for your time this morning. We will now take your questions.

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

John, this is William Kaatz on for Ghansham. I think my first question is just what gives you confidence on 2027 plan? Obviously, 2026 has shook out meaningfully below your initial expectations. So just some more color on 2027 would be great. And then I have a follow-up.

Yes. I'll take that first. And when we talk about moving from '26 to '27, first of all, we've obviously rebased 2026 for the factors that we talked about. As we look going forward, we are highly confident of the $150 million plus of Fit to Win benefits. We're going to -- even in a disrupted environment, we're going to generate $200 million or more this year. So we're confident, especially as we get through the disruption elements and the benefit of exiting from some onetime elements into the next year.

Beyond that, we're really not making a lot of forward estimates about strong recovery. We still have included in there kind of a flattish volume environment. We still have the baseline of the Middle East conflict, sluggish demand, affordability issues, all things. With that said, there are probably more upside opportunities with ultimately the resolution of the war and the normalization of the energy markets as well as with a better background in that regard, affordability elements, consumer consumption and not to mention us putting into effect our Horizon 2 profitable growth and the forward opportunities that we have on a number of the new wins that we have and the new businesses that Gordon mentioned. So those underpin our view of 2027, which, of course, has been rebased from the original expectation.

And just to build on that, William, we see what we can deliver in the Americas with the tight execution of the strategy and Fit to Win. As we've said on previous calls and here again today, Europe is about a year behind the Fit to Win implementation. And so we expect that to improve sequentially through the next 4 to 6 quarters. And that also is an underpinning of our thinking around our 2027 results.

Okay. Great. That's super helpful. And then just one more on volume expectations for the back half of the year, how much would that be like contracted new business versus just the general expectation of a market recovery? I know you said June was flat, but if we could just hear that and maybe how July is shaking out too, that would be great.

Sure. So as we've outlined, we rejigged and reconfigured our go-to-market approach in both the Americas and in Europe. And we're seeing the early benefits of that coming through. I think last time or last outing, we mentioned we had picked up 15 pieces of new business that equates to about 1%, 1.5% of volume. We subsequently picked up more business that will start to flow in the back half of this year and into next year, which represents about 2% of volume. So we're gaining traction. We're becoming more competitive in the market. When we look at it, we see it sequentially improving through this quarter and into the fourth quarter. So all the early signs are positive that we're becoming more competitive, and we're translating that competitive into profitable volume growth.

I'll add just a couple of data points on there, William. The new contracted business as far as what we expect, it's going to ramp up in the second half of the year. It probably adds something like 1% to 1.5% annualized run rate in the back half of the year as we then build into 2027 when you see the full 2% being realized. So that comes as a tailwind. And then to your question on July, basically, all of our markets are performing kind of in line with what we saw in June net-net in total.

The one thing that we have to say is that there's still a little -- in one geography, we are still dealing with a little bit of transitional elements of one of the furnace events that we had. So there was still a little bit of headway on volumes due to the ability to supply. But through July, we believe that we're out of that. And then going forward, we should see the trends fall through to the full market opportunity.

Your next question is from Mike Roxland with Truist Securities.

Just wanted to follow up if you could provide some more color on those operational efficiencies along with the 2 furnace events in Europe. More color around what they are, what disruptions were, when they start to occur and what your plan has been to get them fixed and where that plan currently stands?

So the events took place in Europe, one in France, one in the U.K. One was a fire, one was a leak. And that caused us to short ship into the market and put extra pressure on the network in the context of a changing network that hadn't yet settled and also in the context of increasing logistics costs. What have we done about it? We've got both local engineering and expert furnace engineers that were in place, supported by some outside expertise to fix those issues. We're confident that those issues are now fixed and both those plants are starting to resupply the market at getting up to what their full potential supply should be as we work through July.

They were the main issues. But when you're changing the supply network as we were with 3 plant closures in the first and second quarter, that disruption did add pressure into the network at a time when, as I said, costs were rising, there was less available logistics capacity that caused us to have to pay more for what was available. So that really was the root cause of that. We did also experience kind of a number of small onetime events around rail transport not being available in France and having to shift to road freight. That also caused us a bit of disruption and certainly put in a significant chunk of cost. Again, that's a once-off, and we don't see that reoccurring as we go through the back half of the year.

Maybe just one other comment, Mike, on top of that, just to show, if you compare that to the Americas where we did have a furnace event and the segment was able to fully offset it and deliver. It just shows the resilience in the business that once you do get through all the restructuring and activities and then you get the TOE and the operations where you want it to be, we're confident that while this is a blip that occurred because of the combination of the furnace events and closing the 3 factories at one time, we believe that we'll get out of that into a much more stable environment.

Got it. So to put a bow on it, I mean you're past these events now, though. They're in the rearview mirror and things are corrected and you should be operating better today than...

Yes, absolutely. We're past those events. The rest of the fleet in Europe is performing well, and we expect that performance to sequentially improve through the next 4 quarters as we embed the TOE, the total operating efficiency methodologies into the plant at the same level we have embedded them into the U.S. As I said, Europe is about a year behind the implementation of Fit to Win. And we expect the catch-up to occur -- is occurring as we speak, yes.

Got it. And then just one quick follow-up. You mentioned, Gordon, that you don't believe that the -- what you're seeing in Europe is structural. What gives you confidence that it's really not a structural issue in Europe? And what I'm trying to get is when I look at some of your peers that recently reported, one of your peers reported close to a 30% EBITDA margin in the first half.

So there obviously are benefits to be had in your key market. It seems like you guys are a little bit behind that or notably behind that. What are you trying to do to maybe catch up from a portfolio perspective, from an earnings and margin perspective to what some of your peers have been posting in terms of their earnings and their margins?

Okay. First of all, let me just give some context around Europe. It's a very large market, very attractive market, 22 million tons and over $2.5 billion of profit pool in the region. Our peers are running businesses that are not going through a restructuring as we are in Europe. We -- I come back to our original thesis, the business was uncompetitive, and we are going through the actions required to get this business more competitive in Europe. So we're in transition, right, and executing that.

Yes, we've had a stumble, a chunk of it of our own making. We own that. We know how to fix it. We know what the issues are. We have the right resources in place. We've made the required changes of leadership and have now leadership in place with the skills that can address the supply chain network issues that we're facing. So we see ourselves being able to execute that in the months and quarters ahead to the standard that we've done in the Americas. And we have the right resources and governance around that. We expect within 2 years to be back at kind of high teens margins. And that's assuming energy markets somewhat normalize -- there's some demand coming back into the market in certain categories.

But we don't need nor do we expect huge lifts in demand. But we have a clear plan around our Fit to Win, running the operations and the supply chain in as fit a manner as we are now running it in the Americas. We've also upgraded substantially our energy procurement or energy risk management and our energy usage capabilities in all these plants, and we expect those benefits to flow through in the coming quarters. And to give you a data point on that, in terms of energy usage, we've put in a new system across all of the plants. And some of our plants in Europe are now generating savings of anywhere between 5% and 7% year-on-year in energy usage.

So there's a lot of good things happening in Europe. We're making a lot of progress in a lot of areas. But we did have this stumble that is sort of masking that. We feel we're working through that. By year-end, we'll have settled the supply chain significantly, and we'll start to extract the full value of the restructuring and the capacity optimization. So we have a lot of data points we feel gives us confidence that we can execute in a way that delivers into the high teens over the next 18, 24 months.

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

I just wanted to ask about Europe. And I think you went into the quarter expecting a slight improvement there, but then I think you were down slightly. So what kind of drove that? Would you say that there's some structural weakness in wine? Do you think this is more transitory in nature? I know the affordability issues have continued to linger. And obviously, we've had the conflict going on as well. But how do we kind of see volumes kind of improving? Is there anything else under your control, whether it be business wins or anything else that you could do to potentially drive some of that volume? And if it does not improve, what kind of footprint optimization actions would you be in a position to take?

Arun, this is John. I'll just kick that off. For clarity, during the quarter, we expected Europe's performance would be about $25 million better than where it was, okay? The majority, about 80% of that had to do with the operating disruption one way or another, okay? The other maybe $5 million was a little bit of extra pricing pressure. But keep in mind, as we indicated, our volumes are down 2%, but they are flat if it wasn't for the disruption. So we didn't really have a meaningful commercial difference in the environment. It was more of an operating element. But now I'll turn it over to Gordon.

Yes. So, as I said, a large market, over 22 million tons and a very large profit pool. But one way to maybe look at Europe is -- and this is broad strokes, but bear with me. If you look at Northern Europe, it tends to be spirits dominated, yes, spirits and food. If you look at kind of middle Europe, so across Northern France, Benelux, into Germany and Poland is very much beer and food. And then in Southern Europe, much more kind of wine dominated, obviously, with some beer. What we're seeing is wine in all markets, not just in Europe, but across the world is under significant pressure.

And we do think there are some structural issues in that category. We've taken what we feel are appropriate network optimization actions and that to make sure that our footprint mirrors what we feel we can supply at an economic profit. In spirits, I think we're -- spirits generally are under pressure because the 2 largest markets, North America and China have been underperforming for some years now. We see over the next probably 12 months, not a huge change in that picture in terms of exports, particularly into the U.S. or China, although we are and expect to see stocks decline in the U.S. market and maybe some refill happening as we go through early, mid-2027.

The bright side on spirits is travel retail continues to grow, tends to be more premium, maybe a bit less volume, but it is growing. And then if you look at Europe, kind of what I call middle Europe, beer performed strongly, is performing strong, particularly premium beers as is food. We see in all markets, our food business growing quite strongly, and it is now our second largest category with a strong economic profit. So as we look forward, we see pockets of growth that we can leverage. And we've also tightened our network. Our restructuring is behind us in Europe. And we see our platform probably moving into 95%, 97% kind of capacity utilization as we move through the rest of the year and into 2027.

Our go-to-market model that we've instituted is absolutely bearing results for us. We continually month-on-month see new business wins at margins that are attractive for us. So you put all that together, we have a lot of confidence in the medium, long-term market opportunities in Europe. We see our margins improving. We know how to do that. We've demonstrated that in the Americas. We actually have pockets of Europe where we're executing very well, and we see the margins coming through, particularly in Southern Europe.

So you put all that together, we're bullish on Europe over the medium, longer term. There's -- we've got to execute more effectively on some of the basics around logistics and planning and get through this restructure and then continue to execute our Fit to Win and our go-to-market. So that's really how we're thinking about Europe. Still a very important market, very attractive market and a market we can do very well in the quarters ahead.

Okay. And then just as a quick follow-up or not so quick. But I did want to ask about some broad strokes for '27. I think you mentioned that not calling for a big recovery, but how should we think about net price? And then obviously, the incremental Fit to Win benefits as well? And would there be any other larger bucket items you can kind of help us with to frame where you could see '27 EBITDA land versus the original $1.45 billion guidance that you provided previously?

Yes, Arun, this is John. I can give you a little bit more color in that regard. As we look to 2027 and the levers there, from a net price standpoint, at this point in time, we're thinking kind of neutral-ish. So keep in mind, we've had a very large amount of inflation this year and 55% of our business overall is covered under long-term agreements. So there'll be a PAF recovery. It's typical in our business. There's a lag effect associated with that. So that will come through. Even in a world where we just assumed current elevated energy prices, the TTF at $55 to $60, we believe that we would have a neutral to even maybe modestly positive net price as we look forward.

That is -- does not include any other actions that might occur. It doesn't include the potential of a resolution of the war and in which case, then energy prices could go down, and that could be a bigger tailwind, okay? On a sales volume standpoint, we're penciling in kind of a continued muted environment, but maybe flat to up 1%, given that we do have 2% volume growth coming through, and we will see -- that continues to build, and we will see what the net effect of that is overall.

And then you have your $150 million worth of plus of Fit to Win benefits, which are going to be substantially over -- they'll be skewed over to Europe as we work through the disruption this year and we complete the program, which is like we said, it's a little bit further along to go over in Europe. Those are the big pieces. That kind of gets you to -- from your midpoint of the current year to the entry point of our guidance range of the $1.2 billion next year with the upside being potential resolution of war and the tailwind there and an evaluation of what happens more broadly in the European market if the market becomes more constructive.

Your next question comes from George Staphos with Bank of America.

So I wanted to dig into the operations a bit with Fit to Win and in particular, Europe. So with Fit to Win, Gordon, you obviously made a lot of progress last year and the first portion of this year. Frankly, you made a lot of progress this year. But we've seen a bit more -- you've acknowledged it, challenges in delivering as we've gotten into Phase B.

Does that have in any way from your vantage point, reflect that it gets tougher and tougher to do the operational within Fit to Win, especially given the nature of making glass, given how fixed cost leveraged it is, in some ways, how abusive the process of making glasses in the first place. You're pulling tons through a furnace. Is there anything in Fit to Win that you're finding it's maybe a little bit tougher given your past experiences to execute in making glass just given how challenging manufacturing glass is in the first place? And then I had a quick follow-on to that.

Sure. Yes, let me address that in 2 ways. So if I look at the Americas, I think it's -- you can see the results coming through. And I think we were about ahead. We kind of started the Phase B in the Americas. And fundamentally, you're changing culture, you're changing culture in plants and you're changing some processes. And with that comes some challenges. But the process we have is it's pretty simple in many ways, but it requires a lot of discipline, and it requires some change management. And I think we've executed that well in the Americas.

You are right, George. I mean, glassmaking is pretty unforgiving and the parameters need to be tightly controlled and a miss on some of those parameters sometimes can throw you out for a week or 2 weeks. And then if you have a furnace event, it tends to unsettle the whole network because you've then got to produce in maybe plants that wouldn't normally produce a particular product, and that causes some disruption, right? So that has unsettled us a bit this year and particularly in Europe. Europe was really the last to go on the TOE disciplines. We're still bedding them in.

And the disruptions did have an impact on -- while the disruptions were probably in 2 plants, it probably impacted 6. You're also kind of redirecting expert resources to -- away from maybe their job and there's some firefighting going on. So truth be told, that was part of the story of the first half. That notwithstanding, I would say in the vast majority of the plants, so we have, what, 60 facilities. I would say, in 50, 52 of them, we see consistent improvement around TOE, availability increasing, quality improving, speed of lines improving. So we are making improvements.

And remember, some of our plants were already very high performing. So on the high-performing plants, it's -- there's probably a chunk less to improve that notwithstanding. I think weighted average, we are seeing significant improvements across the -- across the fleet. And what happens is -- and I think I laid this out at Investor Day, these kind of transformations are not linear, and you'll always get some sort of bump along the way. But what I found in my experience is once you get through that, the kind of the system kind of reenergize itself and you start to hit those higher levels of performance.

And we certainly have enough data points around those 3 elements, availability, quality, speed. and energy reduction to feel very confident that we are going to hit at least $650 million, and we'll hit higher maybe over a bit longer time frame. So I'm not worried about that, if I could put it that way. I'm frustrated that we've had these stumbles, particularly in Europe, right in the middle of when we were reconfiguring the network to have 2 plants go down for a period. That's frustrating. That's held us back. But we own it. We know what went wrong. We know what to fix it. We have the right resources on it. And let me tell you, we'll be quite maniacal about getting the performance back to where it needs to be.

I appreciate the thoughts on that, Gordon.

They're well taken points.

I think I know -- what's that?

They're well taken point. It's a well-taken question.

No, we appreciate it. I had a follow-on related. I think I know where you'll go with this, but nonetheless I do want to ask the question. So traditionally, glass making, if you ran 92%, 93% utilization rates, those are very, very good. When you ran over 95%, you -- the view was that you would stress the furnaces, you would pull too quickly. Is any of that filtering into what we've seen or not?

I know you're trying to change the paradigm of glass and so maybe not. And as we think about Europe and some of the changes in the organization that we've seen over there, has that been because of alignment on the direction and the strategy or just execution and going out of parameters in terms of the execution?

Right. So 2 things. I'll take the second piece first, if you don't mind. I think one of the things that became apparent as we move through the second quarter is the -- is the extent to which we needed to work cross-functionally. And I did flag up on Investor Day that our goal was to get this business out of silos and working much more cross-functionally. And we've made huge progress on that. But I don't think we made enough progress on that in Europe, right?

And we've now made changes in leadership in terms of driving a much more integrated cross-functional within the region, but also within the expert resources available at the global level to get them in as part of the team in a much more integrated way. And already in the last kind of 6 weeks, we see that working much more effectively. The incidents we had that I called out both in France, the U.K. and indeed the U.S. is probably a result of what we would -- in the industry call over pulling on the furnace over years. And what we've done in our new system of TOE is we have strict pull rates depending on the kind of furnace. And part of TOE is to make sure that we do not overpull and therefore, damage or burn down these furnaces more quickly than they should be.

And that's a very rigorous discipline, and that's looked at every day now, whereas in the past, I think that was uncontrolled and you had plants overpulling and therefore, burning down the furnaces more quickly or indeed underpulling and using way too much energy. And we have tremendous visibility on that on a daily basis. That's looked at on shift by the day at the plant manager level, and then that rolls up through the organization into the value office to make sure that we're within the parameters that these facilities should be run at.

So as we look forward, then you would expect over time to have far fewer of these events. The other thing I would say is, as we -- one question you ask is, is Fit to Win the cause of some of these breakdowns? And again, the answer is absolutely no because what we've done on Fit to Win is strip out cost and waste, and we've actually upped our reinvestment in maintenance and engineering across the fleet over the last 2 years. And our engineering and maintenance has actually increased slightly on a per ton basis.

So this is really cultural change, process change that we're bedding in. We have huge support from the plants on TOE and huge support from people on the line. They see their lives getting easier in managing these plants. So I think we're in a good place. We stumbled in Europe, no question about that. We own that. We know what went wrong. We know what the root causes are. We're all over the root causes, and we're fixing it. So I expect that performance, the operational performance to continue to improve in the Americas, and I expect it to pick up a much faster pace in the next 2 to 4 quarters in Europe.

Your next question is from Anthony Pettinari with Citi.

This is actually Bryan Burgmeier on for Anthony. Just on the Fit to Win savings, I know you're looking for another $120 million in the back half. I was just curious maybe how much of that is sort of already locked in based on actions you've already taken in the first half? And then as we start to think about 2027, you're looking for another $150 million. Just sort of the same question. Is it possible to say how much could be sort of locked down by the end of the year and would just be maybe like a rollover benefit?

Yes. So anything we publish here and anything that's part of our value office program here is we have not only a clear target, but we have clear activities around timing, proper project management and resources around that. So I would say that as a governance piece. So none of this is kind of aspirational and none of it is -- we have a number, but we don't know how to get there, okay? We do have further ideas on how to add more value. We just haven't figured out the path on some of those above the $150 million for next year. But everything you're seeing and everything we've published there, there are deliberate programs and actions taking place day in, day out to deliver on that. So that's by way of kind of process. John?

Yes, yes. I would add on there, just looking at specifically at the numbers here, you're right. We have about $115 million, $120 million in the back half just under half of that is pretty much already locked and loaded because we've done the restructuring, we've done the SG&A actions, but by and large, things like that. The remaining component has to do with what we call more on that Phase B activity, more that's improving the operations, addressing the things that we're talking about in Europe as well as moving forward some of those programs around energy usage that Gordon was talking about and other factors.

So yes, so going into next year, too, in the $150 million, there's a decent number. I don't have a specific number. I would say probably 1/3 of it off the top of my head is probably locked and loaded because it's just the carry-on effect, annualization effect of things that are already done. And the remaining component has to do with more operational improvement, again, focused more on Europe.

Yes. With the programs, they're set by plant, by supply chain. So it's a function of executing them month by month, yes.

Got it. Got it. And then just one follow-up. It seems like South America, Brazil did pretty well in the quarter. Just kind of curious your assumptions there for the second half. I guess some other beverage packagers maybe sound a little conservative in the second half. So maybe just curious how much of that kind of volume momentum could carry through.

Yes. Bryan, is that in reference to Latin America or overall?

South America and Brazil, specifically.

Yes. Our business is performing exceptionally well in Brazil and in the Andean region and indeed, Mexico, albeit off lower volumes. So the teams there are executing our Fit to Win extremely well, executing our go-to-market extremely well, and we're picking up new business and executing the strategy as it should be. So we expect that performance to continue to the end of the year and well into next year. So yes, demand is good for us. If I give a view, we're up in spirits in Brazil, we're up in food, we're up in RTDs. We're -- and when I say we're up, we're growing ahead of the market. And then we're growing at market in beer in Brazil.

So I see that market continuing to perform strongly. And then in our Andean business, we're growing ahead of the market in beer, ahead of the market in spirits, ahead of the market in wine, ahead of the market in food, ahead of the market in RTDs and growing at market in food. So very strong performance there. In Mexico, volumes are a bit off due to tequila exports being down and Mexican beer imports into the U.S., but our team there executing Fit to Win exceptionally well and delivering very strong financial performance. So overall, we're very happy with how our Latin American business is performing, and we expect that performance to continue.

There are no further questions at this time. I will now turn the call back to Chris Manuel for the closing remarks.

Thank you. That concludes our earnings call. Please note, our third quarter call is scheduled for Wednesday, October 28, 2026. And remember, make it a memorable moment by choosing safe, sustainable glass. Thank you.

This concludes today's call. Thank you for attending. You may now disconnect.

Good morning. Gabe Hajde here, the Senior Packaging Analyst at Wells Fargo. I'm joined by my colleagues in the room, Richard and Richard Carlson, Bailey Gordon and representing O-I Glass is the President and CEO, Gordon Hardie; and John Haudrich, SVP and CFO. Also in attendance is a long-time friend and colleague, Mr. Manuel, VP of Investor Relations. Thank you all for attending. I say this every time. It is intended to be interactive. To the extent you all have questions in the audience, please don't hesitate. And with that introduction, you all put out a slide deck last night. I think you have some prepared remarks that you'd like to go through. And then if there's time, we have Q&A.

Yes. Great. So we're a scale player to many of the largest food and beverage brands in the world with over 6,000 customers across Europe and the Americas. So most of you are familiar with what we do. If we take a look at the -- where we're at and we'll move to the next slide. So as we flagged up in our last earnings call, we really have a business of 2 hemispheres where the Americas, which is further along in terms of our strategy execution based on Fit to Win is performing strongly. And we continue to see excellent execution around our Fit to Win program, our proximity to customer and our businesses gaining share and improving their earnings. Between '24 and '26, operating profit in the Americas up about 60%.

And so that's proof positive that the strategy we have and the execution of that is delivering. Europe is somewhere in the region of 6 to 10 months behind in terms of execution of our Fit to Win program, driven largely by the operating environment in Europe, where it can take anything up to a year to accomplish what you can accomplish in terms of change programs in the Americas. Soft start to the year in Europe, driven by our flagged energy reset of about $150 million. And then with the ensuing energy crisis that drove incremental energy-driven inflation into the business. What we are seeing is an incremental improvement as we move through into the second quarter.

And while April and May were still soft volumes in Europe, we are starting to see an uptick in volumes in June and a very strong delivery of our Fit to Win cost-out program. Our balance sheet is strong. We have strong liquidity. And overall, I would say, in all markets, demand is still soft. Consumers are still challenged from an inflationary point of view. And now with the additional energy costs, we see some of that continuing to play out. That notwithstanding, as we get fitter, we get more competitive.

And as I flagged up on the earnings -- last earnings call, we've picked up at least 15 new pieces of significant business that start to play through in the second half of the year and into 2027. So our thesis of being -- getting fitter and translating that into being more competitive and picking up incremental profitable volume is well and truly playing through. That set against the kind of macro background of lower overall demand. We maintain our kind of outlook for the full year guidance of somewhere between $1.125 billion and $1.225 billion. So softer start than expected, driven primarily by energy and softer demand, particularly in Europe, but an accelerating Fit to Win program. We set out at the start of the year about 250, we expect to beat that. And that then sets us up for a fast start in 2027. Anything to add there, John?

Yes. I mean just the -- with a little bit of that transitional period on the volumes, we did tweak the second quarter outlook a little bit, and that's included in there. So no change to the full year trajectory of the business, just a little bit of a lighter transitional period from -- into positive growth that we're starting to see here in June.

So the fundamental thesis is we transformed the cost base well on track. So we -- by the end of this year, we'll have taken north of $0.5 billion of cost out of the business. Typically, that is -- that's practically 80% of the initial $650 million target there or thereabouts. We've upped that target to $750 million and probably see opportunities above that. Typically, these kind of programs, if you haven't got 30% out in the first 15 months program probably isn't going to deliver. What we've been able to demonstrate in the first 15 months is we've got north of 45% out and are well on track to either deliver or outperform the $750 million.

At ID, we kind of laid out our thesis that our cost base was too high. We needed to face that reality. And then we needed to work across the chain to not get cost just out of our own business, but across the incoming and outgoing chain. And we're making tremendous progress working with suppliers and customers on stripping out waste and inefficiency across the total chain. We can continue to sweep underperforming low EP or negative EP volume out of the business and focus on positive and higher EP volume. And we see a significant shift in food, which is now -- which is a very high EP category for us, and it's now our second largest category of product.

So we're starting to see that shift in premiumizing the portfolio as well as becoming more competitive in mainstream. We're very clear on where we play and how we win across each geography, and we have clear category and market strategies in place for that. And the overriding kind of metric for us is, is it economically profitable. And it's founded on the thesis that growth or value creation only occurs when you drive growth above your cost of capital. And we have tremendous visibility on where we create and where we lead value in the business.

So overall, our thesis is robust despite a kind of softer start to the year. And as we look forward into next year, while the path to $1.45 billion is steeper, we absolutely see a path there. Is there less margin for error. Absolutely, but we still see a path to $1.45 billion. So yes. Yes. So that's really our strategy is get fit, turn that fitness into competitiveness and then access the volume growth that's in the market. And then by 2028, that gives us the optionality to look at different forms of capital management and also how we expand into new geographies or new categories. It's pretty clear, widely and deeply understood across the organization. And it's now one of the strengths of the business that top to bottom. You can walk into any office, any plant and people can explain in a quite articulate way what the strategy is. So I might stop there and hand over to you.

All right. A couple of things. I guess, you mentioned -- you started off by saying that you're a scale player. And I think for all packaging companies, volume matters. It drives efficiencies, productivity. And of course, you get the incremental contribution from the sales. In glass, it's even more pronounced. I don't have to tell you, you guys run this business. I just watch from a far. So volume is important. You mentioned winning 15 pieces of new business. I don't want to put you on the spot and tell us exactly what that means customer by customer, but -- and then markets being softer and then you call out food as now being your second largest category. I'm assuming that's behind beer wrongfully or rightfully.

And so maybe give us, if you can, by market, where you're seeing the weakness. It sounded like from the slide release that it was going to be more in Europe and Americas is actually holding up pretty well. So maybe just North America, proper, Central America and then South America. And then what's driving the weakness in Europe? I know you mentioned energy. I'll stop there. There's lots of questions in there, but we can revisit.

Yes. So as I said, in the Americas, our businesses are performing strongly, particularly Brazil, Colombia continuing to perform. And if I take a look at Brazil, with new entrants coming into that business over the last 5 to 6 years, we've had a drop in market share, but our business is more profitable today than when we had 8 to 10 points higher in market share, driven by absolutely outstanding execution by the team there of our Fit to Win program and then working much more closely with customers to execute in the market.

Colombia, Peru, still very strong markets for us. Mexico, a bit softer because of the export challenges into this market. But we've been able to translate that competitiveness into volume growth in the domestic market. And then in North America, we've been able to really drive tremendous productivity that has made us more competitive. And actually, I think I pointed out our first quarter this year, despite a number of kind of macro challenges, was probably the best quarter that business has had in 10 years. So capacities are reasonably tight in the Americas operating 96% to 98%. Pricings were robust, and we continue to execute very well and are well advanced in embedding in how we're operating the business differently across the chain.

Europe, we're probably, as I said, 6 to 10 months behind the execution of getting the costs out. And we're now in the final stages. And over the summer, we will have executed everything that we announced. That notwithstanding soft demand practically across every category in Europe, but primarily in the wine segment, where wine volumes have been dropping out for 3 to 4 years at somewhere between mid- to high single digits and resulting in overcapacity and downward price and margin pressure.

Through our Fit to Win process, which the business there has executed well within the confines of the rules and regulations, has allowed us to be more competitive. So we've been able to defend some of the volumes that we had. But there are other pockets, particularly in wine, where we said there is just no economic value to us being in those categories or with those customers, and we have shed those volumes. Food operating well for us, premium beer operating well for us. And with being more competitive and revitalizing our go-to-market system, we've seen a fair chunk of those 15 customers in Europe and picking up.

So we think we've hit the kind of trough in Europe and expect to see volumes kind of swing up from this month to the rest of the year. But there's no doubt Europe has taken the brunt of the energy crisis at the consumer level. To give you an idea, I filled my car last week and haven't done it for a while because I've been traveling a lot to be stunned with almost $10 a gallon. So that is impacting demand in Europe. And we saw some of that in May in certain categories. So Europe will remain from a demand point of view to be challenged for the rest of the year for sure. But our business, as we get fitter, we're able to defend and actually pick up some market share in certain categories.

Gabe, what I'd add is going into the quarter, we thought we were going to be flattish sales going a little plus or minus a little bit. Underneath that, we expected Europe to be up low single digits and the Americas to be down low single digits, primarily because of comps. Europe -- I mean, the Americas is about what we expected. Europe instead of being up a little bit is kind of flattish. That's what we're seeing for the quarter at this point.

So Americas down low singles, Europe flattish. So all things considered not as maybe bad as -- I shouldn't say it's bad, but the way you describe it is like $10 a gallon gas, like there's a big change, marginal. Is that fair in Europe?

Yes. The margins have...

Marginal change in terms of what your expectations were?

Yes. I mean we're just talking a few percentage points, right, instead of being flattish, we're going to be down a few points and most of that's that trajectory.

And I think the trajectory of volume between quarter 1 and quarter 2 in both regions actually has improved. So from probably minus 7% in the Americas first quarter to minus 3% in the second quarter and then moving into positive territory in quarter 3 and quarter 4 and the same dynamic happening in Europe.

Okay. That was going to be the next question, I guess. So to the extent like the new 15 pieces of the business are contributing and inflects positive at some point during the second half, that will be a piece of it, and then we're sort of subject to what the market is going to be doing.

Yes.

Okay. Food being, like I said, the #2 category, where was it? Can you frame that up for us in this...

It used to be about 15% of our overall demand. It's now closer to 20%. So it's moved 5 percentage points over the last few years. And in fact, if you go back to a number of years, alcohol used to be something like 75% of our total portfolio related, now it's about 60%, where you see that 40% associated with both NAB and the food category. So we are seeing a shift towards the nonalcoholic categories over time.

Yes. Food is driven by a couple of things. As people shift out of alcoholic beverages, it's not that they're consuming less liquid, but they're moving into nonalcoholic drinks, and we're seeing water kind of for us anyway explode, right? Very strong demand for both in Europe and in the U.S. And as the whole microplastics issue really starts to gain momentum in Europe, particularly, we're seeing a big shift in many of the iconic food brands in -- from plastic into glass. And we're also seeing within dairy, things like yogurts and drinks moving from plastic into glass. And that's -- that now is a structural trend.

We're starting to see that happen in North America, but not necessarily at the same pace. So we would see that trend a bit behind in North America, but certainly gaining momentum. And then if you look throughout the rest of the Americas, there's always been a very solid base of glass and food, and we're seeing that growing as well. So we see that trend continuing to grow as we get fitter and we reorganize our assets to take advantage of that, we see food as a growing part of that and a premium part of the portfolio.

One last one on the quarterly update. So I think the update was 20% of EPS. Now there's a decent sized range. I know there's some tax noise in there, but it would imply kind of $0.20 to $0.27.

$0.20 to $0.30 somewhere in that range is kind of...

And we were at $0.25 to $0.375. A point of volume is $0.07. So it's sales volume. So are production volumes, inventories, sort of where we would have planned them to be.

we're matching the production down if the volumes are a little bit soft. We're looking to take 7 days of IDS out of the system this year. So we want to make sure that we're bringing that down. So our production has been moving down with it. So to the degree that you're having -- you're losing the contribution and the production component of it, that's the only differential that you're seeing in the quarter.

Okay. All right. Maybe I guess I'll stick with sort of the numbers and medium-term outlook. You called out the $1,450 million. It's a longer put on that one to use a lot of golf analogies. But can you talk about what has to go right or if we kind of stay in this, I mean, we're reading articles about more conflict with the Middle East. I'm assuming the longer that persists, it's going to make it tougher in Europe from a volume standpoint, consumer affordability, all the things we read about. Anything else that you have.

So no question, the current environment and the energy -- the incremental energy because we've more or less solved for the 150 energy reset. It's the incremental indirect energy piece that's hitting us. Does that make it a steeper climb to 1.45? Yes, it does. Is there a less margin for error. Yes. That said, we still see a very clear path. It's down to controlling what we control within that, and we're confident we can do that. And then the rest is really the external, how the consumer kind of responds. So if we were maybe 90% confident in the past, has that dropped a little bit? Yes, but it's still north of 50% in terms of being able to deliver on that, but it is a steeper trend.

Just to anchor that in some of the numbers as we kind of go from -- even if you just take the midpoint of kind of our guidance this year to the $1.450 billion, you have to see more than $250 million improvement, right? So it's a bigger delta than we originally anticipated. We always earmarked at least $150 million for Fit to Win next year. And ideally, we can continue to outperform in that regard to be able to help. So that leaves you about $100 million.

So looking at the commercials for the business, stable to a little bit of volume growth goes a good way to addressing part of that. But then also on the net price environment, if, in fact, the markets -- the energy markets moderate or stay flat. And against an environment where you got better capacity utilization, especially over in Europe, that might bode well for a net price position. It's a little bit positive next year. So those are the kind of the 3 moving pieces that kind of support the $1,450 million from kind of the midpoint of this year.

Also the PAFs.

Yes, keep in mind, on the pricing side, 55% of our business has price adjustment formulas. And so the elevated inflation we're picking up this year, we're going to be able to pass that on formulaically, leaving another component of the open market primarily in Europe against ideally an improving capacity utilization background.

Yes. I think the Fit to Win piece will be a key part of it. We have $150 million. And we've demonstrated an ability to take out roughly $300 million a year. When you go through these programs and you build the productivity capability in the business, it tends not to just halve, right? The ability of the business to get after cost actually improves. So we -- while we've penciled in $150 million, we have a higher number in our thinking. So that should help.

Some management teams might call that muscle memory. Keep working. In Europe, you mentioned wine being down mid- to upper single digits. I'm assuming that's kind of isolated to certain France, Italy. Is that capacity coming out of the market? I mean, we know what you all are doing. What would -- at least I'm not asking you to speak for your competitors, but what's out there in the public domain that such that they can't be repurposed is kind of a question and be disruptive.

Yes. Overall, there's about 8%, I think, of European capacity, which is 1.7 million, 1.8 million tons have been flagged. We've been clear to the market where we are and what we've taken out. Yes. So a lot of it is coming out completely and then volume shifting into the remaining capacity. So that's how we see it. We don't see a lot of repurposing into other categories. I think the challenge for wine is, I think the industry probably sees it as structural. When you start lifting wines out that have been in the ground for 20, 30, 40, 50 years, then that capacity, that origin capacity is gone. It's coming out.

And there's 2 challenges for wine that are structural and probably unrelated to price or inflation is you've got boomers who are either drinking less as they get older or passing away. So that demand evaporates. And not replenishing that at a fast enough pace, particularly with the Gen Zers who came of legal drinking age during -- at the start of COVID or during COVID. They just haven't come into wine at the same level. And the industry is working through a response to that, but it's going to take a number of years for that to reset.

There is the export challenge and the overhang from COVID on wine stocks being in the system, particularly in the U.S. And then you have Chinese demand, which has been cut right back, driven by some consumer challenges in China, but also an edict of no alcohol consumption at party events, at political party events, that has all impacted wine. But of all categories, I would say the balance in wine is more structural than cyclical, whereas things around beer is probably weighted more to -- and spirits certainly weighted more towards cyclical than structural is how we see it.

John, maybe one for you on the tariff side. You mentioned maybe some, I guess, USMCA shipping bottles from Mexico into the U.S. Does anything change? I think is it now Section 301 that they were trying to go to a more permanent structure on in terms of whether it's Europe or other countries?

Yes. To give you an idea, about 14% of the bottles that we make pass across the U.S. border in one format or another, okay? 9% of that is primarily Mexico coming into the U.S., all under USMCA. And I haven't heard anything that would structurally change that at all. So you're left with 4% coming in primarily from Europe, but that's usually coming in as filled bottles, okay? So this is more about how our end-use categories with their customers fit. But I haven't heard anything that's going to meaningfully change it. And it's not a hugely material factor to the business overall.

Okay. We get this question a lot. It seems like it's pretty dynamic with where aluminum is, but I'll ask it again. We use 2024 as a baseline for the aluminum content for a can. I know it's one category in which you guys kind of compete head-to-head with another substrate. Mark-to-market today, it's probably aluminum content is up $0.06. So a can cost would be up 60%-ish. Your guys' cost structure is also not standing still. So it's that we can't just -- and those guys hedge, you all hedge. As you sit today, to the extent that you can comment, conversations with customers. Are they looking to lean any more or less into glass. I think there is a piece of business that you won here domestically that's been doing well for one of your customers in glass because it's differentiated. So just maybe cost component of it and then conversations with customers in that category.

I think when we started out on this journey and we mentioned at I Day that the cost differential between glass and cans in North America was around 35% which no matter what the packaging does for the equity of the brand, a lot of consumers say, I'm just not paying that premium. And so recognizing that is, for us, an unsustainable position. And one of the core objectives of Fit to Win was to get our cost base right so that we get within at least 15% of the cost of the can to a bottle differential.

I think we're there, partly driven by our own efforts and partly driven by the rising cost of aluminum, not yet fully seen in because of the hedging. But as we move forward and those hedges roll off, we actually are seeing the cost of glass and cans really tighten up. We're probably at parity in Europe or close to parity, and we're certainly around -- probably around the 10% mark. And we are seeing demand for glass for beer increasing. We can sell all we can out of it right now in North America and indeed Europe. So having said that, tariffs come and go. We've got to be able to get to that level of cost competitiveness on our own structural improvements over time. Does it help in the short term? Absolutely. But mid to longer term, we've got to get there without a tariff situation that could change at any time.

I would add, we're actually bringing a furnace back online, the previously closed furnace in the Mexico area to be able to support the demand growth in North America given the backdrop of what we're just talking about here. So it is translating into orders and it's translating into different capacity management.

On the topic of capacity, I'll call it competitiveness, that kind of caught you guys by surprise in the market at the beginning of this year in Europe. A 2-part question. Anything changed there in terms of -- I think things are all, I think, buttoned up on the contracting side. And then we did pick up an article. It looked like someone was adding a furnace here in North America, which not our glass, so it's, I think Pennsylvania. How do you guys think about that?

Yes. I think in Europe, we see capacity running at about 90%, 91%. When you look at the announced capacity closures, we will probably see that tightening up towards year-end, somewhere between 96% to 98%. And with regard to pricing last year, the window was extended. There were contracts thought were closed and then they come back and reopen. And there was quite a bit of skirmishing with people looking to fill the capacity. We probably see that position kind of tightening up as that capacity comes out in Europe. Overall, in the Americas, capacity utilization running probably 97%, 98%. Yes, we saw that furnace come on stream. It's a small addition to what is a very large market. So it probably won't make a huge amount of difference to the overall level of capacity utilization in the market.

Okay. Free cash flow conversion, we get a lot of questions on that for the packagers in general. And this year, you guys have some restructuring costs flowing through. Can you help us bridge maybe what -- where you're at this year, John, next year, what it looks like in terms of restructuring spend, what it could get to? And then your targets, is that a 2028 event when we can maybe approach that 40% free cash flow conversion?

Well, what we had said is as a percent of sales, we're good in the terms of that. So we're looking to get towards 5% of sales of cash flow. But -- so where we are right now is clearly in last year and this year, we have taken sizable restructuring charges as we take out 14% of the capacity and rebalance our whole network ultimately to get the high capacity utilization and the right fit of the assets for the demand.

So last year, we had about $140 million worth of restructuring charges. We think that's about $150 million this year. But then next year, we think that, that's going to trail off into something which is typically normal for business. We're always doing something, let's call it, $25 million to $50 million. So there's going to be a meaningful delta in cash flow conversion next year as we get outside of that. We've also been drawing our inventories down, which is helping out in that regard. We're going to continue to look through that to be able to be a source of cash for the business over time. And so -- but we've also been taking some production penalties to get us there.

So a more normalizing demand environment against a better free cash flow conversion on restructuring charges being really lean on CapEx in the $400 million to $450 million range. And then the ceiling we got tailing off of that restructuring charge should be able to support that target that we have. So if we achieve the $1,450 million next year and with those elements that we're talking about and dropping it off, we get to our target.

In '27.

That would be a '27 target, assuming that you get into those other... .

I think as well what we outlined at I Day is the way the business operated in the past that the supply chain was probably broken across 4 distinct areas with 4 leaders and a lot of silo behavior and a lot of cash leaking out between the sites. What we've done since I Day is we brought the whole supply chain together under 1 leader. And so getting our own internal supply chain to work much more effectively cross-functionally and closing those areas of leakage in the business, but also then sitting down with suppliers and doing exactly the same with them and closing out areas of cash leakage by better planning and just working in a better forecasting and working in a more effective way and trapping the cash as opposed to letting it flow.

And likewise, with customers, there's tremendous opportunity, and we saw a tremendous opportunity to tighten up the whole cash cycle with customers as well. So taking a holistic cash position across the supply chain. And we're seeing that come through. We're seeing forecast accuracy improve both to suppliers and to customers, and we're seeing our IDS come down, and we continue to expect to improve on that as we go forward. There's no reason why this business, given the business model for want of a better word, can't achieve 5% of revenue as free cash flow. No reason at all why we can't do that.

Thank you for that. We approached time. We're at time. Just one last one for you. if you had to pick 2 folks in the finals for the World Cup, who is it going to be that's going to be most beneficial for the company.

Well, it needs to be a country with a very large population. Unfortunately, Ireland isn't there because 4 other countries in terms of that. But my money is on England. I think England could go all the way this year, which would be the first time since 1966. And there's a son of an Irishman captaining England as well, Harry Kane, who was one of the top goal scorers in Europe this year. Argentina could, still a lot of fire left in Messi. So he can change any game. So hopefully, it's going to be a fantastic work off and really looking forward to it, and it gets started tomorrow night. So yes, we hope there's a lot of celebration in every country over the next couple of weeks.

Agreed. Thank you for that.

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.