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O-I Glass, Inc. (OI) reported its highest full-year adjusted earnings per share in 15 years, amounting to $3.09 for the yr 2023, surpassing its personal steering. Regardless of going through decrease cargo volumes as a consequence of macroeconomic circumstances, the corporate’s stability sheet is at its strongest in almost a decade. Trying ahead, O-I Glass anticipates a rebound in demand, projecting low to mid-single-digit quantity development in 2024. The corporate can also be getting ready to launch its MAGMA greenfield web site in mid-2024, signaling confidence in its future earnings potential and its goal to disrupt the glass business.
Key Takeaways
- O-I Glass reported full-year adjusted earnings of $3.09 per share, the very best in 15 years.
- The corporate’s stability sheet is the strongest it has been in nearly ten years.
- Regardless of decrease shipments, O-I Glass expects demand to rebound, forecasting quantity development in 2024.
- Funding in long-term development and new applied sciences, together with the MAGMA greenfield web site, is underway.
- The corporate has up to date its ESG plan, integrating it into its enterprise technique.
- O-I Glass expects adjusted earnings to be between $2.25 and $2.65 per share in 2024.
- Executives expressed confidence in earnings rebounding to over $3 per share sooner or later.
Firm Outlook
- O-I Glass is investing in breakthrough applied sciences and expects to ramp up its MAGMA greenfield web site in mid-2024.
- Executives anticipate modest income development in 2024, with adjusted earnings projected to vary between $2.25 and $2.65 per share.
- The corporate’s strategic targets for 2024 embrace margin enchancment and the deployment of low carbon options.
Bearish Highlights
- Decrease shipments as a consequence of macroeconomic circumstances have affected the corporate’s efficiency.
- The corporate is experiencing destocking in spirits and wine classes.
- There’s an ongoing investigation by the Italian Antitrust Authority, although the corporate has reaffirmed its dedication to authorized compliance.
Bullish Highlights
- The corporate’s MAGMA and Extremely improvement efforts are on monitor, with the primary Extremely bottles certified in Colombia.
- There’s a vital pipeline of latest product improvement initiatives anticipated to assist demand by way of 2024 and 2025.
- Lengthy-term contracts have shielded the corporate from excessive power costs till the tip of 2025.
Misses
- The corporate expects a lower in volumes for 2023, primarily as a consequence of destocking.
- Free money stream is trapped within the enterprise, with volumes nonetheless under pre-pandemic ranges.
Q&A Highlights
- Executives mentioned international curtailments, notably in Europe, and their impact on balancing provide and demand.
- The corporate’s margin enhancement initiative is predicted to drive margin enlargement within the coming years.
- O-I executives acknowledged the problem of imports from Asia and the significance of native provide within the wine sector.
In conclusion, O-I Glass has delivered a powerful efficiency in 2023 and is poised for continued development. The corporate’s strategic investments and initiatives, coupled with an anticipated rebound in demand, place it effectively for the long run. The following earnings name is scheduled for Could 1, 2024, the place additional developments and efficiency metrics will probably be mentioned.
InvestingPro Insights
O-I Glass, Inc.’s (OI) latest monetary efficiency and future projections are noteworthy, and a deeper dive into the corporate’s metrics by way of InvestingPro offers further insights. Listed here are some key knowledge factors and InvestingPro Suggestions that traders would possibly discover invaluable:
- The corporate’s Market Cap stands at $2.54 billion USD, indicating a considerable measurement inside its business.
- With a P/E Ratio (Adjusted) for the final twelve months as of Q3 2023 at 5.13, O-I Glass is buying and selling at a valuation that means it might be undervalued in comparison with the earnings it generates.
- The Income Development for the final twelve months as of Q3 2023 was 6.03%, exhibiting the corporate’s capacity to extend its gross sales in a difficult financial surroundings.
InvestingPro Suggestions counsel that O-I Glass is an organization with constructive momentum:
1. Administration’s aggressive share buyback technique generally is a sign of confidence within the firm’s valuation and future prospects.
2. The corporate has seen a major return during the last week, with a 1 Week Worth Whole Return as of Y2024.D39 at 9.78%.
For traders looking for additional insights and suggestions, InvestingPro gives further invaluable info. There are 20 extra InvestingPro Suggestions out there for O-I Glass, which will be accessed by visiting https://www.investing.com/professional/OI. Use coupon code SFY24 to get an extra 10% off a 2-year InvestingPro+ subscription, or SFY241 to get an extra 10% off a 1-year InvestingPro+ subscription.
These metrics and suggestions present a extra detailed image of O-I Glass’s monetary well being and market efficiency, complementing the corporate’s optimistic outlook for 2024 and its strategic initiatives.
Full transcript – Owens-Illinois Inc (NYSE:) This autumn 2023:
Chris Manuel – Vice President of Investor Relations:
Andres Lopez – President and Chief Govt Officer:
John Haudrich – Senior Vice President and Chief Monetary Officer:
Operator: Hiya, everybody, and welcome to the O-I Glass Full Yr and Fourth Quarter 2023 Earnings Convention Name. My title is Emily and I will be facilitating your name right now. After the presentation, there would be the alternative for any questions. [Operator Instructions] I am going to now flip the decision over to Chris Manuel, Vice President of Investor Relations. Please go forward.
Chris Manuel: Thanks, Emily, and welcome everybody to the O-I Glass yr finish and fourth quarter 2023 earnings convention name. Our dialogue right now will probably be led by Andres Lopez, our CEO and John Haudrich, our CFO. Immediately we’ll talk about key enterprise developments and assessment our monetary outcomes. Following ready remarks, we’ll host a Q&A session. Presentation supplies for this earnings name can be found on the corporate’s web site. Please assessment the secure harbor feedback and disclosure of our use of non-GAAP monetary measures included in these supplies. Now I would like to show the decision over to Andres, who’ll begin on Slide 3.
Andres Lopez: Good morning, everybody, and thanks on your curiosity in O-I. We’re happy to announce a powerful 2023 outcomes. Full yr adjusted earnings have been $3.09 per share as outcomes improved considerably from the prior yr and exceeded our most up-to-date steering. O-I is now a extra disciplined and agile group that’s able to navigating elevated market volatility. We once more demonstrated our improved working effectiveness, as we posted the very best adjusted earnings up to now 15 years and completed 2023, with the most effective stability sheet in almost a decade. Likewise, we achieved a powerful web worth, file margin enlargement initiative advantages and the most effective manufacturing developments in additional than 20 years. These efforts greater than offset the impression of decrease shipments as macro circumstances softened over the course of the yr. We anticipate 2024 adjusted earnings would lag our traditionally excessive efficiency final yr, given the continuation of softer macros into the primary half of the yr. Nonetheless, we consider probably the most difficult market circumstances are behind us, as we’re starting to see early indicators of enchancment. Importantly, we have now already accomplished most of our annual worth negotiations and we count on to retain the lion’s share of the sturdy web worth achieved over the previous few years on our sturdy monitor file, we’re assured our 2024 margin enlargement advantages will surpass final yr’s file financial savings. Total, we count on a stronger demand, vital initiative advantages and favorable working efficiency will present O-I good momentum as market strengthened over the course of the yr. Our enterprise capabilities are sturdy. Our expertise base is strong. Our tradition is targeted on agility, efficiency, and delivering on our commitments. Importantly, we anticipate a stronger future earnings as each gross sales and manufacturing volumes extra totally recovered, which we’ll talk about a bit later in our remarks. We proceed to persistently execute our technique, which incorporates investing in long-term development, and growing breakthrough applied sciences. After a number of years of R&D, we’ll ramp up our first MAGMA greenfield web site in mid-2024 to serve the rising spirits enterprise within the Kentucky space. Prospects, traders, and workers may have the chance to see firsthand, the primary advantages of this new know-how. In parallel improvement of our Technology 3 MAGMA resolution goes effectively and we count on to deploy our first Gen 3 web site in 2025, with commercialization in early 2026. We’re very excited in regards to the long-term future for O-I, as we goal to disrupt the glass business. In response to Web page 4, much less assessment of all of the market developments, that are key to understanding our latest and future efficiency. As mentioned final quarter, we confronted a novel set of circumstances all through 2023 resulting in decrease shipments of glass containers. Initially, this was pushed by reasonably decrease client consumption adopted by vital stock of stocking throughout the meals and beverage provide chains. We have now up to date the chart on the correct with our cargo developments by way of the 4 quarter and probably the most present Nielsen retail knowledge. It additionally contains our present expectations for future consumption and glass shipments in 2024. this previous 4 quarter, we anticipated glass shipments will probably be down 12% to fifteen%, but precise shipments have been down 16%, reflecting some acceleration within the stocking exercise throughout the worth chain. With that stated I am inspired by early indicators of restoration and consider the worst is behind us. Let me share just a few of the explanations for this preliminary optimism. First, client consumption developments have a steadily improved over the course of 2023, as you’ll be able to see with the inexperienced bars on the chart, whereas some classes nonetheless have challenges, consumption developments have turned constructive within the yr and NAB classes in lots of markets. Importantly, we have now seen little change in market share or shift to different substrates aside from some modest and short-term commerce down restricted to Beer in Jap Europe. In response to Nielsen knowledge, Glass has really gained share versus Cans in sure classes in Brazil, Colombia and the Netherlands. Subsequent, we consider the worst of the stocking is finished, particularly in beer and NABs, whereas wine and spirits would possibly linger into 2024. For instance, we have now included a federal reserve chart within the appendix that illustrates the declining wholesale inventories for alcoholic drinks within the U.S. Total, Glass entered the stocking section behind many different industries, which have already began to see a rebound, which offers further confidence. Glass will certainly enhance this yr. Demand for brand spanking new product improvement has additionally surged over the previous few months as many purchasers look to rock — jumpstart their manufacturers. At the moment, we’re working from a backlog of over half 1,000,000 tons of certified MPD initiatives. Lastly, glass demand developments improved in January as shipments have been down about 10% in comparison with a 60% decline within the 4 quarter. In conclusion, these components assist our perception we have now handed the bottoms and are more and more assured within the low to satisfy single-digit quantity development in 2024, with further enchancment in 2025. Now, I am going to flip it over to John, who will assessment our efficiency and 2024 outlook in additional element beginning on Web page 5.
John Haudrich: Thanks, Andres and good morning, everybody. Constructing off earlier feedback, O-I reported traditionally excessive earnings in 2023, with favorable efficiency throughout most monetary measures. Gross sales improved to over $7.1 billion each EBITDA and phase working revenue elevated greater than 20%, whereas phase margins elevated 280 foundation factors to over 17%. As famous, adjusted EPS exceeded our most up-to-date steering and represented the very best adjusted earnings since 2008. Free money stream was $130 million, which barely exceeded the midpoint of our steering vary. As anticipated, money stream was down from 2022 ranges, primarily as a consequence of elevated capital spending as a part of our long-term enlargement program. Lastly, leverage ended the yr at 2.8x, which was under our goal. Robust 2023 efficiency highlights the corporate’s improved agility and functionality to handle by way of difficult market circumstances. Our basis is sound and we’re effectively positioned to drive greater efficiency as demand improves over the course of 2024. Subsequent, I am going to increase on our full yr earnings efficiency beginning on Slide 6. 2023 adjusted earnings totaled $3.09, which represented a 34% enhance from the prior yr outcomes. As illustrated on the left greater phase revenue boosted earnings, which was partially offset by non-operating objects, principally greater curiosity expense. Section working revenue totaled almost $1.2 billion and elevated greater than $230 million from the prior yr, as outcomes improved in each the Americas and in Europe. And the Americas phase revenue was $511 million as earnings elevated 8% from 2022. Robust web worth boosted outcomes, whereas earnings mirrored 10% decrease cargo ranges as development in NABs and RTDs mitigated softer demand in different classes. Working prices have been elevated because the profit from our margin enlargement initiatives partially offset the impression of upper manufacturing curtailment to stability provide with softer demand, in addition to further commissioning prices for enlargement initiatives in Columbia and Canada. Europe posted a phase revenue of $682 million, which was up 40% from final yr. Robust web worth in a slight FX tailwind greater than offset the impression of 15% decrease gross sales quantity as shipments have been down throughout almost all markets given widespread macro pressures. Likewise, working prices have been up as a consequence of elevated manufacturing curtailment to stability provide with softer demand. Total, the corporate posted very sturdy 2023 outcomes regardless of vital market volatility in difficult macro circumstances that emerged over the course of the yr. Let’s talk about fourth quarter outcomes on Web page 7. As anticipated, fourth quarter outcomes have been down from the prior yr given market pressures that have been most pronounced within the again half of the yr. With that stated, fourth quarter adjusted earnings of $0.12 per share exceeded our unique steering of roughly $0.03. Whereas shipments have been down 16% from 2022 ranges, which was softer than anticipated. Price and working efficiency surpassed our expectations. Likewise, outcomes did profit $0.02 from a modestly decrease tax fee. As illustrated on the left earnings have been down from $0.38 final yr as a consequence of decrease phase revenue and unfavorable non-operating objects, together with elevated curiosity expense, which was partially offset by favorable FX. Total phase revenue declined $38 million as efficiency improved within the Americas whereas earnings have been decrease in Europe. Within the Americas phase revenue was $93 million, up 12% from the prior yr, sturdy web worth offset 12% decrease gross sales quantity, 10% decrease gross sales quantity and elevated working prices linked to capability curtailment efforts. In Europe phase revenue was $75 million in comparison with $123 million in 2022. Robust web worth partially mitigated 22% decrease gross sales quantity and considerably greater capability of curtailment efforts, which have been concentrated within the fourth quarter. As famous in our press launch, O-I did take a large goodwill impairment cost in its North America operation in the course of the fourth quarter. Whereas we noticed strong working enchancment in 2023 this adjustment primarily mirrored modifications in macro circumstances, leading to decrease gross sales quantity and a smaller working base following latest restructuring actions. Likewise, valuation was negatively impacted by greater weighted common price of capital, given elevated rates of interest. We stay extremely assured in our present plans to additional increase working efficiency in North America that can generate vital future worth. Along with producing sturdy earnings, the corporate continued to advance its long-term technique over the previous yr. On Web page 8, you’ll be able to see how 2023 outcomes in comparison with the important thing strategic targets we set initially of the yr. We considerably exceeded our margin enlargement targets as a consequence of very sturdy web worth realization and initiative advantages. We proceed to place the corporate for long-term worthwhile development. Our enlargement initiatives in Canada and Colombia have been accomplished each on time and underneath funds. As Andres highlighted, our first MAGMA greenfield line stays on track for mid-2024. As famous, we have now deferred just a few enlargement initiatives a few quarters to raised align with the timing of the anticipated market restoration. All MAGMA and Extremely improvement efforts stay on monitor, and we efficiently certified our first Extremely bottles in Colombia up to now yr, which paves the best way for future Extremely deployment. We additionally up to date our long-term ESG plan, which is aligned with our science-based targets and is now totally included into our enterprise technique and into our future capital allocation plans. In line with prior feedback, the capital construction is sound with elevated — with leverage ending under our 2023 goal. Total, we posted strong progress in 2023, which can present tangible advantages sooner or later. Let’s talk about our 2024 enterprise outlook beginning on Web page 9. Income needs to be up modestly as low to mid-single digit quantity development greater than offsets a slight lower in common promoting costs. We anticipate adjusted earnings ought to vary between $2.25 and $2.65 per share. Importantly, earnings ought to meet or exceed the 2024 aim established at our final I day, reflecting vital working progress and earnings enchancment over the previous three years. Our steering vary is wider than regular, reflecting the potential fee of market enchancment and we intend to tighten the vary over time. As you’ll be able to see, outcomes will seemingly be down from traditionally excessive earnings in 2023, whereas free money stream ought to enhance from the prior yr. I’ll talk about earnings and money stream developments extra on the subsequent web page. Having considerably improved our stability sheet over the previous few years, we intend to keep up a wholesome leverage ratio of between 2.5x and 3x. As we glance to 2024, we count on macro circumstances will strengthen over the course of the yr. Importantly, we have now vital future earnings upside as each gross sales and manufacturing volumes will totally get better. This restoration will present further gross sales contribution and increase asset utilization charges, as we remove the overhang of very costly short-term manufacturing curtailments. Over the course of 2023 and 2024, we’re navigating many market forces which can be affecting the evolution of promoting costs, gross sales volumes, and manufacturing volumes. As such, it may be troublesome to evaluate monetary efficiency in any given quarter or fiscal yr. Nonetheless, we’re assured in earnings will in the end rebound to over $3 per share, as macros normalize in gross sales and manufacturing get better to pre-pandemic ranges sooner or later. Turning to Web page 10, we have now supplied extra particulars on the important thing enterprise drivers for each earnings and money stream. As illustrate on the left, we count on 2024 earnings will approximate $2.25 to $2.65 per share. The impression of decrease web worth and better curiosity expense will probably be partially offset by low to mid-single digit gross sales quantity development and the advantages from our sturdy $150 million margin enlargement initiative program. Decrease web worth will seemingly mirror a few 1% decline in common gross promoting worth amid a extra regular 3% price inflation surroundings. But we do anticipate retaining about 75% of the very favorable web worth realized over the earlier two years. Going ahead, we intend to offer solely annual steering given elevated short-term market volatility and choice to concentrate on long-term efficiency. With that stated, we have now included our present view on anticipated quarterly earnings distribution over the course of the yr, and we’ll replace this view if circumstances materially shift over time. On the correct, we reconcile our EBITDA and free money stream outlook. EBITDA ought to vary between $1.325 billion and $1.4 billion. At the moment, it’s unclear if working capital will probably be a modest supply or use of money, as this can rely closely on the speed of gross sales quantity restoration over the course of the yr, and discount in at present elevated stock ranges. CapEx spending will probably be down from elevated ranges in 2023, but we do anticipate tax and curiosity funds will enhance by $120 million mixed. Larger tax funds comply with sturdy earnings in 2023, in addition to a one-time tax declare settlement in a single jurisdiction. Larger curiosity displays the ahead curve and present fee schedules following latest refinancing actions. Different makes use of of money are fairly in keeping with historic developments. Total, we count on free money stream will vary between $150 million and $200 million in 2024. As with earnings, there’s vital working leverage upside as volumes recovered that ought to generate greater future money flows. Let me wrap up with the important thing strategic targets that we have now set for 2024. Lengthy-term margin enchancment stays a prime precedence and we intend to remain agile as the corporate navigates altering market circumstances. We have now established a really sturdy margin enlargement program to assist mitigate a lot of the anticipated web worth headwind. As famous, we’re concentrating on at the very least $150 million of advantages, which represents the very best goal within the eight yr historical past of this program. As a reminder, the three buckets for this program are income optimization, issue efficiency and value transformation. Importantly, efforts embrace accelerating the continuing community optimization throughout North America. As already famous, 2024 will probably be an indicator yr as we fee our first MAGMA greenfield web site and superior improvement of our future Gen 3 resolution. We additionally count on to allow different enlargement packages in enticing geographies and markets over time, as they get better. Likewise, we intend to deploy our extremely lightweighting resolution at a few our websites in Europe this yr. Along with lightweighting, we’ll allow our ESG footprint by accelerating deployment of low carbon options akin to gasoline oxy fueled furnaces and elevated renewable power and name it utilization charges. It will be one other lively yr as — on the glass efficacy entrance as we focus extra on B2B connections. After considerably lowering our leverage over the previous a number of years, we intend to keep up a wholesome stability sheet with leverage between 2.5x and 3x. As you’ll be able to see, we have now established one other set of aggressive however achievable key targets in 2024, as we advance our long-term technique. Importantly, our capital allocation priorities are effectively aligned with the technique as we proceed to enhance our capital construction, fund worthwhile development, and return worth to our shareholders over time. Now, I am going to flip it again to Andres for ultimate remarks beginning on Web page 12.
Andres Lopez: Thanks, John. Over the previous a number of years, we have now considerably reworked the corporate and we’re now a way more disciplined, agile and succesful group. Consequently, we have now considerably improved efficiency and delivered on our commitments quarter after quarter. We once more demonstrated our improved working effectiveness in 2023, as we efficiently weathered troublesome macro circumstances that developed over the course of the yr, reporting the very best adjusted earnings since 2008 and completed the yr with the most effective stability sheet in almost a decade. Consequently, we’re getting into 2024 with a strong basis and are effectively positioned to capitalize as markets recovered over the course of the yr. We have now accomplished greater than 80% of our annual worth agreements and count on to retain roughly 75% of the very favorable web worth achieved over the previous few years supporting satisfactory returns. Shopper demand is trending in the correct path and our clients are more and more extra constructive on their enterprise outlook. We’re seeing early indicators of enchancment with good sequential quantity enchancment in January. Likewise, we’re working with the strongest MPD pipeline I can bear in mind to assist drive future development. As mentioned, we count on demand will get better over the stability of the yr, and O-I has a major working levers as gross sales quantity normalized to pre-pandemic ranges. Importantly, execution is already underway on our aggressive however achievable margin enlargement initiative goal, which is the very best within the packages a yr historical past. We’re assured we’ll ship on this goal given the capabilities we have now constructed over time and the maturity of our program. Our stability sheet is the healthiest in years, reflecting excellent capital allocation self-discipline. And at last, 2024 will probably be a key milestone for O-I as we fee our first MAGMA greenfield web site later this yr and proceed to advance the R&D efforts for MAGMA Gen 3, in addition to growing Extremely. Enterprise circumstances are starting to show in our favor, and I am assured our earnings ought to sure to higher than $3 per share as volumes normalize to pre-pandemic ranges over time. Thanks, and we’re now prepared to deal with your questions.
Operator: [Operator Instructions] Our first query comes from Ghansham Panjabi with Baird.
Ghansham Panjabi: I assume, first off on Slide 10, the place you’ve gotten the EPS waterfall ‘23 versus ‘24, web worth appears like a few $0.85 or so damaging on an EPS foundation. Simply questioning, how set that quantity is, is there quick variability related to it? And likewise will this be a multi-year challenge? After which perhaps you possibly can simply give us a way as to the massive query, proper, which is provide demand on a world foundation. The business clearly had some disruptions in Europe, new capability began coming in, the place we’re on provide calls for and the way that pertains to pricing on a multi-year foundation.
John Haudrich: Possibly I can kick that off and handle the primary two components of that. As you check out the online worth, you recognize, texture for 2024, what you’ve gotten in there’s the mixture — we received two books of enterprise. We received our long-term contracted enterprise slightly bit greater than half of our enterprise, that is just about the pricing that’s safe and in place. The opposite name it 45% of our enterprise tends to be open market contracts. And as Andres talked about in his ready remarks, we’re about 80% plus compete and negotiating in that surroundings. So Ghansham, I might say that we’re getting written very near being within the place on the gross worth state of affairs. And as we talked about within the ready remarks, gross worth might be off 1% this yr after a powerful double-digit enchancment over the previous few years. After which what you are left with then is inflation. And so inflation we have been seeing coming down, I imply, final yr was form of mid-single digits, we’re concentrating on about 3% this yr, in order that form of provides you one thing in $125 million to $150 million vary on price inflation. We see the vast majority of our price inflation now being labor associated inflation, which I believe is fairly set, given contracts and unions and issues like that. However you possibly can see some variation within the remaining part. So hopefully that provides you slightly little bit of texture in regards to the solidity of the online worth, which we predict is pretty strong in that regard.
Andres Lopez: Sure, the pricing evolution has been fairly constructive and in keeping with our expectations with barely greater than 80% of the open market agreements already negotiated. We’re retaining about 70% –75% of the advantages that we amassed during the last couple of years. Now, we’re doing that on the lowest level in quantity, from this level on by way of 2024 and into ’25 volumes will go up, which we consider will assist worth even higher. Once we take a look at provide and demand in a world foundation, first, O-I is balanced. And at this cut-off date, we’re taking all of the measures to have the ability to obtain our stock targets in 2024, making an allowance for the demand projections that we have now. If there’s want for extra motion, we’ll alter, however we consider we’re in place. Once we take a look at the worldwide panorama, we’re seeing a number of curtailments happening around the globe. In Europe specifically, the place they — it’s required probably the most we’re seeing a variety of actions in that regard. So the stability goes to rely upon how rapidly that demand, that capability comes again to assist demand. However at this cut-off date, with the quantity of curtailments we see, we’re seeing a pattern in the direction of stability of provide and demand in Europe and globally.
John Haudrich: Simply to construct perhaps one touch upon prime of that’s for those who look again on the historical past of this firm, we have now really excellent pricing energy. If you happen to look within the earlier six years, 5 of the six years, we had achieved constructive web worth. And so, we consider that as volumes as Andres talked about normalize, we’ll return into that constant historical past then of having the ability to worth by way of inflation going ahead.
Ghansham Panjabi: Okay. Very complete. Thanks for that. After which your feedback on January, down 10%. I imply, could be — that may be an enchancment. However right here we’re. Possibly simply give us a way as to your personal stock ranges after which as you form of take into consideration the client’s stock pods, if you’ll, are there any explicit classes which can be nonetheless going by way of an aggressive destocking cycle relative to the down 10% that you simply’re seeing? Is it — is it high-end liquor Cognac et cetera? Simply any shade there could be useful.
Andres Lopez: Sure, so we’re seeing the stocking exercise just about finished in beer and NAB and meals. The classes which can be nonetheless to finish that cycle are spirits and wine, which we count on will enhance over the course of the second quarter and needs to be extra normalized by the center of the yr. Our inventories clearly elevated final yr, and as I discussed earlier than, we’re taking all of the actions to convey these inventories again down as per our present marketing strategy for ’24.
John Haudrich: Sure, perhaps simply to construct off that, and constructing on some particulars for Andre’s feedback there. If as we entered the softness that basically was — that occurred for us form of January, February of ’23, our inventories have been in all probability too low. We had low 40s IDS on and we have been stocking on, as you recall, again then we weren’t in a position to serve a lot of completely different markets. Our inventories ended 2023 at about 60 days IDS, which is slightly greater than we wish. Over the course of 2024, we’re managing our system to get again into the low 50s, which we consider is a reasonably wholesome place for the enterprise.
Operator: The following query comes from George Staphos with Financial institution of America.
George Staphos: Thanks for the main points. Possibly my two questions. First, we’ll segue on the stock remark that was introduced up earlier. So if you say you count on to be finished on wine and spirit stock destock, or at the very least your clients will probably be finished. So to what diploma do you count on that having constructed up inventories to too excessive of a degree throughout the provide chain that your clients will really destock under what could be regular, under what could be type of acceptable, however nonetheless means a one other layer of quantity decline or development that you might want to handle by way of? In order that’s query primary. What’s baked in to your targets and forecast relative to buyer’s willingness or potential to have inventories decrease than regular? The second factor on the $150 million of margin enhancement that you simply’re projecting for this yr, are you able to speak to what the buckets are in that 150 and what’s sustainable on a going ahead foundation? In different phrases, how for much longer can you retain placing up a $100 million or higher sorts of margin enhancement over the subsequent few years? Thanks guys and good luck within the quarter.
Andres Lopez: Sure, let me reply first the query on the margin enlargement initiative. So there are three rockets, income optimization, manufacturing unit efficiency, and value transformation. They enabled year-on-year margin enlargement in a multi-year interval. So that is what we meant to do after we created this initiative. And our aim on the time was to have a strong course of and capabilities in place, bottoms up and prime down effectively articulated globally and all the best way all the way down to the store flooring. Now, we needed to do this to have the ability to rapidly and successfully establish initiatives, execute on them, after which replicate them throughout life. We have now efficiently on that, and that’s what provides us the boldness that this isn’t solely a multi-year program going ahead, however that we are able to obtain the goal that we discover for this yr of $150 million of income.
John Haudrich: And George, in your first remark, so far as the market urge for food given the upper degree of inventories in there proper now, that is what we’re particularly addressing proper now. If you happen to have a look within the fourth quarter, our capability was down, our short-term curtailments equated to about 20% of our complete international capability. And in reality, it was in all probability skewed greater to that in Europe, the place you see these longer provide chains akin to wine and spirit. I believe we’re taking a class by class view and having a look at that attempting to know the industrial elements and concerns there to be sure that we’re addressing issues to get our inventories down in the correct place by market by class going ahead.
George Staphos: John, your fourth quarter stock administration mainly is attempting to take into account that your clients could go under regular, is that the correct takeaway?
John Haudrich: Sure, precisely. I imply, we do not know precisely whether or not persons are going to land, proper, the place they need to be, whether or not they’ll overshoot or undershoot, proper? We needed to be very dynamic and we might reasonably be fairly aggressive on the entrance finish like we have been doing right here within the fourth quarter to be sure that we’re managing the inventories appropriately.
George Staphos: And throughout the [inaudible] and that is what I used to be getting at, what’s in every of these three buckets that comprise 150 this yr?
Andres Lopez: So in income optimization is primarily bettering the standard of our income, ensuring that we seize all the worth as outlined of our — in our agreements. Within the manufacturing unit efficiency is all of the productiveness that goes up with the asset base and in the associated fee transformation is reorganization. It’s altering group construction is making it easy, more practical, extra agile and there’s nonetheless a variety of potential in these three places of work.
John Haudrich: And George to construct off that particularly on a number of the numbers there for the $150 million, we have now about greater than a $100 million within the manufacturing unit efficiency part that Andres was speaking about, that is the store flooring enhancements and issues like that. Understanding, in all probability half of that’s restructuring exercise, largely centered in north, and that is considerably finished, okay, or very late levels. So we’re very comfy with that. The following largest bucket is what we name the associated fee transformation, which is the OpEx discount. And we did full a discount within the pressure program within the fourth quarter. In order that’s offering the vast majority of that decision it $30 million enchancment. And so once more, very comfy with executing and reaching that. After which, the final part is slightly bit on the income optimization. It is slightly skewed in another way up to now the place perhaps there’s slightly bit extra income optimization happening after we have been seeing that the stronger gross worth realization in initiatives.
Andres Lopez: George, there’s something I want to spotlight in earlier calls, your adopted level of producing operations, the energy of these operations, may we elevate efficiency. And once I take a look at the manufacturing operations of O-I, I can say to you that I am seeing the most effective efficiency functionality — capacity to execute in additional than 20 years. So {our capability} such that it give us the boldness we are able to ship on efficiency enchancment, we have been doing so for the previous few years and there’s nonetheless room for enchancment, and we have now excellent plans in place to do this.
Operator: The following query comes from Anthony Pettinari with Citi.
Anthony Pettinari: Good morning, Andres, John. Are you able to give any element on the present NatGas hedging place now, you have been clearly in a position to hedge effectively forward of a NatGas spike in Europe that is lapsed. Are you able to speak about your present place after which perhaps considerably associated, you recognize, there was one other glass producer who talked about Mexico Vitality as a significant headwind in ‘24 that they count on to get better contractually in ‘25. I am unsure if that is particular to that producer or if there’s something you’d name out from the Mexico facet as effectively.
John Haudrich: Sure, I can handle each of these, thanks Anthony. First on our NatGas, it isn’t a hedge, it is long-term contracts only for some detailed readability there. Once more for everyone’s profit, we had entered into very favorable long-term power agreements earlier than the run up in pure gasoline, earlier than the Russia-Ukraine engagement or confrontation. In order that’s when the pure gasoline costs have been, name it EUR20 to EUR25 per megawatt hour. And people contractors have been long run, as we included in our public filings. They continued by way of at a really excessive degree of protection by way of the tip of 2025, okay. In order we stand right here, we received two years left of these very favorable power positions. Now, the most effective case situation for us is that these contracts shielded us from very excessive power costs that clearly spiked during the last two years and allowed us to profit from that. And the most effective resolution is also that power costs really path off to extra historic ranges when these contracts roll off on the finish of 2025. As you check out the ahead curve, proper now, granted something can change in any given day, however you take a look at it proper now, the ahead curve for pure gasoline in ‘25, I imply, ‘26 and ‘27 is fairly near what these contracts are. So we’re at a reasonably good benefit place proper now of getting to had these contracts when the costs have been excessive, after which the timing of them rolling off proper now form of syncs up with what’s — at the very least how the market seeing proper now could be slightly bit extra normalization of power costs. After which on the Mexican facet, sure, you recognize, I believe all people’s going through the identical state of affairs with the upper costs in Mexico. That’s a part of our complete web worth place that we have laid out right here. And once more, sure, our PAS would look to choose that up within the subsequent yr. So it is a part of the pure cycle that we see.
Anthony Pettinari: After which only one fast one, if I may. There was a commerce case on imports of I believe wine bottles from LATAM and China into the U.S. I am simply questioning, if that is impactful to you in any respect, and for those who may simply usually speak about import dynamics into North America and any impression to O-I.
John Haudrich: Sure, I imply, clearly that is on the market. We proceed to observe and take a look at that assertion. We will not actually touch upon that a lot additional. What I might say is that North America has all the time confronted a considerable amount of imports coming in from completely different markets, primarily Asia being one among them. And on occasion, the aggressive components of which have been difficult. In order that’s in all probability so far as we are able to go proper now with that one.
Andres Lopez: Sure. And the — one thing that we’re seeing out there is a rising concern with reference to imports of empty glass by our clients as a consequence of potential provide chain disruptions which ought to favor native provide and that is all primarily within the wine house.
Operator: Our subsequent query comes from Gabe Hadji with Wells Fargo. Please go forward.
Gabe Hadji: I needed to speak about perhaps capital depth of the enterprise and this yr CapEx being slightly bit — thus money stream could also be slightly bit depressed, however simply once I take a look at your $400 — excuse me, $400 million to $450 million of upkeep CapEx. After which in a while in your slide presentation, you talked about $75 million to $150 million of CapEx to fund worthwhile development or keep market share, I believe is what you’d name it there. I assume choosing midpoint there we’re speaking about $500 million or so of CapEx that may be anticipated. And so, I assume perhaps is that the correct or fallacious conclusion to attract from that? After which a peer introduced one thing yesterday, they obtained financing for a reasonably substantial funding right here in North America. And once more, simply perhaps as you look throughout your system, do you’re feeling prefer it’s effectively capitalized? I imply, I believe, you in all probability default to sure, as a result of your working efficiency has been fairly spectacular right here of late given the market circumstances. However simply attempting to consider medium time period money stream producing functionality for the group.
John Haudrich: Sure. However Gabe, that is John. I can handle components of that. To begin with, in the previous few years, our upkeep spending exercise has ebbed and flows. A part of it has been a perform of the pandemic and the power to execute upkeep. After which extra lately right here with the softness that we skilled within the downtime, we have form of been in a position to defer some upkeep. As a result of if amenities are down, you needn’t spend the upkeep {dollars}. So I believe a extra normalized one, at the very least for the subsequent few years is someplace between $400 million and $500 million of upkeep capital as we come all through of this cycle. And it may simply actually rely upon the timing and the well being of the — any explicit asset that wants — group of property that must be addressed in any given yr. After which, sure, I imply, $75 million to $150 million of development CapEx is required to maintain up with, say, like a 2% form of backdrop development within the enterprise. It might be form of lumpy that is why there is a vary there. Finally over time, we do consider that with MAGMA that brings that vary down as a result of the capital depth of that resolution is healthier than the legacy methods. However one factor I would additionally need to level, as we take into consideration simply basic CapEx, I imply simply basic money stream is I consider that there is trapped free money stream within the enterprise proper now. Most likely near $200 million of trapped money stream within the sense that our volumes are nonetheless effectively under pre-pandemic ranges and returning our system again to that degree in all probability provides $125 plus million of money stream web of the working capital necessities. As we additionally indicated within the ready remarks, we’re some unusually excessive degree of tax and curiosity funds proper now that perhaps half of that $50 million, $60 million in the end comes again. And we’re additionally in all probability a heavier restructuring yr in 2024. So, perhaps $25 million comes again. So consider the phrases of extra normalizing of that, but in addition a few of this ebbs and flows of the CapEx is a broader image.
Andres Lopez: On the subject of the peer funding 6hat announcement got here out, some flexibility traits are highlighted. These traits or capabilities are commercially out there. We have now them in some areas in Europe and Latin America. Now as you recognize, our focus in North America has been optimizing our asset community. So we’re doing that so we are able to enhance returns on this enterprise. We’re concentrate on the margin enlargement initiatives with excellent alternatives in North America. We’re bettering the industrial circumstances and we’re centered on deploying MAGMA. As you recognize MAGMA has a lot of traits that can create a aggressive benefit that aren’t out there right now out there. For instance, it may be co-located or close to situated. It may be re-locatable, decrease capital intensive, decrease complete price of one among capabilities, which is nice to cope with seasonality or financial downturns will slot in a industrial warehouse off the shelf quick time to market because of that. In order that’s our focus and our first transfer in that path is the Kentucky line that we’re planning to startup in the midst of the yr.
Gabe Hadji: Two fast follow-ups, hopefully one is on the open market enterprise that you simply all referenced. I believe traditionally talking these are one yr in nature. I am simply curious, for those who can touch upon the length of that.
John Haudrich: These are one yr agreements primarily small clients largely concentrated in Europe.
Gabe Hadji: After which John, I apologize that I missed it. You talked about seeing a path to getting again above $3 of EPS. I do not assume you set a timeframe on it. I think that was intentional, however simply any extra shade round that remark.
John Haudrich: What I might say is, and we’re intentional, simply to be clear on the timeline is slightly bit unsure as a result of it is a perform of getting the volumes again to pre-pandemic ranges. So for those who check out our volumes, our volumes are down 12% in 2023, a ten% restoration off of that base would get us again to pre-pandemic foundation, okay? We’re not — what I am referring to right here getting over $3 does not imply that we have to get again to the volumes of 2022. Simply the volumes of 2019 for instance. And for those who check out the quantity that we’re getting again in 2024 name it low to mid-single digits that may nonetheless counsel that there is mid-single digits plus of volumes nonetheless to be recovered above what we’re assuming in our present outlook for the enterprise and the contribution margin that we get on the extra gross sales. However extra importantly, bringing again the curtailment and curtail capability and the working leverage of that, that is at the very least $0.75 value of further earnings, doubtlessly extra if you take a look at the mixture of these two getting again right into a extra normalized degree. So for those who check out the steering that we have now proper now, and also you take a look at that sort of sensitivity, that is what will get you comfy with over $3 per share.
Operator: Our subsequent query comes from Mike Roxland with Truist Securities.
Michael Roxland: Only one fast query on pricing. Clearly, 1% web decline in promoting costs. So clearly you have given again slightly, simply attempting to know the context of why or what’s actually driving the weak point in promoting costs is extra? As a result of John, you talked about, labor goes up, inflation continues to be rising 3%. I assume it is rising at a slower fee relative to final yr than the yr earlier than, nevertheless it’s nonetheless going up. So is the worth that you’ve got given again extra perform of provide demand, as a result of definitely a few of your inputs nonetheless stay elevated and a few are even are nonetheless going — nonetheless growing.
John Haudrich: Sure, I imply, I am going to take a step at that one. First let’s perceive the context. Gross worth have been up a powerful double-digit over the previous few years. And so, you are actually an awesome run on worth. Now, if you check out the feel of that 1% decline that we’re speaking about, have in mind there’s two books of enterprise, proper? There’s the long run contract enterprise after which there’s the open market enterprise. So the long run contracted enterprise goes up low-single digit that is passing by way of PAS and issues like that, that is structural in place. So — however we’re seeing a low to mid-single digit decline in open market agreements and that is primarily over in Europe. And I believe the largest problem is that we have been negotiating these costs over the previous few months within the backdrop of a reasonably comfortable macro situation. And as we noticed, simply even within the fourth quarter in Europe volumes have been down 22%. So I believe what you are seeing proper now is a reasonably acute quick time period softness that can appropriate itself as a result of it is considerably provide chain pushed, nevertheless it additionally occurred on the identical time that we’re out within the market negotiating costs. And that is why we’re assured as we go and volumes extra normalized over the course of the yr and into the long run that the aggressive backdrop will enhance and permit us to have the ability to worth by way of inflation going ahead.
Michael Roxland: Obtained it. Very, very useful. Respect the colour. After which only one fast follow-up in your European power place, clearly, excellent timing with the contract that you simply had when it comes to you being — when it comes to these contract having the ability to protect you from the power swings the previous few years. You talked about the ahead curve for NatGas in 2026 and 2027 being just like what you’ve gotten at present. Why would not you and perhaps you’ve gotten, effectively, nevertheless it would not sound prefer it, however why would not you’ve gotten prolonged on the contracts that you’ve got if the pricing is just like what you at present have? Like why would not you need to you additional enter into extra contracts simply to hedge your self in opposition to enhance in volatility in European power?
John Haudrich: I might say that our view and we have — it is defined additional in our 10-Ok for particulars if you wish to refer. We all the time take a 5 yr view of power going ahead, okay? And so we will probably be opportunistic after we see durations when power costs drop and issues like that. We have got an awesome power workforce, only a nice power workforce, they usually’re very subtle on this regard. So Mike, I might count on us to proceed to layer in contracts and issues over time. However we definitely, we need to be opportunistic and the great factor is the place that we have now permits us to be very opportunistic as a result of we do not actually have any gun to our head as a result of we’re good for the subsequent couple of years.
Michael Roxland: Obtained it. One different query for those who do not thoughts, simply any replace on the Italian Antitrust Authority, what’s occurring there and is there any sense of timing on when it might be full in phrases their assessment?
John Haudrich: We’re conscious of the investigation by the Italian Competitors Authority. We do not actually touch upon ongoing authorized issues. I might say that O-I is dedicated to compliance with the legal guidelines of every jurisdiction through which we function. Clearly, it is all a part of our international code of ethics and et cetera. It is all clearly on the market on our web site. So we all the time intend to behave in accordance with our insurance policies.
Operator: Our ultimate query right now comes from Arun Viswanathan with RBC Capital. Please go forward.
Arun Viswanathan: Simply needed to I assume ask about perhaps medium time period demand outlook that you simply guys have for every class. So clearly, you have gone by way of some volatility by way of COVID and provide chain points, after which destocking. So if you take a look at the down double-digit volumes for ‘23, I assume is there a manner you’ll be able to actually attribute a portion of that to destocking and the way a lot would that be? After which versus major demand, after which if you take a look at perhaps say ‘25, what are you anticipating form of ought to we take into consideration say, 1% to 2% quantity development throughout your completely different areas? Or how can we take into consideration the way you sit now in glass? And I do know it will range by meals and beverage in several classes, so perhaps that is form of extra what we’re on the lookout for.
Andres Lopez: Sure, I believe one slide that will probably be reference to have is a slide quantity 4, that’s exhibiting how client consumption has developed over this time period. You see that it began to enhance again within the second quarter of 2023, whereas the stocking exercise began to extend in Q1 2023. So the biggest driver of the decrease shipments for O-I has been actually the stocking exercise. And I’ll say, within the final a part of the yr, the second half it has been up round 80% of that. Now inventories are going again to a extra regular place. We see that in beer, in NAB, and meals is already just about there if wine and spirits will take slightly longer, however that can normalize. Now, one thing that reveals that the attention-grabbing glass is fairly excessive is the excessive degree of latest product improvement exercise. We have now a pipeline at this cut-off date that could be very massive of very excessive likelihood initiatives is 500,000 tons. All of that can come into the stream to assist demand by way of ‘24 and going into ‘25.
John Haudrich: Sure. One factor I might simply construct off of that Arun to your different query, subsequent query, what is the trajectory going ahead? Clearly within the first quarter, you’ll be able to see on that very same chart, we do anticipate volumes be down. It is in all probability a transitional quarter for us and begin to construct off of that. Finally, we do, whether or not it is ’25 — we do not know the timeline. We do consider that the volumes returned to pre-pandemic ranges. In order that once more, provides one other mid-single digit sort of development over what we’re form of projecting proper now for this yr. Most of our clients, if you hear them communicate are additionally speaking about is it at the very least an interim goal to get volumes again to pre-pandemic ranges themselves. We’ll be following clearly our buyer’s path.
Arun Viswanathan: After which simply as a fast comply with up. So then, for those who go to the midpoint of the vary this yr, that places you round 30, 60 or so for ‘24 EBITDA. It appears like given perhaps a possible path in the direction of $3 an EPS that you simply’d proceed to see form of mid-single digit EBITDA development on that low-single digit quantity development going ahead. Is that form of a good assumption on the leverage you’d get given how effectively you are working or how ought to we take into consideration form of the EBITDA development?
John Haudrich: Sure, what I might say is again to the earlier remark that to recover from $3 per share or the worth of getting volumes again to pre-pandemic foundation that is $0.75 I had talked about, that is anyplace between $150 million, $200 million of further EBIT. The timing of that’s the query of the — and I consider that when you get to that you simply get phase revenue margins that round 20% on your round 15% or so within the Americas, which once more could be very near our long-term targets clearly, we received to see the quantity get better and we’ll comply with the macros as we get better.
Operator: We have now no additional questions, so I am going to flip the decision again to Chris for closing feedback.
Chris Manuel: That concludes our earnings name. Please notice that our first quarter name is at present scheduled for Could 1, 2024. And bear in mind, make it a memorable second by selecting secure, sustainable glass. Thanks.
Operator: Thanks everybody for becoming a member of us right now. This concludes our name and you could now disconnect your line.
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