Release Date: July 31, 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 second-quarter adjusted earnings of $0.44 per share, reflecting solid operating and cost performance despite challenging macro conditions.
- The company has launched the 'Fit to Win' program aimed at fundamentally reshaping operations, improving transparency on costs and returns, and boosting competitiveness.
- Market conditions are gradually improving, with second-quarter shipments down mid-single digits, an improvement from the double-digit declines in previous quarters.
- O-I Glass Inc (OI) expects year-over-year sales volume growth starting in the second half of the year, indicating a positive outlook for future performance.
- The company is focusing on enhancing capital discipline and cash generation, with a target to achieve sustainable adjusted EBITDA of at least $1.45 billion by 2027.
Negative Points
- Adjusted EPS was down from a historically high performance last year due to lower net price realization, moderately lower shipment levels, and higher operating costs.
- The commercial environment remains soft, with second-quarter shipments down 4.5% from the prior year, particularly in the Americas where volume was down 8.5%.
- O-I Glass Inc (OI) has revised its full-year guidance to reflect softer demand and rapid inventory control measures, indicating ongoing market challenges.
- The company is accelerating temporary production curtailments and plans to close at least six furnaces, representing about 4% of its capacity, which may impact near-term results.
- Despite the Fit to Win program, the company acknowledges that it has not yet achieved its full potential and has not consistently met shareholder expectations.
Q & A Highlights
Q: What is the holistic difference between the current Fit to Win program and previous cost-out initiatives? How will you ensure customer service is not impacted by furnace consolidations?
A: The Fit to Win program is a comprehensive end-to-end review of the entire business and value chain, aiming for absolute transparency on costs and returns to make better value-creating decisions. It will reshape the company, simplify operations, and boost competitiveness. Customer service will be maintained through a robust integrated business planning system and sufficient inventory to ensure no disruptions.
Q: Is the decision to accelerate inventory realignment in Q3 an acknowledgment that it should have been done earlier? Will this process end by the end of the year?
A: The decision to accelerate inventory realignment is to free up trapped cash and improve working capital efficiency. The process is expected to align with natural volume and consumer pull-through, aiming to complete by the end of the year. This will position the company better for 2025.
Q: Why will the latest iteration of decentralization and being closer to the customer work when it hasn't in the past? What has been the interference from management in implementing these changes?
A: The company now has strong foundational capabilities in operations, supply chain, and customer engagement. The focus is on driving operational excellence with new methodologies and improving overall equipment effectiveness. The approach includes leveraging supplier and customer relationships to strip waste from the supply chain and being more selective with capital investments.
Q: What are the current expectations and investments in MAGMA technology? How has the vision for MAGMA changed?
A: MAGMA technology works and is on track for commercial scale testing. The focus is on monetizing and extracting value from MAGMA sooner than previously planned. The total investment in MAGMA includes $200 million in R&D expenses and $40 million in R&D CapEx, with additional investments in facilities like Bowling Green.
Q: How do you intend to gain share in more profitable segments and customers, particularly in premium segments? Have you started to prune unprofitable business?
A: The focus is on shifting from commodity and mid-premium to premium segments, leveraging design capabilities and innovation. The company will work closely with operating units to drive more premium business through better service and a wider breadth of offerings. There is a clear plan to target premium segments and improve margins.
Q: Can you provide more details on the self-help initiatives, including temporary production curtailments, furnace closures, and SG&A reductions?
A: The company has identified opportunities across the value chain to work more effectively with suppliers and customers, improve overall equipment effectiveness, and streamline operations. The focus is on economic profit and driving self-help initiatives to improve efficiency and margins.
Q: How would you rank the business performance in key geographies like the US, Mexico, Brazil, and Europe? Are there plans to exit any geographies?
A: Each geography has opportunities for improvement, with some regions closer to Fit to Win than others. The focus is on improving economic profit in all current geographies. Expansion into new markets is considered a horizon three objective, contingent on achieving operational and financial fitness.
Q: Based on current trends, can you confirm there will be no further guidance cuts for this year? What is the expected EBITDA distribution for the second half?
A: The guidance accounts for a range of possible outcomes, including softer demand. The third quarter will see significant impacts from inventory curtailments, but the fourth quarter is expected to improve as these actions take effect. The focus is on setting up for a stronger 2025.
Q: How should we think about the EBITDA bridge from 2024 to the 2027 target of $1.5 billion?
A: The bridge to the 2027 target is primarily driven by self-help activities, focusing on cost performance and operational improvements. Detailed methodologies and targets will be provided in future discussions and the upcoming Investor Day.
Q: How are customers' enthusiasm towards glass packaging and what are the near-term factors impacting pack mix?
A: Customers remain enthusiastic about glass as a core part of their brand equity. The focus is on improving forecast accuracy and working closely with customers to innovate and make packaging more attractive. Near-term factors include managing inventory and working capital more effectively.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
