Release Date: October 30, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- O-I Glass Inc (OI, Financial) reported a modest increase in sales volumes during the third quarter, with shipments rising in nearly all geographies.
- The company is implementing its Fit to Win program, which is expected to drive significant improvements in profitability, cash flow generation, and competitive positioning.
- O-I Glass Inc (OI) achieved a key milestone with the commencement of operations at its first greenfield plant in Bowling Green, Kentucky.
- The company anticipates generating at least $300 million in savings by 2027 through its Fit to Win initiatives, with $175 million expected in 2025.
- O-I Glass Inc (OI) is focusing on reducing SG&A expenses to no more than 5% of sales by early 2026, aiming for over $200 million in annualized savings.
Negative Points
- O-I Glass Inc (OI) reported an adjusted net loss of $0.04 per share for the third quarter of 2024, a decline from the previous year's performance.
- The company faced higher operating costs due to the curtailment of 18% of its production capacity to manage inflated inventory levels.
- Net price realization was down, contributing to the lower earnings, although it was partially offset by increased shipment levels.
- The company revised its full-year 2024 guidance downward due to softer-than-anticipated demand, impacting sales volume and earnings expectations.
- O-I Glass Inc (OI) anticipates a use of cash between $130 million and $170 million for the year, a significant adjustment from previous expectations.
Q & A Highlights
Q: Can you explain the higher-than-expected working capital and inventory levels as we move into 2025?
A: John Haudrich, CFO, explained that due to softer sales volumes and the challenge of quickly adjusting the network, inventory levels are expected to be higher than initially targeted. The company anticipates that at least half of the $125 million incurred in expenses due to inventory drawdown will be recovered next year as the worst of the destocking is completed.
Q: What is the outlook for pricing in Europe for 2025, and how does it relate to cost savings and margins?
A: John Haudrich, CFO, noted that European margins are currently suppressed due to capacity curtailments. The company expects a more normalized segment profit margin in the mid-teens as they reduce curtailments and improve cost structures. CEO Gordon Hardie added that while there may be some pricing pressure in Europe due to capacity, the Americas are expected to have less pricing pressure.
Q: With the capacity closures and curtailments, what is the expected utilization rate by the end of next year, and how will it impact operating leverage?
A: John Haudrich, CFO, stated that the company is currently curtailing about 13% of capacity to manage inventory levels. More than half of this will be addressed through permanent closures, providing $80 million in savings next year. The remaining balance will be managed through temporary curtailments, allowing flexibility depending on market conditions.
Q: How does the company plan to achieve its 2027 EBITDA target, and what role does volume growth play in this?
A: John Haudrich, CFO, mentioned that the 2027 EBITDA target is based on volume neutrality, meaning it does not rely on volume growth. CEO Gordon Hardie emphasized that the focus is on reducing costs and improving competitiveness to capture growth opportunities, particularly in premium glass segments.
Q: Can you elaborate on the company's strategy for improving forecasting and inventory management?
A: CEO Gordon Hardie explained that the company is enhancing forecasting capabilities by collaborating more closely with customers and investing in AI and predictive analytics. This approach aims to improve visibility across the supply chain and better align production with actual consumer demand.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
